7.5 Company decision-making - principles Flashcards
Director decisions
What is MA3?
MA3: The business of the money is to be managed by the directors, and they have the power to ‘exercise all the powers of the company’.
Director decisions
What is MA9?
MA9: A director may call a board meeting. The director must be given reasonable advance notice of the proposed meeting.
N.B: Boards may act informally if they unanimously agree to pass a particular decision.
Decisions at board meeting: Requires a simple majority to be passed
Directors signing written board resolutions: Requires unanimity to be passed
Director decisions
What is MA11?
MA11: The required minimum number of directions (quorum) to be present at a meeting is 2. If less than 2 directors are present, the board is considered inquorate and decisions taken at the meeting will not be valid.
** A director with a personal interest in a matter will be prevented from being counted in the quorum, unless MA14 has been disapplied.
Director decisions
What is MA14?
MA14: Conflict of interest - directors having a personal interest in a decision. If this is the case, the director is not to be counted as participating in the decision-making process for quorum or voting purposes (can be disapplied)
Duty of S177 CA - personal interests: Directors have a duty to make a declaration or to give a general notice of any personal interest they have in a proposed or existing transaction with the company, whether or not they are permitted to vote.
How can board meetings be passed?
A board resolution will only pass if a simple majority votes in favour of the decision.
Exception - Written resolution (unanimity) Alternative method for directors to take decisions. Alternative form of decision-making that provides greater flexibility because the directors do not need to be physically present in one place.
However, unanimity required for a board written resolution.
** If a director is not eligible to vote in a meeting because of a personal interest, they cannot take part in a decision by written resolution either.
Director decisions
What is MA13?
MA13: The chairperson will have the casting vote to resolve the deadlock. The chairperson also has the final decision if there is a dispute about whether or not a director can count in the quorum and vote.
Shareholder decisions
How do shareholders make decisions in private companies?
Shareholders can take decisions by passing either resolutions at a general meeting or by using the written resolution procedure
How is a general meeting called?
Can be done by directors or shareholders. Shareholders who together hold at least 5% of the shares with voting rights can ask a director to hold a GM. The directors have 21 days in which to pass a board resolution to call a general meeting.
What notice is given for a general meeting?
14 clear days’ notice must be given to all shareholders, all directors and the company’s directors. Can be given in hard copy form, electronic form or on a website. Notice must state the date, place and time of the meeting and the general nature of the business to be conducted at the meeting.
What is the 14 clear days’ notice period?
Excludes the day the notice is given and the day the meeting is to be held. If the notice period is incorrect, then any business conducted at the general meeting will be invalid.
When can short notice be granted?
Any short notice period less than the usual clear 14 days must pass a two-stage test…
→ Majority of shareholders in number, not voting rights, must agree to holding the meeting at short notice;
→ Those shareholders must hold at least 90% of voting shares in the private company
How are ordinary resolutions passed?
Passed on a poll vote if a simple majority (over 50%) of members voting at the meeting is in favour. On a show of hands, the majority in number present agrees to the resolution.
How are special resolutions passed?
Require at least a 75% majority to pass.
→ Show of hands: 75% of the number of shareholders, or their proxies present.
→ Poll vote: 75% of the votes cast by those entitled to vote in person or by proxy are in favour of the resolution.
Proposal of special resolution notice - must include the full text of the resolution and state that it is a special resolution.
Can shareholders use the written resolution procedure?
Shareholders in private companies may use a written resolution procedure, except in the following cases:
Exception - ** not applicable if they are voting on whether to dismiss a director or an auditor at a general meeting - a meeting will need to be called.
What is the written resolution procedure for shareholders?
Circulated to all eligible members and to the company director. Resolution circulated must specify how the shareholders are to signify their agreement. Resolution must be passed before the end of 28 days beginning on the circulation date. Any votes received after the cut-off-date will not count. Once the relevant threshold has passed of over 50% for an ordinary resolution or at least 75% for a special resolution, the resolution is passed.
N.B: written resolution procedure (shareholder) is not available in public companies!
What are the requirements for filing special resolutions?
Copies of all special resolutions (whether by a general meeting or written resolution) must be sent to Companies House within 15 days of the decision.
The same applies to decisions taken by unanimous consent.
What are the requirements for filing ordinary resolutions?
Copies of ordinary resolutions do not normally need to be sent to the Registrar at Companies’ House.
N.B: Exception - s551 (allotting shares): Normally ordinary resolutions are not filed but an ordinary resolution authorising directors to allot shares (under s 551 of the Companies Act 2006) must be.
What determines the validity of resolutions in GMs?
Resolutions made in general meetings are only valid if sufficient notice of the meeting is provided and a quorum is present.
What decisions need to be made by ordinary resolution (OR) of the shareholders?
- Appointment of director to office (either BR or OR)
- Director’s service contract - guaranteed fixed term of more than 2 years
- Removal of director (SR may be needed to remove Bushell v Faith clause by amending articles)
- Ratification of breach of duty by directors
- Payment to director for loss of office exceeding £200
- Substantial Property Transaction
Loans to directors exceeding £10,000 - Approving directors’ authority for allotting shares - authority can only last for 5 years max from date of granting authority / date of incorporation
- Issuing shares with different classes and rights (this OR MUST be filed at Companies’ House with 15 days)
- Declaration of dividend
- Buyback of shares from profits (OR to approve contract)
- Buyback of shares from capital (OR to approve contract)
Which decisions need to be made by special resolution (SR) of the shareholders?
- Changing company name
- Changing articles (e.g disapplying MA14, removal of Bushell v Faith clause, disapplying pre-emption rights for share issue)
- Buyback of shares from capital (SR to approve buyback from capital)
- Amending special articles re debt finance powers to borrow / give security
- Voluntary liquidation by CVL or MVL
