P4. Members Flashcards
How does the Act define members (2)
The subscribers of a company’s memorandum, who have agreed to become members upon the company’s registration
Every other person who agrees to become a member of the company and whose name is entered in its register of members
2 restrictions on membership of a company from the Act
Trusts are prohibited from becoming members, whether express, constructive or implied. Exception to this is companies whose name includes trust, trustee, nominee, etc. (these companies are then the legal owners and the underlying ownership is irrelevant)
Subsidiary company cannot be a member of its holding company.
Potential further restrictions on members from Articles (2)
Certain categories of person may be excluded - those unable to give declaration of British or EU nationality of firms requiring a certain level of membership from that nationality
May be a requirement for minimum percentage of members to hold a professional qualification
Why is it not considered good practice to accept minors as members?
Because it may involve the assumption of liabilities in respect of the shares held, these responsibilities being voidable during their minority
In the case of which type of share is the acceptance of a minor as a a member even worse practice? Why?
When the shares are partly paid, as this imposes an obligation to pay any calls
Can minors only be rejected on allotment or transfer if the Articles give power to do so?
No, it is a right conferred by general law
If a minor is a member, who is liable for calls on their shares?
The transferor (if acquired by transfer)
Are guarantors true owners’ of businesses
No, they should be viewed as trustees holding ownership until this is passed on to the next trustee
Are guarantors usually entitled to participate in profits or distribution of surplus assets
No, unless stipulated by the articles
How is a guarantee effectively transferred
By a guarantor resigning and a replacement applying in their place
Does personal guarantee cease immediately?
No, a year after resigning as a member
Two broad types of member activism
Investor activism
Pressure group activism
What is investor activism
Member activists are typically investment funds with a significant investment in the target company. They active seek to disrupt the status quo and current corporate strategy by engaging publicly and privately with the management to promote their agenda for change
Three broad areas of potential interests for activist investors
Corporate governance (corp gov changes, board changes directors’ remuneration)
Balance sheet (share buyback/dividends, divestment of non-core assets, adding value to underperforming assets)
Strategic transactions (M&A (promote or frustrate), strategic direction)
Which type of company is most likely to suffer from pressure group activism
Public companies
What is pressure group activism
Where pressure groups purchase a nominal number of shares in order to attend and disrupt shareholder meetings, in order to force a change in behaviour or strategy and to draw attention to their campaign
6 main types of shares
Ordinary
Non-voting
Preference
Deferred
Cumulative preference
Redeemable
Difference between preference share and cumulative preference
If not enough profit to pay preference cumulative preference dividend in full, it gets carried over to the next year
7 most common rights attached to shares
Voting
Receive dividend
Capital
Pre-emption on transfer
Pre-emption on allotment
Redemption
Conversion
What does right to redemption mean
After a pre-determined event, investor can demand that company buys shares back from them
What is threshold for variation of class rights according to Act
75% of nominal value of issued shares of relevant class (special resolution)
What percentage of a class can object to the court of a variation in class rights, and when will court intervene?
15% - court will disallow if it is satisfied that variation will unfairly prejudice the holders concerned
What is typically also required for variation of share rights (as well as that class agreeing)
Amendment to articles, and accordingly a special resolution of all voting members
Process of adopting new articles
Directors resolve to circulate written resolution listing amendments and explaining reasons
If approved (75%), copy of resolution and new articles sent to registrar within 15 days
