Stakeholders in a company Flashcards
1
Q
Shareholders – key characteristics
A
- The owners of the company are its shareholders, also known as members.
- Invest money in return for share in ownership, evidenced by share certificate.
- Rights include voting rights and rights to a dividend, details of which set out in the Articles (sometimes shareholder’s agreement).
- Membership begins when the member’s name is entered in the company’s register of members (s 112(2) CA 2006).
- The first shareholders are known as subscribers under s 8 - as they subscribe to the company’s memorandum of association.
- A shareholder can be a company.
2
Q
Explain terminology used when one company is a shareholder in another company.
A
- If a company X owns all the shares in company Y, Y is a wholly owned ‘subsidiary’ of X, and X is known as its ‘parent’ or ‘holding’ company (see s 1159 CA 2006 for definition of subsidiary).
- X and Y can form a ‘group’ of companies and there is no limited on the number that can form a group.
- Y could also have subsidiaries.
- Group structures are frequently used to isolate risk and/or mitigate tax liabilities.
3
Q
What are shares?
A
- A ‘bundle of rights’ – by investing in the share capital of company, the shareholder becomes part owner of the company and probably has attached rights in shareholder meetings.
*There are several different types of shares. The most common is an ordinary share – usually entitles its holder to vote in shareholder meetings, receive a share of the profits and surplus assets (if any) when a company is wound up. Shares can be organised into different classes (e.g preference shares) which may have different rights from ordinary shares. - A company’s share capital is made up of shares purchased by the first members (subscriber shares) and further shares issued after the company has been incorporated. New shares can be issued at any time provided correct procedures are followed.
4
Q
What is meant by nominal or par value shares?
A
- Nominal or par value – shares must have a fixed nominal value (for ordinary shares common ones are 1p, 5p or £1).
- The nominal or par value of a share is the minimum subscription price. It represents a unit of ownership rather than actual value of the share.
- A share may not be allotted/issued by a company at a discount to its nominal value.
- A share may be allotted for more than its nominal value, known as the ‘premium’. The market value of a share will often be much higher than its nominal value.
- Limited liability – the total nominal value of the shares held is equal to the total amount of that shareholders’ liability to contribute to the assets of the company if it becomes insolvent. If shares are already fully paid, no more would have to be contributed in the event of insolvency.
5
Q
What are issued, paid-up and called-up shares?
A
- The ‘issued share capital’ is the total amount in value (nominal and premium) of all shares in issue at any time. This is the amount of share capital that will be known in the company’s accounts.
- It is not always necessary for shareholders to pay the full amount on their shares immediately. The amount is known as the ‘paid-up share capital’. The outstanding can be ‘called’ by a company at any time.
6
Q
Explain the meaning of ‘Allotment’.
A
- Allotment is defined in s 558 CA 2006.
- Shares are allotted when a person acquires the unconditional right to be included in the company’s register of members in respect of those shares.
- Allotment is often used interchangeable with issue but there is a difference: there is no statutory definition of issue. It is generally held that shares are only issued and only form part of the issued share capital once the shareholder has been registered as a member.
7
Q
Who are persons with significant control (PSC)?
A
- Broadly refers to any individual (i.e. human being) who:
– owns more than 25% shares or voting rights in the company;
– has power to appoint or remove a majority of its board of directors; or
– exercises ‘significant influence or control’ over the company. - Every UK company must maintain a register of its PSCs, and it must be open to public inspection (ss 790A–790ZG CA 2006).
- The PSC register must be filed at Companies House along with a company’s confirmation statement (annual statement confirming the company’s constitution and details).
- Intended purpose of this is to increase transparency to help combat tax evasion, money laundering and terrorist financing.
8
Q
Who are directors?
A
- Directors are officers of the company who run the company and take decisions on its behalf.
- They are responsible for its d-t-d management.
*Directors’ conduct is governed by statute and common law principles of agency. - They owe fiduciary duties to the company, codified by the CA 2006.
- Together directors constitute the ‘board of directors’.
- Under s 154 CA 2006, a private company must have at least one director; public must have at least two.
- At least one director must be a natural person (s 155 CA 2006) to ensure accountability. Legislation has been enacted for all corporate directors to be individuals but has yet to be implemented or incorporated into CA 2006.
- Minimum age limit of 16 for directors (s 157 CA 2006).
- Directors can also be shareholders but their roles should be considered separate.
- Some fundamental decisions may not be taken by the directors but are reserved for the shareholders (e.g. changes to Articles under s 21 CA 2006).
9
Q
What are the different types of director?
A
- Executive directors – executive officer (e.g. managing director); d-t-d management of the business and will be both an officer an an employee of the company.
- Non-executive directors – an officer but not an employee; no role in d-t-d management; role is generally to provide guidance and advice to board / protect interests of shareholders.
- shadow directors – defined under s 251 CA 2006 as a person ‘in accordance with whose directions or instructions the directors of the company are accustomed to act’ (though 251(2) notes this does not apply when someone gives directors advice only in a professional capacity). The legislation is designed to prevent for example a disqualified director from getting around the prohibitions placed on them and still being involved in the running of company.
- Alternate directors – attends board meetings and acts in the director’s place if the actual director is unable. Usually a fellow director or has been approved by resolution of the board.
- De facto directors – assumes to act as director but has not in fact been validly appointed and therefore is not a de jure (legal) director.
- All directors owe the same duties to the company and are subject to the same responsibilities under CA 2006 and the Insolvency Act 1986.
10
Q
How are directors appointed under provisions of CA 2006 and MA?
A
- CA 2006 does not stipulate procedure for the appointment of directors.
- MA deal with the matter simply:
‘Art 17(1) Any person who is willing to act as a director, and is permitted by law to do so, may be appointed to be a director:
(a) by ordinary resolution [of the shareholders], or
(b) by a decision of the directors.’
11
Q
Directors’ service contracts.
A
- An executive director will be an employee of the company and should be given a written contract of employment (‘service contract’), setting out terms and conditions (e.g. duties).
*Art 19 MA: that the terms of an individual director’s service contract, including remuneration, are for the board to determine. - the service agreement generally only requires the approval of a resolution of the board of directors.
- S 188 CA 2006 applies where a service contract has a ‘guaranteed term’ which is or may be longer than two years. In this case, 188 provision requires that the contract receives shareholder approval. If not, the contract is void under s 189(a) CA 2006. Under 189(b), the service contract will be deemed to contain a term entitling the company to terminate the contract at any time, by the giving of reasonable notice.
