Business - Company Procedure and Decision Making

Question 1

How do directors make decisions

Answer 1

At board meetings through board resolutions or written resolutions

Question 2

Notice Requirements for board meetings - Rule (MA 9)

Answer 2

When a director calls a board meeting, they must give notice to the other directors. There is no need for the notice to be in writing.

Question 3

What is the minimum number of directors required for a quorum during a board meeting?

Answer 3

Two directors

Question 4

If a quorum is present during a board meeting, how is the meeting described?

Answer 4

Quorate

Question 5

What if a director has a personal interest in the proposed decision

Answer 5

A director may not count in the quorum or vote - Rule (MA 14)
- This rule can be amended.

Question 6

What must a director do if they have a personal interest in a proposed transaction?

Answer 6

they must declare the nature and extent of this interest to the board.

Question 7

What are the three exceptions where a director does not need to declare their interest?

Answer 7

• Cannot reasonably be regarded as likely to give rise to a conflict of interest
• Other directors are already aware of it
• Concerns terms of a service contract considered by a meeting of the directors

Question 8

What majority is required to pass a board resolution?

Answer 8

Simple majority

Question 9

What is a casting vote and who has a casting vote

Answer 9

An extra vote given to the chairman in the event of a tie

Question 10

How to pass written board resolutions under MA 8?

Answer 10

By unanimous voting

Question 11

Who can call a GM

Answer 11

General meetings are called by the board of directors by passing a board resolution (s 302 CA 2006) or

By shareholders who either individually or together hold 5% of the paid up capital holding voting rights can request the directors to call a general meeting (s.303 Companies Act 2006)

Question 12

How many days do directors have to call a general meeting after a request from shareholders?

Answer 12

21 days

Question 13

What is the maximum period from the shareholders requesting a general meeting to the meeting itself?

Answer 13

Seven weeks

Question 14

What is the requirement for public companies regarding general meetings?

Answer 14

Must hold an annual general meeting every year

Question 15

What is the minimum notice required for a general meeting?

Answer 15

14 clear days

Question 16

How is notice deemed received if sent via email?

Answer 16

48 hours after being posted or emailed

Question 17

What is the quorum for a general meeting if a company has only one shareholder?

Answer 17

One

Question 18

Under what conditions is a shareholder’s vote not counted?

Answer 18

• a resolution to buy back some or all of a shareholder’s shares
• an ordinary resolution to ratify a director’s breach of duty, where the director in question is also a shareholder.

Question 19

In a general meeting, how does a shareholder who is also a director act?

Answer 19

As a shareholder, not a director

Question 20

What is a poll vote?

Answer 20

Vote based on one vote for each share owned

Question 21

What is required for a general meeting to be validly held on short notice?

Answer 21

• Majority in number of shareholders must consent
• Private Companies: Hold 90% or more of voting shares
• Public Companies: 95% or more

Question 22

What is the deadline for returning a written resolution?

Answer 22

28 days from circulation

Question 23

Who can require the company to circulate a written resolution?

Answer 23

shareholders who have 5% or more of the voting rights

Question 24

What resolutions must be filed with the CH

Answer 24

• Special resolution to change articles
• Ordinary resolutions passed under s 551 to allot shares

Question 25

What is the PSC register?

Answer 25

Register of persons with significant control

Question 26

Who are persons with significant control and what rights do they have

Answer 26

- Any shareholder who owns more than 25% of the shares or controls more than 25% of the voting rights in the company. - They have the right to appoint or remove a majority of the board of directors of the company; or - Have the right to exercise, or who actually exercise, significant influence or control over the company.

Question 27

How can minority shareholders be protected

Answer 27

- Unfair prejudice petiton - Derivative claim - Petition to wind up the company - Negotiate with the majority shareholders

Question 28

What is a derivative claim?

Answer 28

- Claim arising from a director's negligence, breach of duty, or trust - It is brought by a shareholder on behalf of the company

Question 29

What is a substantial property transaction (SPT)?

Answer 29

Transaction involving a director buying/selling a non-cash asset of substantial value

Question 30

What is required to approve a substantial property transaction?

Answer 30

Shareholders' consent by ordinary resolution

Question 31

What constitutes a connected person?

Answer 31

* Family member of the director * Company where director or connected person owns at least 20% of shares or *is/ are entitled to exercise or control the exercise of more than 20% of the voting power at any general meeting of the company

Question 32

What is the threshold for an asset to be considered substantial?

Answer 32

* Value over £100,000 * Worth more than £5,000 and more than 10% of net asset value * A transaction between the company (company A) and another company (company B) in which a director of company A has a shareholding, when added to the shareholding of another person connected with the director, of 20% or more.

Question 33

What exceptions exist for not requiring an ordinary resolution for an SPT?

Answer 33

* Wholly owned subsidiary transactions * Transactions between a company and its members * Transactions between holding company and wholly owned subsidiary

Question 34

Who can request a poll vote

Answer 34

- By 5 or more shareholders or - A single or less than 5 shareholders holding 10% of the voting shares

Question 35

If a GM is called on short notice, when can it be held.

Answer 35

Can be held straight away

Question 36

What is the method of voting for written resolutions

Answer 36

each shareholder has one vote for each share that they own

Question 37

What must be filed with CH when filing a special resolution to change the articles.

Answer 37

A copy of the special resolution (together with the articles as amended) must be sent to the Registrar not later than 15 days after the amendment takes effect (section 26 CA 2006). Usually, the changes take effect immediately.

Question 38

What is an unfair prejudice petition

Answer 38

Application to court by a shareholder for an order for a remedy where they feel that they have been unfairly prejudiced as a shareholder. - The most common is an order that the other shareholders must buy the shares of the unfairly prejudiced shareholder, or an order for the company to buy back the unfairly prejudiced shareholder’s or shareholders’ shares. - Other possible orders include a restriction on the company altering its articles of association without the leave of the court

Question 39

Winding up petition

Answer 39

Any shareholder can also apply to have the company wound up if the company is solvent and the shareholder can show it is just and equitable to do so.

Question 40

Stages of a derivative claim

Answer 40

The first stage of a derivative claim is for the shareholder to apply to the court for permission to continue the claim. Following the hearing, the court may grant permission to the shareholder to continue the claim on terms the court thinks fit, or adjourn the proceedings.

Question 41

How can directors be appointed?

Answer 41

Directors can be appointed by the board or by ordinary resolution of the shareholders.

Question 42

Notification requirements for appointment of directors

Answer 42

- Notify Companies House within 14 days of the appointment using Form AP01 - The company must also enter the director on its register of directors and register of directors’ residential addresses.

Question 43

What type of service contract requires shareholder approval?

Answer 43

A long-term service contract with a guaranteed term of more than two years.

Question 44

How can directors be removed

Answer 44

Shareholders: By an ordinary resolution passed at a general meeting with special notice. Written resolutions CANNOT be used for this. Board of directors: if permitted in the companies' articles (not permitted in MA)

Question 45

What is a special notice?

Answer 45

- Special Notice means that the ordinary resolution to remove the director is not effective unless notice of the intention to pass it has been given to the company at least 28 days before the general meeting at which the resolution is proposed. - At the GM the director has right to speak

Question 46

How can directors prevent their removal or strengthen their position?

Answer 46

- Provide the directors with a long fixed term service contract. If these were terminated early the company would have to pay them damages. - Including in the company’s articles what is known as a 'Bushell v Faith' clause. - Shareholder agreement providing they will not be removed as directors. - Include a termination payment in service contracts (if not long term fixed contracts).

Question 47

How should a company execute contracts

Answer 47

Companies may execute documents either by; 1) Affixing their seal to the documents or 2) By the signature of either: (a) Two directors, (b) A director and a secretary or (c) A single director if signed in the presence of a witness who attests the signature.

Question 48

What is a quorum

Answer 48

Minimum number of directors/shareholders to attend a meeting for the meeting to be valid.

Question 49

What is a Bushell v Faith clause

Answer 49

They give shareholders weighted voting rights (ie more votes than they would normally be entitled to) when the resolution under consideration is a resolution to remove that shareholder from their office as director.

Question 50

Procedure for decisions requiring both board and shareholders' decisions

Answer 50

1) First board meeting: Board resolution to approve the matter and pass a resolution to call a GM or circulate WR 2) Shareholders' GM: Vote to pass or reject resolution 3) Second board meeting (sometimes needed): Board implement/act on shareholders' resolution.

Question 51

Matters requiring ordinary resolution (Majority votes)

Answer 51

1) Appointment or removal of a director or auditor 2) Adoption of the annual accounts and the reports of the directors and auditors 3) Approval of a declaration of dividends 4) Approval of the director decisions to allot shares 5) Approval of substantial property transactions 6) Substantial Property Transactions (SPTs) involving directors with personal interests (more than £100,000 or £5,000 and the contract value exceeds 10% of the company's assets) 7) Ratification of a directors breach of duty 8) Entering a service contract with a director for more than 2 years 9) Making a loan to a director 10) Giving the director payment for loss of office.

Question 52

Matters requiring special resolution (At least 75% of votes)

Answer 52

1) Decision to buyback shares out of capital 2) Changes to the company’s articles of association 3) Changes to the company's name

Question 53

How is a company formed?

Answer 53

File relevant documents at Companies House and receive a Certificate of Registration

Question 54

What documents must be filed at CH to be incorporated?

Answer 54

1. Memorandum of Association (signed agreement of any persons wishing to become members of a company upon its formation. 2. Application of registration using Form IN01

Question 55

What to do to set up a company quickly without all the incorporation formalities.

Answer 55

Purchase a shelf company then change name and articles

Question 56

Contents of form IN01

Answer 56

a. The proposed name of the company (can’t be the same as another company’s name or be offensive, must end in “limited”, “Ltd”, “Public Limited Company” or “Plc”; b. The location of its registered office; c. Details about the company's business; d. Whether the company will be limited by shares or guarantee; e. A statement of capital and initial shareholdings (total number of shares, aggregate nominal value of the shares of divided into class a description of each class and amount paid by shareholders/amounts left unpaid for shares); f. A statement of proposed officers/directors; g. Details of persons with significant control (generally people with more than 25%); h. A statement of compliance with Companies Act 2006; and i. Finally, the relevant fee.