Decision Making Flashcards
What is the key distinction between a company’s owners and its managers?
Shareholders own the company, while directors manage it.
Most binding company decisions are made by directors, with shareholder input required only under specific circumstances.
List four common transactions that require shareholders’ input.
- Granting directors permission to allot shares
- Making changes to the company’s articles
- Approving a substantial property transaction between the company and a director
- Approving a director’s service contract of a fixed length exceeding 2 years
Where are directors’ decisions typically made?
During board meetings.
Name three common provisions found in a company’s articles regarding board meetings.
- Calling of board meetings and notice required
- Quorum for meetings
- Requirement for majority or unanimous decisions
What is a quorum in the context of board meetings?
The minimum number of directors that must be present to validate the meeting and make decisions, often set at two directors.
Explain the chairman’s casting vote.
A vote used by the chairman to break a tie at a board meeting.
What must directors do under Section 177 of the Companies Act?
Declare the nature and extent of their interest in a proposed transaction or arrangement with the company.
Under Section 182 of the Companies Act, what additional declarations must directors make?
Declare their interests in pre-existing transactions or arrangements to which the company is a party.
What are general meetings, and who participates in them?
Forums for shareholders’ decisions, involving all members of the company, directors, and auditors (if appointed).
What are the two main requirements for a shareholders’ resolution to be validly passed at a general meeting according to Section 301?
- Notice of the meeting and the resolution is given
- The meeting is held and conducted
How can notice for a general meeting be given under Section 308 of the Companies Act 2006?
In hard copy form, electronic form, or via a website.
What is required for shareholders to consent to a shorter notice period for a general meeting in a private company?
A majority in number of shareholders holding at least 90% of the voting share capital.
What notice period is required for a general meeting under Section 307, and what is the exception?
At least 14 days’ notice is required, except for an annual general meeting of a public company which requires at least 21 days’ notice.
In the provided example, why is sending notice on 6th May insufficient for a 20th May general meeting?
It does not provide 14 clear days’ notice.
When should notice be sent to satisfy a 14-day notice period for a meeting on 20th May?
By 3rd May to allow 48 hours for deemed receipt.
What must the notice of a general meeting include?
- The time, date, and place of the meeting
- An indication of the business to be conducted
What can shareholders do if the board fails to call a general meeting after a request by at least 10% of shareholders?
Requisitioning shareholders can call the meeting themselves.
What factors must be considered when calculating notice periods for general meetings?
- Clear days of notice
- Shareholder notice timing based on the method of transmission
Why might companies with few directors find declarations of interest problematic?
It may render a meeting inquorate.
How can companies anticipate situations where a director’s declaration of interest affects quorum?
Articles may allow lifting restrictions by a prior ordinary resolution of shareholders.
What are the common issues raised in the conduct of general meetings?
- Existence of a quorum
- Shareholders’ representation at meetings
- Appointment of a chairman
- Methods of voting
Under Schedule 5 of the Companies Act 2006, what is required for electronic or website communication with shareholders?
Prior consent from the company’s shareholders is required.
What is the advantage of using unanimous written consent of directors for board decisions?
It allows passing decisions without formal meetings.
What is the purpose of the Knowledge Check in Stage 4?
To apply the rules on effective consent to shorter notice.
What does Section 318 of the Companies Act 2006 specify regarding quorum in the absence of a statement in the articles?
Sets the quorum at two qualifying persons.
Who can qualify to be part of the quorum for a general meeting?
- Members of the company
- Any proxy representing a member
- Any representative of a corporate shareholder
What must any notice of a general meeting include according to Section 325 of the Companies Act 2006?
The notice must state a shareholder’s rights to appoint a proxy.
How is a chairman of a general meeting appointed if the articles do not provide a mechanism?
Members can appoint a chairman by majority decision.
What is the default method of voting at a general meeting?
Each shareholder, proxy, or representative present has one vote.
When might a company opt for a poll vote instead of the default voting method?
In companies with an identifiable majority shareholder.
Who typically has the right to demand a poll vote?
- The chairman of the meeting
- Two or more shareholders
- Shareholders holding at least one-tenth of the voting share capital
What are the two forms of shareholder resolutions, and what majorities do they require?
- Ordinary Resolutions: Require a simple majority
- Special Resolutions: Require at least 75% of votes cast
In the ‘Toto Limited’ example, why is the method of vote counting important?
Different methods can produce different outcomes.
What is required for an ordinary resolution proposed as a written resolution to be valid?
Consent from a simple majority of all eligible shareholders.
What defines an eligible shareholder for written resolutions?
Shareholders entitled to vote on the resolution at the time it was circulated.
In the ‘Lawcol 123 Limited’ example, how can shareholders A and B pass an ordinary resolution?
Together they hold 80% of the votes.
What are the two key timing issues for written resolutions?
- Circulation Date and Lapse Date
- Effective Time
How can consent to a written resolution be given under Section 296?
Through an authenticated document indicating consent.
Who has the power to circulate written resolutions?
- The Board
- Shareholders holding at least 5% of voting share capital
Which decisions cannot be achieved by written resolution and require a general meeting?
- Removing a director
- Removing an auditor
What is the ‘Duomatic Principle’ in the context of shareholder consent?
Unanimous consent of shareholders is as valid as a formal resolution.
What are some reasons the Duomatic Principle should be used cautiously?
- Its scope is uncertain
- It may encourage litigation
- Evidential difficulties in proving unanimous consent
What does Section 248 of the Companies Act 2006 require regarding company records?
Companies must record and keep minutes of all directors’ meetings for at least ten years.
What does Section 355 of the Companies Act 2006 mandate?
Companies must record minutes of all general meetings.
Where must records of shareholders’ business be kept and how can they be accessed?
Available for inspection by shareholders free of charge at the company’s registered office.
What must companies do with copies of special resolutions and unanimous decisions of shareholders?
File them with Companies House within 15 days.
What is an exception for filing ordinary resolutions with Companies House?
Any ordinary resolution authorizing directors to allot shares must be filed.
How do general meeting practices differ between public and private companies?
- Public Companies: Call general meetings on full notice
- Private Companies: May call meetings on shorter notice or use written resolutions
What is the role of the corporate lawyer in corporate decision-making?
To identify necessary decisions for a client’s proposal and draft necessary documentation.
What should you be able to do after completing the Tutorial on Corporate Decision-Making?
- Explain how directors make decisions
- Explain how shareholders make decisions
- Effectively distinguish between these two processes
