Shareholder decision making

Question 1

What did Sir David Walker say

Answer 1

“Institutional investors should be less passive
and prepared to engage earlier if they suspect
weaknesses in governance. They enjoy the
privilege of limited liability whereas taxpayers
have ended up assuming unlimited liability in
respect of the big banks. Early preventive
medicine through shareholder engagement
can save everyone substantial time and money
later on.

Question 2

What are shareholder’s

Answer 2

Owners of the company

Question 3

What are directors

Answer 3

employed by the company to run the
day-to-day management

Question 4

What rights does a shareholder
have?

Answer 4

membership rights (voting rights, rights to
participate at shareholder meetings; Rights of
dividend, Right to get the invested money back when
the company is wound up)
 a share in company’s capital (CA 2006, s 540(1))
 personal, transferable property (CA 2006, ss 541 &
544 (1))
5

Question 5

Management role of shareholders

Answer 5

participation in decision making
 written resolutions, meetings, unanimous
consent
 types of resolutions: ordinary(s. 282)/special
(s.283)/‘super-majority’ (s.283 (3)/unanimous
(s. 283 (3))
6

Question 6

What did Lord Wilberforce in Re Kong Thai Sawmill
[1978] say

Answer 6

Those who take interests in companies
limited by shares have to accept majority rule

Question 7

A crucial power that shareholders
have

Answer 7

Shareholders have the power to remove directors by
s. 168(1) – by ordinary resolution

Question 8

What happened with Bushell v Faith (1970)

Answer 8

Bushell v Faith (1970) the articles provided that on a
resolution to remove a particular director, his shares
would carry the right of three votes per share. This
meant that the director concerned was able to outvote
such a resolution. The House of Lords upheld the
clause and therefore, where such clauses exist, they
are valid.

Question 9

Members decision-making examples

Answer 9

To amend the company’s articles (s21(1) –
Special resolution)
 To re-register a limited company as an
unlimited company requires consent of ALL
the members

Question 10

What are the written solutions

Answer 10

New ‘default’ mode of decision-making for
private companies
 Private companies no longer required to hold
shareholder meetings
 2 exceptions (s 288(2)):
◦ Resolution to remove a director before the
expiry of period in office;
◦ Resolution to remove an auditor before the
expiry of term of office.

Question 11

Meetings

Answer 11

Directors may call general meetings, AGMs or
class meetings (s 302)
 Members’ right to require the directors to call
a meeting (s 303), to circulate statements (s
314), to circulate resolutions for AGMs (s 338)
 Costs of circulation
 Can a single member constitute a meeting?
 The rules covering conduct of meetings
1
3

Question 12

What are Electronic communications

Answer 12

CA 2006, Sch 5 - a company may use electronic
communications as default means of
shareholder communication
 Communication via the companies website can
be the default position or communication via
email.

Question 13

Records and Transparency

Answer 13

CA 2006 s 355: every company to keep records
comprising of copies of all resolutions passed
otherwise than at general meetings, minutes of
all proceedings of general meetings and details of
the decisions of a sole member. Records must
also be kept of class meetings.

Question 14

The Emergence of the Position of
Director

Answer 14

a company functions only through human
agents. Early company legislation did not
require companies to have directors but
the courts soon gave directors the right to
act on behalf of a company

Question 15

Separation of ownership and control

Answer 15

Berle & Means
 ”ownership continually becomes more
dispersed: the power formerly joined to it
becomes increasingly concentrated”
 Directors are not ‘agents’ of shareholders
 Shareholders do not have general managerial
powers

Question 16

What does De jure mean

Answer 16

the person has been appointed to the office
of director in accordance with the rules governing
such appointment. The person has agreed to hold
office. The person is not disqualified from being a
director of the company; and the person has not
vacated office

Question 17

What does De facto mean

Answer 17

A person who acts as a director of
a company but is not a de jure director (not
formally appointed)

Question 18

Shadow director
 Section 251 CA 2006
 Re Hydrodam Ltd [1994] Lord Millet

Answer 18

The de jure and de facto directors of the company must be identifiable
2. The person in question directed those directors on how to act in
relation to the company’s affairs or that he was one of the persons
who did
3. The directors did act in accordance with his instructions
4. They were accustomed so to act
2
1

Question 19

Executive & Non-Executive Directors

Answer 19

Not legally defined
 Reflects current management practice
 Exec director
 Extensive powers of management
 Employees
 Non-exec director
 Officers of the company
 No service/employment contract
 More see Corporate Governance (role: UK Corporate
Governance Code 2018

Question 20

Directors vs Members

Answer 20

Articles give power of day-to-day management
to the directors
 Directors “are the persons who may by the
regulations be entrusted with the control of
the business, and if so entrusted they can be
dispossessed from that control only by the
statutory majority which can alter the articles”
Buckley LJ

Question 21

Appointment of Directors

Answer 21

Part 10 of CA2006 (ss. 157-161)
 Age requirement [s 157]: 16 years
 voted on individually
 in accordance with the articles
 the successors
 Another company can be a director…
 provided at least one director is a ‘natural’
person [s 155]

Question 22

Removal of Directors

Answer 22

n accordance with the articles
 By members: S 168(1) right of removal by OR
 Special notice required (no written res)
 Director entitled to address the members’ meeting
and require circulation of reps
 Entrenchment
◦ Bushell v Faith clause
◦ CA 2006, s 22

Question 23

Directors’ general authority

Answer 23

Subject to the articles, the directors are
responsible for the management of the
company’s business for which purpose they
may exercise all the powers of the company.

Question 24

The Power to Litigate

Answer 24

One of the general powers of management
allocated to the directors by article 3 of the
model articles
 Generally the shareholders cannot exercise this
power

Question 25

Members General Supervisory Power?

Answer 25

Article 4 (1) The shareholders may, by special
resolution, direct the directors to take, or
refrain from taking, specified action. (2) No
such special resolution invalidates anything
which the directors have done before the
passing of the resolution.

Question 26

Directors’ remuneration

Answer 26

transparency and accountability
 Some legal and other strategies:
 Corporate Governance Code 2010
 Directors’ Remuneration Report 2002
 Shareholders’ vote to approve report only
advisory