Business Law and Practice - Becoming a Member and Members' Rights

Question 1

Becoming a Member

Answer 1

Name must be added to register of members - this is an internal document that the company (directors) must keep updated

Share certficate will also be issued to show they hold the shares

Question 2

Person with significant control

Answer 2

Holds more than 25% of shares or voting rights or has control of appointment of the board of directors

Must be noted on PSC register

Question 3

‘Right’ to Dividends

Answer 3

Strict rules as to when a company can pay a dividend

Can be paid only if the company has sufficient available profits

Dividend must not render company insolvent

No right to a dividend - if sufficient profits the power to declare a dividend is contained within the articles

• Model Articles stipulate that directors recommend a dividend and shareholders approve

Distributions to shareholders can only be made out of profits available fo the purpose = accumulated realised profits less accumulated realised losses

Question 4

Dividend Preference

Answer 4

Preference usually stated as a percentage of the shares

Preferred shares paid first before ordinary shares

Preference can be cumulative or non-cumulative

If preference is a cumulative fixed percentage, if there are no profits available for the purpose the divdend rolls over to the next financial year (this does not happen with ordinary shares)

Question 5

Right to Vote

Answer 5

Shareholder decisions called resolutions

More shares a member has the more voting power they have - majority shareholders have more than 50% of voting rights

Question 6

Right to Bring a Derivative Action

Answer 6

If a director or board breaches duty and no remedy sought they can pass a resolution asking shareholders to ratify a breach

If breach not ratified a derivative action may be brought

A minority shareholder may bring a derivative action and a shareholder may assert a claim that arose before they became a shareholder

Permission process:

1. Initial stage - court reviews application to dermine if the shareholder has a prima facie case for breach of duty
2. Second stage - hearing to determine if shareholder acting in good faith, the importance a reasonable director interested in success of the company would place on continuing the claim and likelihood the wrong would be ratified by shareholders

If test met the claim can move from permission stage

Question 7

Right not to be Unfairly Prejudiced

Answer 7

Can petition court for a remedy

Differs from derivative action - remedy benefits shareholder rather than company

Question 8

Right to Inspect Documents

Answer 8

Includes right to inspect service documents

Company must comply with request within five working days or apply to court claiming the purpose is improper

Purpose must be related to shareholder’s right as a shareholder

Question 9

Procedure for declaring a dividend

Answer 9

1. Directors decide whether to recommend a dividend
2. Shareholders approve it and declare dividend by passing ordinary resolution

Question 10

Voting rights of shareholders

Answer 10

Ordinary shareholders: full voting rights

Preference shareholders: voting rights limited to decisions that affect their class rights