Company decision making

Question 1

What are the decisions called that are made by directors in board meetings?

Answer 1

Board resolutions

Question 2

What is the rule in relation to notice for director board meetings?

Answer 2

When a director calls a board meeting, they must give reasonable notice to the other directors.

Notice must include the time, date, place and method of communication (i.e. virtual or in person).

Question 3

What is the rule for quorum for director board meetings?

Answer 3

Two directors must be present at all times during a board meeting.

If both are present, the meeting is considered quorate.

Question 4

When may a director not count in the quorum or vote of a proposed decision of the board?

Answer 4

Where a director has a personal interests conflict with the proposed decision that may affect the company.

The director must also declare the nature and extent of their interest to the board.

Question 5

How do directors vote in board meetings?

Answer 5

Board meetings are passed with a simple majority i.e. over half of those present must vote in favour.

The chair will be the casting vote in the event of a tie.

Question 6

Do directors always need to a call a board meeting to make a decision?

Answer 6

No, they can pass a board resolution in writing or another method provided all eligible directors share a common view and the vote is unanimous.

Question 7

How do shareholders make decisions within a company?

Answer 7

Shareholder resolutions

Question 8

What are the two types of shareholder resolutions?

Answer 8

Ordinary resolutions
Special resolutions

Question 9

What is an ordinary resolution?

Answer 9

An ordinary resolution requires over half of the votes cast in favour at a shareholders’ general meeting.

Question 10

What is a special resolution?

Answer 10

A special resolution requires 75% or more of the votes cast in favour at a shareholders’ general meeting.

Question 11

What are the two methods in which shareholder resolutions can pass a resolution?

Answer 11

In general meetings
In writing

Question 12

What are the requirements to hold a general shareholders meeting?

Answer 12

They are called by the board of directors via a board resolution

Notice must be given to every shareholder, director and auditor in hard copy or electronic form

The notice must contain:
- the time, date and meeting
- the general nature of the business
- whether a special resolution is proposed and the wording of such resolution
- each shareholder’s right to appoint a proxy on their behalf

Question 13

What is the notice period for a shareholders general meeting?

Answer 13

14 days from the date it was deemed received

For post and email - this is 48 hours after it was sent.

Question 14

What is the rule for quorum for shareholder general meetings?

Answer 14

There must be a minimum of two shareholders at a general meeting.

Where a company only has one shareholder, the minimum is one.

Question 15

What shareholder decisions will not count where a shareholder has a personal interest?

Answer 15

Where there is a resolution to buy back some or all of a shareholder’s shares

An ordinary resolution to ratify a director’s breach of duty when the director in question is also a shareholder

Question 16

What is a poll vote in respect of a shareholder general meeting?

Answer 16

When a shareholder have a vote per share that they hold, as opposed to one vote per shareholder.

Question 17

Who can demand a poll vote?

Answer 17

Chair of the meeting

The directors

Two or more persons who have the right to vote on the resolution

A person or persons representing not less than one tenth of the total voting rights of all the shareholders who have the right to vote on the resolution

Question 18

When is a general shareholder meeting called in the last minute considered valid?

Answer 18

When the majority of the company shareholders are present

The shareholders present must hold 90% of the company’s voting shares (95% for public companies)

Question 19

What is the process for a written resolution for a shareholder ordinary/special resolution?

Answer 19

The board will hand out, post or email a written resolution or place the resolution on the website and circulate to all eligible members

The written resolution will set out the text of the ordinary and/or special resolution which the board is proposing.

The shareholders will sign and return their copy on the deadline provided.

Question 20

What is the lapse date for a written resolution for a shareholder ordinary/special resolution?

Answer 20

Unless the articles state otherwise, 28 days from circulation of the written resolution (midnight of the 28th day)

Question 21

When are written resolutions for a shareholder ordinary/special resolution passed?

How does the voting work for a written resolution?

Answer 21

When the majority of eligible members have signified agreement.

Shareholders will have a vote per share as opposed to a vote per person in a written resolution.

Question 22

How can you tell who is responsible for making a decision?

Answer 22

Where a non-specified resolution is required = ordinary resolution = shareholders

If a special resolution is required = special resolution = shareholders

If the company decides to do something = directors

Question 23

Can shareholders request a written resolution?

Answer 23

Yes - shareholders who have 5% or more of the voting rights in the company are entitled to require the company to circulate a written resolution.

The company must do so within 21 days of the shareholders’ request.

Question 24

Can shareholders request a general meeting?

Answer 24

Yes - directors are required to comply once they have received requests from at least 5% of such paid-up capital of the company as carries the right of voting at general meetings.

The request must also state the nature of the business.

Question 25

If shareholders request a general meeting, what is the notice period for directors to comply?

Answer 25

The board must call the general meeting within 21 days of the shareholders’ request and the meeting must be held no later than 28 days from the date of the notice.

Question 26

What are company obligations after a resolution has been made?

Answer 26

Company House must be notified via their standard forms.

Copies of special resolutions must be filed at Companies House. Some ordinary resolutions may require filing.

Question 27

What documents must companies keep up to date?

Answer 27

Register of members

Register of directors

Board minutes

Question 28

What is a company’s obligations in terms of its accounts?

Answer 28

Companies must keep adequate records and publish yearly accounts.

Each director should prepare a directors report for each financial year (except small companies or micro-entities).

Every company must file their accounts at Companies House.

Every company must file a confirmation statement on form CS01 within 14 days of the company’s confirmation date.

Question 29

Who is the company secretary?

Are they mandatory?

Answer 29

An officer of the company who deals with the company’s legal and administrative requirements.

They are not mandatory - their duties can be performed by the directors or someone authorised by them.

Question 30

How can company secretaries be appointed or removed?

Answer 30

By a directors board resolution.

Question 31

What are the administrative and notification requirements in respect of appointment/removal of a company secretary?

Answer 31

The company must notify the Registrar of Companies on form AP03 (human secretary) or AP04 (corporate secretary) within 14 days of appointment

A register of secretaries must be kept in accordance with the CA

Private companies must ensure information for company secretaries is kept up to date at Companies House

The company must notify the Registrar of Companies within 14 days of any change in particulars of the company secretary on form CH03 (human secretary) or CH04 (corporate secretary)

Question 32

What is the purpose of a company auditor?

Answer 32

The auditor will prepare the company’s annual accounts to be sent to its shareholders.

Question 33

What types of companies are exempt from statutory audit requirements?

Answer 33

Small companies (those with turnover of no more than £10.2m and no more than 50 employees)

Dormant companies (companies which do not trade)

Question 34

Who appoints the auditor?

Answer 34

The directors of a private company usually appoint the company’s first auditor, after that the shareholders have the power to appoint by ordinary resolution.

They are deemed to be reappointed each year.

Question 35

What is the auditor’s liability?

Answer 35

Auditors do not owe a duty of care to shareholders or potential new shareholders.

They can be sued for negligence by the company they are auditing.

Criminal offences can also be committed when misleading or omitting in their reports.

Question 36

When can an auditor be removed from office?

Answer 36

An auditor can be removed from office at any time by way of ordinary resolution. Shareholders must give special notice to the company of the proposal to remove the auditor.

They may also resign at any time.

Question 37

How do you become a shareholder?

Answer 37

The two people who sign the memorandum of association as subscribers become the first shareholders of the company.

A new shareholder can obtain shares from an existing shareholder by buying them, being gifted them or via transmission.

A company may allot new shares.

Question 38

When a company allots new shares, when must they enter the shareholder on the register of members?

Answer 38

Within two months of the transfer being lodged with the company.

Question 39

Are there any criminal offences in respect of the register of members?

Answer 39

Failure to keep the register of members up to date

Failure to allow inspection of the register of members

Question 40

When must a company issue a share certificate?

Answer 40

Within two months of allotment of shares

OR

Within two months of a transfer of shares being lodged with the company

Question 41

What is a PSC register?

Answer 41

A persons of significant control register (i.e. anyone who owns more than 25% of the shares or controls more than 25% of the voting rights).

It is mandatory even if there are no shareholders entered onto it.

Question 42

What forms are required to be filled in?

What is the deadline to file these with Companies House?

Answer 42

Form PSC01 - a new PSC to be added (individual)

Form PSC02 - a new PSC to be added (legal entity)

Form PSC04 - details of an existing PSC (individual)

Form PSC05 - details of an existing PSC (legal entity)

Form PSC07 - a PSC to be removed

The deadline is 14 days from the change on the PSC register

Question 43

What are shareholders rights under the articles of association?

Answer 43

The company’s constitution is a statutory contract between each shareholder and the company, therefore they can sue for breach of contract.

Shareholders may also take action against other shareholders where their rights have been infringed e.g. voting rights / their right to share in profits.

Question 44

What are shareholders rights under a shareholder agreement?

Answer 44

This gives another option which binds the parties and provides a remedy where a term is breached.

This only applies to those shareholders who have entered into the agreement.

Question 45

What are shareholders voting rights? (6)

Answer 45

Right to send a proxy to a general meeting

Right to a poll vote

Right to receive notice of general meeting

Right to requisition a general meeting

Right to apply to court to call a general meeting

Right for shareholders with 5% or more voting rights to require circulation of a written statement

Question 46

What are shareholders general rights? (7)

Answer 46

To receive dividends

To apply to court for the company to be wound up

To remove a director by ordinary resolution

To remove an auditor by ordinary resolution

To inspect the company’s minutes, statutory registers, director’s service contracts and indemnities

To receive a copy of the annual accounts

To seek an injunction to refrain the company from doing something prohibited under the constitution

Question 47

What is a subsidiary company?

What is a wholly-owned subsidiary?

Answer 47

A company which is controlled by another company (its holding company)

A wholly-owned subsidiary is a company whose parent company owns 100% of the shares.

Question 48

What are ordinary shares?

Answer 48

Ordinary shares give shareholders the right to attend and vote at general meetings.

They entitle shareholders to dividends.

They may also be called ordinary A and ordinary B where companies may wish to issue dividends to certain categories of shareholders.

Question 49

What are preference shares?

Answer 49

These are enhanced rights over ordinary shareholders. These rights will be set out in the company’s articles of association.

These are usually for investors looking for a return on their investment as opposed to wanting voting rights.

They can be cumulative and non-cumulative

Question 50

What is a substantial property transaction?

Answer 50

• A director, in their personal capacity, or someone connected with the director
• Buys from or sells to the company
• A non-cash asset
• Of substantial value

Question 51

What is required to enter into a substantial property transaction?

Answer 51

Shareholder consent is required by way of an ordinary resolution

Question 52

What is the value of a substantial property transaction?

Answer 52

Over £100,000

Over £5,000 and more than 10% of the company’s net asset value

Question 53

What happens if a company enters into a substantial property transaction without the necessary consents?

Answer 53

The transaction is voidable and individuals may need to account to the company for any loss or damage.