5) Company Organs: Directors And Shareholders Flashcards
What are the purposes of Corporate Law?
- To facilitate and regulate the process of raising capital for the company’s business operations (corporate finance)
- To impose controls on persons whose power is derived from the finance that the use of the corporate form has put at their disposal (i.e. regulating organs concerned with the governance of a company – corporate governance)
What are the roles and functions of the board of directors of a company?
- Directors are the agents (fiduciary relationship exists) of the company and must act in the best interest of the company.
What is the difference between directors as opposed to managers?
- Directors are not involved in day-to-day decisions.
- Executive directors/managers are employees and are involved in the management of the company.
- Non-executive directors would only go to board meetings.
What are the quorum related to board meetings?
- Majority of directors need to be present for the board to validly pass a resolution.
- Minimum of 50% of the directors need to be present.
-Minimum of 25% of shareholders need to be present.
How does the Companies Act define directors?
The act defines the term ‘director’ broadly.
- There is no distinction between executive and non-executive directors
It includes de facto directors:
- These are members of a board of a company or alternative directors of a company (who sit on board on occasion) and includes any person occupying position of director or alternate director by whatever name designated.
How does the Companies Act define prescribed officers?
A prescribed officer is a person that exercises or regularly participates, to a material degree, in the exercise of a general executive control over and management of, the whole or a significant portion of the business and activities of the company
- i.e., someone with substantial control over business even if not on the board
How can directors of a company come into their positions?
They can be elected by shareholders
- Must get the vote of at least 50% of the board
They can be appointed by the person designated in the MOI.
They can also hold the position by virtue of another position (ex officio):
- Need to have a roll in the overall management of the company that is established in MOI.
How can directors of a company be removed from their position?
They can be removed by the shareholders in a general meeting.
- Need 50% +1 (simple majority) to remove the director
They can also be removed by the companies board or the companies tribunal.
On what grounds can shareholders remove a director?
Shareholders have interests in themselves only and so there doesn’t necessarily have to grounds for removal.
- Note that this (any grounds for removal) approach opens the possibility of unfair dismissals.
What are the procedural requirements for shareholders to remove a director?
Director must be given notice of the meeting.
- Notice can be determined by the MOI.
The director must be aware that his/her removal will be voted on
The director must be given an opportunity to address the meeting.
On what grounds can the board remove a director?
Director is incapacitated
Derelict in performance of their duty (not abiding by their duties)
- Breach of fiduciary duties
- Breach of MOI
- Not coming to meetings, etc.
Director has been disqualified.
What are the procedural requirements for the board to remove a director?
Director must be given notice that their removal is being considered
Given a chance to address the board
A chance to take it to the companies tribunal on review
Under what circumstances can a companies tribunal remove a director?
The tribunal can only remove a director if there are less than 3 directors, then it has to be through the companies tribunal and not through the board.
If there are more than 3 directors, then the company can do the removal of the director by itself and the tribunal then cannot remove a director.
What are the minimum number of directors needed for different types of companies?
Private and Personal Liability Companies need at least 1 director.
Public, Non-Profit Companies and State-owned enterprises need at last 3 directors.
The companies MOI may specify higher number in substitution for minimum in act.
What are the principles related to remuneration of directors?
Companies may pay remuneration to directors.
- Except to extent the MOI provides otherwise.
May only be paid in accordance with special resolution approved by shareholders within previous two years.
Directors can’t t determine what their remuneration is on their own.
What are the procedures of the calling of meetings?
Authorized director may call meeting at any time.
Must call if required by:
- at least 25% of directors if more than 12
-2 directors in any other case
-MOI may specify higher percentage
Meeting may be conducted by electronic communication meaning directors can participate through electronic communication.
Facility must enable all persons to participate without intermediary and to participate effectively.
Who may convene at board meetings?
The board of directors or any other person specified in MOI (e.g. company secretary).
Shareholders that hold at least 10% of the voting rights or their representative (their proxy).
- MOI may require less, not more.
- The record date (date before the meeting which determines who the shareholders are) may not be more 10 business days before meeting.
What are the principles related to the notice of meetings.
15 days prior for public companies / 10 days for private companies.
MOI may provide for longer/ shorter minimum notice period.
Notice must be in writing and include amongst other things:
- Date, time and place
- General purpose of meeting
- Copy of any proposed resolutions to be tabled
If non-compliance with formalities, the meeting may be held if:
- Unanimous assent at common law
- Companies with one shareholder
- Every shareholder is also a director
What are the principles related to voting at meetings?
Voting can be done by a show of hands or by a poll.
[By show of hands]
- Doesn’t represent the percentage of shares that the shareholders own.
- Easy to count
- Usually used for uncontroversial issues so heavy consensus
[By poll]
- If 10% of the shareholders insist that they must have voting by poll.
- Used for more controversial issues
How does the Companies Act protect minority shareholders?
Relief from oppressive and prejudicial conduct.
Appraisal remedy
Derivative Action
Declaration of rights
What are the principles related to shareholder resolutions made at meetings?
Ordinary resolutions need 50% +1
Special resolutions need 75%
There requirements can be altered
- Special resolution threshold can be lowered but the ordinary resolution can only be increased as it has to be a majority.
- Needs to be a 10% difference between ordinary resolutions and special resolutions.
What is the Annual General Meeting?
It is a shareholders’ meeting held once a year where particular business is required to be conducted.
Public companies are required to have AGM.
When may a shareholder use the appraisal remedy?
Resolution to amend MOI that alters rights or terms attached to shares in manner that is materially adverse to the rights or interests of that shareholder
Where company undertakes a fundamental transaction
What is the minimum business to be transacted at the AGM?
The presentation of:
- Directors’ report
- Audited financial statements for immediately preceding financial year
- Audit committee report
Election of directors
Appointment of auditor and audit committee
Matters raised by shareholders
