Company 5: Members and Joint Decision Making Flashcards
When can dividends be made and Procedure
Requirements
- only be made out of profits available for the purpose (accumulated realised profit minus accumulated realised losses); and
- cannot make company insolvent.
Procedure
- directors decide having considered accounts and whether there are profits available if to recommend
- recommended for approval by shareholders
- shareholders to approve with ordinary resolution
- alternatively shareholders can decide on smaller dividend but not larger
Rights of Ordinary Shares
Dividends
- paid after shareholders
- not cumulative
Voting Rights
- full voting rights
Winding Up
- return of surplus after preference shareholders
Preference Shares Rights
Dividends
- fixed % paid in priority to ordinary shareholders
- may be cumulative (meaning backpay for years where dividends were not paid)
Voting Rights
- usually none // or limited to decisions that effect their class
Winding Up
- return of surplus ahead of ordinary shareholders
What is an unlawful dividend and consequences
Dividend payable other than out of profits for the purpose
Shareholders
- if at time of distribution knew or had reasonable grounds for believing it was unlawful is liable to repay
Directors
- may be personally liable if dividend is declared unlawful
What is an Unfair Prejudice Claim? How is this typically remedied?
For protection of minority shareholders
- If shareholder feels company affairs are unfairly prejudicial to them can petition court for remedy
Might include
- exclusion from management of quasi-partnership
- directors using power for improper purpose (eg. issuing new shares to dilute individuals shareholding not to raise capital)
- Directors awarding themselves excessive renumeration
- non payment of dividends (maybe to remunerated themselves excessively)
Remedy
- most common is to order company to buy the shareholders shares
Can shareholder have company wound up?
Any shareholder can apply to have company wound up if company is solvent and they can show it is just and equitable to do so
However, this is the last resort (as would likely get less than if they sold shares)
Shareholders Right to Inspect: what can they inspect? Is there a process for doing so?
Service Contracts of Directors
- must be kept at registered office for 1 year after director leaves
Registrar of Members
- kept at registered office
- must request inspection (including purpose, and name address of anyone info will be shared with)
- Company to comply in 5 working days or apply to court claiming improper purpose
Requirements for how often shareholder meeting must take place
Public companies required to have one AGM
Public and private companies can have meetings whenever necessary
Who can call a shareholder meeting
By directors
By resigning auditor
- can require directors to call if they wish to give reasons for resigning
Court
- can call one if it is impractical for company (ie deadlock)
By Shareholders
- who has at least 5% of paid-up voting capital can require directors to call
- Directors to call one in 21 days of receipt of request
- must happen within 28 days
- if directors fail to call one requesting shareholder, or any shareholder with at least 50% of voting rights can call it
- shareholder is entitled to reimbursement for reasonable expenses
Notice for Calling Shareholder Meeting (to who, what must it include and timing)?
To be given to all (in writing or electronically):
- directors,
- shareholders,
- PR’s of deceased shareholders, - trustees of bankrupt shareholders; and
- auditor
Content
- company name, time and date, place of meeting, general nature of business, statement of right to appoint a proxy
- full text of any special resolution
Timing normal meetings
- notice must be given with at least 14 clear days (Articles can provide for more) (count 15)
- if not hand delivered then 2 days for deemed service (count 17)
Timing AGM
- 21 clear days notice
Requirements for short notice shareholder meeting
Short Notice if agreed by either:
- majority in number of shareholders who also hold 90% of shares
- cannot be used if documents must be laid out at registered office for 15 days prior to meeting
Quorum requirements for Shareholder meeting
2 shareholders/proxies (unless provided otherwise, or if there is single shareholder), or
One shareholder cannot also act as proxy for another to create quorum
Approval needed for different types of resolutions and filing requirements
Ordinary
- simple majority of members at meeting
Special
- 75% or more of members at meeting
- must be filed in 15 days at CH
- needed for alteration of articles, reduction in share capital, winding up, change name of company
Effect of insufficient notice for shareholder meeting
A member can seek to have action declared invalid
Methods of voting at shareholder meeting /and requirements
Normal Method
- show of hands
- each member = one vote
Poll Vote
- one share = one vote
- Can be demanded by 5+ shareholders, shareholders with 10%+ of voting rights or shareholders with 10%+ of paid up capital
Who can demand a poll vote
- 5 shareholders
- shareholders with 10% of voting rights
- shareholders with 10% of paid up capital
When can written resolutions for shareholder resolutions be used? When not? Who can demand them?
Can be used:
- by private companies only
Cannot be used:
- to dismiss director or auditor
Can be decided/demanded by:
- board; or
- shareholders who hold 5%+ of total voting rights
Matters requiring Ordinary Resolution of shareholders
- appointment and removal of auditor or director
- declaration of dividends
- directors decision to allot shares
- substantial property transactions involving directors with personal interest
- ratification of breach of duty by director
- director service contract over 2 years
- loans to directors
- payment to directors for loss of office
Substantial Property Transaction Def
Director buys/sells property to company for:
- under £5,000 no approval needed
- over £100,000 (automatically substantial)
- in-between depends on value of company. If over 10% of company netassets then SPT
Matters Requiring Special Resolution
- buying back company shares
- change to articles
- change to company name
Must be filed with CH within 15 days
What are derivative claims? Who can bring it and who can it be brought against?
When shareholders applies to court because they believe that:
- director has or is about to breach a duty owned to the company; and
- it appears the board will not prevent or remedy the action
Can be brought by:
- shareholder or anyone you is transferred shares through operation of law (inheritance)
- even for claim that arose before they became shareholder
Brought Against
- Director (inc. shadow director)
- another person
- or both
How does a court consider a derivative claim?
Step 1.
- must dismiss if applicant and evidence do not show prima facie case
Step 2: Must dismiss if:
- satisfied that person acting in best interest of company would not pursue claim; or
- the action was authorised by the company or authorisation would be likely
When might a member of a company be a person with significant control? What must be done if this is the case?
If they:
- directly or indirectly hold more than 25% of the shares;
- directly or indirectly hold more than 25% of the voting rights;
- directly or indirectly hold the right to appoint or remove a majority of the board of directors; or
- have the right to exercise, or actually exercises, significant influence or control over the company
Then information on the PSC must be entered into the company PSC register
When can a shareholder call a shareholder meeting? What is the process?
- shareholder must have 5%+ of paid-up voting capital can require directors to call
- Directors to call one in 21 days of receipt of request
- must happen within 28 days
- if directors fail to call one requesting shareholder, or any shareholder with at least 50% of voting rights can call it
- shareholder is entitled to reimbursement for reasonable expenses
How do written shareholder resolutions work? What must be included in them?
Voting
- same as normal (ordinary or special)
- always on poll vote
- but must be percentage of all shareholders entitled to vote
- generally lapses in 28 days from and including circulation date
Contents
- must be circulated to all voting members
- statement informing how to signify agreement and when resolutions will lapse
- any docs which must be left at registered office for 15 days prior
- any docs available at general shareholders meeting
If directors and shareholders who are the same pass both a board and shareholders resolution at same time?
No cannot be combined
