6. Companies: Members

Question 1

What are the two requirements for a dividends to be declared?

Answer 1

1. Must be paid from profits available for the purpose
2. Must not render a company insolvent

Question 2

What are profits available for the purpose?

Answer 2

Basically net profits

Question 3

What is a preference share?

Answer 3

A share paid a dividend based on a fixed % ahead of ordinary shareholders, which rolls over and accumulates if unpaid, but usually lacking voting rights

Question 4

Even if profits are available, who must still recommend a dividend?

Answer 4

The board

Question 5

After the board recommend a dividend, how is it declared?

Answer 5

The recommendation is approved by the shareholders, who declare the dividend by ordinary resolution

Question 6

Can the shareholders decline a dividend, or change the amount?

Answer 6

The shareholders can decline to approve the dividend, and they can lower its amount. They cannot increase the amount.

Question 7

What is an unlawful dividend?

Answer 7

A dividend payable other than out of profits available for the purpose

Question 8

In what circumstances will a shareholder be liable to repay an unlawful dividend?

Answer 8

If, when the distribution was made, they knew or had reasonable grounds to believe it was unlawful

Question 9

Who is personally liable if a dividend is declared unlawfully?

Answer 9

The directors

Question 10

What are preference shareholders’ voting rights typically limited to?

Answer 10

Decisions that affect their class rights

Question 11

When may a shareholder bring a derivative claim, and against whom is it brought?

Answer 11

When the shareholder believes a director has or is about to breach a duty owed to the company and it appears the board are not acting to prevent this, the shareholder can bring a claim against the offending director

Question 12

Only who can bring a derivative action?

Answer 12

1. Shareholders
2. Those to whom shares were transferred through operation of law, e.g. inheritance

Question 13

Are shadow directors considered directors for the purpose of derivative claims?

Answer 13

Yes

Question 14

Can a shareholder assert a claim which arose before they became a shareholder?

Answer 14

Yes

Question 15

What must the court do if the shareholder does not show a prima facie case?

Answer 15

Dismiss the claim

Question 16

If the shareholder does show a prima facie case, the court must be satisfied of one of what two things at the second stage for them to dismiss the claim?

Answer 16

1. A person acting to promote the best interests of the company would not seek to continue the claim, or
2. The action was authorised by the company or authorisation would be likely

Question 17

Who receives any damages awarded in a derivative claim?

Answer 17

The company

Question 18

What can a shareholder, even a minority, do if they feel they are being unfairly prejudiced?

Answer 18

Petition the court for a remedy.

Question 19

If a minority shareholder is successful in their petition, what is the most likely remedy?

Answer 19

The minority shareholder is bought out.

Question 20

What must any shareholder be able to show to apply to have a company wound up?

Answer 20

1. The company is solvent, and
2. It is just and equitable to wind it up

Question 21

How long after a director leaves must their service contract be retained for inspection by the shareholders?

Answer 21

At least one year

Question 22

Comparison: Ordinary shares vs. Preference shares.

Answer 22