4. The members Flashcards
What is a member?
Members are:
-The subscribers to the Co’s memorandum of association deemed to have agreed to become members and must be entered as such in the register of members.
-Every person who agrees to become a member of the Co and whose name is entered in RM is a member of the Co.
Companies are controlled and owned by members
Restrictions on membership
Trusts
Trusts cannot be shareholders, but trustees can (CA 2006 s126)
Subsidiary Companies
S136 – a subsidiary cannot become a member of their own holding company, unless they already held the shares before the company became their holding company. Can only be a member is acting as personal representative or trustee without having any beneficial interest in the shares.
A subsidiary would not be able to vote at a meeting if they are a member of the holding company
S139 – a subsidiary can act as a trustee for a group pension or share scheme
Only legal persons i.e. a natural person or an incorporated entity
Incorporated entities without legal capacity i.e. English partnerships, sole traders, unincorporated clubs and associations cannot be entered into the register of members as a member. They have no legal capacity, power or authority to give instructions.
Constitutional (i.e. restrictions in the Articles)
These may include:
Nationality restrictions – some companies may require a minimum level of ownership by nations of a particular country
May require a minimum percentage of members to hold a particular qualification
Some articles limit the no of persons who hold a joint account. E.g. in a listed company, this should be not fewer than 4.
Minors
Definition of a minor – differs in Scotland (minors are between the ages of 12-18 (girls) or 14-18 (boys)), in England, Wales and NI, minors are under the age of 18
Share calls are voidable – a minor cannot be asked to make payment for any unpaid or partly paid-up shares
The Articles may give power to reject allotments or transfers in the name of a minor in the case of partly paid up shares.
When share have been incorrectly registered in the name of a minor, a parent or guardian must obtain a court order to sell or transfer those shares.
Best practice would be for the shareholding of a minor to be held in the name of a suitable adult (e.g. a relative).
Shareholders
Shareholder is a member holding shares in the company with a share capital. The liability is limited to the amounts paid or due and payable.
Guarantors
In Co limited by guarantee, Members guarantee the Co’s debts, usually limited to a nominal amount. Not entitled to profits or surplus of assets. Not transferrabe, personal guarantee continues for a year after resigning as a member
Other types of members
Unlimited Companies without a share capital will have some other method of agreement, setting out members’ rights to vote, share in profit, shares in asset and contribution to assets in the event that the Co is unable to settle its debts in winding up.
The Act has no special provisions re members of unlimited co.
What is member activism?
Also, shareholder activism.
When members are trying to change the company for their own benefit e.g. change the leadership, influence the strategy etc.
What is Investor Activism?
Typically investment funds
Shareholder activists who invest where they think change is needed.
Want to improve share price
Use the full range of shareholder rights to promote an agenda for change e.g. contrary resolutions to AGMs, calling for informal votes/meetings
Potential areas of interest: Corporate governance Board change Rem Balance sheet Strategic transactions
Pressure Group Activism
Purchase nominal no of shares to influence and disrupt meetings to gain publicity
Want to draw attention to particular issues/campaigns e.g. climate change, animal welfare etc.
Articles of Association: what share classes can a Co have?
Ordinary Ordinary non-voting Preference Deferred Cumulative preference shares Redeemable shares Debentures and stock loans
Ordinary shares
Most common type of share
Gives the right to a share in the company’s profits
Right the vote at general meetings (except if this is a non-voting share)
Preference
Preferential right to a fixed rate of dividend
Get paid before the ordinary shareholders
Right to return of capital in the case of a winding up
Deferred
No rights to dividends unless a certain level of profit are reached.
https://www.investopedia.com/terms/d/deferredshare.asp
Cumulative preference
Dividends carried forward where the company has not paid a dividend in full or at all.
Payment of arrears to cumulative preference shareholders will take priority over payment of dividends to ordinary shareholders
Redeemable
Redeemable shares can be bought back by the company at a future date or on the achievement of a particular event.
The Articles will give more information.
Share rights
Share Rights
Voting
Right to attend and vote at a general meeting of the company
Dividends
Right to a distribution of profits amongst shareholders
Ordinary shares have an unrestricted right to dividends (s.560)
Surplus Capital
On the winding up or a return of capital, shareholders have preferential rights to the distribution of surplus capital.
Pre-emption
Ensures that existing shareholders have preferential right/priority to purchase new shares that are being issued.
Right of pre-emption on allotment
This is to stop the shares from becoming diluted
Redemption
Allows investors to realise their investment at a pre-determined date – i.e. selling the shares back to the company.
Conversion
Conversion right are used in conjunction with enhanced dividend rights
When preference shares are turned into ordinary shares.
Encourages more people to invest
