Shareholder 1 Flashcards
- Which of the following statements best describes shareholder rights in relation to general meetings?
- Both private and public companies must hold an annual general meeting each year.
- Only the directors of a company can call a general meeting.
- Shareholders who either individually or together hold 5% of paid up voting shares in the company may request the directors to hold a general meeting.
- Shareholders who either individually or together hold 5% of paid up voting shares in the company may request the directors to call a general meeting.
- If a shareholder makes a valid request to the directors, they must hold the meeting within the next 28 days.
Option D is the correct answer. Shareholders who either individually or together hold 5% of the paid up capital holding voting rights can request the directors to call a general meeting (s.303 Companies Act 2006).
Option A is wrong. Only public companies are required by the CA 2006 to hold annual general meetings (s.336 CA 2006). Private companies may do so if they wish or if their articles require it but are not obliged to.
Option B is wrong. If the directors do not call a meeting following a request from the shareholders, the shareholders can do so themselves.
Option C is wrong. The CA 2006 gives shareholders the right to request the directors to call a general meeting, not to hold one.
Option E is wrong. If the directors are required to call a general meeting, they must first call that meeting within 21 days from the date of the shareholders’ request. Having called the meeting, the meeting must then take place within 28 days (s.304 CA 2006).
The directors of a company are proposing to call a general meeting of the shareholders to ask the shareholders to pass an ordinary resolution.
The company has three directors. The Managing Director and the Sales Director are shareholders in the company, but the Finance Director is not. There is one other shareholder who is not a director.
It has Model Articles for private companies limited by shares unamended.
Which of the following statements best describes the position in relation to the notice of the general meeting?
1. The notice must be sent to all the shareholders.
2. The notice must be sent in either hard copy or electronic form.
3. The notice must include the exact text of the proposed resolution.
4. The notice must include a statement of the right of a member to ask for the meeting to be held on short notice.
5. The notice must include a statement of the right of a member to appoint a proxy.
Option E is correct. The notice must include (with reasonable prominence) the right of a member who cannot attend to appoint a proxy. Failure to do so could invalidate the meeting. (s.325 CA 06).
Option A is wrong. For a meeting to be validly convened, the shareholders and the directors are entitled to receive notice of the meeting (s.310 CA 2006), so the Finance Director would also be entitled to receive a copy of the notice.
Option B is wrong. Notice can be sent in hard copy or in electronic form or on a website (or a combination of these). (s.308).
Option C is wrong. The notice need only state the general nature of the business to be dealt with (s.311).
Option D is wrong. There is no requirement to include any statement in relation to short notice.
Three friends have set up a private limited company through which to operate their bakery business. The friends are the only directors and shareholders of the company. The company has adopted the Model Articles for private companies limited by shares (unamended) as its articles of association. The friends are concerned that they should use the correct procedure when taking decisions, in particular in connection with notice for meetings, quorum and voting.
Which of the following statements correctly reflects procedure on notice, quorum and voting?
1. Directors can make decisions by unanimous agreement without calling a board meeting but, at board meetings, directors’ decisions are taken by simple majority.
2. The minimum notice for both a general meeting of the shareholders and a board meeting of the directors is 14 clear days.
3. Neither directors nor shareholders can count in the quorum at their respective meetings on any proposed transaction with the company in which they have an interest.
4. A poll vote at a general meeting can be requested by two or more persons having the right to vote on the resolution or by one shareholder holding at least 5% of the shares.
5. Neither shareholders nor directors can vote at their respective meetings on any proposed transaction with the company in which they are interested.
Option A is correct because model article (MA) 8 allows a unanimous board decision without a meeting and MA7 provides for decisions to be taken by simple majority at a meeting of the directors.
Option B is wrong because, whilst the minimum full notice period for a general meeting is 14 clear days (s307 Companies Act 2006), a board meeting only requires reasonable notice (Re Homer).
Option C is wrong because, whilst directors cannot count in the quorum if they are interested in any proposed transaction with the company (MA14), there is no such provision which applies to shareholders.
Option D is wrong because, whilst a poll vote can be requested by two shareholders (MA44(2)), a single shareholder needs 10% of the voting shares (MA44(2)).
Option E is wrong because, whilst directors cannot vote on any proposed transaction with the company in which they have an interest (MA14), no such restriction applies to shareholders.
A private limited company is proposing to hold a general meeting of the shareholders. On 1 September valid notice of the meeting was sent by e-mail to all those entitled to receive it.
Assumption: 1 September was a Monday.
Which of the following is the earliest date on which the meeting can be held?
1. 14 September.
2. 16 September.
3. 18 September.
4. 21 September.
5. 28 September
Option C is correct. 14 clear days’ notice of the meeting must be given (s.307 and s.307A). The day on which the notice is given and the day on which the meeting is held are not counted, so here the 14 days starts from 2 September and ends on 15 September. In addition, as the notice was sent by e-mail, an extra 48 hours must be added for deemed delivery, taking the date to 18 September (s.1147).
This makes all the other options wrong.
The board of directors of a private limited company wants to call a general meeting on short notice. There are five shareholders with the following shareholdings:
A baker – 14,000 ordinary £1 shares
A salesperson – 20,000 ordinary £1 shares
A lecturer – 5,000 ordinary £1 shares
A surveyor – 10,000 ordinary £1 shares
A physiotherapist – 51,000 ordinary £1 shares
Which of the following best describes which shareholders would need to agree in order for the general meeting to be held on short notice?
1. The physiotherapist, because they hold a majority of the company’s shares.
2. The baker, the salesperson, the physiotherapist and either the lecturer or the surveyor, because between them they constitute the required majority in number holding between them at least 90% of the shares.
3. All five shareholders, because they would all be needed in order for the required majority in number holding between them at least 95% of the shares to be met.
4. The baker, the salesperson, the physiotherapist and the surveyor, because between them they constitute the required majority in number holding the majority of the shares.
5. Any three shareholders, because between them they would constitute a majority in number of the shareholders.
Option B is the correct answer. A majority in number of shareholders who between them hold 90% or more of the shares are required in order to agree to a general meeting being held on short notice (s 307(4)–(6) CA 2006).
All of the other options are wrong either because they do not constitute a majority in number of shareholders or because those shareholders do not between them hold 90% or more of the shares.
A private company limited by shares has four directors and four shareholders. One of the shareholders is also a director. The other shareholders who together own the majority of the issued shares in the company wish to remove the director from the board. One member of the board supports the director and does not want him removed. The company has Model Articles for private companies limited by shares unamended.
Which of the following best describes the procedure for removing the director from the board?
1. The majority shareholders can remove the director by ordinary resolution of shareholders passed by written resolution.
2. The board can remove the director by passing a written board resolution.
3. The majority shareholders can remove the director by special resolution passed at a meeting of shareholders.
4. The board can remove the director by a majority vote at a board meeting.
5. The majority shareholders can remove the director by ordinary resolution passed at a meeting of shareholders
Option E is correct, the director can be removed by ordinary resolution (s 168 Companies Act 2006) passed at a meeting of shareholders.
Option A is wrong as a written resolution cannot be used. This is because a general meeting to remove a director requires ‘special notice’ (under s 312 CA06) and the director threatened with removal is entitled to speak at the meeting.
Options B and D are wrong as the model articles make no provision for the board to remove a director.
Option C is wrong as an ordinary resolution is required not a special resolution.
Five shareholders in a company have the following shareholdings:
o The Managing Director holds 30 voting shares;
o The Finance Director holds 40 voting shares;
o A surveyor holds 10 voting shares;
o A builder holds 15 voting shares;
o An estate agent holds 5 voting shares.
The company has Model Articles for private companies limited by shares unamended.
The Finance Director, the Managing Director, the surveyor and the estate agent have confirmed that they will attend a general meeting which has been validly called to remove one of the directors of the company.
The Finance Director and the surveyor will support the resolution. The builder will not be able to attend but has sent a written statement confirming that he supports the resolution. The Managing Director and the estate agent will oppose the resolution.
The surveyor has called for a poll vote.
Which of the following best explains whether the resolution will pass?
6. It will pass because the Finance Director, the surveyor and the builder together hold more than 50% of the voting shares.
7. It will pass because the Finance Director and the surveyor hold at least 50% of the voting shares of those attending the meeting.
8. It will not pass because the Managing Director on his own can block the resolution.
9. It will not pass because a single shareholder is not entitled to call for a poll vote and, on a show of hands, the resolution cannot pass.
10. It will not pass because the builder must attend or appoint a proxy for the resolution to pass.
Option B is correct. To dismiss a director, an ordinary resolution of the shareholders is required which requires a simple majority (more than 50%). As the builder is not present at the meeting (and has not appointed a proxy), there are 85 voting shares at the meeting, and the Finance Director and surveyor hold 50 of those. On a poll vote, they will together have the requisite majority to dismiss the director.
Option A is not the best answer. Whilst it is the case that all three individuals hold more than 50% of the voting shares, the builder will not be present at the meeting and his shares will not be counted in a poll vote. His written statement cannot be counted in the poll vote.
Option C is wrong as with 30 voting shares, the Managing Director can block a special resolution but not an ordinary resolution.
Option D is wrong as any shareholder holding at least 10% of the voting shares is entitled to call for a poll (s.321).
Option E is wrong as the Finance Director and surveyor can together pass the ordinary resolution required. Not all shareholders need to be present at the meeting.
At a general meeting of the shareholders, a company has passed a resolution removing one of its directors. Following the meeting, which of the following documents must be filed at Companies House?
0. The minutes of the board meeting at which it was resolved to call the general meeting and the minutes of the general meeting.
1. The minutes of the general meeting and the shareholders’ resolution to remove the director.
2. The minutes of the general meeting, the shareholder’s resolution to remove the director and Form TM01 (termination of appointment of director).
3. The shareholder’s resolution to remove the director and Form TM01 (termination of appointment of director).
4. Form TM01 (termination of appointment of director) only.
Option E is correct. Form TM01 informing Companies House of the termination of an appointment of a director must be sent within 14 day of the date when the appointment was terminated (s.167 CA 2006).
Options A, B and C are wrong. The minutes of both the board meeting and the general meeting must be kept at the company’s registered office (or its single alternative inspection location, SAIL) (s.248/MA15 and s.355 respectively).
Option D is wrong. An ordinary resolution is required to remove a director. Only copies of special resolutions need to be sent to Companies House.
Last year an investor bought 20% of the issued share capital of a private limited company and became a non-executive director of the company. Before making the investment, the investor negotiated the following protections:
o Weighted voting rights in the articles of association, multiplying a director’s shareholding by 10 votes per share on a shareholder resolution to remove the director and on a shareholder resolution to amend the weighted voting rights.
o A clause in the articles of association providing that the investor’s appointment to the board would be permanent.
o A clause in a shareholders’ agreement under which the parties agreed not to vote in favour of a resolution to remove each other from the board of directors. The shareholders’ agreement was signed by the investor, and all the other shareholders and directors in the company.
Would it be possible for the shareholders to remove the investor from the board of directors of the company?
3. No, because the articles of association provide that the investor’s appointment to the board is permanent.
4. No, because the provision in the shareholders’ agreement prevents the parties from voting to remove the investor from the board.
5. No, because the investor has sufficient votes to demand a poll vote and could block the resolution for her removal.
6. Yes, because the negotiated articles do not concern membership rights and would therefore be unenforceable by the investor.
7. Yes, because a shareholders’ agreement cannot be enforced unless signed only by shareholders.
Option C is correct because the investor has sufficient votes to demand a poll, and on a poll vote the multiplier would provide sufficient weighted votes to block the ordinary resolution (Bushell v Faith).
Option A is wrong because the articles are enforceable only in respect of membership rights.
Option B is wrong because the restriction in the shareholders’ agreement acts as a deterrent to voting for the director’s removal, in that a breach of the shareholders’ agreement would give rise to a claim for breach of contract.
Option D is wrong because the negotiated articles would entitle the investor to weight her shareholder voting rights, and the company and its shareholders would be bound by the article.
Option E is wrong because anyone can be party to a shareholders’ agreement.
10. Question 10
A solicitor acts for a client who is a minority shareholder in a private limited company and is considering entering into a shareholders’ agreement with the other two shareholders. The client is a director of the company as are the other two shareholders. It is proposed that the shareholders’ agreement will contain a provision that none of the parties to the agreement will vote for the removal of the others as directors of the company.
Which of the following statements best explains why the client should enter into the shareholders’ agreement?
0. The shareholders’ agreement binds all present and future shareholders of the company and provides a remedy for your client if one of its terms is breached.
1. The shareholders’ agreement binds all of the parties to the agreement and provides a remedy for your client if one of its terms is breached.
2. The shareholders’ agreement must restrict shareholders who are also directors from voting in a particular way in a board meeting and so protect the client’s interests.
3. The shareholders’ agreement will protect the client absolutely from being removed as a director as it requires the other shareholders to vote against a resolution to remove the client from office as a director.
4. The shareholders’ agreement must be filed with the Registrar of Companies with a view to protecting the interests of minority shareholders who are a party to it.
Option B is the best answer because a shareholders’ agreement only binds those shareholders who are parties to the agreement and provides a remedy for the client if any of the terms are breached.
Option A is wrong because, although a shareholders’ agreement will provide a remedy for the client if any of the terms are breached, it only binds those who are a party to it.
Option C is wrong because a shareholders’ agreement must not restrict shareholders who are also directors from voting in a particular way at board meetings as this could lead to a breach of directors’ duties.
Option D is not the best answer because, whilst there will be a breach of the shareholders’ agreement should the other parties vote for the removal of the client as director, the agreement does not prevent them from doing so. The client could seek an injunction as a remedy for breach of the agreement but an injunction is a discretionary remedy and so cannot be guaranteed.
Option E is wrong because a shareholders’ agreement is a private document and will not be filed with the Registrar of Companies.
