Shareholder Rights Flashcards
(119 cards)
1
Q
Explain the purpose of a shareholders’ agreement.
A
A shareholders’ agreement aims to minimize the effects of majority rule by outlining how the company is to be run and how shareholders will vote on certain matters.
2
Q
How might a shareholders’ agreement affect decision-making in a company?
A
A shareholders’ agreement can require unanimous consent from all shareholders for certain decisions, such as the removal of a director, thereby protecting minority interests.
3
Q
How does s 33 CA 2006 affect members’ rights?
A
s 33 CA 2006 allows members to sue if their membership rights are infringed, providing a legal basis for enforcement.
4
Q
Define the usual remedy for breach of s 33 CA 2006.
A
The usual remedy for breach of s 33 CA 2006 is damages.
5
Q
Describe the enforceability of rights that are not membership rights under section 33.
A
Rights of members that are not classified as membership rights are not enforceable under section 33.
6
Q
What should members do to protect their rights that are not membership rights?
A
Members should ensure that any rights not classified as membership rights are documented in a separate contract, such as a shareholders’ agreement.
7
Q
List examples of membership rights that are enforceable under section 33 CA 2006.
A
Examples include the right to a dividend once declared, the right to share in surplus capital on winding up, the right to vote at meetings, and the right to receive notice of general meetings and annual general meetings.
8
Q
Do membership rights include the right to be appointed as a company’s solicitor?
A
No, the right to be appointed as a company’s solicitor is not considered a membership right.
9
Q
How does a Shareholders’ Agreement address the issue of new and departing shareholders?
A
A Shareholders’ Agreement typically includes provisions that outline the process for admitting new shareholders and the terms under which departing shareholders can sell or transfer their shares.
10
Q
Explain the privacy aspect of Shareholders’ Agreements.
A
Shareholders’ Agreements can be kept private and are not publicly disclosed unless explicitly referenced in the Articles of the company.
11
Q
What is a key difference between Shareholders’ Agreements and Articles of Association?
A
A key difference is that Shareholders’ Agreements are private contracts among shareholders, while Articles of Association are public documents that govern the company.
12
Q
Explain the implications of a company being a party to a Shareholders’ Agreement.
A
A company can be a party to a Shareholders’ Agreement, but it should avoid provisions that limit its ability to exercise statutory powers.
13
Q
Describe the role of a Shareholders’ Agreement in enforcing provisions between shareholders.
A
A Shareholders’ Agreement provides a right of action that allows one member to enforce the provisions directly against another, which may not be possible under the Articles.
14
Q
Define the term ‘right of action’ in the context of Shareholders’ Agreements.
A
A right of action allows a shareholder to enforce the terms of the Shareholders’ Agreement against another member, providing a legal basis for claims.
15
Q
What happens if a term of a Shareholders’ Agreement is breached?
A
If breached, it can be enforced under general contract law principles, allowing the aggrieved shareholder to claim for breach of contract or seek an injunction.
16
Q
Explain the significance of section 994 petitions in relation to Shareholders’ Agreements.
A
While a Shareholders’ Agreement can help prevent the need for s 994 petitions for unfair prejudice, it cannot completely stop a disgruntled shareholder from filing such a petition.
17
Q
Define the implications of passing a removal resolution without required unanimity.
A
If a removal resolution is passed without the required unanimity but with a simple majority, the resolution is still valid, and the director can claim breach of the shareholders’ agreement against the other shareholders.
18
Q
How do amendments to shareholders’ agreements differ from changes to a company’s articles of association?
A
Amendments to shareholders’ agreements require unanimous approval from all parties, while changes to a company’s articles of association can be made with a special resolution requiring 75% approval.
19
Q
Explain the right of veto in the context of shareholders’ agreements.
A
The requirement for unanimous approval to amend a shareholders’ agreement gives minority parties a right of veto over any proposed changes.
20
Q
Describe the rights of any shareholder under CA 2006.
A
Any shareholder has the right to receive notice of a General Meeting, appoint a proxy to attend a General Meeting, vote at a General Meeting (if they hold voting shares), receive a dividend (if declared), receive a copy of the company’s accounts, inspect minutes and company registers, ask the court to prevent a breach of directors’ duties, commence a derivative claim, bring a petition for unfair prejudice, and bring a petition for just and equitable winding up.
21
Q
Define the right to receive a copy of the company’s accounts under CA 2006.
A
The right to receive a copy of the company’s accounts under CA 2006 allows shareholders to access the financial statements and reports of the company, ensuring transparency and accountability.
22
Q
What action can shareholders take if they believe there is a breach of directors’ duties?
A
Shareholders can ask the court to prevent a breach of directors’ duties.
23
Q
Explain the process for a shareholder to commence a derivative claim under CA 2006.
A
A shareholder can commence a derivative claim under section 260 of CA 2006, which allows them to bring a lawsuit on behalf of the company against directors for actions that are detrimental to the company.
24
Q
What is the significance of the right to bring a petition for unfair prejudice?
A
The right to bring a petition for unfair prejudice allows shareholders to seek legal remedy if they believe their interests as shareholders are being unfairly treated or disregarded by the company.
25
How can shareholders dissolve a company?
CA 2006 allows shareholders to bring a petition for just and equitable winding up under section 122 of the Insolvency Act 1986, providing a legal avenue for shareholders to dissolve the company if it is deemed fair and just.
26
Describe the rights of shareholders holding 5% or more of shares.
Shareholders with 5% or more can require directors to call a General Meeting, require the circulation of written statements regarding proposed resolutions, and circulate a written resolution.
27
How can shareholders with 10% or more of shares influence voting?
Shareholders with 10% or more can demand a poll vote.
28
Define the power of shareholders holding over 25% of shares.
Shareholders with over 25% can block a special resolution, which requires 75% or more of the votes to pass.
29
What can shareholders with over 50% of shares do regarding ordinary resolutions?
Shareholders with over 50% can pass or block an ordinary resolution, which requires more than 50% of the votes to pass.
30
Explain the significance of a 75% shareholding in terms of special resolutions.
Shareholders with 75% or more can pass a special resolution, which requires 75% or more of the votes to be approved.
31
Explain the context in which Bushell v Faith clauses are commonly found.
These clauses are often found in the articles of association of smaller companies where directors have played a key role in establishing the company and expect to remain involved in its management.
32
Explain the significance of DAY 22 in the context of the Board's decision-making process.
DAY 22 is significant as it is the latest day by which the Board must decide whether to call a General Meeting.
33
Define the timeline for shareholders to call a General Meeting if the Board does not cooperate after a section 303 notice.
If the Board does not call a General Meeting by Day 22, shareholders can call the GM themselves starting from Day 23, with the GM needing to be held within 3 months of the section 303 request.
34
What happens on Day 23 in relation to the Board's control over the General Meeting process?
On Day 23, the Board loses control of the process, allowing unhappy shareholders to call the General Meeting.
35
Explain the significance of Day 38 in the context of the General Meeting process.
Day 38 is the deadline by which the General Meeting must be held if the Board does not call it, as it must occur within 3 months of the section 303 request.
(14 clear days notice after day 23)
36
Describe the process a company must follow upon receiving notice of a removal resolution proposal.
The company must immediately send a copy of the notice to the concerned director, even if the Board decides not to include the resolution on the agenda of a General Meeting.
37
How can a director respond to a removal resolution notice?
The director has the right to make written representations of reasonable length explaining why they should not be removed.
38
What happens to a director's written representations regarding their removal?
Unless received too late, the representations should be circulated to the members of the company; if not circulated, they must be read out at the General Meeting.
39
Describe the purpose of a Bushell v Faith clause in the articles of association.
A Bushell v Faith clause may grant a director, who is also a shareholder, weighted voting rights at a general meeting, making it difficult for shareholders to pass an ordinary resolution to remove that director.
40
Define the significance of checking shareholders' agreements in relation to Bushell v Faith clauses.
It is important to check shareholders' agreements for similar provisions to understand any additional rights or restrictions regarding the removal of directors who are also shareholders.
41
What should be examined in the articles of association regarding a director's shareholding upon removal?
The articles should be checked for transfer provisions that may govern the transfer of the outgoing director’s shareholding, typically requiring them to transfer their shares to other shareholders upon removal.
42
What is the latest day the Board must hold a General Meeting if it decides to call one?
The latest day for holding a General Meeting is DAY 50.
21 days to decide whether to hold GM + GM to be held within 28 days of calling it
43
How does a shareholders' agreement interact with statutory rights under s 168 CA 2006?
A shareholders' agreement may require unanimous consent for director removal, but it does not remove the statutory right of majority shareholders to remove a director under s 168 CA 2006.
44
Define the validity of a resolution passed under s 168 CA 2006 that contradicts a shareholders' agreement.
A resolution passed by a simple majority under s 168 CA 2006 is still valid even if it contradicts the terms of a shareholders' agreement.
45
What recourse does a director have if removed contrary to a shareholders' agreement?
The director can claim against the other shareholders for breach of the shareholders' agreement or apply to the court for an injunction to prevent the breach.
46
Explain the implications for a director who is also a shareholder in the context of a shareholders' agreement.
A director who is also a shareholder has significant rights under a shareholders' agreement, particularly regarding the requirement for unanimous consent for their removal.
47
Describe the circumstances under which a company may pay compensation for loss of office to a director.
A company may decide to pay compensation for loss of office to a director if the director leaves or loses their position, and such payments must be approved by the company’s shareholders unless certain conditions are met.
48
Define the conditions under which shareholder approval is not required for compensation payments to a director.
Shareholder approval is not required if the payment, along with any other relevant payments, does not exceed £200, or if the payment is made in good faith for specific reasons such as discharging a legal obligation, damages for such an obligation, settlement of a claim, or pension for past services.
49
Explain the potential entitlements of a director if their employment contract is breached due to removal from office.
If a director's employment contract is breached due to their removal from the office of director, they may be entitled to damages or compensation for breach.
50
What is the role of ordinary resolution in the context of compensation payments to directors?
An ordinary resolution by the company’s shareholders is required to approve compensation payments for loss of office, unless specific exceptions apply.
51
How long must a memorandum detailing a payment be available to shareholders before an ordinary resolution is passed?
The memorandum must be made available to shareholders for 15 days before the ordinary resolution is passed, ending with the date of the general meeting.
52
What is the significance of s 217(4) CA 2006 regarding wholly-owned subsidiaries?
Under s 217(4) CA 2006, no approval is required from the shareholders of a wholly-owned subsidiary for payments made to directors.
53
What legal provision may shareholders invoke if the board ignores the removal resolution?
Shareholders may invoke section 303 of the Companies Act 2006 to force the directors to call a general meeting if the board ignores the proposed removal resolution.
54
Explain the voting rights of directors who are also shareholders regarding their removal.
Directors who are also shareholders can vote on the ordinary resolution to remove themselves from office.
55
What is the notice period required for a removal resolution under s 168(2) CA 2006?
A removal resolution requires special notice of 28 clear days. (double normal 14 days normal notice)
56
Discuss the limitations on using written resolutions for removing a director.
Under s 288(2)(a), a company cannot use a written resolution to remove a director.
57
What role does the Board play in the removal of a director under CA 2006?
The Board does not have the authority to remove a director unless the articles specifically allow for this action.
58
Define special notice in the context of shareholder resolutions.
Special notice refers to the requirement for shareholders to notify the company of a proposed removal resolution at least 28 clear days before the General Meeting.
59
How does the board of directors respond to a proposed removal resolution?
The board can either place the removal resolution on the agenda of the General Meeting or decide not to include it.
60
What are the two options available to the board upon receiving a removal resolution notice?
Option 1: The board may place the removal resolution on the agenda of a General Meeting. Option 2: The board may decide not to place the removal resolution on the agenda.
61
Describe the process for placing a removal resolution on the agenda of a general meeting by the board.
The board must give shareholders notice of the removal resolution at the same time and in the same manner as the notice of the general meeting, providing at least 14 clear days’ notice.
62
How should shareholders be notified of a removal resolution if the general meeting notice has already been sent out?
Notice of the removal resolution may be given by advertisement in a newspaper or any other mode allowed by the company’s Articles, at least 14 clear days before the general meeting.
63
Describe the reason the board must notify all shareholders about the removal resolution.
The board must notify all shareholders because only some shareholders, referred to as 'unhappy shareholders', proposed the removal resolution. Other shareholders may be unaware of this proposal, and the notice ensures that all shareholders have the opportunity to vote on the resolution at the general meeting.
64
Describe the process for removing a director under s 168(1) CA 2006.
A company may remove a director before the expiration of their term by passing an ordinary resolution, which requires a vote from the shareholders.
65
Define a s 303 request in the context of company law.
A s 303 request is a formal request made by shareholders holding at least 5% of the paid up voting share capital, requiring the board to call a general meeting, which must state the general nature of the business to be discussed.
66
What must a s 303 request include according to company law?
A s 303 request must state the general nature of the business the shareholders wish to address at the general meeting.
67
Describe the obligations of directors upon receiving a s 303 request under CA 2006.
Directors must call a General Meeting (GM) within 21 days of receiving the s 303 request and ensure it is held no more than 28 days after the notice convening the GM.
68
How can shareholders act if directors fail to call a GM after a s 303 request?
Shareholders who submitted the s 303 request, or those representing more than half of the voting rights, can call a GM themselves under s 305 CA 2006.
69
Define the notice period required for shareholders calling a GM themselves under s 305 CA 2006.
Shareholders must provide no fewer than 14 clear days' notice when calling a GM themselves.
70
What is the timeframe for holding a GM called by shareholders after a s 303 request?
The GM must be held within 3 months of the date the directors received the s 303 request.
71
How can shareholders recover expenses incurred from calling a GM themselves?
Shareholders can recover reasonable expenses from the company, which the company can then recoup from the directors.
72
Summarise the process that shareholders must follow if they are unhappy with the Board.
Unhappy shareholders give special notice to the Board and serve notice under s 303. The Board has 21 days to decide whether to call a General Meeting (GM). If the Board decides to call a GM, it must be held within 28 days from the date of calling it. If the Board decides not to call a GM, shareholders can call a GM on normal notice, which must be held within 3 months of the s 303 request.
73
Describe the process shareholders must follow to ensure a resolution to remove a director is heard quickly.
Shareholders must submit a s 303 request to require the directors to call a General Meeting (GM) and send a s 312 CA 2006 special notice to the board simultaneously.
74
Explain the limitations of a former member in bringing claims.
A former member cannot bring a claim for events that occurred even when they were a member.
75
What is the focus of Stage 2 in the two-stage process?
Stage 2 focuses on a detailed consideration of the criteria and evidence from other members before proceeding to trial.
76
What happens if a prima facie case does not exist in Stage 1 of a derivative claim?
If no prima facie case exists, the claim is dismissed.
77
Define a prima facie case in the context of the two-stage process.
A prima facie case is a case that has sufficient evidence to proceed to trial unless rebutted by the opposing party.
78
Define the purpose of s 263 CA 2006 in derivative claims.
s 263 CA 2006 was introduced to make it harder for a single member to bring proceedings against the wishes of the general body of shareholders, serving as a safeguard against tactical litigation by disgruntled shareholders.
79
Describe the second stage of court consideration for a derivative claim.
At the second stage, the court must consider particular criteria and have 'particular regard' to evidence regarding the views of members without personal interest in the matter, as per s 263(4) CA 2006.
80
How does the duty to promote the success of the company relate to derivative claims?
The duty under s 172 CA 2006 is relevant because if the court is satisfied that a person acting in accordance with this duty would not continue the claim, permission must be refused.
81
What is the significance of good faith in the continuation of a derivative claim?
Good faith is one of the factors the court considers when determining whether to allow the derivative claim to continue.
82
What factors must the court consider if the derivative claim is not absolutely barred?
The court must consider factors listed in s 263(3), including whether the member is acting in good faith and whether the act or omission that caused the action is likely to be ratified by the company.
83
Define the onus placed on the member in the first stage of a derivative claim.
The onus is on the member to establish a prima facie case in order to obtain permission from the court.
84
Describe the first stage of bringing a derivative claim.
The first stage requires the member to obtain permission from the court to continue a derivative claim after the claim form has been issued, as per s 261(1) CA 2006.
85
Describe a derivative claim in the context of shareholder rights.
A derivative claim is a legal action where a shareholder sues on behalf of the company, as the right of action is derived from the company's right, which the company has not exercised.
86
Describe the rights of a member regarding claims in a company.
A member may bring a claim for events that occurred before they became a member, as the cause of action is vested in the company rather than the member.
87
How does the Companies Act 2006 (CA 2006) address derivative claims against third parties?
The CA 2006 permits derivative claims against third parties only in very narrow circumstances, such as when the third party knew about the breach of the director's duties.
88
Define the concept of 'knowing assistance' in relation to derivative claims.
'Knowing assistance' refers to the common law rules that allow a cause of action against a third party who knowingly assists a director in breaching their duties.
89
Describe the circumstances under which third parties may be defendants in a derivative claim.
Third parties may be defendants in a derivative claim in respect of a relevant breach by a director, either in lieu of the director or in addition to the director, but only in very narrow circumstances.
90
When can a derivative claim be brought according to section 260(3) CA 2006?
A derivative claim may be brought in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty, or breach of trust by a director.
91
Do directors need to benefit personally from a breach for a derivative claim to be brought?
No, there no requirement for the director to have benefited personally from the breach for a derivative claim to be initiated.
92
What is the significance of the remedy granted in a derivative claim under Section 260 CA 2006?
Any remedy granted in a derivative claim under Section 260 CA 2006 is awarded to the company itself, not to the shareholder bringing the claim.
93
How does a derivative claim differ from a personal claim by a shareholder?
A derivative claim is not personal to the shareholder; it is based on the company's right of action, while a personal claim is based on the individual rights of the shareholder.
94
What is the role of the board or majority shareholders in derivative claims?
The board or majority shareholders typically act as the proper claimants in situations where a wrong has been done to the company, as they represent the company's interests.
95
Do minority shareholders have the right to sue for wrongs committed against the company?
Generally, minority shareholders do not have the right to sue for wrongs committed against the company, as established by the rule in Foss v Harbottle, unless limited exceptions apply.
96
Explain unfair prejudice actions under s994 CA 2006.
Unfair prejudice actions under s994 CA 2006 enable shareholders to seek relief if the company's affairs are being conducted in a manner that is unfairly prejudicial to their interests.
97
What is just and equitable winding up under s122 Insolvency Act 1986?
Just and equitable winding up under s122 Insolvency Act 1986 allows a court to dissolve a company if it is deemed JUST AND EQUITABLE to do so, often used in cases of deadlock or loss of trust among shareholders.
98
Define unfair prejudice in the context of Section 994 CA 2006.
Unfair prejudice refers to conduct that negatively affects a member's interests in a company, such as excessive remuneration to directors, dealings with associated persons, or non-payment of dividends.
99
How does a shareholder initiate an action under Section 994 CA 2006?
A shareholder initiates an action under Section 994 CA 2006 by suing for themselves based on the unfair prejudice they have suffered.
100
Describe the circumstances under which a shareholder can petition the court according to Section 994(1) CA 2006.
A shareholder can petition the court if they can show that the company's affairs are being conducted in a manner that is unfairly prejudicial to their interests or that an act or omission of the company has unfairly prejudiced them.
101
Define the reasonable bystander test in the context of shareholder rights.
The reasonable bystander test is an objective standard used to determine whether a shareholder's interests have been unfairly prejudiced by the company's actions or omissions.
102
How does the court determine the appropriate remedy for unfair prejudice claims by shareholders?
The court will assess the circumstances of the case and decide what remedy is appropriate based on the evidence presented regarding the unfair prejudice.
103
What grounds can a member of a company use to apply for a court order under Section 994(1) CA 2006?
A member can apply on the grounds that the company's affairs are being conducted in a manner unfairly prejudicial to the interests of members generally or that an act or omission of the company is or would be prejudicial.
104
Define the threshold for negligent management to be considered unfairly prejudicial.
Negligent or inept management does not amount to unfairly prejudicial conduct unless it involves serious and/or repeated mismanagement that jeopardizes the value of the minority shareholder's interest.
105
How do disagreements about company policy relate to unfairly prejudicial conduct?
Disagreements regarding company policy, such as changes in business direction, do not provide grounds for a petition under section 994 of the Companies Act 2006.
106
What is the significance of breaches of the articles of association in the context of unfairly prejudicial conduct?
A member of a company typically cannot claim unfairness without a breach of the articles of association, but equitable considerations may allow for claims even in the absence of such breaches.
107
Describe the relevance of a claimant's conduct in court.
The conduct of the claimant may be relevant in deciding whether the prejudice was unfair, but there is no overriding requirement for the claimant to come to court with 'clean hands.'
108
Explain the role of bad faith in determining unfairly prejudicial conduct.
There is no requirement to demonstrate bad faith or conscious intent for conduct to be deemed unfairly prejudicial.
109
What may the prevention of management involvement equate to in small private companies?
The prevention of management involvement may equate to unfairly prejudicial conduct in the context of small private companies.
110
What is the most commonly made order in cases of unfair prejudice?
The most commonly made order is to provide for the purchase of the petitioner’s shares by the wrongdoer(s).
111
Do minority shareholders typically have the right to purchase shares from majority shareholders in unfair prejudice cases?
Only rarely does this result in an order entitling the minority shareholder(s) to purchase the shares of the majority shareholder(s).
112
Describe the court's discretion in valuation matters.
The court has a wide discretion in relation to valuation matters, aiming to set a fair price while considering all circumstances of the case.
113
How might the behavior of the claimant influence the valuation process?
The behavior of the claimant may be relevant, for example, if they previously rejected a reasonable offer.
114
Describe the role of the court in disputes over share valuation.
The court encourages parties to settle out of court through a binding third-party valuation of the shares.
115
Define the implications of filing a petition under s 994 CA 2006 for shareholders.
Filing a petition under s 994 CA 2006 may not be suitable for shareholders who want to avoid a court order for the purchase of their shares.
116
What are the potential drawbacks of section 994 petitions?
Section 994 petitions are likely to be expensive, time-consuming, and complicated, bringing uncertainty for the petitioner.
117
Describe the final remedy available to shareholders regarding company liquidation.
The final remedy available to shareholders is the right to bring a petition to the court for the company to be wound up (liquidated) on the grounds that it is just and equitable to do so.
118
Explain the relationship between section 122 of the Insolvency Act 1986 and section 994 of the Companies Act 2006.
There is a degree of overlap between the sections, making it common for a section 122 IA 1986 and a section 994 CA 2006 petition to be made at the same time.
119
What is meant by 'just and equitable' in the context of winding up a company?
'Just and equitable' refers to the grounds on which a shareholder can petition for the winding up of a company, indicating that the circumstances warrant such a drastic action.
