COMPANIES—MEMBERS

Question 1

Person with Signifcant Control
A shareholder of a company may be classed as a person with signifcant control (‘PSC’) if they:

Answer 1

*Directly or indirectly hold more than 25% of the shares in the company;
*Directly or indirectly hold more than 25% of the voting rights in the company;
*Directly or indirectly hold the right to appoint or remove a majority of the board of directors of the company; or
*Have the right to exercise, or actually exercise, signifcant infuence or control over the company.
In that case, certain information about the shareholder must be entered into the company’s PSC register.

Question 2

RIGHTS AND POWERS

Answer 2

Membership of a company means that the shareholder acquires certain rights as regards the company, primarily the right to receive a dividend and the right to vote on decisions taken by the company

Question 3

DIVIDENDS

Answer 3

A dividend represents a return on a shareholder’s invest-
ment. The right to a dividend will depend upon the particular class of shares held by the shareholder.

Question 4

Profts Available for the Purpose

Answer 4

1. The requirement that a dividend is only payable from profits available for the purpose is part of the rules regarding a company’s capital maintenance, that is, that the capital invested into the company by the shareholders is not returned to
   them.
2. The term ‘profits available for the purpose’ is defined as accumulated realised profits less accumulated realised losses.

Question 5

Class Rights

Answer 5

1. Company shares are often split into diferent types, or classes, with varying rights attached to each in terms of dividend and voting rights. For example, preference shares are paid a dividend ahead of ordinary shareholders, and the shares
   can carry the right to a cumulative fixed percentage (so a fixed income) dividend.
2. This means that if there are no profits available for the purpose, the dividend would roll over to the next fnancial year. Contrast this position with ordinary shareholders, who receive their dividend after the preference shareholders have been paid and with no cumulative right, that is, if there are no profits available for the purpose, the ordinary shareholders may receive no dividend.
3. In the event of the company’s insolvency, the preference shareholders may also receive a return of capital in priority to the ordinary
   shareholders.

Question 6

procedures of dividend

Answer 6

1. It is** the directors **who will decide, having considered the accounts and whether there are profits available for the purpose, whether a dividend should be recommended for approval by the shareholders.
2. If a dividend is recommended,
   it is then up to the** shareholders **to approve it and declare the
   dividend by passing an **ordinary resolution. **
3. It is open to the shareholders to decline to declare the dividend or declare a smaller amount, but they are not permitted to declare a dividend in excess of that recommended by the directors.

Question 7

Unlawful Dividends

Answer 7

1. An unlawful dividend is a dividend payable other than **out of profits **available for the purpose.
2. If at the time of the distribution a shareholder knows or has reasonable grounds forbelieving that the distribution has been declared unlawfully,the shareholder is liable to repay it.
3. The directors may also be personally liable if a dividend is declared unlawfully, as they will have recommended it to the shareholders in the first place.

Question 8

RESOLUTIONS

Answer 8

Ordinary shareholders usually have full voting rights, whereas preference
shareholders’ voting rights are usually limited to decisions that** affect their class rights**, that is, that are relevant to preference shareholder rights only.

Question 9

DERIVATIVE CLAIMS

Answer 9

1. If a shareholder believes a director has or is about to breach a duty owed to the company and it appears the board will not assert the company’s rights to prevent or remedy the action,
   the shareholder may apply to court to bring a derivative claim against the director on behalf of the company.
2. Only a shareholder or a person to whom shares were transferred by operation of law (such as through inheritance) may bring a derivative claim.
3. The claim may be brought against the director or another person, or both.
4. Shadow directors are treated as directors for purposes of derivative claims (and so such a claim may be made against a shadow director).
5. It is permissible for a shareholder to assert a claim that arose** before** the shareholder became a shareholder.
6. A court must dismiss the claim if the application and evidence submitted along with the application do not show** a prima facie case. If it does, the court must move to a second stage and must dismiss if:
   (1) it is satisfied a person acting to promote the best interests** of the company would not seek to continue the claim or (2) the action was** authorised** by the company or authorisation would be likely.
7. The court must also consider (among other things): whether the shareholder is acting in** good faith, the importance of the action in question to the success
   of the company, and whether the shareholder could seek a remedy in their own right** rather than on behalf of the company (such as where the director has violated a duty owed personally to the shareholder).
8. Because such claims are brought on behalf of the company, any damages awarded belong to the company.

Question 10

Derivitive Claim
A court must dismiss the claim if the application and evidence submitted along with the application do not show a prima facie case. If it does, the court must move to a second stage and must dismiss if:

Answer 10

(1) it is satisfied a person acting to promote the best interests of the company would not seek to continue the claim or
(2) the action was authorised by the company or authorisation would be likely.

Question 11

PROTECTION OF MINORITY
SHAREHOLDERS

If the directors cannot or will not take action, it typically is up to the majority shareholders to decide whether to bring a claim on behalf of the company or whether to ratify the directors’ decision by passing an ordinary resolution.

The minority shareholders typically cannot bring that action. However, at
common law, a couple of exceptions are recognised:

Answer 11

1.unfair prejudice
2.winding up orer

Question 12

unfair prejudice

Answer 12

1. If a shareholder feels that the company’s affairs are being conducted in a manner which is unfairly prejudicial tothat shareholder, they can petition the court for a remedy.
2. Examples of unfair prejudice could be exclusion from the management of a quasi-partnership company, directors exercising their powers for** an improper purpose, directors awarding themselves excessive remuneration**, and nonpayment of dividends.
3. If a minority shareholder is successful insuch a claim, the most common remedy is an order that the minority shareholder’s shares are purchased.

Question 13

Winding up the Company

Answer 13

Any shareholder can 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