7.5 Shareholders rights

Question 1

Statutory Contract between shareholders and the company is based on

Answer 1

Articles of association (forms the company’s constitution)

Question 2

Can a third party enforce the Company’s articles?

Answer 2

Third party cannot enforce the articles as the contract is between the shareholders and company

Question 3

Shareholders agreement

Answer 3

Private contract between one another
Not filed on companies house

Question 4

Shareholders agreement cannot

Answer 4

Include terms that would determine how they would vote as directors

Question 5

Share certificate - shareholders receive this within

Answer 5

2 months of the allotment of shares if new shares or the lodging of the stock transfer form if existing shares

Question 6

PSC register

Answer 6

Identify and record those who held significant control of the company

Question 7

Which shareholders have to be entered onto the PSC register (persons with significant control)

Answer 7

• hold more than 25% of the shares in the company
• hold more than 25% of voting rights in the company
• have the right to appoint or remove the majority of the board of directors or can exercise influence over the company

Question 8

Shareholders are entitled to receive

Answer 8

Notice of general company meetings
If insufficient notice is given business undertaken at the meeting will be invalid (companies act)

Question 9

Shareholders may request without charge (at no cost) to inspect

Answer 9

Statements of capital
Inspection of documents
Articles of association etc

Question 10

Proper claimant principle and directors

Answer 10

In situations where shareholders have a cause of action against directors > company is proper claimant - avoids double recovery

Question 11

Internal management principle

Answer 11

Courts are reluctant to interfere with the internal management
The court will only interfere to initiate proceedings

Question 12

Unfair prejudice

Answer 12

If a shareholder feels that the company’s business is being run in a way that is unfair and prejudicial to them they have a right to seek a remedy at court: companies act s994

Question 13

To be successful in a claim related to unfair prejudice, the shareholder will need to prove

Answer 13

Unfairness and prejudice due to either actual or proposed acts or omissions of the company or in the conduct of the company’s affairs

Question 14

Most common remedy for a shareholder

Answer 14

Shares to be purchased by the other shareholders in the company

Question 15

What is a derivative claim

Answer 15

A derivative claim is a claim brought by the shareholders in their own name, but on behalf of the company to seek remedy against the director(s) for wrongdoing committed against the company.

Question 16

Grounds for a derivative claim

Answer 16

Act or omission which involves one of the following by a director of the company:
- negligence
- default
- breach of duty
- breach of trust

Question 17

Cause of action derivative claim against which parties

Answer 17

Director / third party

Question 18

Two stage test for permission to bring a derivative claim

Answer 18

A paper submission to the court
Substantive hearing - prima facie case

Difficult to pass

Question 19

Winding up petition

Answer 19

Will cause the dissolution of the company

Question 20

Shareholders rights to request documents related to the company… what can they request?

Answer 20

Company’s current articles
Director service contract
No fee charged for this

Question 21

What is the company not required to send the shareholder under the Companies Act 2006?

Answer 21

Board minutes

Question 22

One class of shares

Answer 22

Ordinary shares which carry equal rights

Question 23

Pre emption rights

Answer 23

Generally speaking, it gives shareholders the right to purchase shares being issued or transferred before a third party can receive them