Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Company Law > 5) Managing companies: Shares and shareholders > Flashcards

5) Managing companies: Shares and shareholders Flashcards

You may prefer our related Brainscape-certified flashcards:
MBE flashcards MPRE flashcards Civil Procedure 1L flashcards
1
Q

Consequences of shareholders owning the company and their investment being at risk in the company

A

Shareholdeers:
* Exercise ultimate control over the company
* Holp to rceive financial return on their investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Two key ways shareholders exercise control over

A
  • Determining the company’s constitution
  • Voting on shareholder resolutions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

s168 CA 2006

A

A key element of shareholders’ control is their power to vote on a resolution to remove directors from the board.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

MA 17

A

The powers of shareholders derive from CA 2006, but also from the company’s articles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

The powers of shareholders derive from

A

CA 2006
and the Company’s Articles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Directors’ Powers - Modern Articles

A

Directors have control of the company’s day-to-day management and necessarily have broad powers to carry out such management.
* Modern Article 3
* Modern Article 5

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Directors’ Powers Come from

A
  • Modern Articles
    Companies Acts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Directors’ Powers Controlled By

A

CA 2006 ss170 -177
* Directors must disclose info about themselves and their dealings with the company.
* Shareholder approval must be obtained for certain transactions
* Shareholders have certain important decisions reserved to them (such as amending company’s articles of association, s21)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

CA 2006 ss170 -177

A
  • Directors must disclose info about themselves and their dealings with the company.
  • Shareholder approval must be obtained for certain transactions
  • Shareholders have certain important decisions reserved to them (such as amending company’s articles of association, s21)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Shareholders’ reserve powers

A
  • Acts as a further check of power on directors and protection for shareholders
  • Modern Article 4
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Modern Article 4

A

Shareholders Reserve Power
* Shareholders may by special resolution, direct the directors to take or refrain from taking, specified action.
* No special resolution invalidates anything which the directors have done before the passing of the resolution.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

The company’s articles regulate the relationship

A
  • Allocate power between directors (who act as a board)
  • Shareholders (acting through the GM)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

The Model Articles envisage the role of the shareholders ….

A
  • A minor one
  • Power limited to constitutional decisions only.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Shareholders may act…..

A

Where the board of directors is unable to do so.

Barron v Potter 1914

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Barron v Potter 1914

A
  • Shareholders may act in place of directors, where there is no board of directors competent or able to do so.
  • Directors not on speaking terms, so board meetings couldn’t be held.
  • In view of the deadlock, the power to appoint directors reverted to the shareholders.
    Appointment of further directors was valid
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

For shareholders to pass a resolution

A
  • They need to vote at a GM
  • Use the written resolution procedure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Written Resolution Procedure ….

A

Is only available for private companies and not available for resolutions to remove directors or auditors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

The General Meeting Procedure

A
  • Usually called by directors s302
  • Passing a board resolution at a board meeting - usually a simple majority.
  • Need to give 14 clear days’ notice of GM (ss307(1) and 360)
  • Unless the short notice procedure is used (s307(4) – (6)) - 90% majority
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

s302

A

General Meeting called by directors by passing a board resolution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

ss307(1) and 360

A

Board needs to give 14 clear days’ notice of a GM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

s307(4) - (6)

A

90% of shareholders with voting rights agree - then a GM can take place on short notice immediately after the board meeting.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Shareholders can also call a general meeting

A

ss303-305

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

ss303(1) CA 2006

A

Shareholders together holding not less than 5% of the paid up voting capital of the company can serve a request on the company.
The s303 request is to call a GM
Must state the general nature of the business the shareholders wish to deal with.
May include the text of the resolution they want to propose

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Directors obligation on receipt of s303

A
  • Must call the GM within 21 days of the date they became subject to the notice
  • Must not be more than 28 days after the date of the notice convening the meeting.
    s304(1) CA 2006
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What happens if the directors fail to call the GM

A
  • Shareholders representing 1/2 of those who submitted the s303 request can call a GM pursuant to CA 2006
    s305 CA 2006
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

s305(6) CA 2006

A
  • Shareholders representing 1/2 of those who submitted the s303 request can call a GM pursuant to CA 2006
  • Can recover reasonable expenses for calling the GM; company can recoup from directors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Annual General Meeting - private companies

A
  • Abolished the requirement for private limited companies to hold an AGM
  • CA 2006
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

AGM - Public Companies

A
  • AGM must be called by directors (s302) on 21 clear day’s notice ( s307(2),
    s360(2)) within six months of the financial year end
  • Directors of the company present an annual report containing info for the shareholders about performance and strategy.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Section 360

A
  • 21 Clear Day’s Notice
  • Clear means that the day the notice is given, and the day of the meeting are discounted in calculating the relevant number of days.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Voting at general meetings

A
  • A show of hands - one shareholder has one vote.
  • A poll vote - one vote per share held.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Show of hands

A

Each shareholder has one vote

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Poll vote

A

Where each shareholder has one vote

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Re Horbury Bridge Coal Co

A
  • Lord Jessell MR
  • Votes at all meetings are taken by show of hands
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

MA 42

A

A resolution put to the vote of a GM must be decided on a show of hands, unless a poll is duly demanded in accordance with the articles.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

MA 44

A

Deals with the right to demand a poll vote

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

S 321(1) CA 2006

A
  • Provision of a company’s articles is void in so far as it would have the effect of excluding the right to demand a poll at a GM on any question other than
  • The election of the chairperson of the meeting
  • The adjournment of the meeting
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Ordinary resolution

A

Requires a simple majority (more 50%)
s282(1) CA 2006

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Special Resolution

A

Requires a majority of not less than 75%
s283(1) CA 2006

  • Required by the CA 2006 for certain key constitutional decisions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Notice

A
  • Timely (s307) and appropriate (s311) notice to all shareholders entitled to attend a general meeting.
  • General notice - 14 clear days (ss307(1) and 360)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Quorum for a general meeting

A
  • Two shareholders under s318(2)
  • Unless a single member company.
  • MA38 - no business other than the appointment of the chairman if persons attending are not a quorum.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

s324

A
  • Shareholders may appoint a proxy to exercise any or all of their rights to attend and speak and vote at a general meeting.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

s323

A

Corporate shareholders must appoint a representative to attend general meetings under s323

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Bushell v Faith

A
  • Clause is a mechanism by which a company’s directors who are also shareholders can seek to prevent themselves from being removed from office.
  • Clause is inserted into the articles of the company and provides that, when voting on a removal of director.
    The director/shareholder in questions that their votes weighted by a great enough magnitude that annot be removed.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Bushell v Faith clauses, do not change the requirement under s168

A
  • that under s168 need to pass an ordinary resolution to remove a director; rather they
  • rather they represent an internal agreement amongst the shareholders as to the weight their vote carries on a specific resolution - not something the courts intervene in.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Written Resolutions - Under s288

A

private companies may pass shareholder resolutions using the written resolution procedure, instead of at general meeting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Written resolutions - process

A
  • Must be sent to all eligible members
  • Time limit of 28 days applies for eligible members to respond.
  • Written resolutions must be passed by the required percentage of all eligible members
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Two resolutions may not be passed as written resolutions.

A
  • They will always require a General Meeting
  • Section 288(2)(a) a resolution under s168 removing a director before expiration of their period in office.
  • Section 288(2)(b) a resolution under s510 removing an auditor before expiration of his term of office.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Section 288(2)

A
  • General Meeting will always be required for
  • (A) premature removal of a director
  • (B) premature removal of auditor
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Duomatic Principle

A

Informal resolutions agreed by all shareholders outside of a formal meeting will be valid and binding.

Must be the unqualified agreement of all shareholders….whether express or implied…. by verbal or by conduct

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Re Duomatic Ltd 1969

A
  • Informal resolutions agreed by all the shareholders outside of a formal meeting will be valued and binding.
  • Liquidator of Duomatic claimed repayment of remuneration from a director.
  • Payments not formally authorised by the company in general meeting
  • Court allowed the decision to stand, as had the backing of shareholders
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Schofield v Schofield 2011

A
  • Neil Schofield 90% share holder
  • Unsuccessfully argued that he and his son (other shareholder) had agreed to treat informally a meeting called without s307 notice to dismiss Lee
  • Courts found that there was no unqualified agreement
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Rights of share holders to vote - General principle

A

May vote in their own interests - they are under no fiduciary duty to the company, can vote as they wish.

Must be bona fides however

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Clemens v Clemens Bros 1976

A
  • Court refused to allow a majority shareholder to authorise an allotment of shares where the motive was to dilute votin power of the minority
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Northern Counties Securities Ltd v Jackson & Steeple Ltd 1974

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

Citco Banking Corp NV v Pusser’s Ltd 2007

A

Shareholders may also vote as they wish to remove a director, provided due process has been followed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Standard Chartered Bank Ltd v Walker 1992

A

A minority shareholder was ordered not to vote against a restructuring agreement - where the consequence of this would be that the company would collapse and his shareholding would become worthless.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

In exceptional circumstances, the courts have made orders to restrain a shareholder from exercising their vote in an irrational manner

A

Standard Chartered Bank v Walker 1992

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

Voting on a decision to amend the articles

A
  • Court considers whether reasonable shareholders would consider the amendment to be for the benefit of the company
  • Shareholders must vote to amend the articles in good faith, and not undermine the substantive rights of minority shareholders.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

If shareholders vote to undermine substantive rights of minority shareholders

A

Court may hold the amendment invalid.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

Allen v Gold Reefs of West Africa Ltd 1900

A

Shareholders must vote to amend the articles in food faith.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

Sidebottom v Kershaw, Leese & Co 1920

A
  • Company introduced a power to give directors to buy out at a fair price the shareholding of any member who competed with the business
  • Upheld as was for the benefit of the company.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

Sidebottom v Kershaw, Leese & Co 1920 - Priciple

A

Court held that the power to alter a company’s articles must be exercised bona fide for the benefit of the company as a whole.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

Citco Banking Corpn NV v Pusser’s Ltd

A

This was a PC case, involving a Hong Kong Company.
At a GM amended the share rights in its articles to create a new class of shares.
* Effectively gave the chairman company control
* PC dismissed the claim by Citco that these amendments were invalid.
Test was whether reasonable shareholders could have considered the amendment was for the benefit of the company
Found to be reasonable to have accepted in food faith the arguments put forward by the chairman

57
Q

Directors undertake day -to-day control.
They have powers under….

A

MA 3
MA 5

58
Q

Shareholders have reserve power

A

Under MA 4

59
Q

Duomatic principle

A

Courts may uphold unanimous decisions of shareholders taken informally.

60
Q

Working Capital

A

Funds are needed to keep the company going.

61
Q

Why are funds needed?

A
  • Need to get business started
  • Keep business going
  • Expansion and growth
62
Q

Ways a company can raise funds

A
  • Issuing shares - equity finance
  • Borrowing - debt finance
  • Issuing a “hybrid” investment - characteristics of both debt and equity.
  • Retaining profits for use in the business
63
Q

Issuing shares

A

Equity finance

64
Q

Borrowing

A

Debt finance

65
Q

Hybrid investment

A

Characteristics of debt and equity

eg convertible bond
Preference share

66
Q

Capital

A

Funds available to run the business of a company.

67
Q

Share capital

A

Relates to money raised by the issue of shares.
Share capital is contributed by investors in the company, and represented by shares issued to investors.

68
Q

Issued Share Capital

A
  • Shares purchased by the first members of the company (“subscriber shares”)
  • Further shares issued after the company has been incorporated to new or existing shareholders.
    New shares can be issued at any time, provided the correct procedures are followed
69
Q

Why subscribe for shares?

A
  • Income - by way of dividend
  • Captial gain - growth in the value of the company
70
Q

Flotation

A

When a company floats on the stock market in order to grow through wider investment

71
Q

Legal nature of shares

A

A bundle of rights
* A fraction of the capital of the company - sets out the financial stake in the company.
* Is a measure of the shareholder’s interest in the company as a member and their right to vote.
* A property right which can be bought and sold and carries legal and beneficial interests

72
Q

CA 2006 - Share definition

A

No formal definition of a share in CA 2006

s541 confirms that shares are “personal property”

73
Q

Macaura v Northern Assurance Co Ltd 1925

A

Share ownership does not give any entitlement to ownership of company assets, which are owned by the company itslef

74
Q

How can you become a shareholder

A
  • Initial subscriber
  • Share issue
  • Share transfer
  • Transmission
75
Q

Initial Subscriber

A

Where a person subscribes for the first shares issued when the company is incorporated

76
Q

Share issue

A

Where a person acquires further shares issued by the company after incorporation

77
Q

Share transfer

A

Where a person acquires shares by way of a transfer from an existing shareholder

78
Q

Transmission

A

A mechanism by which title to shares is devolved other than by trasnfer.
* Devolution by death - inheritance
* Bankruptcy
* marriage

79
Q

Difference between transfer and transmission

A
  • Transfer: duly stamped and executed
  • Transmission: forwarding necessary documents to the company (eg death certificate)
80
Q

Share ownership

A

To become a member of a company, a person must be entered into the company’s register of members
Section 112 CA 2006

81
Q

Glencoe Developments Ltd v Sneddon 2012

A
  • Two shareholders
  • S sold one of her shares to H, on the face of it creating 3 shareholders
  • Transfer was noted in the register
82
Q

Register of members

A
  • Until register updated, shares are not legally transferred.
  • Register ensures only company member can vote on decisions affecting the company.
  • An offence under CA 2006
83
Q

Transfer of shares

A
  • Recorded where a stock transfer form has been completed.
    &
  • Appropriate Stamp Duty paid
84
Q

By not keeping an up to date register

A
  • Committing an offence under CA 2006
  • The company and every officer in default may be liable for a fine
85
Q

Allotment

A

Allotment of shares is a contract between the company and new /existing shareholders, where company agrees to issue new shares in return for the purchaser paying the subscription price.

86
Q

Powers to allot shares

A
  • Directs have the power to allot shares from ss 549 - 551 CA 2006
87
Q

ss 549 - 551 CA 2006

A

Power to allot shares

88
Q

Shares are allotted when….

A

A person acquires the unconditional right to be included in the company’s register of members in respect to those shares
s 558 CA 2006

89
Q

What type of title does the allotment of shares confer?

A

Equitable title only

90
Q

Issue of shares

A

Shares are only issued and form party of a company’s issued capital once the shareholder has been registered as such in the company’s register of members.
**Their title is complete((

91
Q

s112(2) CA 2006

A

Full legal title to shares is only achieved once a person’s name is entered into the company’s register of members

92
Q

Transfer of shares

A

Contract to sell existing shares. The company itself is not part of the contract to transfer shares

93
Q

s544

A

In principle shares are freely transferable, the articles of most private companies restrict their members; rights to transfer shares - to ensure control over ownership

94
Q

s755 CA 2006

A

Privatecompanies are prohibited from offering their shares to the public.

95
Q

Shares are of one class if….

A

Shares are of one class if the class of rights attached to them is uniform

96
Q

MA 22

A
  • Gives companies the power to issue different classes of shares - unless otherwise excluded in articles.
97
Q

Class of shares defined in CA 2006

A
  • Nothing in the CA defines the class of shares
  • Label attached to a share is not determinative.
  • Rights attached are determined in articleles
98
Q

Define Ordinary Shares

A

Most common type of shares and are the default position - if a company’s shares are issued without differentiation they will be ordinary.

99
Q

Ordinary Shares carry:

A
  • Right to vote in GM
  • Receive a dividend if declared by directors
  • Receive a share of capital when wound up
100
Q

s560(1) CA 2006

A

Defined as “shares other than shares that as respects to dividends and capital carry a right to participate only up to a specified amount in a distribution**

101
Q

Preference shares

A

Usually entitled to have dividends paid at a predetermined rate (eg 5% of their nominal value) in priority to any dividend paid on the ordinary shares.

102
Q

Dividends can only be paid ….

A

where a company has distributable profits and a dividend is declared

103
Q

First claim….

A

Will be for preference shareholders.
As they have a right of priority over Oridnary shareholders.

104
Q

Cumulative Rights of a preference shareholders to a dividend

A
  • Cumulative:
  • Arrears of preference dividends not declared in earlier years must be paid as well as that for the current year, before any dividend is paid to the ordinary shareholders.
105
Q

Non-Cumulative Rights of a preference shareholders to a dividend

A

When only the current year’s right to a dividend is payable

106
Q

Participating Rights of a preference shareholders to a dividend

A
  • Where shareholders can also participate in a dividend or capital on a winding up alongside the ordinary shareholders.
  • Receive both their fixed preferential dividend or fraction of capital plus a fraction of the general dividend or capital in accordance with their shareholders.
107
Q

Non-participating Rights of a preference shareholders to a dividend

A

Where shareholders receive only their fixed preferential rates

108
Q

Deferred Shares

A

Right to a dividend and/or return of capital after the claims of the preference and ordinary shareholders.
* Not common
* Usually issued to the founders of the company- who defer their own entitlements until after other investors

109
Q

Redeemable shares

A

Temporary shares which may be bought back by a company in the future.
Rules Ch 3 ss 684 - 689 CA 2006

110
Q

Non voting shares

A
  • Company seeks to restrict control of the company.
111
Q

Convertible shares

A
  • Shares can be converted to a different type of shares according to a pre-arranged formula set out in the company’s articles.
112
Q

Employees’ shares

A
  • Companies issue shares to their employees
  • Employees’ share scheme has tax advantages
  • Usually issued as ordinary shares - subject to restrictions
113
Q

There is a presumption that all shares have equal rights…..

A

There is a presumption that all shares have equal rights unless there is an express provision in the articles to the contrary

114
Q

Birch v Cropper 1889

A
  • Presumption that all shareholders rank equally
  • No express provision dealing with distribution of assets on winding up.
  • HoL held preference shareholders should participate in same way as Ordinary in winding up
115
Q

Variation of class rights

A

Refers to the situation where shares of a particular class have been issued and the company is seeking to vary the rights attaching to those shares.

116
Q

s 630 CA 2006

A

Class rights can only be varied
* In accordance with relevant provisions in the company’s articles
* If there is no provision in the articles
- 75% in value of the shares of the affected class consent in writing
- special resolution passed at a separate meeting of the holders of the affected class of shares.

117
Q

s22 CA 2006

A

Companies may entrench class rights in their articles.
This protection cannot be circumvented by changing the rights attached to the shares under s630

118
Q

British America Nickel Corpn Ltd v O’Brien 1927

A
  • Shareholders voting at a class meeting to vary rights
  • Must vote with the dominant purpose of benefitting the class as a whole
  • Otherwise variation may be invalid
119
Q

Variations that affect the exercise of the rights rather than the rights themselves….

A

Not subject to s630

120
Q

White v Bristol Aeroplane Co 1953

A
  • Increase the share capital by way of a bonus issue of shares to all existing shareholders
  • Affected voting rights of shares such that a class meeting should have been required
  • CoA - Actual rights attaching to preference shares were not varied by addition of extra shares - though their exercise was
121
Q

House of Fraser plc v ACGE Investments Ltd 1987

A

HoL
* No variation of class rights was involved in cancellation of class preference shares on reduction of capital
* This is consistent with terms of issue of the shares themselves

122
Q

Greenhalgh v Arderne Cinemas 1946

A
  • Company issued OS of 10s and 2s each - ranked equally = 1 vote per OS
  • Tried to subdivide 10s shares so that they = 5 vote
  • Tried to claim that this varied the 2s shares = unsuccessful.
  • Only changed the rights attached to the 10s shares
123
Q

Section 633

A
  • Right to dissenting members of a class of shares to challenge a variation
  • must hold at least 15% of the issued shares to challenge the variation
  • must be challenged within 21 days of the date consent /resolution to vary the class.
124
Q

s33 CA 2006

A

A Company’s Articles constitute a contract that is binding on the company and the members themselves.

125
Q

Bratton Seymour Service Co Ltd v Oxborough 1922

A

The court had to consider whether it was possible to imply into articles of a management company a term that the members should make contributions to the upkeep of the communal areas. No such term could be implied

126
Q

The usual rule of contractual interpretation apply to articles….

A

Key differences:
* Articles cannot be supplemented by additional terms implied from extrinsic circumstances
* The court has no jurisdiction to rectify the articles
* Literal interpretation often upheld
* Terms can be implied where necessary for the proper construction of articles

126
Q

Articles difference to Contract: Articles cannot be supplemented by additional terms implied from extrinsic circumstances

A

Brotton Seymour Service Co Ltd v Oxborough 1992

127
Q

Articles difference to Contract:
The court has no jurisdiction to rectify the articles

A

Scott v Frank F Scott (London) 1940

128
Q

Scott v Frank F Scott (London) 1940

A

The court has no jurisdiction to rectify the articles.
Unless commercial absurd courts won’t interfere unless the outcome is highly “improbable”

129
Q

Sugarman v CJS Investments LLP 2014

A
  • CoA upheld literal interpretation of article that gave each member of a housing management company 1 vote
  • Regardless of the number of shares held
130
Q

Equitable Life Assurance Society v Hyman 2002

A

Terms can be implied where necessary for the proper construction of articles
* Over paying bonuses
* Discretionary power not to be used “in a manner which deprived the guarantees of any substantial value”

131
Q

General Principle: Can the members sue the company and be sued by the company

A

Any member has the right to enforce the terms of the articles under section 33.
Company can also enforce and restrain breaches against members

132
Q

Wood v Odessa Waterworks Co 1889

A
  • Company’s Articles allowed the directors with sanction of the shareholders to declare a dividend to the shareholders
  • Company passed an OR to not pay dividend, and give shareholders a debenture bond
  • Court granted shareholder an injunction to stop the company acting on the resolution, as it was inconsistent with its articles
133
Q

Pender v Lushington 1877

A
  • Individual member’s rights have been infringed
  • Chairman refused to recognize the shareholder’s votes at a meeting
  • Member may bring a personal action to enforce rights.
  • Even when the member’s conduct may constitute a wrong in itself.
134
Q

Articles are between company and the members, does not give rights to…

A

Any person who is not a member

135
Q

Eley v Positive Gov Security Life Assurance Co Ltd 1876

A
  • Provided that solicitor (also shareholder) should not be removed from his office for anything other than misconduct.
  • Brought claim for not employing solicitor
  • Claim failed
  • E was seeking to enforce rights under the articles in his capacity as an outsider, not shareholder
    Articles can only be enforced by shareholders
136
Q

Articles can only be enforced by …

A

Articles can only be enforced by shareholders (insiders) in relation to shareholder specific rights

137
Q

Hickman v Kent or Romney Marsh Sheep-Breeders’ Assoc 1915

A

Company’s Articles contained a provision that disputes between company and members should be referred to arbitration.
* Court stayed the proceedings on the ground agreement in the articles to arbitrate

138
Q

Can members sue each other and be sued by each other>

A
  • A member may sue another on the contract created by the articles without joining the company as a party
    Rayfield v Hands 1960
139
Q

Rayfield v Hands 1960

A
  • Any member who intended to transfer shares
  • Bound to inform directors “who will take the said shares equally between them at a fair value.”
  • Claimant sought an action to compel the directors to purchase shares
  • Court enforced the purchase
140
Q

Shareholder agreements

A

A contract entered into between the shareholders, can be entered into at any time and can be between certain classes of shareholders only.
* Usually entered into on incorporation or other significant event, usually by all share holders.

141
Q

Company may also be party but not to any provisions in the agreement …

A

Company may also be party but not to any provisions in the agreement which would have the effect of fettering the statutory powers of the company

142
Q

Advantages of a shareholders agreement

A
  • Normal contractual rules apply
  • A shareholders’ agreement can only be altered if all shareholders agree.
  • Provisions of a shareholders; agreement enforceable by injunction
  • Private agreement - not public articles
143
Q

How are articles v agreements amended

A
  • Articles that can be altered by Special Resolution (s21 CA 2006)
  • A shareholders agreement can only be altered if all shareholders agree
144
Q

Shareholders’ agreements bind only

A

Shareholders who are parties to ut.
This can be differentiated from the provisions of the articles which are binding on all shareholders

145
Q

Shareholders’ agreement may not bind itself to not exercise statutory powers, but a shareholder’s agreement….

A
  • Shareholders’ can enter an agreement no to exercise statutory powers - this can be binding.
  • Shareholder Agreements can be effective in limiting the possibility of major changes and protecting the interests of minority shareholders.
146
Q

Russel v Northern Bank Development Corp 1992

A
  • TBL was a company that was set up with 5 shareholders = 1 bank, 4 executives.
  • Shareholder Agreement = no further share capital would be created or issued without consent of all parties
  • Board of directors proposed to increase capital to £4 mill by issuing shares
    Agreement was binding on the shareholders, if not on the company
147
Q

Purpose of a shareholders agreement

A

Typically to agree how they will vote on particular decisions, in a way that the company cannot do in the articles, due to constraints of CA 2006

148
Q

Typical provisions of a Shareholders Agreement

A
  • Each shareholder is entitled to appoint a director
  • No shareholder will vote in support of an alteration unless all agree
  • No shareholder will vote to remove a director, unless all agree
  • Except in specified circumstances, no shareholder will require repayment of money lent to the company
149
Q

Main disadvantage of a shareholders’ agreement

A
  • Binding only on shareholders who sign up to it
  • Not anyone who takes a transfer of shares or joins as a new member on a new issue of shares.
  • Therefore new shareholder join an existing agreement by “Deed of Adherence”

Company Law (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions