Workshop 4: Shareholders’ Rights and Remedies Flashcards
What is the name of the principle that is reserved for shareholders when important decisions are made?
What is the definition of this principle?
The ‘majority rule’
The majority rule is the majority of shareholders that must vote in favour for a resolution for it to be passed
What are the six protections or remedies open to shareholders, predominantly minority shareholders, that can influence whether a resolution is passed?
- Shareholders agreements
- Membership/shareholder rights
- Derivative claims
- Unfair prejudice actions
- Just and equitable winding up
- Removal of directors
How can a shareholder agreement minimise the effect of the majority rule for minority shareholders in unfavourable circumstances?
A shareholder’s agreement sets out how the company is to be run between shareholders and how shareholders will vote on certain matters
What are some examples of membership rights that have been enforced under s33 CA 2006 or the corresponding section of CA 1985?
- The right to a dividend once it has been lawfully declared
- The right to share in surplus capital on a winding up
- The right to vote at meetings
- The right to receive notice of GMs and AGMs
How can membership rights act as a protection for shareholders in unfavourable circumstances?
Shareholders can sue under s33 CA 2006 are breached, as membership rights are included within the Model Articles
Explain why shareholders rights that are not a part of the Model Articles will not be enforceable under s33 CA 2006
Because the company’s Model Articles are deemed to be a ‘complete contract’, where terms will not be implied for the purposes of business efficacy or otherwise
Who is the Shareholders’ Agreement a contract between?
Some or all of the shareholders
What type of provisions can you usually see within a Shareholders’ Agreement?
Provisions relating to
- Unanimous voting over certain matters e.g., removing a director
- Quorum for GMs
- Dividend policy
- Allotment of new shares and
- New and departing shareholders
How do Shareholders Agreement act in relation to a company’s MA?
As an extension in governing how the company is run/regulating the company’s affairs and the relationship between the shareholders
What are the three primary reasons why Shareholders’ Agreements exist?
- Shareholders’ Agreement provisions constitute personal rights and oblige shareholders to keep to their promise
- Shareholders’ Agreements can be kept private unless they are explicitly referred to in MA
- Shareholders’ Agreements can require the unanimous approval of all parties regarding making amendments to Articles, instead of the 75% special resolution of shareholder approval
Why do the Articles not deal with shareholders person rights and obligations?
Because the Articles are treated strictly as a contract between the company and its shareholders in their capacity as shareholders pursuant to s33 CA 2006
How should the company be included within the SA?
The company should not be a party to any terms which restrict its statutory powers
What is the different between MA and SA?
The provisions in the Articles are subject to CA 2006 whereas a SA is purely an contractual arrangement arrived at between shareholders in their personal capacities
What is the name of the aspect of a SA that is particularly relevant to minority shareholders and what does this enable?
Right of action/enforceability,which enables one shareholder to enforce the provisions of SA director against another shareholder
What happens in the event a SA is breached?
The SA can be enforced in the usual way under general contract law principles
What two things could a shareholder claim for under a breach of the SA?
- Breach of contract
- Apply to the court for an injunction to prevent a breach of terms in the agreement
How can ‘reserved matters’ protect minority shareholders in a SA?
These matters can be reserved as matters requiring the consent of all shareholders, or certain individual shareholders e.g,, matter of removing a director requires a unanimous vote
How may the reserved matter of shareholders needing to unanimously consent on a removing a director impact the right of shareholders to remove a director under s168 CA 2006?
It doesn’t - a company is bound to accept the vote of a shareholder even if it is in breach of the SA provisions
What happens if a removal [of director] resolution is passed with a simply majority rule instead of with the required unanimity, as in the SA?
What can be done regarding the SA?
The resolution would be valid and the director removed from the office
The shareholder would be able to claim against other shareholders for breach of SA
What is the point in the SA if the CA 2006 can override it anyway, in circumstances such as removing a director?
The minority shareholder can claim a breach of contract which influences whether the resolution is passed or not
What are the rights of shareholders with 5% shareholding or more?
- Require directors to call a GM (s303)
- Require circulation of written statements regarding proposed resolutions to be considered at a GM (s314)
- Circulate a written resolution (s292)
What are the rights of shareholders with 10% shareholding or more?
- Demand a poll vote
What are the rights of shareholders with over 25% shareholding?
- Block a special resolution (s283)
How is a special resolution passed?
By 75% or more of the votes
What are the rights of shareholders with over 50% shareholding?
- Pass pr block an ordinary resolution (s282)
How is an ordinary resolution passed?
Over 50% of votes needed
Can a shareholder with exactly 50% of shareholding block an ordinary solution?
No
Can a shareholder with exactly 50% of shareholding pass an ordinary resolution alone?
No, because over 50% of votes in required to pass an ordinary resolution
What are the rights of shareholders with more than 75% shareholding?
- Pass a special resolution (s283)
What does s 33 CA 2006 mean for shareholders if their rights are infringed?
Shareholders can sue if their membership rights are infringed, with usual remedy for breach being damages
What can s168 CA 200Y oblige regarding the removal of a director?
That a director can be removed from office before the expiration of their period of office via ordinary resolution (simple majority rule)
Can the Board, generally, remove a director?
What circumstances apply?
Generally, no, unless the Articles specifically provide for this
Can directors who are also shareholders vote in their capacity as a shareholder regarding the removal of a director?
Yes
What is the name of the notice required for a special removal?
Special notice under s 168(2) CA 2006