6. Companies: Members Flashcards
What are the two requirements for the payment of dividends?
- must be paid from profits available for the purpose
- Must not render a company insolvent
What are profits available for the purpose?
essentially net profits
(accumulated realised profits less accumulated realised losses)
How are preference shares different from ordinary shares?
Include right to receive dividends w/priority over ordinary shareholders.
Features include
- preferential right to receive
dividend/recover capital on insolvency.
- may exclude right to vote.
- may be cumulative: allowing unpaid dividend from previous year to carry forward to the following year.
- may be participating: entitling holder to both fixed dividend and ordinary dividend distribution.
Two-step process for issuing of final dividends
1) Board recommends a final dividend amount (MA)
ANND
2) Declared in GM by O.R
Even if profits are available, who must still recommend a dividend?
The board
After the board recommend a dividend, how is it declared?
The recommendation is approved by the shareholders via O.R.
Can the shareholders decline a dividend, or change the amount?
Shareholders can decline to approve the dividend or lower its amount.
BUT
cannot increase the amount.
When is a dividend distributed unlawfully?
if it was paid out of funds other than distributable profits (ie. capital)
In what circumstances will a shareholder be liable to repay an unlawful dividend?
If, when the distribution was made, they knew or had reasonable grounds to believe it was unlawful
Who is personally liable if a dividend is declared unlawfully?
The directors
What are preference shareholders’ voting rights typically limited to?
Decisions that affect their class rights
When may a shareholder bring a derivative claim, and against whom is it brought?
Where they believes that a director has/is about to breach their duty and against whom the board of directors will not enforce the company’s rights to prevent/remedy the situation,
Only who can bring a derivative action?
- Shareholders
- Those to whom shares were transferred through operation of law, e.g. inheritance
Are shadow directors considered directors for the purpose of derivative claims?
Yes
Can a shareholder assert a claim which arose before they became a shareholder?
Yes
What must the court do if the shareholder does not show a prima facie case?
Dismiss the claim
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?
- A person acting to promote the best interests of the company would not seek to continue the claim, or
- The action was authorised by the company or authorisation would be likely
Who receives any damages awarded in a derivative claim?
The company
What can a shareholder, even a minority, do if they feel they are being unfairly prejudiced?
Petition the court for a remedy
If a minority shareholder is successful in their petition, what is the most likely remedy?
The minority shareholder is bought out
What must any shareholder be able to show to apply to have a company wound up?
- The company is solvent, and
- It is just and equitable to wind it up
How long after a director leaves must their service contract be retained for inspection by the shareholders?
At least one year
What is the default procedure to vary class rights?
Either:
- via consent in writing by at least 75% of members of class; or
- S.R passed at their own GM for members of that class.
note - other classes cannot vary each others’ rights.
How can a member object to a variation of their class rights?
Own at least 15% of class’ rights + apply within 21 days of S.R to court.
- court = consider whether variation is unfairly prejudicial to shareholders in that class.
