Members Flashcards
What statutory register relates to the members of a company?
ROM - Register of members
What are the restrictions around who can become a member of a company?
Only legal persons
Not trust or subsidiary
Best Practice not to have minors as members
Any specific restrictions that may appear in the articles
What is a member?
Members are:
1. The subscribers are first members of company on registration – s112
2. Any ‘legal person’:
who agrees to become a member → explicit or implicit
AND
3. Whose name appears in the Register of Members
Who can and cannot be a member?
Only ‘legal persons’ can be member and hold shares
Only ‘legal persons’ who can be entered on ROM
(e.g. Any natural person: you and me OR
incorporated entity with legal capacity: private/public company)
Examples of entities who cannot be entered on ROM
unincorporated clubs and associations*
sole traders*
What is best practice if a unincorporated club or association would like to hold shares?
If they want to hold shares, registration must be in name of partner, business owner or manager on behalf of body or a corporate nominee.
- If incorrectly entered on ROM, a court order required to rectify as no legal capacity and no power/authority to give instructions
Explain, giving reasons, the best practice to deal with a proposal to enter a minor as a member of a company where shares are partly-paid?
Since becoming a member of a company may involve the assumption of liabilities in respect of the shares held, it is not considered good practice to accept minors as members of a company in their own name (1).
This is because their responsibilities would be voidable during their minority (1).
Where the shares are partly paid, this would impose an obligation to pay any calls that may be made by the directors (1).
As the obligation to pay is voidable by a minor, any sanctions for non-payment are unenforceable (1).
A company should request that the shareholding be held in the name of a suitable adult (for example a relative). (1).
Reward other valid responses. Other responses could include: The holding may be annotated ‘a/c [name of minor] to explain the holding. (1)
Whose responsibility is it to keep the register of members up to date?
The Company Secretary.
What details should the ROM contain?
only ‘legal persons’ not unincorporated bodies – challenge/reject if necessary
name, address, number/class of share (or warrant), amount paid/to be paid in cash or non-cash, share certificate # and date became/ceased to be a member
all transfers/allotments/acquisitions/disposals during membership
all joint holders’ names but only one address – 1st named person counts
NB entering nominee account details, not beneficial owners’
ex-member details must remain on register for 10 years
Where should the ROM be kept?
The Registered Office or SAIL or Companies House
When should the ROM be updated?
When…
new shares issued to new/existing shareholder
share reorganisation: share split/consolidation, share buy-back, cancellation, conversion
share transfers (normal and on death)
change of address or name on marriage, by deed poll etc
What rights do members have generally?
The right to …
obtain relief for unfair prejudice
bring ‘derivative claim’ against director
apply to court for winding up
attend and vote at general meetings
require audit of accounts (if hold ≥ 10%) where accounts exempt from audit
give notice of desire to acquire shares of other shareholders (if hold ≥ 90%)
receive share certificate
What rights do members not have?
Members do not have the right to
receive a dividend unless board recommends
increase a dividend above amount board recommends
access board minutes or other sensitive documents
be consulted on all company business
What are the 6 different types of shares?
- Ordinary A and B (ordinary shares must have the right to participate in distribution with no upper limit on that participation)
- Ordinary Non Voting
- Preference (Preferential right to a fixed rate of dividend and on a winding up, to return of capital with or without a premium, together with arrears of dividend)
- Deferred (one or more deferred rights. These might have no right to dividends)
- Cumulative preference (Similar to deferred, however any part of the dividend not paid will be carried forward to be paid when the company’s fortunes improve)
- Redeemable (redeemed by the company at a future date or on the achievement if a particular event)
What are the rights attached to shares?
- Right to vote
- Right to receive dividend
- Right to capital
- Pre-emption rights
- Right of pre-emption on allotment
- Right to redemption
- Right of conversion
Altering articles are subject to what restrictions?
Articles can be altered by amending the wording of one or more of the clauses, deleting or adding clauses, or adopting a completely new set of Articles to take the place of the original ones.
Articles may be amended subject to the following:
1.When the Court deals with an unfair prejudice application under section 994, it is open to the Court to alter the company’s Articles and to prohibit any alteration of that amended Article without its consent.
- An amendment to the Articles cannot increase the liability of any member unless the member agrees in writing, before or after the amendment has taken place (s. 25).
- If the amendment seeks to vary class rights, it will not be valid unless the resolution has also been passed at a class meeting of the members of that class. In addition, members who voted against the resolution and who hold between them at least 15% of the shares of the class in question have 21 days to object to the court (s. 633).
4.Any amendment must be bona fide for the benefit of the company and not a potential fraud on minority shareholders.
