Shareholders

Question 1

Key membership rights enforced under s 33 CA 2006?

Answer 1

Right to a dividend once it has been lawfully declared, right to a share in surplus capital on a winding up, right to vote at meetings, right to receive notice of GMs and AGMs.

Question 2

What is the difference between the articles and shareholder’s agreement?

Answer 2

SH agreement between some/all shareholders - personal rights and obligations on the shareholders, can be kept private.

Articles - contract between company and its shareholders.

Question 3

What happens if a term of a shareholder’s agreement is breached?

Answer 3

It can be enforced in the usual way under general contract law principles- claim for breach of contract, apply to court for an injunction to prevent breach of terms of agreement.

Question 4

What is needed for amendment to shareholders agreement?

Answer 4

Unanimous approval of all parties to the agreement.

Question 5

What right do shareholders with 10% or more of shareholding have>

Answer 5

Demand a poll vote. MA 44

Question 6

What rights do shareholders with 5% or more of shareholding have?

Answer 6

Require directors to call GM, require circulation of written statements regarding proposed resolutions to be considered at a GM, circulate a written resolution.

Question 7

How can the shareholders remove a director?

Answer 7

By ordinary resolution. Cannot use written resolution. Special notice of 28 clear days is required.

Option 1 is that the board then puts the removal resolution on the GM agenda. Board give 14 days clear notice of removal resolution to SHs.

Option 2 is that the board does nOT place the removal resolution on the GM agenda. Shareholders may need to force directors to call GM in accordance with s 303. At least 5% holding shareholders can call GM themselves.

Question 8

What rights do all shareholders have?

Answer 8

Receive notice of GM, appoint proxy to attend GM, vote at GM, receive dividend, copy of company’s accounts, inspect minutes and company registers, ask court to prevent breach of director’s duties, commence derivative claim, bring petition for unfair prejudice, petition for just and equitable winding up.

Question 9

What are director’s obligations on receipt of an s 303 request?

Answer 9

Within 21 days Gm within 21 days from when they became subject to the s 303 request, to be held on a date not more than 28 days after the notice convening the GM.

If directors fail to do this, al shareholders who submitted the s 303 request or any of them representing more than half of voting tights of those who submitted s 303 request can call GM themselves pursuant to s 305.

Question 10

Do the directors have rights to protest their removal?

Answer 10

Company must immediately send copy of removal resolution to director concerned. Then D has the right to make representations in writing of a reasonable length which should be circulated to the members or read out at the relevant GM.

In any event, d also has right to speak in their defence at the GM.

Question 11

How do Bushell v Faith clauses work?

Answer 11

May give D who is also SH weighted voting rights at a GM, likely to mean that shareholders are unable to pass OR to remove director concerned.

Often in smaller companies.

Question 12

Are directors entitled to compensation for loss of office?

Answer 12

Company may pay compensation by ordinary resolution. OR not needed if:

Payment together with any other relevant payments doesn’t exceed £200, or payment is made in good faith either in discharge of an existing legal obligation, by way of damages in respect of such an obligation, in settlement or compromise of a claim in connection with termination of a person officer or employment or by way of pension.

A memorandum setting out particulars of the payment must be made available to shareholders for 15 days before OR is passed, ending with date of GM.

Question 13

What is a derivative claim?

Answer 13

Initiated by a member of a company in respect of a cause of action vested in the company and seeking relief on behalf of the company.

Question 14

When can a derivative claim be brought?

Answer 14

Cause of action arising from actual or proposed act or omission involving negligence, default, breach of duty or. breach of trust by a director of the company.

Question 15

Who can a derivative claim be brought against?

Answer 15

The director or another person - but cause of action will only arise in respect of the actions or omissions of a director.

Third parties may be defendants in lieu of the director or in addition.

Question 16

Who may bring a derivative claim?

Answer 16

Members, can also bring claim in respect of events that occurred before they came a member. This is because the cause of action is vested in the company rather than the member.

Question 17

What are the two stages of bringing a derivative claim?

Answer 17

1. SH must approve permission of court to continue - make out a prima facie case in order to obtain permission. Permission must be refused if court considers someone acting in accordance with s 172 (act to promote success of company) would not continue the claim.
2. Not dismissed in first stage = consider claim at second stage - court must have particular regard to any evidence of the views of the members who have no personal interest in the matter.

Question 18

What is unfair prejudice action?

Answer 18

s994 CA allows a member to bring an action on the grounds that the company is being run in such a way that they have suffered unfair prejudice. e..g granting of excessive renumeration to directors, directors dealing with associated persons, non-payment of dividends.

Question 19

Key principles of s994 unfair prejudice?

Answer 19

Negligent or inept management of a company will not amount to unfairly prejudicial conduct unless that conduct amounts to serious and/or repeated mismanagement which puts at risk the value of the minority shareholder’s interest.

Disagreements as to company policy will not afford grounds for s994 petition.

Bad faith does not need to be shown.

Breaches of the articles

Claimants conduct might be considered, but they don’t need to come to the court with ‘clean hands’ necessarily.

Excessive renumeration - courts will take a wide view of the prejudice that may be suffered by a minority shareholder.

Legitimate expectation in small private companies will be considered.