Decision Making Revision Guide Flashcards
What must a director do in terms of exercising judgment?
A director must exercise independent judgment. However, this doesn’t prevent a director from seeking independent advice of experts so long as the director makes the final decision.
Example sentence: The director consulted with legal experts before making the final decision.
What are the conditions under which a director does not breach duty in relation to conflicts of interest?
Although a director should avoid conflicts of interest with the company, no duty is breached if:
- The conflict relates to a transaction with the company itself and the board knows the director has an interest,
- The situation won’t is not likely to give rise to a conflict, or
- The matter has been authorised by the directors after receiving full disclosure
Additional information: A director has a duty to disclose their interest in proposed or existing transactions.
What are the restrictions regarding a director accepting a benefit from a third party?
A director may not accept a benefit from a third party conferred by reason of them being a director (for example, a director should not take a bribe).
Example sentence: The director refused the expensive gift offered by a supplier to avoid breaching this restriction.
What is the requirement for obtaining a loan from the company as a director?
A director cannot obtain a loan from the company unless the transaction is approved by the board.
Additional information: This rule ensures transparency and accountability in financial transactions.
How can a meeting of directors be called according to the Model Articles (unamended)?
Under the Model Articles (unamended), any director may call a meeting of the directors by giving reasonable notice of the meeting to the other directors.
Additional information: The notice must indicate the proposed date, time, and location and be given to each director.
What is the quorum requirement for a valid meeting under the Model Articles (unamended)?
2
Additional information: Approval of a resolution requires a majority vote of the directors.
What is the shareholders’ power regarding the removal of directors?
The shareholders have the power to remove directors by a simple majority vote.
Additional information: The articles may be modified to add a clause giving weighted voting to a director who is also a shareholder.
What are the statutory requirements for qualification of a company secretary?
Public companies must have a company secretary.
Additional information: The secretary must have previously been a company secretary for at least three years, be a member of a regulated accounting or secretarial body, or be a barrister or solicitor.
What defines large companies in terms of annual turnover and number of employees?
Companies with an annual turnover greater than £10 million and more than 50 employees
When can dividends be paid to shareholders?
Dividends may be paid only from profits available for the purpose (accumulated realised profits less accumulated realised losses).
What are preference shares’ right to dividends?
Preference shares have a right to be paid the stated preference before dividends can be paid to common shareholders. The preference on cumulative preferred shares accumulates and is carried forward if not paid in any particular year.
What is required for shareholders to approve a dividend?
Directors first decide whether there are profits available for the purpose and will recommend a dividend for approval by the shareholders. Approval by the shareholders requires a majority vote of those voting (an ordinary resolution).
When is a dividend considered unlawful?
A dividend is unlawful if it’s paid out of funds other than profits available for the purpose (such as paid in capital).
What can a shareholder do if they believe a director breached a duty owed to the company?
A shareholder who believes a director has or is about to breach a duty owed to the company and to whom it appears the board will not assert the company’s rights to prevent or remedy the action may apply to court to bring a derivative claim against the director.
What happens if a derivative claim doesn’t show a prima facie case for relief?
Dismiss claim
What remedy can be sought by a minority shareholder if they feel unfairly prejudiced by the company’s affairs?
Petition the court for a remedy usually forcing the majority shareholders to buy the minority’s interest at a fair value.
What right do shareholders have regarding the service contracts of directors?
Right to inspect the service contracts of the directors, which the company must keep at the registered office for at least a year after the director leaves.
What right do shareholders have regarding the register of members?
Shareholders have a right to inspect the register of members, which must typically be kept at the registered office. To inspect the register, a shareholder must have a proper purpose (one related to their rights as a shareholder). The company has five working days to comply with the request.
What obligation do public companies have regarding shareholders’ meetings?
Public companies must hold an annual shareholders’ meeting while private companies are not obligated to do so. Otherwise, companies can have general shareholders’ meetings as and when required.
What can the directors do regarding calling a general meeting?
The directors may call a general meeting of their own accord, and shareholders owning shares representing at least 5% of the paid-up voting capital shares can demand a meeting
Example sentence: If the shareholders request a meeting, the directors must call it within 21 days of the request and it must be held within 28 days.
What is required in the notice of a general shareholders’ meeting?
Notice of a general shareholders’ meeting must be given to all the shareholders and directors, the personal representatives of any deceased shareholders, and the trustee in bankruptcy of any bankrupt shareholders.
Notice can be given in writing or electronically, by email, or via a website. The notice must include: The company name, The time, date, and place of the meeting, The general nature of the business to be discussed at the meeting, A statement of the right to appoint a proxy to attend the meeting, The full text of any special resolution.
What is the minimum notice period required for a general meeting?
Notice must be given at least 14 clear days in advance of the meeting, plus two days for deemed delivery if the notice is not hand delivered. To save you the trouble of counting days on a calendar, you can calculate the latest date for which notice can be given as: meeting date minus 15 for hand delivery and meeting date minus 17 for posted delivery. This formula, of course, works in the other direction too: notice date plus 15 (17 if notice is to be posted) is the earliest date a meeting can be held.
Note: Notice of the annual meeting of a public company requires 21 days’ clear notice.
