Business - Company Procedure and Decision Making Flashcards
How do directors make decisions
At board meetings through board resolutions or written resolutions
Notice Requirements for board meetings - Rule (MA 9)
When a director calls a board meeting, they must give notice to the other directors. There is no need for the notice to be in writing.
What is the minimum number of directors required for a quorum during a board meeting?
Two directors
If a quorum is present during a board meeting, how is the meeting described?
Quorate
What if a director has a personal interest in the proposed decision
A director may not count in the quorum or vote - Rule (MA 14)
- This rule can be amended.
What must a director do if they have a personal interest in a proposed transaction?
they must declare the nature and extent of this interest to the board.
What are the three exceptions where a director does not need to declare their interest?
- Cannot reasonably be regarded as likely to give rise to a conflict of interest
- Other directors are already aware of it
- Concerns terms of a service contract considered by a meeting of the directors
What majority is required to pass a board resolution?
Simple majority
What is a casting vote and who has a casting vote
An extra vote given to the chairman in the event of a tie
How to pass written board resolutions under MA 8?
By unanimous voting
Who can call a GM
General meetings are called by the board of directors by passing a board resolution (s 302 CA 2006) or
By shareholders who either individually or together hold 5% of the paid up capital holding voting rights can request the directors to call a general meeting (s.303 Companies Act 2006)
How many days do directors have to call a general meeting after a request from shareholders?
21 days
What is the maximum period from the shareholders requesting a general meeting to the meeting itself?
Seven weeks
What is the requirement for public companies regarding general meetings?
Must hold an annual general meeting every year
What is the minimum notice required for a general meeting?
14 clear days
How is notice deemed received if sent via email?
48 hours after being posted or emailed
What is the quorum for a general meeting if a company has only one shareholder?
One
Under what conditions is a shareholder’s vote not counted?
- a resolution to buy back some or all of a shareholder’s shares
- an ordinary resolution to ratify a director’s breach of duty, where the director in question is also a shareholder.
In a general meeting, how does a shareholder who is also a director act?
As a shareholder, not a director
What is a poll vote?
Vote based on one vote for each share owned
What is required for a general meeting to be validly held on short notice?
- Majority in number of shareholders must consent
- Private Companies: Hold 90% or more of voting shares
- Public Companies: 95% or more
What is the deadline for returning a written resolution?
28 days from circulation
Who can require the company to circulate a written resolution?
shareholders who have 5% or more of the voting rights
What resolutions must be filed with the CH
- Special resolution to change articles
- Ordinary resolutions passed under s 551 to allot shares
What is the PSC register?
Register of persons with significant control
Who are persons with significant control and what rights do they have
- Any shareholder who owns more than 25% of the shares or controls more than 25% of the voting rights in the company.
- They have the right to appoint or remove a majority of the board of directors of the company; or
- Have the right to exercise, or who actually exercise, significant influence or control over the company.
How can minority shareholders be protected
- Unfair prejudice petiton
- Derivative claim
- Petition to wind up the company
- Negotiate with the majority shareholders
What is a derivative claim?
- Claim arising from a director’s negligence, breach of duty, or trust
- It is brought by a shareholder on behalf of the company
What is a substantial property transaction (SPT)?
Transaction involving a director buying/selling a non-cash asset of substantial value
What is required to approve a substantial property transaction?
Shareholders’ consent by ordinary resolution
What constitutes a connected person?
- Family member of the director
- Company where director or connected person owns at least 20% of shares or
*is/ are entitled to exercise or control the exercise of more than 20% of the voting power at any general meeting of the company
What is the threshold for an asset to be considered substantial?
- Value over £100,000
- Worth more than £5,000 and more than 10% of net asset value
- A transaction between the company (company A) and another company (company B) in which a director of company A has a shareholding, when added to the shareholding of another person connected with the director, of 20% or more.
What exceptions exist for not requiring an ordinary resolution for an SPT?
- Wholly owned subsidiary transactions
- Transactions between a company and its members
- Transactions between holding company and wholly owned subsidiary
Who can request a poll vote
- By 5 or more shareholders or
- A single or less than 5 shareholders holding 10% of the voting shares
If a GM is called on short notice, when can it be held.
Can be held straight away
What is the method of voting for written resolutions
each shareholder has one vote for each share that they own
What must be filed with CH when filing a special resolution to change the articles.
A copy of the special resolution (together with the articles as amended) must be sent to the Registrar not later than 15 days after the amendment takes effect (section 26 CA 2006). Usually, the changes take effect immediately.
What is an unfair prejudice petition
Application to court by a shareholder for an order for a remedy where they feel that they have been unfairly prejudiced as a shareholder.
- The most common is an order that the other shareholders must buy the shares of the unfairly prejudiced shareholder, or an order for the company to buy back the unfairly prejudiced shareholder’s or shareholders’ shares.
- Other possible orders include a restriction on the company altering its articles of association without the leave of the court
Winding up petition
Any shareholder can also apply to have the company wound up if the company is solvent and the shareholder can show it is just and equitable to do so.
Stages of a derivative claim
The first stage of a derivative claim is for the shareholder to apply to the court for permission to continue the claim.
Following the hearing, the court may grant permission to the shareholder to continue the claim on terms the court thinks fit, or adjourn the proceedings.
How can directors be appointed?
Directors can be appointed by the board or by ordinary resolution of the shareholders.
Notification requirements for appointment of directors
- Notify Companies House within 14 days of the appointment using Form AP01
- The company must also enter the director on its register of directors and register of directors’ residential addresses.
What type of service contract requires shareholder approval?
A long-term service contract with a guaranteed term of more than two years.
How can directors be removed
Shareholders: By an ordinary resolution passed at a general meeting with special notice. Written resolutions CANNOT be used for this.
Board of directors: if permitted in the companies’ articles (not permitted in MA)
What is a special notice?
- Special Notice means that the ordinary resolution to remove the director is not effective unless notice of the intention to pass it has been given to the company at least 28 days before the general meeting at which the resolution is proposed.
- At the GM the director has right to speak
How can directors prevent their removal or strengthen their position?
- Provide the directors with a long fixed term service contract. If these were terminated early the company would have to pay them damages.
- Including in the company’s articles what is known as a ‘Bushell v Faith’ clause.
- Shareholder agreement providing they will not be removed as directors.
- Include a termination payment in service contracts (if not long term fixed contracts).
How should a company execute contracts
Companies may execute documents either by;
1) Affixing their seal to the documents or
2) By the signature of either:
(a) Two directors,
(b) A director and a secretary or
(c) A single director if signed in the presence of a witness who attests the signature.
What is a quorum
Minimum number of directors/shareholders to attend a meeting for the meeting to be valid.
What is a Bushell v Faith clause
They give shareholders weighted voting rights (ie more votes than they would normally be entitled to) when the resolution under consideration is a resolution to remove that shareholder from their office as director.
Procedure for decisions requiring both board and shareholders’ decisions
1) First board meeting: Board resolution to approve the matter and pass a resolution to call a GM or circulate WR
2) Shareholders’ GM: Vote to pass or reject resolution
3) Second board meeting (sometimes needed): Board implement/act on shareholders’ resolution.
Matters requiring ordinary resolution (Majority votes)
1) Appointment or removal of a director or auditor
2) Adoption of the annual accounts and the reports of the directors and auditors
3) Approval of a declaration of dividends
4) Approval of the director decisions to allot shares
5) Approval of substantial property transactions
6) Substantial Property Transactions (SPTs) involving directors with personal interests (more than £100,000 or £5,000 and the contract value exceeds 10% of the company’s assets)
7) Ratification of a directors breach of duty
8) Entering a service contract with a director for more than 2 years
9) Making a loan to a director
10) Giving the director payment for loss of office.
Matters requiring special resolution (At least 75% of votes)
1) Decision to buyback shares out of capital
2) Changes to the company’s articles of association
3) Changes to the company’s name
How is a company formed?
File relevant documents at Companies House and receive a Certificate of Registration
What documents must be filed at CH to be incorporated?
- Memorandum of Association (signed agreement of any persons wishing to become members of a company upon its formation.
- Application of registration using Form IN01
What to do to set up a company quickly without all the incorporation formalities.
Purchase a shelf company then change name and articles
Contents of form IN01
a. The proposed name of the company (can’t be the same as another company’s name or be offensive, must end in “limited”, “Ltd”, “Public Limited Company” or “Plc”;
b. The location of its registered office;
c. Details about the company’s business;
d. Whether the company will be limited by shares or guarantee;
e. A statement of capital and initial shareholdings (total number of shares, aggregate nominal value of the shares of divided into class a description of each class and amount paid by shareholders/amounts left unpaid for shares);
f. A statement of proposed officers/directors;
g. Details of persons with significant control (generally people with more than 25%);
h. A statement of compliance with Companies Act 2006; and
i. Finally, the relevant fee.
