2): The management of a business and company decision-making to ensure compliance with statutory and other legal requirements Flashcards
Who takes decisions in a company?
directors do the day-to-day running of the company
shareholders take limited decisions
Provide two key decisions only the shareholders can take?
Both special resolutions:
changing articles of association
changing name of the company
Do shareholders have the power to enter into contracts on the company’s behalf?
No.
Directors can.
Shareholders can only authorise directors to enter into contracts on behalf of the company.
What can happen if a transaction is entered into without authorisation?
the transaction is potentially voidable.
How do directors make decisions?
at board meetings.
decisions are called board resolutions.
MA5: directors can delegate powers as they see fit.
what must a director do in order to call a valid board meeting?
give notice to other directors.
What are the notice requirements for a valid board meeting?
notice must be reasonable
must include time, date and place of meeting
method of communication if directors are not in same place.
need not be in writing
What are the quorum requirements for a board meeting?
quorum of 2 directors must be present at all times during a board meeting
When may a director not vote/count in the quorum?
when the decision concerns:
an actual or proposed transaction/arrangement with the company
in which a director is interested.
when can a director who is not allowed to count in the quorum initially, still count in the quorum at the same meeting?
for the part of the meeting where other resolutions are being passed.
What is a director’s duty regarding a personal interest?
they must declare the nature and extent of this interest to the board.
What are the exceptions to a director’s duty to declare their interest in a proposed transaction or arrangement with the company?
if it cannot reasonably be regarded as likely to give rise to a conflict of interest
if the other directors are already aware
if it concerns the terms of a service contract that have been or are to be considered by a meeting of the directors
How is a board resolution passed?
by simple majority of over 50%
how does voting work at board meetings?
show of hands
each director has one vote
chair of the board will have a casting vote in the event of a tie (can only be used in favour of resolution)
Do directors HAVE to call board meetings to make decisions?
No.
written resolutions can be used to pass unanimous board decisions in order to save time
What are the two types of shareholders’ resolutions?
ordinary and special
What is needed to pass an ordinary resolution?
over 50% of votes in favour
What is needed for a special resolution?
75% or more of votes in favour
What are the two methods of passing shareholders’ resolutions?
in a general meeting
or by written resolution
Who calls a general meeting?
the board of directors by passing a board resolution.
What are the meeting requirements for public and private companies?
public: must hold a general meeting every year
private: no such requirement
What are the contents of a valid notice of a general meeting?
- Notice must be given to every shareholder, director and auditor
- in hard copy, electronic form, website or combination of these means
- must set out:
- time, date, place of meeting
- if special resolution proposed, the exact wording
- each shareholder’s right to appoint a proxy
What is the notice period for a general meeting?
14 clear days
day notice is deemed received and day of GM do not count
What happens if notice is sent out by post or email?
deemed to be received 48hrs after notice was posted or emailed
means that 48hrs is added to the 14 clear days to allow for positing or receipt
What is the quorum for a general meeting?
subject to the company’s articles, the quorum is two
Note: quorum is one for a company with only one shareholder
How does voting work at a general meeting?
by show of hands
each shareholder has one vote
shareholders not generally prevented from counting in quorum if they have a personal interest
What are the two key shareholder resolutions where the votes of a shareholder with a personal interest are not counted if their votes make the difference in whether the resolution is passed or not?
resolution to buy back some or all of a shareholder’s shares
ordinary resolution to ratify a director’s breach of duty where the director in question is also a shareholder
What happened when a shareholder with a personal interest is also a director?
assuming the MAs apply,
they are prevented from counting in the quorum and voting at the board meeting
However, at the general meeting they can vote and count in quorum as a shareholder unless the exception applies
How does voting work in a Poll vote?
each shareholder has one vote per share they own
Who can demand a poll vote?
chair of the meeting
directors
two or more person having the right to vote on the resolution
OR
a person/s representing at least 10% of all voting rights of shareholders eligible to vote on the resolution
When can a poll vote be demanded?
at, before or after a GM
if the poll vote is called after a show of hands, it will override the result if poll vote has a different result
What are the requirements of holding a general meeting on short notice?
Consent needed by:
majority in number of the company’s shareholders
who between them 90% or more of the company’s voting shares
(95% needed for public companies)
Once the requirements for a short notice general meeting have been met, how soon can the GM be held?
immediately or at a later date
Which companies can and cannot pass resolutions by way of written resolutions?
private companies can
public companies cannot
How is a written resolution issued?
board will hand out, post or email the written resolution
document will set out the text of ordinary/special resolution
shareholder will sign and return written resolution if they want to vote in favour
What are the requirements for a valid written resolution?
must be circulated to each eligible member
how to signify agreement
deadline for returning the written resolution AKA lapse date.
What is the lapse date for a written resolution?
28 days following circulation
usually midnight of the lapse date
When are written resolutions passed?
when required majority of eligible members signify agreement to the resolution
How does voting work in a written resolution?
each shareholder has one vote per share they own
ordinary resolution: over half of votes of company’s eligible members
special resolution: 75% or more of all votes of eligible members
How can shareholders request the company to circulate a written resolution?
shareholders who have more then 5% of voting rights in the company can require the company to circulate a written resolution
Note: company’s articles can reduce percentage below 5% but cannot increase to more than 5%.
What must a company do if it is required by the shareholders to circulate a written resolution?
company must circulate copy of the resolution to all eligible shareholders
within 21 days of request
shareholders must pay company’s expenses for complying with request
How can shareholders request a general meeting?
shareholders must represent at least 5% of paid up capital which carries right to vote
request must state the general nature of the business to be dealt with
Must the directors do if they are requested to call a general meeting?
must call it within 21 days of request
AND
meeting must be held no later than 28 days from date of notice of GM
What are the post-decision requirements?
notify Registrar when decisions are made
statutory books must be updated
board mins, general meeting mins and outcome of written resolutions kept for 10 years at registered office or SAIL.
How is Companies House notified of a Single Alternative Inspection Location (SAIL)?
address notified on Form AD03
What are companies’ annual responsibilities?
keep adequate accounting records
directors must ensure true and fair accounts are produced for each financial year
directors must prepare a directors’ report for each financial year to accompany accounts
director must circulate accounts and reports to every shareholder/debenture and anyone entitled to notice of GMs.
What is a small company?
small company has:
balance sheet total not more than 5.1 million,
turnover of not more than 10.2 million and
no more than 50
employees in a financial year
What is a micro-entity?
balance sheet total not more than 316k
turnover not more than 632k
no more than 10 employees in a financial year.
What are the time limits for filing accounts and reports at Companies House?
private: 9 months from end of accounting reference period
public: 6 months from end of accounting reference period
new incorporated companies: option of 3 months after end of accounting reference period
When must a confirmation statement be filed?
every company must do this
within 14 days from companies confirmation date (anniversary of incorporation)
criminal offence to file late or not at all
Who are the company’s officers?
directors
company secretary
auditor
Is a company secretary required?
private: No
Public: Yes
What is the role of a company secretary?
deals with legal admin requirements
may be a director but there will be no remuneration if this is so
generally responsible for writing up board mins and mins of GMs
board will decide contract for secretary
they will normally have apparent authority to enter into contracts of an administrative nature but not trading contracts
How can directors appoint a company secretary under the MAs?
using MA 3
how can a company secretary be removed?
by resigning
or removed by board resolution
What is the role of the company’s auditor?
main duty is to prepare and report on annual accounts
private companies are obligated to appoint an auditor
auditor must be certified or chartered accountant and independent (not connected with anyone in the company).
How are auditors appointed by the shareholders?
by ordinary resolution
What is the auditor’s liability?
does not owe a duty of care to shareholders/potential new shareholders when conducting annual audit
can be sued for negligence
What are the two offences relating to auditors under s 507 CA 2006?
knowingly or recklessly including misleading, false or deceptive material in auditor’s report
omitting certain statements from report which are required under CA 2006
How can an auditor be removed?
by ordinary resolution at any time but special notice must be given
auditor can resign at any time by notice in writing sent to registered office
when auditor leaves office they must deliver statement to the company explaining why
Who are the first shareholders of a company?
two people who sign the memorandum of association as subscribers
must be entered on register of members
How can a person or company become a shareholder?
obtaining shares from existing shareholders
company allots new shares
What are the requirements regarding the register of members?
Every company must maintain a register of members
Option to keep the information at companies house
What is the procedure for registering a new member?
Shareholders must be registered promptly (within 2 months for transfers/allotments).
Notification to Companies House required if using central register
what is the procedure if a company has one member only?
Must be noted on the register
Incomplete/incorrect register = criminal offence.
Who can view the register of members?
Free for shareholders, fee for others.
Denying inspection = criminal offence
Who must appear on the PSC register?
Any shareholder with more than 25% of the shares/controls more than 25% of voting rights.
According to the CA 2006, what is the company’s constitution?
statutory contract between:
shareholder and the company
between shareholder and other shareholders
AND
gives shareholders a remedy for breach of contract
What is the difference between a shareholder’s agreement and the articles of association?
the agreement only binds the shareholders who have entered into the agreement
articles of association bind every present and future shareholder.
What is the main advantage of shareholder agreements?
privacy and protection of minority shareholders.
What is a Bushell v Faith Clause?
gives shareholders weighted voting rights when the resolution being voted on is one to remove that shareholder from office as a director
what is the limitation on shareholder’s agreements?
cannot restrict shareholders fro. voting a particular way in board meetings if they are also a director
this could lead to a breach of directors’ duties
What are the key voting rights for shareholders?
right to send a proxy
right to a poll vote
right to receive notice of a GM
right to requisition a GM
right to apply to court to call a GM
right for eligible shareholders to require circulation of written statement up to 1000 words
right for eligible shareholders to requisition the circulation of a written resolution and accompanying statement.
Who can requisition the circulation of a written statement up to 1000 words with respect to any resolution/business to be dealt with at a general meeting?
shareholders with 5% or more of voting rights
OR
100 or more shareholders with right to vote
OR
100 or more shareholders with right to vote having paid up an average of 100 pounds or more on their shares
what is the position regarding dividends?
shareholders have right to receive dividends
as long as there are profits available for the purpose
AND
as long as directors have recommended the amount
AND
this has been approved by shareholders
How is a company a subsidiary of another company?
the other company holds majority of voting rights in it
OR
other company is a member of it and has right to appoint/remove a majority of its board of directors
OR
other company is a member of it and controls alone, wit agreement of other members, majority of voting rights
OR
it is a subsidiary of a company that is a subsidiary of that other company.
What is the definition of a wholly owned subsidiary of another company?
Its parent company,
The parent company’s wholly-owned subsidiaries,
OR
Persons acting on behalf of the parent company or its wholly-owned subsidiaries.
What are the two most common types of shares?
ordinary shares
preference shares
What rights do ordinary shares give generally?
right to attend and vote at GMs
entitlement to dividends subject to rules
rights will be set out in articles of association and if not, all shares rank equally
What rights do preference shares give?
enhanced rights of some sort over ordinary shareholders
usually issued on the basis that preferential shareholders cannot vote at GMs
What is a cumulative preference share?
Entitled to missed dividends from previous years, provided there are sufficient profits.
Dividends are paid before ordinary shareholders in the current year.
What is a non-cumulative preference share?
No right to recover missed dividends from previous years.
If a dividend is not paid in a given year, the right to it is lost permanently.
what are participating preference shares?
Right to extra payments if ordinary shareholders receive dividends above a specified amount.
What are the two main legal mechanisms to protect minority shareholders?
unfair prejudice petitions
derivative claims
When can a shareholder lodge an unfair prejudice petition?
A shareholder can petition the court if:
Company affairs are conducted in a way that is unfairly prejudicial to some or all members.
OR
An act or omission is or would be unfairly prejudicial.
What are examples of unfair prejudice?
Diverting business opportunities to a competing company owned by the majority shareholder.
Awarding excessive pay to directors.
Excluding a shareholder from management when initial agreements implied participation.
Removing the auditor due to disagreements on accounting or audit procedures
What are the remedies available for unfair prejudice?
Common remedy:
Buy-out order: Other shareholders or the company must buy the shares of the unfairly prejudiced shareholder.
Other possible remedies:
Restricting changes to the articles of association without court approval.
Allowing the shareholder to bring a derivative action.
What test will the court apply for a claim of unfair prejudice?
objective test applied to determine if conduct/omission was unfair
What is a derivative claim?
A derivative claim is brought by a shareholder for a wrong done to the company due to a:
director’s negligence, default, breach of duty, or breach of trust
Claim arises when the board refuses or neglects to pursue the claim.
The defendant is usually a director but may be another person.
What must a shareholder do in order to proceed with a derivative claim?
apply for court permission to proceed
Shareholder’s rights summary diagram:
Answer:
