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Business Law and Practice > Shareholders > Flashcards

Shareholders Flashcards

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1
Q

What principle are shareholder decisions made under?

A

Majority principle

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2
Q

What does s33 Companies Act do?

A

regulate relationship between members and each other/company

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3
Q

What is the effect of s33 Companies Act?

A

members can sue if their membership rights infringed

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4
Q

What are examples of membership rights that have been enforced?

A
  • 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.
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5
Q

Can a court imply terms of company’s articles?

A

No, it is deemed a complete contract

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6
Q

What are likely provisions of a shareholder agreement?

A
  • Unanimous voting over certain matters, eg removing a director;
  • Quorum for GMs;
  • Dividend policy;
  • Allotment of new shares; and
  • New and departing shareholders.
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7
Q

What are the benefits of a shareholder agremeent v articles?

A

Articles dont deal with personal rights and obligations
Articles are subject to CA 2006
SH agreement can be kept private

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8
Q

What are shareholder rights under CA 2006 that any shareholder can do?

A
  • 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)
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9
Q

What are shareholder rights under CA 2006 that 5% or more of shareholders can do?

A
  • 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)
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10
Q

What are shareholder rights under CA 2006 that 10% or more of shareholders can do?

A
  • Demand a poll vote (MA 44)
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11
Q

What are shareholder rights under CA 2006 that more than 25% of shareholders can do?

A
  • Block a special resolution (s 283)
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12
Q

What are shareholder rights under CA 2006 that more than 50% of shareholders can do?

A
  • Pass or block an ordinary resolution (s 282)
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13
Q

What are shareholder rights under CA 2006 that 75% of shareholders can do?

A
  • Pass a special resolution (s 283)
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14
Q

How can shareholder agreements protect minorities?

A
  • right of action/enforceability
  • reserved matters
  • amendments
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15
Q

How can a director be removed under CA 2006?

A

Company (ie SHs) may by ordinary resolution remove a director before the expiration of their period of office.

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16
Q

What is required for a removal resolution?

A

special notice (28 clear days)

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17
Q

What is the process where the board agrees to put the removal resolution on the GM agenda?

A

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.

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18
Q

What happens when the board disagrees to put the removal resolution on the GM agenda?

A

May need to force directors to call GM under s303

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19
Q

What is a s303 request?

A

SHs with 5% or more of paid-up voting share capital can serve request on board requiring them to call a GM

20
Q

What must a s303 request contain?

A

Must state general nature of business SH wish to be dealt with at GM. May include text of resolution proposed

21
Q

How must directors call a GM upon receiving a s303 request?

A
  • Within 21 days from request
  • To be held on a date no more than 28 days after notice convening
22
Q

How must shareholders call a GM if the directors fail to comply with a s303 request?

A
  • Must be called on no fewer than 14 clear days’ notice
  • Held within 3 months of Directors receiving s303.
23
Q

What shareholders can call a GM under s305?

A

SH who submitted s303/>1/2 voting rights can call GM

24
Q

What must the company do when it receives a removal resolution?

A

Send a copy of the notice to the director concerned

25
Q

What are a director’s rights to protest removal?

A
  • 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))
26
Q

What is a Bushell v Faith clause?

A

May give weighted voting rights where s168 is proposed

27
Q

Can a director be removed under s168 if there is a shareholder agreement requiring unanimous consent?

A

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.

28
Q

Can a director be paid compensation for loss of officee?

A

Yes but must be approved by shareholders by ordinary resolution

29
Q

When will compensation for loss of office not require approval?

A

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

30
Q

What happens if compensation is paid for loss of office?

A

Memorandum setting out particulars of payment must be available to SHs for 15 days before OR passed, ending on GM

31
Q

What other compensation will require ordinary resolution?

A
  • 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.
32
Q

What is a derivative claim?

A

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.

33
Q

What is the rule in foss v Harbottle?

A

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.

34
Q

What does s260 CA 2006 do?

A

allows shareholders to bring a derivative claim where directors have breached their statutory duties

35
Q

When can a derivative claim be brought?

A

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.

36
Q

Who can a derivative claim be brought against?

A

‘the director or another person (or both)’ but cause of action only by acts/omissions of a director.

37
Q

Who can bring a derviative claim?

A

A member- (s260(4)) immaterial if cause of action before became member

38
Q

What is stage one of court approval for derivative claims?

A
  • 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.
39
Q

What is stage two of court approval for derivative claims?

A

Considers particular criteria, inc particular regard to any evidence of members who have ‘no personal interest, direct or indirect’

40
Q

When can a member petition for unfair prejudice?

A

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.

41
Q

What is the test for unfair prejudice?

A

Reasonable bystander objective test

42
Q

What are examples of unfair prejudice?

A
  • The granting of excessive remuneration to directors;
  • Directors’ dealing with associated persons; and
  • Non-payment of dividends.
  • legitimate expectation
  • serious mismanagement
43
Q

What are the key principles for unfair prejudice?

A
  • 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)
44
Q

What are the remedies for unfair prejudice?

A

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

45
Q

What is the most common remedy for unfair prejudice?

A

purchase of petitioner’s shares by wrongdoer

46
Q

What are the valuation principles when purchasing a petitioner’s shares by the wrongdoer?

A
  • 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
47
Q

What is the most drastic remedy for a shareholder to bring?

A

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

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