Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business > Transactions Requiring Shareholder Approval > Flashcards

Transactions Requiring Shareholder Approval Flashcards

1
Q

what transactions require prior shareholder approval?

A
  1. directors’ long term service contracts
  2. substantial property transactions
  3. loans and related transactions with directors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what voting threshold is needed to approve:

  • long-term service contracts
  • substantial property transactions
  • loans etc to directors?
A

ordinary resolution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

when is approval for LTSC, substantial property transactions, and loans etc. NOT required?

A

where a wholly owned subsidiary is making this arrangement for its own director = its single parent holding company does not need to approve the transaction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what should be done in this situation?

Y is the holding company of X. B is a director of Y.

X wants to contract with B for either:

  • a long-term service contract
  • substantial property transactions (eg. buy from B)
  • loan/quasi-loan/credit transactions
A

the shareholders of Y must approve the arrangement by ordinary resolution not the shareholders of X (which is Y)

ths is because such transactions between a company and directors of its holding company requrie the approval of the shareholders of that holding company (not only the holding company itself)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a long-term service contract?

A

a contract of employment of a director with a guaranteed period of MORE THAN 2 YEARS

this includes where:

  • the fixed contractual period is more than 2 years
  • the fixed contractual period is less than 2 years but directors have the sole discretion to renew
  • the notice period given by the company to terminate the contract guarantees a period of more than 2 years
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what is the consequence of directors granting a long term service contract without shareholder approval?

A
  1. the provision on length will be void
  2. the contract will be deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice.

and the directors will be in breach of their duty to act within their powers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

when is shareholder approval needed for substantial property transactions?

A

for the acquisition or disposal of a substantial non-cash asset from or to the company by:

  • a director of the company
  • a director of the company’s holding company
  • a person connected to the above directors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what is a substantial non-cash asset?

A

‘substantial’ =

  • asset worth £5,000 or less is NOT substantial
  • asset worth more than £100,000 is substantial
  • asset is a substantial asset if it is worth more than £5,000 and worth more than 10% of the company’s net asset value based on its last accounts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

who is a connected person for the purposes of a substantial property transaction and loans etc.?

A
  1. family (spouse, parent, children, stepchildren) but not brothers, sisters, grandparent, grandchild, uncles, aunts
  2. companies where director or a connected person hold 20% or more of shares
  3. business partner of director or of connected person
  4. trustees of a trust where director is a beneficiary
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what is a:
- loan
- quasi loan
- credit transaction
- guarantee / security for the above?

A
  • loan = company lends money to D or guarantees a loan given to D or gives a security for a loan given to D
  • quasi loan = company pays a third party for D and D reimburses the company (or guarantees / securities in connection with this)
  • credit transactions = company provides D with goods or services which D pays for later (or guarantees / securities in connection with this)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

when is shareholder approval needed for loan/quasi-loan/credit transactions?

what are the exceptions?

A

SH approval by ordinary resolution is required for:

  • loans to directors –> all companies
  • loans to directors of holding companies –> all companies
  • guarantee or security for a loan to a director or director of holding companies –> all companies
  • any transaction involving connected persons –> public associated companies only
  • quasi loans and securities/guarantees for anyone –> public associated companies only
  • credit transactions and securities/guarantees for anyone –> public associated companies only

Exceptions:

  • business expenditure max 50,000
  • quasi loans up to 10,000
  • loans up to 10,000
  • credit transactions up to 15,000
  • loans for defending proceedings
  • wholly owned subsidiary exemption

public associated company = public company and company that is a parent/ subsidiary of a public company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

when is SH approval needed (3) vs not needed (4) for loans?

A

SH approval needed for:
- loan / guarantee or security for a loan to director = all companies
- loan / guarantee or security for a loan to director of holding companies = all companies
- loan / guarantee or security for a loan to a connected person = only public and public associated companies

SH approval not needed for:
- loan / guarantee or security for a loan to connected person from a private company
- loans up to 10,000
- loans for defending proceedings
- business expenditure max 50,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

when is SH approval needed vs not needed for quasi loans or guarantees / securities given by company for quasi loans?

A

SH approval needed for:
- quasi loan to directors = by public and public associated companies
- quasi loans to directors of holding companies = by public and public associated companies
- quasi loans to persons connected to directors = by public and public associated companies

SH approval not needed for:
- quasi loans by private companies (to whoever)
- quasi loans of up to 10,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

when is SH approval needed vs not needed for credit transactions or guarantees / securities given by company for credit transactions?

A

SH approval needed for:
- credit transactions to directors = by public and public associated companies
- credit transactions to directors of holding companies = by public and public associated companies
- credit transactions to persons connected to directors = by public and public associated companies

SH approval not needed for:
- credit transactions by private companies (to whoever)
- credit transactions of up to 15,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what are the options for shareholders if a company fails to get shareholder approval before entering a SPT or loans etc.? (4)

A
  1. transaction is VOIDABLE by the company - unless:
  • restitution is no longer possible
  • the company has been indemnified for its loss
  • a third party acquired rights in good faith which would be affected by avoidance (e.g., lender granted security over it, someone else bought it)
  1. directors and connected persons involved are liable to:
  • account to the company for profits made, and
  • indemnify the company for loss it incurred (but if they indemnify then the transaction is not voidable)
  1. remedies for breach of directors duties
  2. affirm the transaction by ordinary resolution
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what is a defence for a director for a SPT or loans etc.?

A

the director took all reasonable steps to ensure the company’s compliance with obtaining shareholder approval

e.g., disclosed the full nature and extent of the transaction to the board, suggested a GM to approve, etc. and this is recorded in the board minutes

17
Q

what is an defence for a connected person entering into AND any director authorising a SPT or loans etc.?

A

they had no knowledge of the circumstances constituting the contravention of the requirement to obtain shareholder approval

(e.g., did not know it was a connected person to a director)

18
Q

what is the procedure for shareholders approving the 3 types of transactions?

(2 options) - which option is better and why?

A

procedure for LTSC AND loans etc:

  1. call a GM = BUT a MEMORANDUM setting out the proposed arrangement and the draft resolution must be available for inspection at the registered office for 15 DAYS before the GM (so a notice period of 15 days must be given)
  2. use written resolution procedure = annex the memorandum but there is no 15 day notice period (but there is the 28 days during which the resolution is open for voting)

SO: where shareholders are guaranteed to accept the resolution, a written resolution is faster as they can get the required majority without having to wait 15 days for the GM

(no specal procedure for approving a SPT)

19
Q

can SH approve a:

  • LTSC
  • substantial property transaction
  • loan/quasi-loan/credit transaction

AFTER they are entered into?

A

Yes - they can AFFIRM the arrangement by ordinary resolution

if the concerned director is a shareholder they can vote and count in the quorum

20
Q

can a concerned director count in the quorum at a board meeting or vote on a board resolution having to do with the:

  • LTSC
  • substantial property transaction
  • loan/quasi-loan/credit transaction?
A

no - (unless model articles are amended to allow this)

such board resolutions include: approving the contract or authorising a signatory

21
Q

can a concerned director vote and count in the quorum for the ordinary resolution to approve if they are also a shareholder?

A

yes (but not in board resolutions)

22
Q

what must directors do to ensure they comply with their duties with regards to transactions requiring shareholder approval? (3)

A
  1. Director concerned must disclose their interest to the board (not required but best practice)
  2. Board must consider the need to promote the success of the company
  3. Board must act within its powers and obtain SH approval

+ record in board meeting minutes

Business (19 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions