Company Shareholders

Question 1

How do you become a shareholder?

Answer 1

The 2 people who sign the memorandum of association as subscribers, are automatically the first shareholders.

You can introduce in 2 ways:

Obtain shares from an EXISTING shareholder: (buying, recieving as a gift, or if dies)

Allot new shares, and sells them to new or existing shareholders.

Question 2

What is the register of members?

Answer 2

Every company must keep a register of members.

May elect to keep information on central register at Companies House.

Question 3

What are share certificates?

Answer 3

All shareholders have the right to receive a share certificate. This is PRMA FACIE evidence of the holders entitle to the shares.

Question 4

When must share certificates be issued to shareholders?

Answer 4

2 months of the allotment of shares, or 2 months from transfer of shares being lodged with company

Question 5

What is the PSC register

Answer 5

Private and non-traded public companies must keep a register of persons with SC.

Enable third parties to know who controls more than 25% of the voting rights.

Question 6

What are the forms that must be filed for PSC?

Answer 6

PSC01 - completed by individual

PSC07 - completed if anyone ceases to be a PSC

PSC04 - anyone who already appears, but their details change

Question 7

What is the deadline for filing forms for PSC?

Answer 7

14 days from date the company made the change in its PSC register

Question 8

What are articles of association?

Answer 8

Companys constitution is a statutory contract between the SHAREHOLDER and the COMPANY.

This gives shareholders a remedy for rbeach of contract.

Allows shareholders to take action against other shareholders of the company, where the shareholders membership rights have been infringed

Question 9

What are shareholders agreements?

Answer 9

Bind all of the parties to the agreement, and provide remedy if one of its terms is breached.

Question 10

What are examples of matters which are commonly included in shareholders agreements?

Answer 10

Restriction on transferring shares
Bushell v Faith clauses
No competing clause

Question 11

What are voting rights that shareholders have?

Answer 11

Right to send proxy to a general meeting
Right to a poll vote
Right to receive notice
Right to requisition a general meeting
Right to apply to court to call a general meeting
Right for a shareholder/s with me than 5% require circulation of a written statement
Right of shareholders holding more than 5% to require written resolution with this statement

Question 12

What rights do shareholders hold?

Answer 12

Right to recieve dividend, as long as there are profits available

Right to apply to court for company to be wound up

Right to remove director by ordinary

Right to remove auditor by ordinary

Right o inspect (without charge), companys minutes of general meetings, all shareholders resolutions, all statutory registers, directors service contracts, any contracts relating to the company’s purchase of its own shares.

Right to receive a copy of the companys annual accounts and reports

Right to seek an injunction to restrain the company from doing something prohibited by constitution

Question 13

What are the different types of shareholders?

Answer 13

Corporate shareholders
Groups of companies

Question 14

What is a subsidiary of another company and a holding company?

Answer 14

Several companies will link together to form a network of companies. When a company owns shares in ANOTHER< it may be that one of the companies is classed as a subsidiary of the other.

Holding company if:
- that other company holds a majority of its voting rights,
- or, that other company is a member of it and has the right to appoint ot remove its board of directors
- it is a subsidiary of a company that is itself a subsidiary of that other company

Question 15

What is a wholly-owned subsidiary?

Answer 15

It has no members except that other.

Question 16

What are the different types of shares?

Answer 16

Ordinary shares
Preference shares

Question 17

What are ordinary shares?

Answer 17

Give shareholders right to attend and vote at general meetings.

Entitled to receive dividend if they are declared.

Question 18

What are preference shares?

Answer 18

Receive enhanced rights of some sort.

Eg - guaranteed rights to a dividend.

Preferential shareholders are often people who wish to invest in a company, and are willing to FOREGO voting ights, in return for greater financial returns.

Question 19

What is a cumulative preferential shareholder, or a non-cumulative preferential shareholder?

Answer 19

Cumulative: preference shareholder has to be paid any missed dividends from vinous financial years as well as current.

Non-cumulative: do not carry this right.

Question 20

What are participating preferential shareholders?

Answer 20

Have the further right to receive profit or assets, in addition to other preference share rights.

Question 21

What are the 2 protections of minority shareholders?

Answer 21

Unfair prejudice petitions

Derivative claims

Question 22

Who are minority shareholders?

Answer 22

Lower voting than others.

Question 23

What does s 994 CA state amount unfair prejudice petitions?

Answer 23

Allows any shareholder to apply to the court for an order for a remedy, where they feel that they have been unfairly prejudiced as a shareholder.

Question 24

What are the grounds for a prejudice petition?

Answer 24

The companys affairs have been conducted in a manner that is unfairly prejudicial to the interests of the members.

An actual or proposed act or omission of the company is or would be so prejudicial.

Question 25

What are examples of conduct which could result in unfair prejudicial action?

Answer 25

Diverting opportunities to a competing business, in which the majority shareholder holds an interest

Awarding excessive pay to directors

Excluding a shareholder from management of the company.

Question 26

What happens if the court is satisfied that unfair prejudice has occurred?

Answer 26

Will make an order that it sees fit

Most common - other shareholders must buy the shares of the unfairly prejudiced shareholder, or buy back from company.

Question 27

What are derivative claims?

Answer 27

Is a claim instigated by a shareholder for a wrong done to a company, whcih has arisen from an ACT or OMISSION of a director

Question 28

What is the pint of a derivative claim?

Answer 28

Allow shareholders to instigate legal action, INSTEAD of the board, because the board is neglecting to bring a claim, or is refusing to do so.

Claimant is still the company, but the SHAREHOLDERS insigated the claim.

Question 29

When can a derivative claim be brought?

Answer 29

Int elation to a cause of action, arising from an ACTUAL or PROPOSED act or omission, involving NEGLIGENCE< DEFAULT, BREACH of duty, or breach of TRUST by a director.

Question 30

What are the stages of a derivative claim?

Answer 30

Shareholder apply to court for permission to continue claim
Court will consider applciatio and evidence
Will allow if prma facie case for continuing
Give directors as to evidence that must be provided, or adjourn the proceedings to enable evidence to be obtained
Then list a full hearing,.

Question 31

When must the court refuse permission to continue a derivative claim?

Answer 31

Where court is satisfied that a person acting would not seek to continue claim

Where cause of action arises from an act that has not occurred yet

When act has already occurred and was authorised before it occurred, or has been ratified by the company.

Question 32

What must the court take into account with a derivative claim?

Answer 32

If shareholder is acting in good faith
Importance that someone acting would attack to continuing
If any past or future action was authorised, or ratified
If company ahs decided not to pursue claim
If act or omission gives rise to a cause of action that a member could pursue in THEIR OWN RIGHT.