Corporate governance and compliance

Question 1

What are a directors common law fiduciary duties?

Answer 1

To act in good faith and in the best interest of the company as a whole.

Question 2

What are the different focuses of executive directors, non-executive directors and nominee director?

Answer 2

• Executive directors responsible for the day to day running of the company and are employees of the company
• Non-executive directors usually consultants and take more of a supervisory role overseeing the activity of the executive directors
• Nominee director are appointed by the board to represent the interests of a particular stakeholder, usually a shareholder. Nominee director must still act in the best interests of the company.

Question 3

What do duties of directors include?

Answer 3

• To exercise reasonable care, skill and diligence
• To avoid conflicts of interest
• To declare interest in proposed or existing transaction or arrangement with the company

Question 4

Under the model articles what powers do directors have?

Answer 4

The power to exercise all of the powers of the company except where the articles specifically provide otherwise. Must exercise their powers collectively as a board.

Question 5

What type of decisions can directors make?

Answer 5

Can make day-to-day decisions some decisions require approval of shareholders also.

Question 6

What can directors do as agents of a company?

Answer 6

May bind the company in contract or to tort liability

Question 7

Through what method does a director have actual authority?

Answer 7

Via board resolution

Question 8

How do companies execute documents?

Answer 8

Documents are executed by affixing seal, or by the signature of two directors, director and a secretary, or a director and a witness.

Question 9

Although apparent authority is unlikely to arise for directors when might it?

Answer 9

Could do if board honours previous contracts with a supplier that a director enters into.

Question 10

What type of company must have a company secretary?

Answer 10

Public companies

Question 11

What are the duties for a company secretary?

Answer 11

Legislation doesn’t prescribe duties but usually maintains books and records minutes of meetings. Statutory requirements for qualification.

Question 12

Who are shareholders?

Answer 12

Members of the company who provide financial backing for the company.

Question 13

When can shareholder apply to the court to bring a derivative claim against a director?

Answer 13

if they believe that a director has or is about to breach a duty owed to the company and it appears the board will not assert the company’s rights to prevent or remedy the action.

Must show case for relief sought and will be dismissed unless the court finds that the claim will promote the best interests of the company.

Note: damages recovered belong to the company but the company may indemnify the shareholder for expenses.

Question 14

What documents do shareholders have the right to inspect?

Answer 14

• Service contracts of directors
• Register of members – but must have a proper purpose related to their rights as a shareholder to do so.

Question 15

Which companies must hold an annual shareholders’ meeting?

Answer 15

Public companies, private companies are not obligated to.

Question 16

Who can call general shareholders’ meetings?

Answer 16

Directors may call at their own accord and shareholders owning shares representing at least 5% of the paid up voting capital shares can demand a meeting.

Question 17

What notice is required for general shareholders’ meetings?

Answer 17

• Must be given to all shareholders and directors; the personal representatives of any deceased shareholders; and the trustee in bankruptcy of any bankrupt shareholders
• Notice must be given on at least 14 clear days, plus two days for deemed delivery if the notice is not hand delivered

Question 18

What must notice for general shareholders’ meetings include?

Answer 18

o Company name
o Time, date and place of meeting
o General nature of business to be discussed at the meeting
o Statement of the right to appoint a proxy to attend the meeting
o Full text of any special resolution

Question 19

How can notice for general shareholders’ meetings be given?

Answer 19

Can be given in writing or electronically via email/a website

Question 20

What % of shares must shareholders hold to agree shorter notice?

Answer 20

Majority in the shareholders holding 90% of the shares

Question 21

Under Model Articles what is the quorum for general shareholders’ meetings?

Answer 21

At least two shareholders (unless company only has one)

Question 22

What approval does an ordinary resolution require?

Answer 22

Approval of at least a majority of the members at the meeting

Question 23

What type of actions are made with ordinary resolutions?

Answer 23

Appointment or removal of a director, approval of the directors’ decision to allot shares, entering a service contract with a director for more than two years etc.

Question 24

What approval do special resolutions require?

Answer 24

Approval of 75% or more of the members at the meeting

Question 25

What characteristics do special resolutions have?

Answer 25

Typically change the nature of the company or may detrimentally affect some of the shareholders

Question 26

What type of actions are made with special resolutions?

Answer 26

Most decisions to buy back company shares, changes to the company’s articles of association, changes to the company’s name

Question 27

What is voting under shareholders’ meetings?

Answer 27

Normally one vote per shareholder

Question 28

When can a poll vote (one vote per share) be requested?

Answer 28

By 5 or more shareholders or shareholders with not less than 10% of the voting rights or the paid-up capital of the company

Question 29

What is the purpose of written resolutions?

Answer 29

Used rather than a shareholder’s meeting

Question 30

What type of resolutions can written resolutions be used for?

Answer 30

May be used for ordinary or special resolutions but not to dismiss a director or auditor.

Question 31

Who decides whether to use a written resolution?

Answer 31

Normally the board will decide whether to use this method. The shareholders can circulate a written resolution in exceptional circumstances.

Question 32

What is the process for a written resolution?

Answer 32

1. Written resolution must be circulated to all members eligible to vote
2. WR must inform shareholders how to signify agreement
3. Under unamended articles the resolution will lapse after 28 days from and including the day of circulation
4. Percentage of votes needed to pass are the same as for OR and SR but is based on all shareholders entitled to vote and is one vote per share.

Question 33

Who can call a board meeting?

Answer 33

Under the model articles any director may call a meeting of the directors by giving reasonable notice of the meeting to the other directors.

Question 34

What must notice for board meeting include?

Answer 34

Notice must indicate the proposed date, time and location and given to each director, doesn’t need to be in writing.

Question 35

What is quorum for a board meeting?

Answer 35

Under model articles at least two directors must attend.

Directors typically under service contracts and cannot be counted towards quorum on a vote regarding their own.

Question 36

What approval do board resolutions require?

Answer 36

Approval of a resolution requires a majority vote

Question 37

What notice must be given for general meetings?

Answer 37

For a general meeting must be at least 14 clear days. Clear days exclude the day of the meeting and the day on which the notice is given

Question 38

When can a general meeting be called on shorter notice than the 14 clear days?

Answer 38

It has been agreed by:
* the majority in number of the shareholders having the right to attend and vote at general meeting, and
* that majority in number holds between them at least 90% of the nominal value of the shares

Question 39

What is the procedure for director and shareholder approval?

Answer 39

1. Board meeting and resolution approving the matter
2. Resolution to call a general shareholders’ meeting or circulate a written resolution
3. Shareholders vote whether to pass and if they do then the resolution is passed
4. Sometimes no further action, sometimes another board meeting is necessary to facilitate the decision (for example to approve entering a contract once the shareholders have approved the idea of entering the contract)

Question 40

What must company letterheads contain?

Answer 40

• Registered name
• Part of UK company is registered in
• Company’s registered number
• Address of the company’s registered office
• If the name of any director is on the letterhead must name all directors there

Question 41

What must partnership letterheads contain?

Answer 41

• Name of the partnership
• Name of each member of the partnership
• Partnership’s business address

Question 42

What must sole trader’s letterheads contain?

Answer 42

• Individual’s business name
• Their real name (if different to the business name)
• Business’ address

Question 43

Under the Companies Act 2006 a company must keep the following registers available for inspection to members of the company (for free) or the public (for a fee) registers of:

Answer 43

• Members
• Directors
• Secretaries
• Charges against the company’s assets
• People with significant control

Question 44

How long must minutes from all general shareholders’ meetings be kept?

Answer 44

For at least 10 years and be available for inspection by members of the company

Question 45

How long must directors’ service contracts be kept?

Answer 45

For at least 1 year beyond the term of the contract and be available for inspection by members of the company

Question 46

Why and when must annual confirmation statements be submitted to Companies House?

Answer 46

To confirm that the information at Companies House is up to date. It’s a criminal offence to fail to file the confirmation statement within 14 days of the end of the company’s review period.

Question 47

When must accounts be submitted to Companies House?

Answer 47

After each relevant accounting reference period, for private companies this is no later than 9 months after for public companies this is 6 months.

Question 48

What must accounts submitted to Companies House include?

Answer 48

A balance sheet and a profit and loss statement giving a true and fair view of the company’s financial year. Directors must approve the accounts.

Question 49

What must medium and large companies (50+ employees and turnover of £10million+) file?

Answer 49

Annual directors report (names directors and amount they recommend be paid by dividend) and annual strategic report (view of development and performance of the company’s business so members may assess the performance of the directors).

Question 50

Who can appoint new directors and how?

Answer 50

Under the Model Articles either the directors or the shareholders.
* Directors – in a board meeting
* Shareholder – via an ordinary resolution

Question 51

Who must be notified within 14 days of any new director appointments and any changes to the details (eg address) of existing directors?

Answer 51

Registrar of Companies

Question 52

Who has the power to remove a director?

Answer 52

Shareholders by ordinary resolution by a simple majority vote.
Note: A written resolution cannot be used to remove a director from office.

Question 53

What is a Bushell v Faith clause when removing a director?

Answer 53

Articles can have been amended to give a weighted vote to a director who is also a shareholder

Question 54

What are the notice requirements for a proposal to remove a director?

Answer 54

Notice to adopt a resolution to remove a director must be given at least 28 days before the meeting and the director must be given notice and a right to respond in writing and orally at the meeting.

Question 55

What can shareholders do if the board are unwilling to call a general meeting to enable the removal of a director?

Answer 55

Can force the directors to call a general meeting

Question 56

What happens if the shareholders remove a director in violation of a service contract?

Answer 56

The company would be liable in contract for breach.

Question 57

When may a director be disqualified from office?

Answer 57

For misconduct in connection with a company such as for conviction of an offence regarding management of a company or fraudulent trading.

Question 58

Typically minority shareholders don’t have much rights and is majority shareholder’s making decisions what are the two exemptions under common law?

Answer 58

Unfair prejudice and winding up the company

Question 59

For minority shareholder protection what is unfair prejudice?

Answer 59

If a shareholder feels that the company’s affairs are being conducted in a manner that is unfairly prejudicial to that shareholder ie being excluded from decision making or majority shareholders paying themselves excessively then they can petition the court for a remedy. Usual remedy is for the majority shareholders to buy the minority’s interest at a fair value.

Question 60

For minority shareholder protection what is winding up the company?

Answer 60

Any shareholder can apply to have the company wound up if solvent and the shareholder can show it’s just and equitable to do so. This remedy usually a last resort because if successful the company will cease to exist and the shareholder is likely to receive back less money than if they had sold their shares.