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Company Decision Making Flashcards

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1
Q

What is the directors’ role re: decision making?

A

Directors make day to day decisions

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2
Q

What power is given under MA3?

A

D’s general authority to run the company

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2
Q

What is the shareholders’ role re: decision making?

A

Shareholders are involved in limited decision making, but important decisions are taken by the shareholders

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3
Q

Give an overview of the directors’ decision making process

A
  1. D’s check it is a decision they can take
  2. If so, they hold a board meeting to vote on the resolution
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3
Q

Once shareholders take a decision, what must directors do?

A

Implement it and deal with the administration requirements

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4
Q

How do directors check if it is a decision they can take?

A

o Check CA 2006
o If it is not clear from CA, check the AAs
o If the AAs are also silent, and the company has used the MAs, then this will be a D decision taken under MA3 (general authority power)

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5
Q

How is a decision passed at a board meeting?

A

Ds vote on the resolution. A simple majority is needed for the resolution to pass.

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6
Q

Why is it important the procedure for board meetings is followed?

A

because if it is not, the meeting and resolution will not be valid

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7
Q

What is the acronym to remember the procedure for a board meeting or board meeting?

A

NQIRVA
o Notice (No)
o Quorum (Qualms)
o Interests (In)
o Resolutions (Ringing)
o Voting (Viola)
o Administration (Adams)

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8
Q

What is the position under MA7?

A

Collective decisions - the general rule is that any decision taken by Ds must either be by majority or in accordance with MA8

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9
Q

What is the position under MA8?

A

Unanimous decisions - A decision is taken in accordance with MA8 where all eligible Ds indicate that they share a common view on the matter. Ds can express their agreement formally (i.e. signed resolution) or otherwise (i.e. even a text message would suffice)

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10
Q

How does the chair person get into post?

A

MA12 -

Ds can appoint D to chair their BMs. The chairman’s appointment can be terminated at any time.

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10
Q

What happens if the chair is late for a board meeting?

A

If the chairman fails to attend within 10 minutes of the start of the meeting, the present Ds must appoint one of themselves to chair it

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10
Q

If a director cannot attend a board meeting, can someone else attend in their place?

A

If D cannot attend a BM, there is no provision under the MAs for someone else to vote on their behalf at the meeting. A special article would need to be added.

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11
Q

What power does the chairman have at board meetings?

A

MA13 -

The chairman (/ acting chairman) has the casting vote in BMs.

NB: This does not apply if the articles have been amended to say they the chair is not to be counted in quorum or voting.

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12
Q

What is the position under MA38?

A

The chairman that has been appointed by Ds shall chair general meetings if present and willing to do so

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13
Q

What are the notice requirements under MA9?

A

Reasonable notice must be given to all Ds of a board meeting by either:
o One D; or
o By the secretary, at the request of a D
The notice must set out the time, date, place and method (i.e. online)

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14
Q

What is ‘reasonable’ notice for a board meeting?

A

There is no definition of reasonable, this will depend on the facts i.e. if all in the building, short notice may be acceptable but if international Ds then more notice would be required

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15
Q

What must directors be able to do at a board meeting?

A

Ds must be able to communicate to others any information/opinions they have on a particular item of business of the meeting (MA10)

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16
Q

What are the quorum requirements for board meetings?

A

MA11 -

two Ds must be present at all times during the BM for the meeting to be valid (unless the company only has 1 D, then this does not apply)

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17
Q

What is meant by ‘quorum’?

A

the minimum number of Ds at the BM to ensure the decision is valid

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18
Q

What is meant by ‘quorate’?

A

if quorum is present at the meeting, the meeting is said to be quorate

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19
Q

Give an overview of shareholder decision-making

A

Stage 1 - Ds check it is a SH decision

Stage 2 - Ds hold a board meeting (BM). They will either:
o Resolve to call a general meeting (GM); or
o Circulate a written resolution (WR)

Stage 3 - there will either be a GM or vote on a WR
o Resolution not passed - end of decision-making process
o Resolution passed - progress to stage 4

Stage 4 - second board meeting
o Ds resolve to implement the SH resolution

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20
Q

What is the position under s177 CA 2006?

A

If D has a personal interest in a proposed transaction / arrangement with the company, they must declare the nature and extent of this interest to the board.

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21
Q

What interests does a director not need to declare under s177(6)?

A

D does not need to declare a personal interest in a proposed transaction/arrangement with the company if:
 It cannot reasonably be regarded as a COI; or
 The other Ds are already aware of it; or
 It concerns terms of a service contract that have been or are to be considered by a meeting of Ds

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22
Q

What is the difference between s177 and MA14?

A

S177 cannot be disapplied in the company’s articles, but MA14 can.

Even if a company disapplies MA14, they are still bound by s177 to disclose.

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23
Q

What is the position under MA14?

A

If D has an interest in an actual or proposed transaction / arrangement with the company, they cannot count in quorum / vote of the decision

Remember, a company can disapply the MAs

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24
Q

If the director has a s177 interest, can they be involved in the meeting?

A

They cannot count in the quorum of the relevant decision, but they can still take part in the meeting and vote on other matters

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25
Q

SBAQ approach: when D has an interest in a transaction, how should this be considered?

A

o Does D have an interest in the transaction?
o Are they exempt from declaring this?
o What effect does this have on quorum under MA14?

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26
Q

What is the position in terms of resolutions at a board meeting?

A

If the decision is a D decision - can pass a board resolution

If the decision is a SH decision  resolve to call a GM or circulate a WR

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27
Q

What is the position under MA8?

A

A board resolution can be passed in any form so long as it shows all eligible Ds share a common view

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28
Q

What is the position under MA7?

A

simple majority (i.e. more than 50%) needed in order to pass a board resolution

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29
Q

How many votes do directors have at board meetings?

A

Each D will have one vote and this is done by a show of hands

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30
Q

What impact does the chair of the board meeting’s vote have?

A

They have the casting vote

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31
Q

When is the chair’s casting vote in a board meeting used?

A

The casting vote is only used in favour of the resolution in order to pass the board resolution. If there is a tie, the resolution could not pass (i.e. no simple majority)

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32
Q

What are the internal administration requirements following a board meeting?

A
  1. send a notice for a GM (if applicable)
  2. ensure statutory books are up to date i.e. register of members and directors, all board meeting and general meeting minutes
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33
Q

How long do board meeting and general meeting minutes need to be kept for?

A

10 years

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34
Q

What are the external administration requirements following a board meeting?

A

If this is the second board meeting to implement a SH decision, copies of all SRs and some ORs must be filed at Companies House

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35
Q

What is form AD02 used for?

A

to inform CH of SAIL address

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36
Q

What is form AD03 used for?

A

to inform CH the statutory books are moving to the SAIL address

37
Q

What is form AD04 used for?

A

to inform CH the statutory books are moving back to the registered office

38
Q

What is a general meeting?

A

A shareholder meeting

39
Q

How is a general meeting convened?

A

D passing a board resolution to call a GM; or
SHs requisitioning the board call a GM in order to pass a SH

40
Q

How often must PLCs have a general meeting?

A

There must be a general meeting every year

41
Q

How often must LTDs have a general meeting?

A

There are no requirements for an LTD to call a GM unless provided for in the articles.

42
Q

When must directors call a general meeting?

A

Once they receive a request for a GM from SHs with at least 5% of paid shares of the company

43
Q

What must shareholders state in their request for a general meeting?

A

Must state the general nature of business to be dealt with at the GM

44
Q

After directors receive a requisition from shareholders, what are the time scales?

A

Directors must call (i.e. give notice) of a general meeting within 21 days of the request and the meeting must be held within 28 days of the date of the notice (in effect, it can take up to 7 weeks for a meeting to be held)

45
Q

What happens if the notice requirements for a general meeting aren’t met?

A

The GM will not be valid

46
Q

Who must be given notice of a general meeting?

A

All Ds, SHs and any auditors

47
Q

What format must the notice of general meeting take?

A

Notice must be given in hard copy, electronic form or website

48
Q

What must be included in the notice of general meeting?

A

The notice must set out:
o The time, date and place of the meeting
o General nature of business to be dealt with
o If an SR - exact wording of the proposed SR
o Each SHs right to appoint a proxy to attend and vote on their behalf

49
Q

What is the minimum notice period for a general meeting?

A

14 clear days

50
Q

What is the position in relation to service of a notice for a general meeting?

A

Personal delivery of notice - time runs from the next day
Email / postal delivery of notice - time runs 2 clear days after delivery

51
Q

What are the requirements for a general meeting to be held on short notice?

A

A GM can be held on short notice if SHs who hold at least 90% (95% for PLCs) of the shares consent

52
Q

What is quorum for a general meeting?

A

2, unless the company’s articles say otherwise or there is only one SH

53
Q

Can a shareholder count in quorum if they have a personal interest?

A

Yes

54
Q

Can a shareholder vote on a decision relating to a resolution to buyback some of their shares or ratify a breach they have committed as a director?

A

Yes, but their vote will not count.

55
Q

When is a shareholders’ vote not counted at a general meeting?

A

if the decision relates to:
o A resolution to buy back some / all of the SHs shares; or
o Where they are also a D and voting to ratify their own breach

56
Q

What majority is needed to pass an OR?

A

more than 50% of those present and voting must be in favour for the OR to pass

57
Q

What majority is needed to pass an SR?

A

at least 75% of those present and voting must be in favour for SR to pass

58
Q

What are the methods of voting at a general meeting?

A

o Show of hands (i.e. one vote per SH). This is standard.
o Poll vote (i.e. the SHs get a vote for each share they own)

59
Q

How does a poll vote come about?

A

A poll vote can be demanded before, during or after the vote has taken place. Once demanded, a poll vote must take place.

60
Q

Who can demand a poll vote?

A

o The chair of the meeting
o Directors
o Two or more persons who have the right to vote on the resolution
o A person(s) who represent at least one 10th of the total voting rights of all the SHs who have the right to vote

61
Q

Can both a written resolution and general meeting happen?

A

No. A resolution is passed using one or the other.

62
Q

Can PLCs use the written resolution procedure?

A

No.

63
Q

How is the written resolution distributed?

A

The Ds will either personally deliver, post, email or place on the website the WR

64
Q

Who must the written resolution be sent to?

A

The WR must be sent to all eligible members.

If they agree, they will sign and return.

65
Q

Who is an ‘eligible member’?

A

A SH who is entitled to vote on the resolution at the time it was circulated

66
Q

What is contained in the written resolution?

A

The wording of the OR/SR
How to signify it
The lapse date (i.e. the deadline for returning the WR)

67
Q

What is the lapse date for a written resolution?

A

The lapse date is 28 days from the date of circulation unless otherwise specified in the articles (NB: the circulation date is counted)

68
Q

Can shareholders requisition a written resolution?

A

Yes, if those with 95% of the voting rights require Ds to circulate a WR.

Shareholders can also require the company to circulate a written statement of up to 1000 with the WR

69
Q

Can the articles of association ament the % of shareholders needed to requisition a written resolution?

A

The AAs can reduce this to below 5% but not more

70
Q

What is the time frame for a written resolution to be circulated?

A

within 21 days of the request

71
Q

What are the financial consequences of a written resolution?

A

SHs must pay the company’s expenses for dealing with the request

72
Q

What decisions of directors require shareholder approval?

A

Substantial property transactions
Loans to directors
Long-term service contracts
Payments for loss of office

73
Q

What is a substantial property transaction?

A

An SPT is when a D buys from or sells something to the company

74
Q

What resolution is required to authorise a substantial property transaction?

A

OR

75
Q

What are the 3 key questions to determine if the transaction is an SPT?

A
  1. Is the subject of the transaction a non-cash asset?
  2. Is the NCA of substantial value?
  3. Does the transaction involve D / person connected to D?

If YES - this is an SPT that will require approval (unless exempt)

75
Q

What are the directors getting approval from the shareholders for re: SPTs?

A

The BOD is not getting consent to engage in the transaction, but permission to engage in a transaction with the D in a personal capacity

76
Q

What SPTs are exempt (i.e. do not need approval)?

A

o The company is not a UK-registered company
o The company is a wholly owned subsidiary
 NB: if D is also a D is the holding company, the holding company will need to obtain SH approval
o The company is in administration / being wound up
o In a transaction between the company and the D, but D is acting in his capacity as a SH of that company
o In a transaction between a holding company and its wholly owned subsidiary
o In a transaction between two wholly owned subsidiaries of the same holding company

77
Q

Re: SPTs - what is a non-cash asset?

A

Any property or interest in property other than cash i.e. a loan would not be covered

78
Q

Re: SPTs - what is meant by ‘substantial value’?

A

The asset will be substantial if:
o Its value is more than £100,000; OR
o It is worth more than £5,000 and more than 10% of the company’s net asset value

79
Q

Re: SPTs - who is a person ‘connected to’ D?

A

A member of D’s family (inc: spouse, CP, long-term partner, D’s children and step-children, children and step-children of D’s partner, D’s parents)

A company D (or a person connected to D) is connected to

A business partner of D

A trustee of a trust D is a B of

80
Q

Re: SPTs - when will D (or a connected person) be ‘connected to a company’?

A

The D or the connected person own 20% or more of the share capital or voting power; or

Together, D and the connect person own 20% or more of the share capital or voting power

81
Q

What is the consequence if the company has entered into an unauthorised SPT?

A

It is voidable, unless:
o It is no longer possible to restore the money/asset subject to the arrangement;
o The company has been indemnified;
o Avoidance would affect a bona fide person not party to the transaction; or
o The SHs affirm the SPT within a reasonable time (i.e. retrospectively approve by OR)

A responsible party can be liable to account for the gains/losses

82
Q

Re: SPTs - who may be liable to account for any gains / losses from an unauthorised SPT? To what extent?

A

The following may be jointly and severally liable to account for any gains / losses:
o Any directors from the other company (or its holding company)
o Any ‘connected person’ to the transaction
o The director in question
o Any directors from the company in question that authorised the SPT

83
Q

When must a payment for loss of office be approved by shareholders?

A

Any payments for loss of office to D, past Ds or connected persons for more than £200 must be approved by OR

84
Q

What is needed to authorise relevant payments for loss of office?

A

Ordinary resolution

85
Q

When must a long term service contract be approved by shareholders?

A

The BOD cannot agree a service contact for D with a guaranteed term (i.e. they cannot be terminated) for more than two years unless approved by the SHs by OR

86
Q

What is needed to authorise relevant long term service contracts?

A

Special resolution

87
Q

Can a company give a loan, guarantee or security to a D of the company (or holding company)?

A

No, unless it has been approved by OR or it is exempt

If the D is a D of the holding company, the holding company will also need to authorise this by OR

88
Q

What is needed to authorise relevant loans etc to directors?

A

ordinary resolution

89
Q

When can company give a loan, guarantee or security to a D of the company (or holding company)?

A

o The company is not UK-registered
o The company is a wholly owned subsidiary
o The expenditure is to enable D to properly perform their duties and is not more than £50k
o The expenditure is to enable D to defend criminal / civil proceedings relating to the company
o The expenditure is to enable D to defend in regulatory proceedings
o It is a minor business transaction that does not exceed £10k

90
Q

Re: loans etc to Ds - what are the administrative requirements?

A

Where approval is required, the BOD must prepare a memorandum of the terms of the loan and company’s liability

This will need to be at the GM and available at the RO 15 days before the GM or accompany the WR

91
Q

Re: loans etc to Ds - what is the effect if the company enter into an unauthorised loan?

A

The company can declare the loan void, unless:
o It is no longer possible to restore the money/asset subject to the arrangement;
o The company has been indemnified;
o Avoidance would affect a bona fide person not party to the transaction; or
o The SHs affirm the loan within a reasonable time (i.e. retrospectively approve by OR)

If the company agreed it, they are unlikely to avoid it if they authorised it. This is more likely to be relevant where an insolvency practitioner decides it is in the company’s best interest to avoid the contract and pursue D for immediate repayment.

92
Q

Re: loans etc to Ds - who may be liable to account for any unauthorised losses/gains and to what extent?

A

The following may be jointly and severally liable to account for any gains / losses:
o The D who took the loan
o The Ds who authorised the loan

93
Q
A

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