Business 4: Shareholders

Question 1

Ways someone can become a SH?

Answer 1

1. Subscription: those who sign memorandum of association automatically subscribe for Cos first shares
2. Obtain shares from existing SH by buying, gift, transmission (when SH dies/becomes bankrupt)
3. Co allots new shares

Question 2

What registers must the Co keep in terms of SH?

Answer 2

1. Register of members at RO of central register at CH, inc statement if only have 1 member
2. Person with significant control (PCS) register must be kept even if empty (priv cos can keep at CH)

Question 3

When must a new member be entered onto the register of members?

Answer 3

as soon as practicable and within 2mo of transfer being lodged at co

Question 4

Who can inspect the register of members?

Answer 4

SH for free and other for fee

Question 5

Who is a person with significant control (PSC)

Answer 5

1. Own/control OVER 25% voting rights
2. Can appoint/remove a majority of the board of directors
3. Have the right to exercise/ actually exercise, significant influence or control over the company

Question 6

Do you have to state if theres someone wholl be a PSC on INO1?

Answer 6

yes

Question 7

Admin requirements if PSC register changes?

Answer 7

To file WITHIN 14 DAYS:
PSC01: Individual on register for first time.
PSC02: Corp on register for first time
PSC04: SH details change
PSC05: corp details change
PSC07: Anyone ceasing to be PSC

Question 8

Time limit for issue of share certificate?

Answer 8

within 2mo of the allotment of shares /of a transfer of shares being lodged with the company

Question 9

What is a share certificate and who has the right to recieve one?

Answer 9

Is prima facie evidence of the holder’s title to the shares
All SH have the right to receive

Question 10

How can SH be sued by Co/eachother for breach of contract if they dont abide by constitution?

Answer 10

Because the articles of association are a statutory contract between each SH and CO and between each SH

Question 11

What are shareholder agreements and what can/cant they include?

Answer 11

○ Optional and give rise to breach of contract
○ Often include: Restrictions on share transfers, Bushell v Faith clauses, No-compete clause
○ CANT include: Restrictions on shareholders voting particular way in board meetings where theyre also a director

Question 12

What are all SHs voting rights?(4)

Answer 12

1. Attend and vote at GMs (if hold voting shares)
2. Send proxy to GM
3. Remove dir/auditor via OR
4. Have name on the register of members

Question 13

What 4 things do all SH have a right to receive?

Answer 13

1. Notice of GM
2. Dividends (if declared, profits available, dirs recommended amount and SH approved)
3. Share certificate
4. Copy of the company’s annual accounts/reports

Question 14

What do all SH have a right to inspect without charge?

Answer 14

1. GM minutes
2. SH resolutions passed otherwise than at GMs
3. All statutory registers
4. Dirs service contracts/indemnities
5. Contracts relating to the cos purchase of its own shares.

Question 15

What do all SH have a right to apply to court to/for?

Answer 15

1. Call GM
2. Co to be wound up, on the grounds that it is just and equitable to do so
3. Seek an injunction under to restrain Co doing something prohibited by its constitution.

Question 16

What do SH with 5% voting rights have the right to do?

Answer 16

1. Require co circulate WR
2. Call GM
3. Circulate a written statement

Question 17

What can a SH with 10% voting rights do?

Answer 17

Demand a poll vote

Question 18

What can a SH with OVER 25% voting rights do?

Answer 18

block a special resolution (must be over)

Question 19

What can a SH with exaclty/over 50% voting rights do?

Answer 19

Exactly 50%: block an ordinary resolution
Over 50%: pass or block ordinary resolution

Question 20

What can a SH with 75% voting rights do?

Answer 20

pass or block special resolution

Question 21

What can a SH with 100% voting rights do?

Answer 21

pass all resolutions

Question 22

What types of share are there?

Answer 22

Ordinary: right to attend/vote at GM & revieve dividends if declared
Preference: enhanced rights (will be set out in articles eg. guaranteed dividend) Include:
-Cumulative: can be paid missed dividend from prev year
-Non cumulative
-Participating: further right to receive profits or asset

Question 23

What are the legal mechanisms to protect minority shareholders?

Answer 23

a. Unfair prejudice petitions
b. Derivative claims

Question 24

Grounds for a SH to bring an unfair prejudice petition and who can bring?

Answer 24

ANY SH on ground:
1. Companies affairs conducted in a way unfairly prejudicial to interests of (some) members.
2. Actual/proposed act/omission is/would be so prejudicial.
(Conduct must cause harm to 1/more SH AND be unfair)

Question 25

Examples of situations where an unfair prejudice petition may be bought?

Answer 25

• Diverting opportunities to a competing business in which the majority SH holds an interest;
• Awarding excessive pay to dirs
• Excluding SH from management of co where, when co was incorporated, the SH negotiations led to the SH believing they would participate in management

Question 26

What test will the court apply in an unfair prejudice petition?

Answer 26

Objective test: would a hypothetical bystander believe the act/omission to be unfair

Question 27

What order may the court make in an unfair prejudice petition?

Answer 27

*Court makes order it thinks fit
*Commonly that the other SHs/Co must buy the shares of the unfairly prejudiced SH

Question 28

What is a derivative claim?

Answer 28

• Claim instigated by SH for wrong done to Co by act/omission of director
• Can only be brought in relation to a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director

Question 29

Procedure fo a derivative claim?

Answer 29

a. SH apply to court for permission to continue claim (court will consider evidence without a hearing, will allow if discloses a prima facie case for continuing)
b. Full hearing to consider app for permission to continue

Question 30

When must a court refuse permission to continue with a hearing for a derivative claim?

Answer 30

1.Satisfied that a person acting in accordance with s 172 CA 2006 (Promoting success of Co) would not seek to continue the claim
2. Act /omission already been authorised by the co
3. Was authorised before it occurred or has been ratified by the company since it occurred.

Question 31

What will the court take into account when considering a derivative claim?

Answer 31

□ whether SH is acting in good faith in seeking to continue the claim
□ the importance that someone acting in accordance with s 172 (promote success of co) would attach to continuing;
□ whether any past or future action or omission was authorised, or if not, would be likely to be ratified;
□ whether the co has decided not to pursue the claim; and whether the act or omission gives rise to a cause of action that a member could pursue in their own right

Question 32

When is a company that holds shares in another company a ‘subsidiary’ of a holding company?

Answer 32

1. holds majority of voting rights
2. other co is a member and has the right to appoint or remove a majority of its board of dirs
3. other company is a member and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it
4. It is a subsidiary of a company that is itself a subsidiary of that other company

Question 33

When is a company a ‘wholly- owned subsidiary’ of another company?

Answer 33

if it has no members except that other and that other’s wholly owned subsidiaries or persons acting on behalf of that other or its wholly owned subsidiaries.

Question 34

In public companies what is the difference with a SHs rights/responibilities?

Answer 34

SH Have additional rights/responsibilities

Question 35

What must be recorded for joint shareholders?

Answer 35

register of members needs to record both names but only one address (breach=offence)