Shareholders Flashcards
What principle are shareholder decisions made under?
Majority principle
What does s33 Companies Act do?
regulate relationship between members and each other/company
What is the effect of s33 Companies Act?
members can sue if their membership rights infringed
What are examples of membership rights that have been enforced?
- Right to a dividend once it has been lawfully declared;
- Right to share in surplus capital on a winding up
- Right to vote at meetings; and
- Right to receive notice of GMs and AGMs.
Can a court imply terms of company’s articles?
No, it is deemed a complete contract
What are likely provisions of a shareholder agreement?
- Unanimous voting over certain matters, eg removing a director;
- Quorum for GMs;
- Dividend policy;
- Allotment of new shares; and
- New and departing shareholders.
What are the benefits of a shareholder agremeent v articles?
Articles dont deal with personal rights and obligations
Articles are subject to CA 2006
SH agreement can be kept private
What are shareholder rights under CA 2006 that any shareholder can do?
- Receive notice of GM (s 307)
- Appoint proxy to attend GM (s 324)
- Vote at a GM (if they hold voting shares) (s 284)
- Receive a dividend (if declared)
- Receive a copy of the company’s accounts (s 423)
- Inspect minutes and company registers (s 116)
- Ask court to prevent a breach of directors’ duties
- Commence a derivative claim (s 260)
- petition for unfair prejudice (s 994)
- petition for just + equitable winding up (s122 IA 1986)
What are shareholder rights under CA 2006 that 5% or more of shareholders can do?
- Require directors to call GM (s 303)
- Require circulation of written statements re proposed resolutions to be considered at a GM (s 314)
- Circulate a written resolution (s 292)
What are shareholder rights under CA 2006 that 10% or more of shareholders can do?
- Demand a poll vote (MA 44)
What are shareholder rights under CA 2006 that more than 25% of shareholders can do?
- Block a special resolution (s 283)
What are shareholder rights under CA 2006 that more than 50% of shareholders can do?
- Pass or block an ordinary resolution (s 282)
What are shareholder rights under CA 2006 that 75% of shareholders can do?
- Pass a special resolution (s 283)
How can shareholder agreements protect minorities?
- right of action/enforceability
- reserved matters
- amendments
How can a director be removed under CA 2006?
Company (ie SHs) may by ordinary resolution remove a director before the expiration of their period of office.
What is required for a removal resolution?
special notice (28 clear days)
What is the process where the board agrees to put the removal resolution on the GM agenda?
Give SH notice of RR same time + same manner as notice of GM i.e. 14 clear days notice
If not practical- advertisement in newspaper or method articles allow at least 14 clear days before GM.
What happens when the board disagrees to put the removal resolution on the GM agenda?
May need to force directors to call GM under s303
What is a s303 request?
SHs with 5% or more of paid-up voting share capital can serve request on board requiring them to call a GM
What must a s303 request contain?
Must state general nature of business SH wish to be dealt with at GM. May include text of resolution proposed
How must directors call a GM upon receiving a s303 request?
- Within 21 days from request
- To be held on a date no more than 28 days after notice convening
How must shareholders call a GM if the directors fail to comply with a s303 request?
- Must be called on no fewer than 14 clear days’ notice
- Held within 3 months of Directors receiving s303.
What shareholders can call a GM under s305?
SH who submitted s303/>1/2 voting rights can call GM
What must the company do when it receives a removal resolution?
Send a copy of the notice to the director concerned
What are a director’s rights to protest removal?
- Right to make representations in writing (of reasonable length s169(3))
- Right to be heard ie to speak in their defence at GM (s169(2))
What is a Bushell v Faith clause?
May give weighted voting rights where s168 is proposed
Can a director be removed under s168 if there is a shareholder agreement requiring unanimous consent?
Yes, but the director will have a claim for breach of the shareholder agreement. Or if known in advance, could apply for injunction before removal.
Can a director be paid compensation for loss of officee?
Yes but must be approved by shareholders by ordinary resolution
When will compensation for loss of office not require approval?
a) Payment, with any other relevant, not more than £200 or
b) Payment in good faith:
i. Discharge of existing legal obligation
ii. By way of damages in respect of oblifation
iii. In settlement/compromise of claim in connection with termination
iv. By way of pension in respect of past services
What happens if compensation is paid for loss of office?
Memorandum setting out particulars of payment must be available to SHs for 15 days before OR passed, ending on GM
What other compensation will require ordinary resolution?
- Payment for loss of office connected with undertaking/property of co
- Payment for loss of office connected with transfer of shares in co/subsidiaries resulting in takeover bid.
What is a derivative claim?
initiated by a member of company-
a) In respect of a cause of action vested in the company; and
b) Seeking relief on behalf of the company.
What is the rule in foss v Harbottle?
a minority shareholder is not allowed to sue for a wrong committed against a company of which they are a member, even if the company is refusing to take action.
What does s260 CA 2006 do?
allows shareholders to bring a derivative claim where directors have breached their statutory duties
When can a derivative claim be brought?
only 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 of the company.
Who can a derivative claim be brought against?
‘the director or another person (or both)’ but cause of action only by acts/omissions of a director.
Who can bring a derviative claim?
A member- (s260(4)) immaterial if cause of action before became member
What is stage one of court approval for derivative claims?
- Member must obtain permission from court. Onus – prima facie case
- S263(2) Court may refuse eg person acting in accordance with s 172 (promote success of company) would not seek to continue the claim.
- If not, court considers s263(3) factors inc acting in good faith, whether act/omission would likely be ratified by company.
What is stage two of court approval for derivative claims?
Considers particular criteria, inc particular regard to any evidence of members who have ‘no personal interest, direct or indirect’
When can a member petition for unfair prejudice?
a) Company’s affairs conducted in a manner unfairly prejudicial to interest of members generally/some part of members or
b) Actual/proposed act or omission of company would be so prejudicial.
What is the test for unfair prejudice?
Reasonable bystander objective test
What are examples of unfair prejudice?
- The granting of excessive remuneration to directors;
- Directors’ dealing with associated persons; and
- Non-payment of dividends.
- legitimate expectation
- serious mismanagement
What are the key principles for unfair prejudice?
- Negligent or inept management of a company – only if serious/repeated and puts minority shareholder interest at risk
- Disagreements as to company policy are not grounds
- No need to show bad faith
- Usually only breaches of articles unless equitable considerations apply
- No overriding requirement for claimant to have clean hands
- Excessive remuneration –courts take wide view of the prejudice that may be suffered by a minority shareholder
- Legitimate expectation – certain small private companies, SHs may expect involvement in management if invested. (only relates to quasi-partnerships)
What are the remedies for unfair prejudice?
s 996(1) Court power to grant such order fit to provide relief to SH
s 996(2) List of particular orders inc regulating future conduct/requiring co to do/refrain from certain acts
What is the most common remedy for unfair prejudice?
purchase of petitioner’s shares by wrongdoer
What are the valuation principles when purchasing a petitioner’s shares by the wrongdoer?
- SH first attempt valuation mechanism in articles provided its fair. If not fair method, court valuation is necessary
- Courts generally don’t impose discount on value of minority shares in a private company. May order discount where shares are investment or company operated along more commercial lines
- General rule, valuation date = court order for sale of shares.
- Behaviour of petitioner may be relevant eg rejected reasonable offer
What is the most drastic remedy for a shareholder to bring?
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
