3. Company Decision Making Flashcards
What is a decision made in a board meeting by directors known as?
A board resolution
What is the required notice for a board meeting under MA 9?
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
What is the Duomatic principle?
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
What is the necessary quorate for a board meeting under MA 11?
2 directors
If a director has a personal interest in a matter being voted on, what is the impact in relation to the relevant board meeting?
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
What are the exceptions to a director voting at a board meeting on a matter in which they have a personal interest?
- Situation cannot reasonably be regarded as likely to give rise to a conflict of interest
- Other directors are already aware
- Concerns a term of a service contract that have been or are to be considered by a meeting of the directors
What happens in the event of a tie at a board meeting?
Chairman receives casting vote
When is it possible to pass a board resolution in the form of a resolution in writing?
When there is a unanimous decision
What are the two types of shareholders’ resolutions?
Ordinary and special
Which type of resolution do copies of need to be sent to Companies House?
Special resolution
What is the voting requirement for an ordinary resolution?
51% or more
What are some examples of decisions requiring an ordinary resolution?
- 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)
What is the voting requirement for a special resolution?
75% or more
What are some examples of decisions requiring a special resolution?
- 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)
Where do shareholders pass resolutions?
At general meetings
What are the requirements for frequency of general meetings?
Public companies - 1 per year
Private companies - no requirement
How do directors call a general meeting?
By passing a board resolution
What is required in the notice to shareholders of a general meeting and who must it be given to?
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
What is the notice period for a general meeting?
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
What is the quorum for shareholders at a general meeting?
1 if only 2 shareholders
2 if there are more
Are shareholders prevented from counting in the quorum or voting if they have a personal interest in the matter?
No
Exceptions = voting on buying back own shares; ratifying a breach of their own duty
How is the voting percentage calculated for resolutions?
Based on those present and voting
What is a poll vote?
When shareholders vote on the basis of one vote for each share they own
Who can demand that a poll vote is used?
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
What is the requirement for a general meeting to be held on short notice?
Consent required by:
Majority in number of shareholders
Who hold 90% (private companies) or more of company’s voting shares (public companies - 95%)
Who receives a written resolution and when does it lapse?
Every eligible member
Lapses 28 days unless otherwise stated (date of board meeting/ of circulation counts as 1 day of the 28)
When is a written resolution passed?
As soon as the required majority of eligible members have signified agreement
What types of companies can use written resolutions?
Private companies ONLY
What is the “corporate sandwich”?
For decisions which need 3 stages to be passed
1 - Board meeting
2 - General meeting
3 - Board meeting
How many shareholders are required in order to request a company to circulate a written resolution?
5%+ of shares
How many shareholders are required in order to requisition a general meeting and when must it be called?
5%+ of shares
Must be called within 21 days of request
What are a company’s annual responsibilities (excluding small companies and micro-entities)?
Accounting records
Accounts for every financial year
File confirmation statement within 14 days from confirmation date
Directors’ report for each financial year
What constitutes a “small company”?
Less than £5.1M balance sheet, turnover less than £10.2M, less than 50 employees
What constitutes a “micro-entity”?
Less than £316,000 balance sheet, turnover less than £632,000, less than 10 employees
When is a company secretary required?
For public companies
What are the administrative and notification requirements relating to a company secretary?
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
What companies are exempt from audit requirements?
Small companies
What percentage of share ownership constitutes “person with significant control”?
Owning or controlling MORE THAN 25% of the voting rights in the company
What are the requirements for if a shareholder becomes a person with significant control?
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
What does s 33(1) of the CA 2006 say about the company’s constitution?
It is a statutory contract between each shareholder and the company, and between each shareholder to each other
What right does a shareholder have if one or more shareholders/ the company do not abide by the company’s constitution?
Remedy for breach of contract
What additional protection could a shareholder consider in order to protect their rights?
A shareholders’ agreement - will bind all parties and provide remedy in case one of its terms is breached
What are the advantages of entering into a shareholders’ agreement?
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
What matters are commonly included in shareholders’ agreements?
- 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
What rights do shareholders have with regard to exercising their power to vote?
- 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
What are other shareholder rights?
- 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
When is a company classed as a subsidiary of another company (its holding company)?
- 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
What are the two main types of shares?
Ordinary
Preference
How is the amount for preference shares usually expressed?
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
What does it mean is a preference share is described as cumulative / non-cumulative?
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
What does it mean if someone is a participating shareholder?
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
What is a substantial property transaction, as governed by ss 190-196 CA?
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
What type of shareholder resolution is required for a substantial property transaction?
Ordinary
What constitutes a person connected with a director?
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
What constitutes a non-cash asset for the purposes of a substantial property transaction?
Property or interest in property other than cash
What constitutes substantial for the purposes of a substantial property transaction?
Automatically substantial if over £100,000
Substantial if worth more than £5,000 and more than 10% of company’s net asset value
What is the effect of a breach of the requirements regarding a substantial property transaction?
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
What decisions need to be recorded on internal records only?
Any board decision
Any shareholder decision
What decisions need to be recorded on external records only?
- 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
What decisions need to be recorded on internal and external records?
- 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
