Company Decision-Making Flashcards
What are the two broad categories of shareholder decisions?
1) Decisions for shareholders alone - Directors cannot reverse/disregard decisions like these
- Resolution changing articles of association (by special resolution)
- Changing company name (by special resolution)
2) Decisions which give directors permission to enter certain types of contracts
- SPTs
- Shareholders don’t have power to enter these on the company’s behalf; they provide permission for directors to do so
How do directors make decisions?
Directors make decisions collectively at board meetings; these decisions are called board resolutions
Reasonable notice must be given when to the other directors when a board meeting is called; what is reasonable is fact dependent
- Notice should include time, place and date of meeting – no need for writing
A quorum of two directors must always be present during a board meeting
- Quorum is minimum number who must be present for the meeting to be valid
Board resolutions are passed by majority; each director has one vote and if there is a chair, they have a casting vote in the event of a tie
Board resolution can be passed in writing where there is unanimity between directors; if not, it won’t be validly passed this way
Give a summary of the key points about calling a board meeting
Use the acronym ‘Can Newly Qualifieds Really Advise?’
- Calling – a board meeting
- Notice – reasonable notice given to all directors (24 hours is enough)
- Quorate – need 2 directors to be a valid board meeting; not quorate if 1 of the two had a personal interest in a transaction
- Resolutions – simple majority passes the motion; chair gets a casting vote in a tie; common resolution would be to call a GM or circulate a WR for shareholders
- Admin – meeting minutes kept for ten years; do notices need to be sent or documents made available for inspection?
What restrictions are there on directors making decisons when they have a personal interest in a matter?
1) Directors are prevented from voting on a proposed decision where they have a personal interest in that matter (can be disapplied from model articles)
2) Directors must also disclose the nature and extent of the interest to the board (cannot be disapplied from model articles)
3) Exceptions to this apply where:
- (1) if it cannot reasonably be regarded as likely to give rise to a conflict of interest;
- (2) if, or to the extent that, the other directors are already aware of it; or
- (3) if, or to the extent that, it concerns terms of a service contract that have been or are to be considered…by a meeting of the directors
What are the two types of resolutions that shareholders can pass?
For an ordinary resolution to be passed, over 50% the votes cast at a shareholder’s general meeting must be in favour
For a special resolution to be passed, exactly 75% or more votes at a shareholder’s general meeting must be in favour
Shareholders’ resolutions can be passed either in a general meeting or by written resolution
How are general meetings of the shareholders called?
Called by the board of directors by passing a board resolution, when they want the shareholders to pass a shareholders’ resolution
Public companies must hold one every year
Private companies have no requirements as to whether one must be held
To be valid, the notice and quorum requirements for a general meeting must be met.
What are the notice requirements for a general meeting?
Directors must give notice to every shareholder and director + auditor
Sets out the time, date, place of meeting; general nature of the business to be dealt with at the meeting; the exact wording of special resolution (if proposed); and each shareholder’s right to appoint a proxy to attend for them (votes in line with their wishes)
Minimum notice required for a general meeting is 14 clear days – day of notice not included (if handed on Monday, meeting would be a fortnight Tuesday earliest)
- Where notice given by post or email, it is deemed received after 48 hours, so if posted Monday, earliest meeting would be fortnight Thursday)
What are the quorum requirements for a general meeting?
The quorum of a general meeting is two, unless the company only has one shareholder
Each shareholder has one vote and only votes of those who attend are considered
Shareholders can vote if they have a personal interest in a matter, except their votes won’t count in two situations, if their vote causes a difference in whether the resolution passes or not:
- a resolution to buy back some or all of a shareholder’s shares, because the shareholder in question could be voting in their own interests, not the company’s, when voting; and
- an ordinary resolution to ratify a director’s breach of duty under s 239 CA 2006, where the director in question is also a shareholder, because they would almost certainly vote in favour of ratifying their breach of duty as a director
Give a summary of the key points of calling a general meeting
Use the acronym ‘Can Newly Qualifieds Really Advise?’
- Calling – usually called by directors at a BM; can be requisitioned by shareholders
- Notice – must be given to all directors, shareholders and auditors; notice is 14 clear days, unless short notice approved by 90% of shareholders; notice states time, date, place of meeting and general business to discuss
- Quorum – need 2 shareholders for a valid GM; shareholders only unable to vote when they have an interest (when a shareholder is having their own shares bought back by the company; or where they are voting to ratify their own breach of duty)
- Resolutions – ordinary require more than 50% in favour and special require 75% or more (exactly 75% is enough); one vote per shareholder, unless poll vote called which allows one vote per share
- Admin – documents filed or sent as necessary
What is a poll vote and how does this affect a general meeting?
A poll vote is where shareholders vote in a general meeting on the basis of one vote for each share they own, so the more shares they have, the greater their voting power
Can be demanded by:
- (a) the chair of the meeting;
- (b) the directors;
- (c) two or more persons having the right to vote on the resolution; or
- (d) a person or persons representing 10% or more of the total voting rights of all the shareholders having the right to vote on the resolution
Can be demanded before a general meeting and during the meeting (before/after voting)
When can a general meeting be held on short notice?
A general meeting can be held on short notice (held straight away) if a majority of shareholders, who between them hold 90% of the voting shares consent (95% for public companies)
Doesn’t have to be above 90% - just exactly 90% is sufficient
If there were 2 shareholders who held 90% and 4 total, a third would have to agree as well. Must be a majority in number of people as well as 90% share
What are written resolutions and how do they work?
Alternative to GM where the board of directors post/email a written resolution, which sets out the text of the ordinary/special resolution – shareholders sign and return it to vote in favour of it
Must be circulated to every eligible member, meaning the shareholders who are entitled to vote on the resolution
The written resolution must include how to signify agreement and the deadline for returning the written resolution (usually 28 days from circulation, with method of circulation not changing this; if posted on 1st June, lapse date is 28th June)
Written resolutions are passed when the required majority have signified agreement - Check the number of positive votes as a percentage of total shares of the eligible members
- With WRs, each shareholder has one vote for each share they own (like a poll vote)
When can shareholders request that a written resolution is circulated?
A shareholder or shareholders who have 5% or more of the voting rights in the company are entitled to require the company to circulate a WR
Can be reduced below 5% by the company’s articles, but not above
Company must circulate the WR within 21 days of the request
When can the shareholders requisition a general meeting?
Shareholders representing at least 5% of such paid-up capital of the company can require the directors to call a GM
Request must state the general nature of the business to be dealt with at the meeting
Directors must set a date for it within 21 days of the request, with 14 days notice from the point its called and no more than 28 days notice
Which special resolutions need to be filed at Companies House?
All special resolutions
What documents are not sent to the Registrar of Companies, but must be updated internally?
Register of members
Register of directors
Board minutes for every board meeting - must be kept for 10 years at company’s registered office
Minutes of every general meeting - must be kept for 10 years at company’s registered office
Outcome of any written resolutions - must be kept for 10 years at company’s registered office
What annual responsibilities does a company have?
1) Company must keep adequate accounting records and failing to do so is an offence
- Directors responsible for ensuring accounts are produced each financial year + that they give a fair and true view of the state of affairs at the company
- Directors must also prepare a director’s report to accompany the accounts - both filed at Companies House
2) Companies must file a confirmation statement within 14 days of the anniversary of their incorporation
Who are the company’s officers?
The directors, company secretary and auditors
What is the role of a company secretary and what Companies House requirements accompany the position?
1) Company secretary is not required for private company, but is for public company
- They deal with the company’s legal administrative requirements (ensuring filings with Companies House are kept up to date)
- Generally responsible for writing up board minutes and minutes of GMs
- They may also be a director at same time
- Can resign from position or be removed by board resolution
2) CA requirements for company secretaries:
- Notify Registrar of Companies within 14 days of CS appointment
- Companies with a CS must keep a register of secretaries - Private companies can elect not to have one
- Notify Registrar of Companies in 14 days of resignation or removal of CS + amend register
- Notify Registrar of Companies in 14 days if particulars of CS in register change + amend register
What is the role of an auditor?
1) Auditor is an accountant whose main duty is to prepare a report on the company’s annual accounts, to be sent to the shareholders
- The report states whether they feel the accounts have been properly prepared and give a true and fair view of the company
2) Private companies are obliged to appoint them
3) They must be qualified (certified accountant) and independent
4) Directors usually appoint the first accountant and shareholders can appoint one by ordinary resolution after that
5) Auditors owe no duty of care to shareholders, but can be sued for negligence by the company they’re auditing
6) Shareholders can remove them by ordinary resolution, or they can resign
- Auditor must deliver a statement to the company explaining the circumstances connected with their ceasing to hold office (whether by removal or resignation)
Who has the power to change the accounting reference period and what are the rules around this?
Decision for the directors alone
Whilst there is no limit on the number of times the accounting reference period can be changed, a further change will not be effective if notice is given less than 5 years after the end of an earlier accounting reference period extension
The extension must not result in a new period exceeding 18 months
Who can appoint directors?
Can be done by board resolution or by ordinary resolution of shareholders
Must submit a notice of appointment of a director to Companies House within 14 days of appointment, where the director is an individual
Must submit notice of appointment of corporate director if the director is a corporate body
What are the minimum execution formalities for a contract signed by a company?
Must be signed by the company by a person acting under its authority express or implied
