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Business Flashcards

1
Q

How many directors and shareholders do you need inn a private limited company vs public limited company?

A

1 shareholder minimum in private and public (s. 7 CA 2006)

1 Director in private s. 154(1) CA2006
2 directors in public S. 154(2) CA2006

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2
Q

What is the written resolution procedure?

A

Eliminates the need for a general meeting.

Sometimes preferable for private companies to secure approval for proposed courses of action using this procedure under CA 06 s.288 as this does not require the convening of a general meeting.

It involves the company sending out the written resolution document to shareholders and explaining the proposed course of action.

The procedure is not available for public limited companies and cant be used for private limited companies to remove directors or auditors.

Private limited companies can use this procedure even if their articles of association prohibit its use CA 06 s.300.

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3
Q

What is the notice perio for a board meeting

A

a reasonable period which takes into account the number of directors and their respective locations

Browne v La Trinidad

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4
Q

What is the notice period for a general meeting

A

14 days - CA 06 s.307(1)

CA 06 s.360(1)+(2) clarifies that this means 14 CLEAR days.

Can be held earlier if enough shareholders consent to short notice. In an exam explain that if only a few shareholders exist, consent to short notice should be easy to secure

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5
Q

SHORT NOTICE

A

If consent is given by a majority of the shareholders (That together hold at least 90% in nominal value of the shares) the general meeting can be held on short notice CA 06 s.307(4)-(6).

If consent is achieved, evidence of the consent must be sent to all shareholders along with the notice before the general meeting takes place

the 90% numbre can be increased depending on the articles.

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6
Q

What should be included in the short notice

A
  1. time, date location of the meeting CA 06 s.31
  2. the precise wording of any special resolution that will be voted on in the meeting CA 06 s.283(6)
  3. a statement that a member may appoint a proxy CA 06 s.325(1)
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7
Q

What number of votes for BOARD RESOLUTIONS

A

By simple majority (more than 50%) per MA 7(1) or unanimous decision MA 8.

Default position on the Model Articles is that a single majority will carry the vote. Where there is a deadlock, the chairman has the casting vote MA 13.

Show of hands

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8
Q

Number of votes in an ordinary resoluton

A

more than 50% per CA -6 s.282(1). Simple majority

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9
Q

Number of votes for a speecial resoluton

A

at least 75% of those attending CA 06 s.283(1)

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10
Q

DIFFERENCES IN PRIVATE LIMITED COMAPNIES S PULIC LIMITED COMPANIES

A

Shareholders required - Private 1 (CA 06 s.59(1)) Public 1 (CA 06 s.58(1)).

Directors required - Private at least 1 (CA s.154(1)) Public At least 2 (CA 06 s.154(2))

Company secretary - Private NO (CA 06.270(1)) Public YES (CA 06 s.271)

Documents required before trading - Private - Certificate of incorporation per CA 06 s.15 PUBLIC - Certificate of incorporation per s.15 and a trading certificate issued byt he regulator that confirms the company’s allotted share capital is not less than the mininum per CA 06 s.763

MINIMUM SHARE CAPITAL ISSUED - Private - at least one. Public - $50,000 worth of shares at the outset per CA 06 s.763 (1)

MINIMUM AMOUNT THAT MUST BE PAID UP ON SHARE CAPITAL - Private, no minimum, can be issued without being paid for immediately. Public- at least 25% of the nominal value of the shares shoudl be paid up per CA 06 s.586(1). Payment msut be in cash unless the conideration has been indepndently valued per s.593

CAN SHARES BE OFFERED TO PUBLIC - Private, NO per CA 06 s.755 (1)(a) . Public -yes

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11
Q

what is the nominal value

A

the face value f a share without taking into account any premium charged by the issuer or any increase in value since the share was issued

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12
Q

How do you incorpoate a private company limited by shares

A

You must submit an application to Companies House including a Form IN01 and SECTION 9 CA 06

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13
Q

What must you consider when choosing a company name

A
  • The name cant be already registered S.66 CA 06
  • cant be too similar to existing name s.67
  • cant be misleading
  • cant be offensive s.53
  • must comply with guidance on sensitive words and expressions on s.55 CA 06.
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14
Q

How do you change a company name

A

One of two ways

  1. by special resolution
  2. Amending the articles of association to include a new name. This may be preferable where numerous changes need to be made as one special resolution to approve the new articles will be more efficient than several indiivual resolutions.
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15
Q

What are some key elements contained in a company’s articles

A

Objects
Spending limits
Quorums

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16
Q

Objects

A

Before 2006 - company must list out all the types of business that the company engaged in. If it engaged in business outside of the objects, it would be acting outside of its authority

After 2006

Default position is that the objects are unrestricted [re s.31 CA 06. They cna engage in any type of business without acting outside its authority. They can expllicitly prohibit certin actions in the artticles instead

WHAT IF INCORPORATED BEFORE 2006 BUT WANT

Wil lretain their restricted onjects clause per s.28 CA 06. They can however amend their articles to include an unrestricted objects caluse stating that s.28 does not appy

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17
Q

What if a company pursues a course of action in contravention of an objects.

A

Third party will be protected if it enters into a transaction with a comapny that lacked the authority to transact/

The third party can take action against the company and/or employees responsible

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18
Q

Spending limits - how od you change

A

The articles can restrict amount of money that it can spend without securing shareholder approval. However, if low, thi could adversely affect the comapny’s ability to tradeeffectively. SPECIAL RESOLUTION PASSED IN A GENERAL MEETING or a written resollution is required to increase/

Directors can agree between themselves to adhere to certain spending limits instead of setting it out n the articles. This will be given effect to by board resolution. Then, amending these limites would only rquire an additional board resolution making it eaier.

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19
Q

Quorum for a board meeting -

A

2 or more serving directors must be present unless otherwise agreed. MA 11(2)

If only one director,and articles dont require higher, the quorum will be one director per MA 7(2)

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20
Q

Quorum for a general meeting

A

If hs one shareholder, quorum is 1 - s.318 (1)

If more than one - quorum is 2 per CA 06 s. 318(2)

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21
Q

How do you alter a comapny’s articles

A

Special resoltuon per CA 06 s.21.
A copy of the amendments must be sent to companies house within 15 days per CA 06 s.26.

Articles can only be amended if the amendments pass the legality test and if they are commercially viable.

  1. LEGALITY TEST - Alters cant conflict with legislation.. Where legislation is silent on a point, alterations are permitted ie. can amend MA 13 to remove chairans acasting vote as theres no statute.
  2. COMMERCIALITY TEST - Articles shoud suit the size, nature and objectives of the comapny. i.e. low spendingl imits and a small quorum wouldnt suit large companies that tend to make large purchases. or removing chair,ans casting vote could result in a deadlock if there are an even number of directors.
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22
Q

What is a shelf company

A

A company that has been incorporated to be used in the future by another party. Incorporating one in adance means it will be easier and quicker in the future for a party to commence trading through the company.

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23
Q

What changes need to be made to a shelf company before it can be used by aother party? Who effects the change and what is the authority?

A

C - Chairman - appoint new chairman - Outgoing director would automatically cease being chairman on resignation and new directors vote for new chairman. MA 12(1)

A - Accounting reference date - Change accounting reference date. Given effect to by giving notice to registrar. CA 06 s.392(1)

D - Director - Appint new directors - Outgoing directors or sharehodlers effect the change. MA 17(1)

D- Directors - Existing directors resign - Outgoing directors effect the change by letter of resignation. MA 18(f)

O - Office - Change registered office - Given effect to by giving notice to the registrar. CA 06 s.87(1)

A - Apoint Auditors - Appointed by directors at any time before 1st period for appointing auditors. CA 06 s.485 (3).

T - Transfer shares to new owner using stock transfer form - Effected by directors. If company willl only have one shareholder following the transfer, a statement must be made stating this. CA 06 s.123(2)(a)

S - Secretary - appoint new company secretary - Directors effect change. MA 3 or CA 06 s.270(1)

S - Shelf company name - change name - SHAREHOLDERS EFFECT THIS. CA 06. s.77(1)

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24
Q

Company Secretary and chairman - which type of company needs ot

A

ONLY Public companies are required to have a chairman (MA 12(1)) and a Secretary (CA S.271)

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25
Q

What is the general format for a procedure plan

A
  1. Open or reconvene meeting
  2. Notice
  3. Quorum
  4. Agenda
  5. Voting
  6. Close/adjourn meeting
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26
Q

Notice - date time and location of meeting

A

CA 06 S.311

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27
Q

Notice - contain specific wording of special resolution

A

CA 06 S.283(6)

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28
Q

Notice - statement that a member may appoint a proxy

A

CA 06 s. 325(1)

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29
Q

What section deals with the written resolution procedure

A

CA 06 s.288

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30
Q

What is the general format for a written resolution procedure plan for altering a company’s articles

A

Board meeting 1

  1. Who calls meeting
  2. Notice
  3. Quorum
  4. Agenda
  5. Voting
  6. Adjourn or close board meeting

Between board meetings
- pass the written resolution procedure

Board meeting 2

  • reconvene meeting
  • who calls it
  • notice
  • quorum
  • agenda
  • voting
  • close board meeting

Post board meeting 2 matters

  • make filings at companies house
  • draw up minute’s
  • written resolution
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31
Q

What section governs persons with significant control

A

CA 06 Part 21A

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32
Q

What section is persons with significant control defined insert

A

CA 06 Schedule 1A Part 1

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33
Q

Can a company be a legal entity? If not, how can it be entered into the PSC register

A

Not possible for a company to be a person with significant control but a company can be entered if it is a relevant legal entity. Under CA 06 s.790C(6), it must

  • would have come under the definition of PSC has it been an individual
  • is an entity subject to the PSC regime or is a listed company; and
  • . Is the first legal entity on the company’s ownership chain
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34
Q

What is the psc register?

A

A register of individuals which States relevant information for each PSC (I.e nsme, address country of residence) and the date they became a psc.

S.790k

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35
Q

What does the psc regime require

A

Requires that companies identity and keep a register of people with significant control in the company

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36
Q

What are the duties of a company to which the PSC applies to? What are sanctions for non compliance

A

Section 790D CA 2006 imposes a duty on companies to take reasonable steps to identify their persons with significant control

The company must give notice to anyone whom it
Has probable cause to believe is a registerable person or a registrable relevant legal entity in relation to it CA 06 s.790D(2)

Sanctions include - failure to comply is punishable by a fine and/or up to two years imprisonment CA 06 s.790F

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37
Q

What are the obligations of a person with significant control and/or a relevant legal entity to which the PSC applies

A

There is a duty on PCSs and RLEs to notify the company of their status within one month of becoming a PSC or relevant legal entity CA 2006 s.790G(1)+(2)

and it is also a criminal offence to fail to do so s. 790G CA 2006.

From 26 June 2017, entities have to update
their PSC register within 14 days of any changes and notify Companies House. within another 14 days.

Sanctions include - failure to comply is punishable by a fine and/or up to two years imprisonment CA 06 s.790F

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38
Q

Where are the directors duties set out

A

CA 06 S.170-177

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39
Q

Who can enforce directors duties

(keep in kind directors duties are over reaching so when answering questions that involve advising a director on how to act, keep these duties on the back of your head)

A

Directors owe three duties to the company, therefore only the company can enforce them.

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40
Q

What are the directors duties

A
  1. Duty to act within their powers s. 171 (i.e. Check articles to see if prohibit anything)
  2. Duty to promote the success of the company s. 172
  3. Duty to exercise independent judgement s. 173
  4. Duty to exercise reasonable care, skill and diligence s. 174
  5. Duty to avoid conflict of interest s. 175
  6. Duty not to accept benefits from third parties s. 176
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41
Q

What are the consequences of a director breaching his duty?

A

Consequences are the same as if the the corresponding common law rules or equitable principle were breached s.178

With the exception of the duty to exercise
reasonable care, skill and diligence under s.174 for which damages can be awarded

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42
Q

What remedies are available to the company for a breach of directors duties?

A

The remedy for a breach of the duty of care, skill and diligence under s. 174 is usually damages.

Remedies for breaches of other general duties include:

 an injunction;
 setting aside of the transaction, restitution and account of profits;
 restoration of company property held by the director; and/or
 damages

A breach of duty could also be grounds for the termination of an executive
director’s service contract or for disqualification as a director

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43
Q

Remember deritivativr action chapter 7 s. 260

A

Fc

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44
Q

What section defines persons connected with a director

A

S. 252 and 253

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45
Q

What section deals with ratification of a breach of a director’s duty

A

S.239

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46
Q

Director indemnities

A

Directors can seek indemnities from. The company to protect themselves against future breaches.. This is allowed in some circumstances under MA 52.

However can’t indemnity for negligence, default, breach of duty, and breach of trust per CA S. 232 and the cost of defending proceedings brought against them by the company s.234(3)(b)(ii) or

For faiing to provide a confirmation statement as this is a criminal offence per s. 234(3)(a)(i)+(b)(i)

Directors will want these indemnities in their service contrscts (executive directors) or agreed to in a deed of indemnity (non-executice directors) so that they can be personally enforced

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47
Q

How do you enforce a directors indemnity

A

Directors will want these indemnities in their service contrscts (executive directors) or agreed to in a deed of indemnity (non-executice directors) so that they can be personally enforced

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48
Q

Directors insurance for beach

A

Directors or The companies that employ them can also obtain insurance to cover certain liabilities CA s.233(2)(a) however this is subject to public policy constraints (i.e.. Criminal wrongdoings can’t be insurex)

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49
Q

What section deals with substantial property transactions

A

CA s. 190

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50
Q

Substantial property transactions

A

Company needs to secure shareholder approval (ordinary resolution) before acquiring a substantial non-cash asset to from or to any of the following parties:

  • its directors (s. 190(1)(a)
  • directors of its holding company (s.190(1)(a) but not of its subsidiaries
  • a person connected to one of its directors

Substantial - defined in s. 191. If it exceeds £100,000 or if it’s value exceeds £5,000 but represents more than 10% of the company’s asset values.
Asset value means a company’s net assets so check the company’s recent statutory accounts for this figure

Non cash asset defined in s.1163

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51
Q

What is a non cash asset

A

Any property or interests other than cash CA s. 1163

52
Q

What are the exceptions to substantial property transactions under s.190

A
  • share buybacks do not count as substantial property transactions per s. 192(a)

Moreover if the company involved in the transaction is a wholly owned subsidiary of another company (i.e it has a parent company), the shareholders of the parent company should approve the transaction instead s. 190(4)(b)

53
Q

What are defences for a director authorising the company to enter into a substantial property transaction?

A
  1. The director concerned took all reasonable steps to ensure the company’s compliance CA 06 s. 195(6)
  2. The director concerned and any persons connected to them can show that they had no knowledge of the circumstances resulting in the contravention. S. 195(7)
54
Q

What section defines connected persons

A

CA s. 252

55
Q

What happens if the directors do not obtain shareholder approval for a substantial property transaction

A

The transaction is voidable by the company (s.195) unless:

  1. restitution is no longer possible;
  2. the company has been indemnified by another person for the loss or
    damage suffered by it; or
  3. bona fide rights have been acquired by a third party who was not a party. to the transaction and such rights would be affected by the avoidance of
    the transaction.

Section 196 allows for the arrangement to be affirmed by the shareholders of the company and the holding company (where relevant) by ordinary resolution within a reasonable period. If it is affirmed, the arrangement may no longer be
avoided under s.195.

And

Irrespective of whether the transaction has been avoided, the director (and the person connected to the director, if relevant) and any other director who authorised the arrangement are liable to account to the company for any gain made directly or indirectly out of the transaction, and to indemnify the company for any loss or damage resulting from the transaction (ss.195(3) and. 195(4)).

56
Q

What are the relevant directors to consider in a substantial property trandaxtion/substantial non-cash asset?

A
  • duty to declare a personal interest in a transaction
  • duty to promote the success of the company
  • MA 14 - voting where a conflict of interest exists
57
Q

What is the ordinary resolution procedure for approval of a substantial property transaction

A

Directors need to disclose their personal interests in a transaction per CA 06 S. 172.

Similar procedure to converting a shelf company but

  • directors mist disclose their personal interest in transaction to the board in board meeting 1 to fulfill their duty under 172. Even if aware it should be disclosed at the BM to be recorded in the minutes
  • the contract must be approved at the general meeting
  • Drectors with an interest in the transaction can vote in as shareholders (if they hold shares) in the general meeting. However, interested directors do not count in the quorum for, and cannot vote on, the board resolutions to approve the substantial
    property transaction in board meeting 2 per MA 14
58
Q

How do you determine whether shareholder approval is required for a directors contract of employment?

A
  1. Is a director being offered a long-term service contract?

Under CA 06 s. 188 if the term of employment set out in the contract could (at directors discretion) or would exceed two years and during the two years the company:

  • is unable to terminate the contract (i.e contractual term of more than 2 years or where director is in control of how long the contract continues)
  • can only terminate in limited circumstances that are outside the company’s control (i.e. Director guilty of gross misconduct)

If the company has the freedom to prevent the contact exceeding 2 years (i.e through giving notice to the directors) this isn’t a long-term service contact

59
Q

What are some remedies available for a directors breach

A
  • ratification
  • director indemnities
  • insurance
60
Q

.i.,nk

A

Z

61
Q

.i.,nk

A

Z

62
Q

What is the procedure for approving a long-term service contact

A

Similar to converting a shelf company save for a few differences

  • thecontracts can be approved using a similar procedure to that included in the Converting a Shell Company Section
  • The director to whom the long-term service contract is being offered is not legally obliged to declare his/her interest in the contact per s. 177(6)(c)
  • the proposed long-term contact must be out on display at the registered office (for shareholders to view) for at least 15 days before the general meeting s. 188(5)(b) thus the short notice procedure is of little benefit in this case
  • must be approved by at least 50% through ordinary resolution

-Interested director can vote in their capacity as shareholders if they hold shares) in the generalmeeting. However, they do not
count towards the quorum for, and cannot vote in the board resolution to enter into the long-term service contract MA 14

WRITTEN RESOLUTION

  • ## the requirement to display the contract for 15 days does not exist when approving long term service contracts by written resolution CA 188(5)(a) Although the lapse date (usually 28 days) means the procedure could take much longer than approving a contract vsing the general meeting procedure
63
Q

What is the procedure for approving a long-term service contact

A

Similar to converting a shelf company save for a few differences

  • thecontracts can be approved using a similar procedure to that included in the Converting a Shell Company Section
  • The director to whom the long-term service contract is being offered is not legally obliged to declare his/her interest in the contact per s. 177(6)(c)
  • the proposed long-term contact must be out on display at the registered office (for shareholders to view) for at least 15 days before the general meeting s. 188(5)(b) thus the short notice procedure is of little benefit in this case
  • must be approved by at least 50% through ordinary resolution

-Interested director can vote in their capacity as shareholders if they hold shares) in the generalmeeting. However, they do not
count towards the quorum for, and cannot vote in the board resolution to enter into the long-term service contract MA 14

WRITTEN RESOLUTION

  • ## the requirement to display the contract for 15 days does not exist when approving long term service contracts by written resolution CA 188(5)(a) Although the lapse date (usually 28 days) means the procedure could take much longer than approving a contract vsing the general meeting procedure
64
Q

What resolution is used for approving a long-term directors contract

A

Ordinary resolution

65
Q

Who can call a board meeting

A

Any serving director can call a meeting per MA 9(1)

66
Q

What is the general meeting procedure plan for approving substantial property transactions and long-term service contact

A

BOARD MEETING 1

  1. Who calls the meeting
  2. Notice
  3. Quorum
  4. Disclosure of interests - directors with an interest in the substantial property transaction should disclose their interests to fulfill CA 06 s. 177. Even if the directors are already aware they should disclose it so that the disclosure is recorded at board minutes
  5. Agenda - call a general meeting under s.302. The directors must approve the form of notice
  6. Voting
  7. Close board meeting - it cannot reopen on 24 hours due to the 15 day requirement to leave the contract out for at least 15 days before the GM p

POST BOARD MEETING MATTERS

  • draw up minutes
  • Display proposed long-term service contact. The proposed contact must be put on display for shareholders to view at the company’s registered office for at least 15 days before the GM per s. 188(5)(b)

GENERAL MEETING

  1. Opem general meeting
  2. Notice - the shortest notice to which the shareholders can agree using the short notice procedure is 15 days under s. 307(4)-(6) due to the contact having to be displayed for 15 days. This means short notice is of little use in this context

Where shirt notice is not used, the default notice to be give is 14 days (clear days) per 307 and 360.

  1. Quorum
  2. Agenda - propose (and shareholders vote) on the resolution required to continue with the share allotment
  3. Voting

A. Ordinary resolution to enter into a contract relating to the substantial property transaction CA S. 190(1)

B. Ordinary resolution to approve the duration of the service contracts to entered into s. 188(2)

More than 50% of those voting must approve the decision in accordance with s. 282. Shareholders can vote by a show of hands MA42 unless a poll vote is demanded in accordance with MA44.

BOARD MEETING 2

  1. Open board meeting
  2. Notice
  3. Quorun
  4. agenda
  • chairman report that the ordinary resolutions were passed at the GM
  • proposed board resolutions to
  • approve entry into and authorise a signatory for the substantial property transaction or long-term directors service contact
  • direct Secretary to deal with post company matters
  1. voting
  2. . Close board meeting

POST BOARD MEETING 2 MATTERS

  1. Draw up board minutes from the general meeting s. 355
  2. Draw up minutes from board meeting s. 248
  3. retain a copy of the long-term service contact at the registered office for inspection per s228
  4. If the long-term service contact is fonts new director you must file from AP01 to notify companies house of their appointment per 167.
67
Q

What section deals with the written resolution procedure

A

CA 06 S.288

68
Q

How many votes needed in a board resolution

A

Simple majority - over 50% per MA 7(1) or unanimous decision MA8.

In case of desdlock, chairman has the casting vote per MA13.

69
Q

What is the default way of voting at a general meeting

A

By show of hands per MA 42. However shareholders can demand a poll vote or may instead vote using the written resolution procedure

70
Q

What is the default way of voting at a general meeting

A

By show of hands per MA 42. However shareholders can demand a poll vote or may instead vote using the written resolution procedure

71
Q

When is a company incorporated

A

When companies house issues the company’s certificate of incorporation

A company can’t ratify agreements made before it is incorporsted.

Thus if an individual signs a contact on behalf of a company that hasn’t been incorporated the contact will take effect as being made by that individual in their personal capacity. That individual will therefore be personally liable for any breach of the contract see s. 51 although he or she could be indemnities by the organization

72
Q

How do you amend quorum, spending limits etc

A

Special resolution as this is an article.

Once amended, a copy of the amendment mist be sent to companies house within 15 days per s. 26

They can only be amended if the proposed amendments pass the legalitt test and the commerciality test.

73
Q

What is a quasi-loan?

A

A company repays a loan which was given to one of its directors or a director of its holding company by a third party (ie bank). This is done on the understanding that The director or connected person is to reimburse the company at a later stage

74
Q

What is a guarantee

A

involves a guarantor (ie a parent company) making legal promise to lender that they will fulfill any oututanding financial obligations covered under the guarantee if the borrower defaults on the loan

THINK OF GUARANTOR

75
Q

What is security

A

Taking security on a borrowers loan can increase the chsnces of the lender receiving back its money if the borrower defaults on the loan

76
Q

What section sets out how many directors public and private companies need

A

CA 06 S. 154

77
Q

What is a credit transaction

A

A transaction involving a company providing goods or services to one of its directors on a credit basis meaning that the director will repay the company at a later date CA 06 s.202(1)

78
Q

What is the general rule relating to loans to directors

A

Shareholder approval by Ordinary resolution is required before a company can make a loan to a director

79
Q

What is the general rule relating to loans to directors

A

RULE FOR ALL COMPANIES (not just public)

No company may make loans to its directors or to directors of its holding. company, or give guarantees or enter into security in connection with loans to such directors, without the transaction first being approved by shareholders

This rule applies to loans, quasi-loans, credit transactions and guarantees or security

There are additional rules for public companies and private companies connected to public companies

80
Q

What section defines quasi loans

A

S. 199

81
Q

What section defines a credit transaction

A

S.202

Any transaction entered into between the company and the director where the company provides goods or services on a credit basis which will be paid at a later date

Only the company and the director are parties to thos

82
Q

What section sets out the sanctions for non-compliance for loans to directors

A

S. 213

83
Q

What are the sanctions for non-compliance for loans to directors

A

The transaction will be voidable at the instance of the company unless

  • restitution is no longer possible
  • the company has been indemnitied for the loss or damage resulting from the transaction or
  • bona fide rights have been acquired by a third party who was not party to the transaction would be affected

S. 214 - shareholders can also affirm the transaction

Regardless of the transaction has been avoided or affirmed the director or person connected to them involved in the transaction must

  1. Account to the company for any gain made
  2. Indemnify the company for any loss or damage to the transaction
84
Q

What section allows for shareholders to remove a director

A

CA 06 s.168(1) allows the company, including it’s shareholders, to remove a director by ordinary resolution before the expiration of his period in office (regardless of any agreement to the contrary)

NOTE -Written resolution can’t be used to remove a director from office s. 288(2)(a)

85
Q

What resolution is used to remove a director from office

A

S.168 - ordinary resolution

86
Q

QWhat is the procedure for the removal of a director

A
  1. Special notice

Shareholders must first send the board special notice of the proposed resolution to remove the director s.168(2)

Special notice means 28 (s. 312) clear days (s. 360) before the general meeting

Once this notice is received the board must send a copy to the relevant director and decide whether or not to put the resolution to remove the director on the agenda of the next general meeting orr to schedule a general meeting for the purpose of voting on the resolution.

The board is not legally obliged to convene the necessary general meeting in order to pass the Resolution per pedley v inland Waterways Association Ltd. However, if the board decides not to, this may have further ramifications.

  1. Shareholders power to require a general meeting

If the board decides not to put the resolution on the agenda

  • s. 303 gives shareholders the power to call a general meeting (even if to vote on the resolution to remove the director). The request must be made by shareholders representing at least 5% of The company’s paid up share capital
  • once the s. 303 request has been made the board is required to call a general meeting to vote on the resolution per s. 304. Notice must be sent out within 21 days from when the board receivers the request for the general meeting. The GM must not take place more than 28 days after the notice has been issued.
    Note - these are not clear days as s.304 is not covered by s. 360
  • if the board does not call a general meeting within the timescale shareholders become entitled to call a general meeting at the company’s expense per s. 305

If the shareholders call the general meeting
themselves then that general. The meeting must be called on no fewer than 14 clear days notice (s.305(4) CA. 2006) and held within 3 months of the date that the directors received the. s.303 request (s.305(3))

  1. PRIOR TO THE GENERAL MEETING

The board must notify all other shareholders about the proposed resolution to remove the director and give at least 14 clear days notice of a general meeting to vote on the resolution.

The directors whose removal is proposed are legally entitled to take steps to defend themselves. They can make representations in writing to be circulated to the shareholders prior to the general meeting CA 06 s. 169(3)(b).

  1. VOTING AT THE GENERAL MEETING
  • ordinary resolution therefore more than 50%
  • the director to be removed can vote on the resolution but only in his shareholder capacity (if they hold shares).

ALWAYS check articles for a Bushell v Faith clause

In Bushell V Faith, the court upheld a provision in a company’s Articles that conferred weighted
voting rights upon a director/shareholder where a s. 168 resolution was proposed. The director was able to block the resolution calling for his removal, as he was entitled to 3 votes for each share he held.

87
Q

What does special Notice mean

A

S.312 - 28 clear days (360

88
Q

what case sets out that when wanting to remove a director, the board is not legally obliged to convene the general meeting in order to pass the Resolution

A

Pedley v inland Waterways Association Ltd.

89
Q

Can a director be removed from office by fellow directors?

A

Not unless the articles specifically provide for this.. Where the articles expressly provide that a director can be removed by the. other directors, this power has been upheld by the courts.

The MA do not. provide for this. If the directors were able to remove their fellow directors, this could lead to difficulties in decision making.

90
Q

What compensation can a director who has been removed get?

A

If the removal means the company has breached the directors service contract (i.e entitled to 3 months notice but not given it), he may get damaged for breach of contract for early termination of his employment.

Shareholder approval will not be required for this although if the directors are offered compensation for other reasons and that compensation exceeds £200, shareholder approval will be required per s. 217

91
Q

Where a director has been removed what remedies are available to them (or the company for potential consequences)

A

Wrongful dismissal or unfair dismissal

92
Q

What is wrongful dismissal

A

Wrongful dismissal

This occurs where the employer dismissed the employee in breach of the employees employment contract. The breach typically involves:

A. Failure to give the employee the period of notice stipulated in the contract when dismissing the employee

B. Failure to make the required payment to the employee in lieu of notice when dismissing the employee (i.e contract term allowing employer to make payment instead of notice)

93
Q

What is unfair dismissal

A

Statutory claim that can be brought by an employee who has been unfairly dismissed as long as the employee has worked form the company for at least 2 years (1 yr if employment began before 6th April 2012) per Employment Rights Act 1996.

Claims are based on

  • an employers failure to follow a fair procedure and/or
  • failure to dismiss the employee for a fair reason.

To avoid a claim for unfair dismissal the employer mist prove that the a) the reason for dismissal and b) the procedure followed were fair.

FAIR REASON

These include incompetence, conduct redundancy or some other substantial reason s 96 and 98 of Employment Rights Act

FAIR PROCEDURE

I.e was employee given sufficient explanation as to why their conduct or performance was unsatisfactory, whether they were warned that failure to improve could lead to dismissal and whether the employee received fair hearing and opportunity to appeal

94
Q

What sections relate to “objects”

A

S. 31 and 28

95
Q

What remedies are available for unfair dismissal

A

Compensation is the most common.

However in addition to this a company can order reinstatement (obliging the company to give them the job back) or re-engagement (obliging then to give the director a different job within the company)

96
Q

SHAREHOLDER RIGHTS AND MINORITY SHAREHOLDERS - what is the general rule and what case sets it out

A

Foss v Harbottle set out that the general rule is that the courts will not interfere with the way a company is managed

It also said that when a wrong has been committed against a company, the company is the proper claimant (i.e not shareholders)

However various exceptions have eroded this rule

97
Q

Shareholder rights - what are they key membership rights and where are these found.

A

The articles confer various rights to its members and if these rights are infringes the members can die the company under CA06 s.33

98
Q

Under what section can shareholders sue a company for breach of their rights under the articles

A

CA 06 S. 33

99
Q

What if shareholders have “non-membership” rights? How do you protect these

A

Non-membership rights are not enforceable against the company under CA 06 5. 33. The most commonly referred to case on this matter is Eley v Positive
Government Security Life Assurance Co Limited [1876]

However, in order to protect shareholders, any essential non-membership rights are set out in a separate contract that confers personal obligations upon other parties (rather than the company’s Articles)

100
Q

What is a dividend

A

A dividend is a sum paid by a company to its shareholders (typically annually) out of its retained profits

Companies are not legally obliged to declare dividends but once declared the legal obligation to pay arises.

Companies who repeatedly fail to declare dividends (or declare dividends that are much smaller than could be reasonable expected), the share prices of those companies may decrease.

101
Q

What are some rights and remedies available to minority shareholders

A

” Membership rights” – enforcement under s.33 CA 2006
 Derivative actions:
- exceptions to the rule in Foss v. Harbottle
- under s.260 CA 2006
 Unfair prejudice actions under s.994 CA 2006
 Just and equitable winding up under s.122 IA 1986

102
Q

What case established that non-membership are not enforceable under s. 33

A

Eley v Positive Government Security Life Assurance Co Limited [1876]

103
Q

What is the usual remedy for a s. 33 breach

A

Remedies

104
Q

What is the usual remedy for a s. 33 breach

A

Remedies

105
Q

Examples of membership rights that have been enforced under s.33

A

 the right to a dividend once it has been lawfully declared;

 the right to share in surplus capital once the company is wound up;

 the right to vote at meetings; and

 the right to receive notice of GMs and Annual general meetings

106
Q

Examples of membership rights that have been enforced under s.33

A

 the right to a dividend once it has been lawfully declared;

 the right to share in surplus capital once the company is wound up;

 the right to vote at meetings; and

 the right to receive notice of GMs and Annual general meetings

107
Q

What are the cases for dividends

A

It’s a Wrap v Gula - confirmed that the financial status of a company needs to be considered when making dividend payments.. payments may be deemed illegal if at the date of each payment the management accounts show that the company is losing money and the profits cannot support the dividend payment.

Bairstow v Queens Moat Houses plc - confirmed that where a dividend has been paid llegally the CA 06 s 847 provisions apply and the directors will be expected to repay the company the amount distributed illegally

Potel v IRC - Recipient shareholders have no legal right to the payment until it is actually paid

108
Q

What is an interim dividend

A

A dividend paid throughout the year by the company.. Interim dividends usually represent a portion of the company’s profits of the year so far based on estimates of what the year end results will be

109
Q

What is the procedure for making an interim dividend

A

Does not require as many procedural formalities as paying a final dividend.

Only a board resolution is required to make the payment.

Recipient shareholders have no legal right to the payment until it is actually paid per Potel v IRC

109
Q

What is the procedure for making an interim dividend

A

Does not require as many procedural formalities as paying a final dividend.

Only a board resolution is required to make the payment.

Recipient shareholders have no legal right to the payment until it is actually paid per Potel v IRC3

110
Q

What is the process for declaring a final dividend?

A
  1. First the directors call a board meeting in which they attempt to recommend an amount to the shareholders to be laid by way of a final dividend
  2. The directors will then call a general meeting. Here the shareholders will vote on whether to approve the dividend that has been recommended by the directors
  3. The directors then hold another board meeting to resolve to pay the dividend

Unlike interim dividends, final dividends become a legal obligation ( a debt) once they have been declared by the shareholders in a general meeting per Leclerc Ltd v Pouliot

111
Q

What is the case for final dividends

A

Leclerc Ltd v Pouliot -

Unlike interim dividends, final dividends become a legal obligation ( a debt) once they have been declared by the shareholders in a general meeting

112
Q

What are the benefits of having a shareholders agreement in place

A
  • they are confidential unlike a company’s articles
  • they can confer certain rights and obligations that could not be enforced if included in the articles
  • they can be enforced against other shareholders through contract law whereas a company’s articles can only be enforced against the company. Damages or injunctions may be available if a breach has occurred
  • they can be amended without the need for a special resolution. The parties to the agreement simply. Agree to amend the contact. This can protect minority shareholders as the requirement for unanimous consent means minority shareholders have the power to veto decisions
113
Q

What case relates to shareholders agreements

A

Russel v Northern Bank -

The court confirmed that an agreement outside the Articles between shareholders as to how they would vote on a resolution to alter the Articles was enforceable.

The House of Lords held that the part of the agreement between the company and the shareholders, which was void as being contrary to statute, could be severed from the rest of the agreement between the shareholders. The remainder. the agreement was valid and enforceable and therefore an injunction could be granted to prevent other shareholders from breaching that agreement.

114
Q

What must you be careful of when drafting shareholders agreement

A

Where one or more of the shareholders will often also be directors, It is important to draft the provisions of the shareholders agreement carefully, so as to avoid binding such shareholders to vote a certain way when acting in their capacity as directors.

115
Q

What is unfair prejudice

A

Remedy available to minority shareholders

CA 06 s. 994 gives shareholders the right to bring a claim against the company if it’s affairs are being conducted in a manner which is prejudicial to shareholders. I.e - directors not recommending dividends, over paying themselves or purposely holding regular meetings when certain shareholders can’t attend

S.994 also applies to parties in a quasi-partnership that have been prejudiced. This is on the basis that such parties have a legitimate expectation to be involved in the management of the company and this expectation should this be upheld.

A successful claim for unfair prejudice the court will likely order that those perky fixing the injured shareholders buy the shares of those shareholders. This is the least disruptive solution to the business.

S. 994 petitions are expensive, time consuming and complications. Courts have full discretion meaning the petitioner may not succeed. Generally a negotiated settlement will be the preferred method

116
Q

What is a quasi-partnership

A

Organizations that are effectively run as partnerships but have been incorporated as a company (i. E five friends that run a company and are co-direfrors and equal shareholders)

117
Q

Unfairly prejudicial conduct

A
  • Negligent or inept management of a company – will not amount to unfairly prejudicial conduct unless that conduct amounts to serious
    and/or repeated mismanagement which puts at risk the value of the minority shareholder’s interest;
  • Disagreements as to company policy - (such as a change in direction of the business) will not afford grounds for a petition under s.994;
  • excessive remuneration - will be considered unfair prejudicial conduct
  • Legitimate expectation – in terms of certain small private companies (which are often referred to as quasi-partnerships (see Ebrahimi v Westbourne Galleries Limited [1973] AC 360)) case law has
    established that shareholders may have a legitimate expectation that they be involved in the management of the company, and the prevention
    of such involvement may equate to unfairly prejudicial conduct.
118
Q

What will a successful claim for unfair prejudice result in

A

A successful claim for unfair prejudice the court will likely order that those perky fixing the injured shareholders buy the shares of those shareholders. This is the least disruptive solution to the business.

119
Q

What section relayed to unfair prejudice claims

A

CA 06 S. 994

120
Q

What section relates to a derivative claim

A

CA 06 S. 260

121
Q

What is a derivative claim

A

CA 06 S. 260 gives the right to bring a claim for an pact or omission involving a wrong committed against the company.

Claims are brought on behalf of and for the benefit of the company ( NOT THE SHAREHOLDERS).

There is no requirement to show that the wrongdoer benefitted from the breach of duty, however only shareholders have the right to bring a derivative claim

122
Q

Who can a derivative claim be brought against

A

Directors (including former directors) or third parties that have wronged the company

123
Q

Who can bring a derivative claim

A

Only shareholders can bring a derivative claim (although these are made on behalf of and for the benefit of the company)

Shareholders can bring a claim regardless of the number of shares they have and regardless of whether they held those shares at the time the wrong was committed. However the court will look at the size of the share holding when deciding whether or not to allow a derivative claim to proceed (court has discretion).

124
Q

What is the process for bringing a derivative claim

A

S. 260 gives the right to bring a claim where a wrongful act or omission is committed against the company.

Any shareholder can bring a claim on behalf of the company.. These can be brought against directors (or former directors) and third parties.

  1. Must first obtain permission of the court to continue a derivative claim per s. 261(1)
125
Q

What are the two key actions a shareholder can bring in respect of a directors misconduct

A
  1. Unfair prejudice per s. 994

2. Derivitive claim per s. 260

125
Q

What are the two key actions a shareholder can bring in respect of a directors misconduct

A
  1. Unfair prejudice per s. 994

2. Derivitive claim per s. 260

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