Shareholder's Remedies and Allotment of Shares Flashcards
Shareholder’s Rights
Members’ rights are rights which are enforceable against the company and attach to shares. This includes: right to dividend (once declared), right to surplus capital on winding up, right to be notified of GMs, right to vote.
Rights are contained in the articles and statute, articles are contract between members and company and members can sue for damages on breach.
Shareholders’ Agreements
A legally binding contract between the shareholders of the company and enforceable as between each other. Can contain and enforce rights other than membership rights and reserve some decisions for consent of certain threshold of members etc.
Private document and can contain rights which could not be enforceable if included in the company’s articles. Gives the minority shareholder remedies for breach of contract in event of breach. If shareholder decision made in breach of ShA, company must carry out anyways. Variations require unanimous consent.
Power to Remove a Director
The shareholders can remove a director before expiry of their term by ordinary resolution at a GM (must not be written resolution). Shareholders must give special notice (28 clear days) of removal resolution. The directors can choose whether or not to put this on the agenda.
Under s.303, shareholders holding at least 5% of paid up share capital in company with right to vote can request that the directors call a GM. The directors must call the GM within 21 days of the request and the GM must take place within 28 days of request.
s.305, if power under s.303 not followed then shareholders who filed s.303 notice and hold at least half of value of shares can call the GM themselves with 14 days notice and within 3 months of s.303 request. Can also be reimbursed for expenses.
Director’s Rights on Removal
Other directors must give director notice immediately regardless if matter placed on agenda for GM or not.
To make representations and be heard at the GM.
To vote and count in the quorum at the GM if they are also a shareholder. Director may also have bushell v faith clause in their service contract.
Compensation for loss of office may be received and this is required to be approved by ordinary resolution of the shareholders UNLESS:
X Payment is £200 or less
X Payment in respect of dispute / settlement in relation to loss of office OR pension payment or in good faith for existing obligation;
X Company is a wholly owned subsidiary.
If D is also D of holding co, OR of that holding co will also be required.
Derivative Claim
Claim by a member on behalf of the company (cause of action and remedy belongs to company) for a wrong done to the company by a director or other person.
“Wrong” includes breach of trust, breach of duty, negligence, fraud etc.
Once claim form is issued, permission is required from the court to continue the claim. Firstly they will determine whether there is a prima facie case and will always refuse permission if a person acting in accordance with s.172 would not seek to continue the claim. Court will consider whether member acting in good faith and whether other members are likely to ratify it. Secondly, there will be an in-depth consideration of the case, taking particular account of shareholders views who have no interest in the transaction.
If passed, claim proceeds to trial.
Unfair Prejudice
A claim brought personally by a member alleging that the company is being run in a way which is unfairly prejudicial to the members as a whole or part.
“Unfair Prejudice” is assessed objectively and includes breach of the articles, not being allowed to be involved in management of a close company. Does not include negligent management unless serious, repeated and affecting value of members’ interests or disagreement to policy.
Usually the remedy will be share buyback, with value of shares according to the articles or wide discretion for court to set fair price at the date of the valuation.
Winding Up
Member can apply to court to have company wound up because it is just and equitable to do so. This will be very rarely done. Company is brought to an end and the equitable principles apply so must not delay application and member must have clean hands.
Shares in Private Companies
Must have nominal value when allotted otherwise void.
Ordinary shares = default if not specified in the articles of the company. Carry right to vote, surplus capital on winding up and dividends declared.
Preference Shares = carry some higher priority right from ordinary shares, e.g right to received declared dividends before ordinary shareholders. May be participating (e.g also receive further surplus capital on winding up with ordinary shareholders after they have received preferred amount) and may be cumulative.
Shares = allotted = when person acquires unconditional right to be entered in register of members.
Legal title = when name entered in reg of members
Beneficial title = when stock transfer form signed.
Varying a Class of Shares
Requires amendment of articles so special resolution needed OR:
- consent in writing of 75% of members of that class.
Shareholders voting against the resolution and holding at least 15% of the voting shares have 21 days to apply to court to have decision overturned. Company may not then vary without court permission.
Transmission and Transfer of Shares
Transmission = automatic on death (to PRs) or bankruptcy (to trustee).
Transfer = method of transfer is stock transfer form, contract between shareholder and proposed new shareholder. Transferor signs STF, stamps and submits to new shareholder with share certificate.
NO STAMP duty if under £1000. Company must sent new share certificate within 2 months.
Directors can refuse to accept new shareholder.
CADCA
What is the process for Allotment of Shares?
CAP
= check for a cap on issuable shares. Post-2006 Companies will not have a cap unless expressly included in their articles (would have to disapply article by SR). Companies pre-1985 usually have cap, must disapply by ordinary resolution.
AUTHORITY
= If only one class of shares in private company and allotting same class of shares, have automatic authority under s.550 CA 2006. However, if a 1985 company then still require ordinary resolution of shareholders to rely on this. FILE THIS OR @ CH.
= for all other companies, if no authority then can get authority by ordinary resolution of the shareholders under s.551 or the articles and must specify how long authority applies for. Authority can last up to 5 years.
DISAPPLY PRE-EMPTION RIGHTS
= pre-emption rights apply to ordinary shares and to any other shares where rights to surplus capital on winding up and declared dividends are not fixed / capped / excluded. Requires special resolution to articles to amend this and can be done permanently where private co with only one class of shares.
CLASS CREATED
= amend articles to reflect creation of new class, will require special resolution.
ALLOTMENT
= shares allotted by directors at board meeting. This step will always be required. Board resolution.
POST-ALLOTMENT ADMINISTRATION
FILE RESOLUTIONS AT COMPANY’S HOUSE
+ SR and OR to remove cap
+ OR to grant directors authority to allot
+ SRs to disapply pre-emption rights
+ SRs for amending articles
FILE
- file amended articles
- Allotment form SH01 & statement of capital within 1 month
FILE WITHIN 2 MONTHS
- update register of members and issue new share certificates.
- forms if PSCs have changed
FINANCIAL ASSISTANCE
Prohibited in certain circumstances from providing financial assistance to shareholder who is buying shares from the company.
Where purpose of financial assistance is to acquire shares in the company by transfer or issue. Financial assistance can take place before, during or after the acquisition and may be by gift / guarantee, security, release, waiver or anything which materially reduces the assets of the company
PUBLIC TARGET = itself and any subsidiary
PRIVATE TARGET = any public subsidiary
If done, will be void or fine or imprisonment
Exceptions to Rule against Financial Assistance
+ Dividend transactions
+ The acquisition is only some incidental part or not the main purpose of the financial assistance.
+ Money lending transaction in the course of business OR assistance with employee share scheme AND company giving assistance is private OR company giving assistance is public and net assets not reduced by assistance or only reduced from distributable profits.
