3. Company Decision Making

Question 1

What is a decision made in a board meeting by directors known as?

Answer 1

A board resolution

Question 2

What is the required notice for a board meeting under MA 9?

Answer 2

Any director may call the meeting by giving “reasonable” notice to the other directors (or requesting the company secretary do so) - not required to be in writing

Question 3

What is the Duomatic principle?

Answer 3

If all shareholders, having discussed the matter, who have a right to attend and vote at a meeting unanimously agree that it should pass, then the company will be bound without the need for a meeting or written resolution

Question 4

What is the necessary quorate for a board meeting under MA 11?

Answer 4

2 directors

Question 5

If a director has a personal interest in a matter being voted on, what is the impact in relation to the relevant board meeting?

Answer 5

May not count in quorate for decision relating to interest

Must declare “nature and extent of interest to the board” - no particular format for this requirement

Question 6

What are the exceptions to a director voting at a board meeting on a matter in which they have a personal interest?

Answer 6

1. Situation cannot reasonably be regarded as likely to give rise to a conflict of interest
2. Other directors are already aware
3. Concerns a term of a service contract that have been or are to be considered by a meeting of the directors

Question 7

What happens in the event of a tie at a board meeting?

Answer 7

Chairman receives casting vote

Question 8

When is it possible to pass a board resolution in the form of a resolution in writing?

Answer 8

When there is a unanimous decision

Question 9

What are the two types of shareholders’ resolutions?

Answer 9

Ordinary and special

Question 10

Which type of resolution do copies of need to be sent to Companies House?

Answer 10

Special resolution

Question 11

What is the voting requirement for an ordinary resolution?

Answer 11

51% or more

Question 12

What are some examples of decisions requiring an ordinary resolution?

Answer 12

• Removal of directors s168(1)
• Appointment of a director
• Approval of director’s long term service contracts s188(2)
• Approval of substantial property transactions s190(1) and (2)
• Approval of loans to directors s197(1) and (2)
• Approval of quasi-loans to directors s198(2) and (3)

Question 13

What is the voting requirement for a special resolution?

Answer 13

75% or more

Question 14

What are some examples of decisions requiring a special resolution?

Answer 14

• Changing company articles s21(1)
• Change of name s77(1)
• Re-registration of private company as public s90(1)
• Re-registration of public company as private s97(1)
• Reduction of the notice required for a general meeting of a traded company from 21 days to 14 days s307A(4) and (5)

Question 15

Where do shareholders pass resolutions?

Answer 15

At general meetings

Question 16

What are the requirements for frequency of general meetings?

Answer 16

Public companies - 1 per year
Private companies - no requirement

Question 17

How do directors call a general meeting?

Answer 17

By passing a board resolution

Question 18

What is required in the notice to shareholders of a general meeting and who must it be given to?

Answer 18

Must set out:
o Time, date, place
o Nature of business
o Special resolution content (if proposed)
o Shareholder’s right of proxy to attend on their behalf

Must be sent to every shareholder and director

Question 19

What is the notice period for a general meeting?

Answer 19

14 clear days (i.e. not counting day of notice and day of meeting)

If sent by email then additional 48 hours added to 14 clear days

Question 20

What is the quorum for shareholders at a general meeting?

Answer 20

1 if only 2 shareholders
2 if there are more

Question 21

Are shareholders prevented from counting in the quorum or voting if they have a personal interest in the matter?

Answer 21

No

Exceptions = voting on buying back own shares; ratifying a breach of their own duty

Question 22

How is the voting percentage calculated for resolutions?

Answer 22

Based on those present and voting

Question 23

What is a poll vote?

Answer 23

When shareholders vote on the basis of one vote for each share they own

Question 24

Who can demand that a poll vote is used?

Answer 24

Chair of the meeting, directors, 2 or more persons having the right to vote on the resolution, person/ persons not representing less than one tenth of the total voting rights (10%) of all the shareholders having the right to vote on the resolution

Question 25

What is the requirement for a general meeting to be held on short notice?

Answer 25

Consent required by: Majority in number of shareholders Who hold 90% (private companies) or more of company's voting shares (public companies - 95%)

Question 26

Who receives a written resolution and when does it lapse?

Answer 26

Every eligible member Lapses 28 days unless otherwise stated (date of board meeting/ of circulation counts as 1 day of the 28)

Question 27

When is a written resolution passed?

Answer 27

As soon as the required majority of eligible members have signified agreement

Question 28

What types of companies can use written resolutions?

Answer 28

Private companies ONLY

Question 29

What is the "corporate sandwich"?

Answer 29

For decisions which need 3 stages to be passed 1 - Board meeting 2 - General meeting 3 - Board meeting

Question 30

How many shareholders are required in order to request a company to circulate a written resolution?

Answer 30

5%+ of shares

Question 31

How many shareholders are required in order to requisition a general meeting and when must it be called?

Answer 31

5%+ of shares Must be called within 21 days of request

Question 32

What are a company's annual responsibilities (excluding small companies and micro-entities)?

Answer 32

Accounting records Accounts for every financial year File confirmation statement within 14 days from confirmation date Directors' report for each financial year

Question 33

What constitutes a "small company"?

Answer 33

Less than £5.1M balance sheet, turnover less than £10.2M, less than 50 employees

Question 34

What constitutes a "micro-entity"?

Answer 34

Less than £316,000 balance sheet, turnover less than £632,000, less than 10 employees

Question 35

When is a company secretary required?

Answer 35

For public companies

Question 36

What are the administrative and notification requirements relating to a company secretary?

Answer 36

 Notify Registrar of Companies on form AP03 (human) or AP04 (corporate) within 14 days of appointment of new company secretary  Keep register of secretaries  Notify Registrar of Companies within 14 days of their resignation / removal  Notify Registrar of Companies within 14 days of any change in the particulars of company secretary

Question 37

What companies are exempt from audit requirements?

Answer 37

Small companies

Question 38

What percentage of share ownership constitutes "person with significant control"?

Answer 38

Owning or controlling MORE THAN 25% of the voting rights in the company

Question 39

What are the requirements for if a shareholder becomes a person with significant control?

Answer 39

Company need to record any changes in their PSC register within 14 days Needs to send the changes to Companies House within a further 14 days

Question 40

What does s 33(1) of the CA 2006 say about the company's constitution?

Answer 40

It is a statutory contract between each shareholder and the company, and between each shareholder to each other

Question 41

What right does a shareholder have if one or more shareholders/ the company do not abide by the company's constitution?

Answer 41

Remedy for breach of contract

Question 42

What additional protection could a shareholder consider in order to protect their rights?

Answer 42

A shareholders' agreement - will bind all parties and provide remedy in case one of its terms is breached

Question 43

What are the advantages of entering into a shareholders' agreement?

Answer 43

Privacy - articles of association (the constitution) are public but any agreement can be kept private Protection of minority shareholder - have very little power under the company's articles but can be protected by provisions in an agreement

Question 44

What matters are commonly included in shareholders' agreements?

Answer 44

* Restrictions on transferring shares * Bushell v Faith clauses - give shareholders weighted voting rights when the resolution under consideration is to remove that shareholder from their office as director * Non-compete clause preventing shareholder involvement with a competitor CANNOT restrict shareholders from voting in a particular way in board meetings

Question 45

What rights do shareholders have with regard to exercising their power to vote?

Answer 45

* Right to send a proxy to a general meeting on their behalf * Right to a poll vote * Right to receive notice of general meetings * Right to requisition a general meeting * Right to apply to the court to call a general meeting * Right for a shareholder or shareholders with 5% or more to require circulation of written statement * Right for shareholders holding 5% or more of shares to require the company to circulate a written resolution and accompanying statement

Question 46

What are other shareholder rights?

Answer 46

* Right to receive dividends as long as there are profits available for the purpose * Right to apply to court for winding up on grounds it is just and equitable to do so * Right to remove director by ordinary resolution * Right to remove auditor by ordinary resolution * Right to inspect: minutes of GMs; statutory registers; directors' service contracts and any directors' indemnities; contracts relating to company's purchase of own shares * Right to receive copy of annual accounts and reports * Right to seek injunction

Question 47

When is a company classed as a subsidiary of another company (its holding company)?

Answer 47

* That other company holds a majority of the voting rights in it; or * That other company is a member of it and as the right to appoint or remove a majority of its board of directors; or * That other company is a member of it and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it; or * It is a subsidiary of a company that is itself a subsidiary of that other company

Question 48

What are the two main types of shares?

Answer 48

Ordinary Preference

Question 49

How is the amount for preference shares usually expressed?

Answer 49

As a percentage of the nominal value of the preference share - e.g. if 5% then holder will receive fixed dividend of 5p for each £1 preference share they hold

Question 50

What does it mean is a preference share is described as cumulative / non-cumulative?

Answer 50

Cumulative = preference shareholder has to be paid any missed dividends from previous financial years as well as the current financial year’s dividend, as long as there are profits available to pay the dividends Non-cumulative = if a dividend is not paid in a particular year, the shareholder loses the right to that year’s dividend and does not have the right to receive it in the future

Question 51

What does it mean if someone is a participating shareholder?

Answer 51

They have the further right to receive profits or assets in addition to other preference share rights E.g. the ordinary shareholders receive a dividend over a specified amount, this could give the participating preference shareholder the right to an additional payment, over and above their usual entitlement

Question 52

What is a substantial property transaction, as governed by ss 190-196 CA?

Answer 52

Where 1. A director, in their personal capacity, or someone connected with a director 2. Buys from or sells to the company 3. A non-cash asset 4. Of substantial value

Question 53

What type of shareholder resolution is required for a substantial property transaction?

Answer 53

Ordinary

Question 54

What constitutes a person connected with a director?

Answer 54

Connected person = spouse/ civil partner; child or stepchild; parents; person living in enduring relationship with director as partner; children of person living in enduring relationship NOTE grandparents living with director are specifically excluded Owns at least 20% of body corporate's shares / entitled to exercise control of more than 20% of the voting power

Question 55

What constitutes a non-cash asset for the purposes of a substantial property transaction?

Answer 55

Property or interest in property other than cash

Question 56

What constitutes substantial for the purposes of a substantial property transaction?

Answer 56

Automatically substantial if over £100,000 Substantial if worth more than £5,000 and more than 10% of company's net asset value

Question 57

What is the effect of a breach of the requirements regarding a substantial property transaction?

Answer 57

Transaction is voidable (s 195 CA) Individual may also need to account to company for any gain made, and indemnify company for any loss or damage resulting from arrangement or transaction

Question 58

What decisions need to be recorded on internal records only?

Answer 58

Any board decision Any shareholder decision

Question 59

What decisions need to be recorded on external records only?

Answer 59

* Changing company name – only effective following issuing of certification of incorporation * Changing account reference date – only effective when received by Companies House * Changing the Articles – Companies House must be notified within 15 days, usually changes take place immediately * Passing a special resolution of the members – Companies House must be notified within 15 days

Question 60

What decisions need to be recorded on internal and external records?

Answer 60

* Transferring shares – internal register immediately, yearly updates provided to Companies house * Shareholder changes category in the PSC register – update internal PSC reg but also notify CH within 14 days * Appointing or removing a director – update internal reg immediately, CH notified within 14 days * Accounts (Private company) – must be sent to CH within 9 months after end of accounting period