Rights and Remedies of Shareholders

Question 1

What is the role of shareholders in a company?

Answer 1

Shareholders are the members or owners of a company.

They do not take part in the day-to-day decisions of the company but do make certain key decisions.

Question 2

What is meant by the principle that shareholder decisions are taken by majority rule?

Answer 2

It means a requisite majority of shareholders must vote in favour of the proposed resolution in order for it to be passed.

Question 3

What rights do the articles confer on members?

Answer 3

Articles are a contract between members and the company. The articles confer membership rights.

Question 4

What sort of membership rights are covered under the articles?

Answer 4

• right to share in surplus capital on winding up
• right to dividend if one has been lawfully declared
• right to vote at meetings
• right to receive notice of GMs and AGMs

Question 5

How do members protect rights which are not considered membership rights?

Answer 5

Thought a shareholder agreement

Question 6

What is the benefit of a shareholder agreement?

Answer 6

Enables members to enforce against each other and can go further than the articles/CA 2006

Question 7

What are drawbacks of a shareholder agreement?

Answer 7

Binds shareholders but not necessary company. Company bound to accept valid vote of shareholders even if it contravenes shareholder agreement

Question 8

How can a shareholder agreement be enforced if it is breached?

Answer 8

Under the general contract law principles.

Question 9

How can a shareholder agreement be changed?

Answer 9

Any changes will require unanimous approval

Question 10

What rights do all shareholders have?

Answer 10

• to receive notice of GM
• appoint a proxy to attend a GM in their place
• vote at a GM (provided they have voting shares)
• receive a dividend
• receive a copy of company’s accounts
• inspect minutes and company registers
• ask court to prevent breach of directors’ duties
• commence derivative claim
• bring a petition for unfair prejudice
• bring petition for just an equitable winding up

Question 11

What additional rights to shareholders with 5% or more have?

Answer 11

• require directors to call a GM
• require circulation of written statements regarding proposed resolutions to be considered at a GM
• circulate a written resolution

Question 12

What additional rights do shareholders with 10% or more have?

Answer 12

• demand a poll vote

Question 13

What additional rights to shareholders with more than 25% have?

Answer 13

• block a special resolution

Question 14

What additional rights to shareholders with more than 50% have?

Answer 14

• pass or block an ordinary resolution

Question 15

What additional rights do shareholders with 75% have?

Answer 15

• pass a special resolution

Question 16

What resolution is required for shareholders to remove a director?

Answer 16

By ordinary resolution

Question 17

If the director is also a shareholder are they allowed to vote in the OR to remove themselves?

Answer 17

Yes

Question 18

Can a written resolution be used to remove a director?

Answer 18

No

Question 19

How many days notice is required for a resolution to remove a director?

Answer 19

28 clear days from time shareholders give notice to the board of removal resolution

Question 20

What is the process for removing a director if the directors place the removal notice on the agenda of the GM?

Answer 20

Board needs to inform all shareholders of removal resolution by giving 14 days clear notice before meeting

Question 21

Are directors bound to put forward a removal resolution at a GM?

Answer 21

No

Question 22

What shareholders can call a GM?

Answer 22

Any shareholders who together hold not less than 5% of the paid-up voting share of the company

Question 23

What must shareholders do to call a GM?

Answer 23

Serve a request on board stating general nature of business wished to be discussed at GM

Question 24

What must directors do on receiving request from shareholders to hold GM?

Answer 24

They must call a GM within 21 days of request to call GM

AND

that GM is to be held not more than 28 days from notice calling GM

Question 25

What if directors fail to call a GM?

Answer 25

The shareholders, representing half of the voting rights of those that submitted GM request, can themselves call a GM

Question 26

What is the process if shareholders themselves call a GM?

Answer 26

GM must be called on at least 14 days notice

AND

held within 3 months of date board received original GM request

Question 27

If the shareholders call a GM, who bears the costs of it?

Answer 27

Shareholders can recover costs from company and company can recover sums from directors’ remuneration

Question 28

What rights do directors have in relation to a removal request against them?

Answer 28

They must be immediately given a copy of notice of resolution to remove them once received by company

AND

right to make representations in writing of reasonable length to all shareholders (sent out or read at GM)

AND

right to speak in defence at GM

Question 29

What effect does Bushell v Faith clauses have on removal resolution of director?

Answer 29

May weight directors voting rights in removal resolution against them so they can effectively block any attempt

Question 30

Why are weighted voting clauses legal?

Answer 30

The requirement for an ordinary resolution is not being changed - just the ways the votes are amassed

Question 31

Will directors be entitled to any compensation for loss of office?

Answer 31

If employment contract breached by removal by be entitled to damages or compensation under contract.

Any other payments must be approved by OR of shareholders unless:

• payment does not exceed £200 or
• payment is made in good faith (i) discharging of an existing legal obligation; (ii) by way of damages in respect of such an obligation (iii) settlement or compromise of a claim in connection with termination of office or employment; or (iv) by way of pension in respect of past services

Question 32

Who must approve any payments to directors for loss of office exceeding exempt amounts?

Answer 32

• shareholders of company
• shareholders of holding company
• not shareholders of a wholly owned subsidiary

Question 33

What if payments to directors for loss of office is paid to third party?

Answer 33

Still caught by statutory regime if to connected person, or for benefit of director or connected person

Question 34

Are there any procedural requirements for obtaining shareholder approval in relation to payments for loss of office?

Answer 34

Memorandum setting out payment must be available to shareholders 15 days before memorandum is passed