Members' Rights Flashcards
What are shareholders’ rights?
- Right to have dividend lawfully declared
- Right to share in surplus capital on winding up
- Right to vote at meetings
- Right to receive notice of GMs and AGMs
What are the articles of association?
Contract between the company and its members. Deemed complete contract and court will not interfere. Shareholders can sue for damages if their membership rights are infringed.
What is a shareholders agreement?
Contract between the shareholders. Might include provisions which are not legally permitted in the articles and can be kept private. May contain dividend policy, allotment policy, provisions for new / departing shareholders.
- Company bound to accept shareholder vote which is in breach of ShA, decision will be valid but other shareholders have a claim for breach of contract.
How are minority shareholders protected?
- Right of action under ShA to enforce for breach of contract (damages / injunction).
- Certain matters may be reserved for unanimous consent
- Changes to ShA require unanimous approval of all shareholders.
How can shareholders remove a director?
Power to by ordinary resolution if specifically authorised by articles.
* director-shareholders allowed to vote
* Shareholders must give special notice (28 clear days) to board before GM + board decide whether or not to put resolution on agenda
* CANNOT be done by written resolution.
What happens where the director’s removal is / isn’t on the agenda?
Is on Agenda: Board should give shareholders notice of removal resolution at same time / in same way as notice of the GM (14 clear days’ notice).
Not on Agenda: Allowed but shareholders have power to request directors to call GM (s.303) if they hold at least 5% of paid up share capital. Directors MUST call GM within 21 days of this request and GM must be held not more than 28 days after this.
Otherwise, shareholders representing more than half of the voting rights that submitted the s.303 request can call a GM themselves on 14 clear days’ notice and within 3 months of the s.303 request. Can recover reasonable expenses or company retains sums reimbursed from director’s remuneration.
What rights does a director have on removal?
- Company must immediately send a copy of the removal resolution to the director concerned (whether on agenda or not).
- D has right to make written representations of reasonable length and circulate these to members / red them at GM
- Right to be heard at GM
- Check for Bushell v Faith clause
- Compensation for loss of office.
What are the rules for compensation for loss of office?
Payments to director or connected person (whether cash or non-cash) must be approved by ordinary resolution.
EXCEPT:
* Payment which does not exceed £200 in aggregate
* Payment made in good faith to discharge existing legal obligation, settlement of claim in respect of loss of office or pension.
What must the other directors do in relation to the compensation for loss of office?
Send a memorandum of particulars of payment to shareholders for 15 days before an ordinary resolution is passed, ending with the date of the GM.
What is a derivative claim?
A claim brought by a member against a director or another person for a wrong done by them to the company.
Cause of action is vested in the company and member is seeking relief on behalf of the company. Only allowed to claim against third parties for knowing assistance.
What are the stages of a derivative claim?
Step 1: permission of the court to continue the claim once the claim form is issued. Must demonstrate a prima facie case. Only if in the best interests of co to continue claim (s.172) Consider whether member acting in gf and if breach likely to be ratified.
Stage 2: Detailed consideration of the criteria. If not dismissed, court has particular regard to evidence of unaffected members (to ensure objectivity) and if pass, case goes to trial.
What is an unfair prejudice claim?
A claim by a member that the company is being run in a way which unfairly prejudices them.
- Suing for themsleves personally
- e.g excessive payment to directors, non-payment of dividends, directors dealing with associated persons.
Remedy = share buyback or whatever court sees fit.
What may be considered ‘unfairly prejudicial”
- serious and repeated mismanagement putting value of shares at risk
- Breach of articles
- Legitimate expectation to be involved in management of small company
How does a share buyback work?
Court has wide discretion to set fair price and attempt to use valuation set out in articles if there is one. Court will not usually impose discount.
What is just and equitable winding up?
Shareholder petitions court for company to be liquidated because it is just and equitable to do so.
