Company administration and minority shareholders Flashcards
(13 cards)
What Are Company Meetings & Their Impact?
Purpose: Allow shareholders to discuss, vote on, and approve key decisions (e.g. constitutional changes, director loans, share capital reduction).
Who Attends: Shareholders and directors; owners may differ from directors.
Resolutions: Proposals voted on by shareholders. Must follow valid procedures to be effective.
Majority Influence: Shareholders with 75%+ votes can pass special resolutions, limiting minority influence—potential for manipulation.
Calling Meetings: Typically by directors, but shareholders (5%+) or auditors can request one.
What are the 4 Types of Meetings & Who Holds Them
General Meeting (GM)
Open to all shareholders.
Notice: 14 days.
Held by public and private companies.
Class Meeting
Involves a specific class of shareholders.
Annual General Meeting (AGM)
Mandatory for public companies (within 6 months of financial year-end).
Notice: 21 days.
Not required for private companies.
Written Resolutions
Exclusive to private companies (not valid for removing directors/auditors).
What is Voting Resolution
Definition: A formal decision made by shareholders during a company meeting.
Purpose: Approves major and routine matters (e.g. changing constitution, director loans).
Initiation: Usually proposed by directors.
Validity: Requires a validly held meeting and proper procedure.
Influence: Shareholders with the majority of votes can control outcomes.
What is Ordinary Resolution
Definition: This type of resolution is passed by a simple majority.
Majority Required: More than 50% of the votes cast.
Notice Period: Typically requires 14 days notice. (Note: Source mentions 14 days notice for a General Meeting, where Ordinary Resolutions are usually passed).
Use: Used for routine decisions.
What is Special Resolution
Definition: This is used for major changes within the company.
Majority Required: Passed by a majority of not less than 75%.
Notice Period: Typically requires 14 days notice. (Note: Source mentions 14 days notice for a General Meeting, where Special Resolutions can be passed).
Filing Requirement: A copy must be filed at Companies House.
Impact: Shareholders with 75% of the votes can pass special resolutions, meaning that the remaining 25% have no control over that decision and cannot block it.
What is Written Resolution
Definition: An alternative method for passing resolutions that does not require a physical meeting.
Company Type: Available only to private companies, not public companies.
Use: Can be used to pass any decision that could be made at a meeting, except for dismissing a director or auditor before the expiry of their term of office.
Process: A copy must be sent to all eligible shareholders. There is a time lapse involved for shareholders to respond.
Majority Required: The nature of the resolution determines the quota of votes required to pass it, following the same thresholds as ordinary or special resolutions (50% vs 75%).
Who can Propose Resolutions
Directors: Typically propose resolutions in company meetings.
Shareholders: May propose resolutions and request meetings if they hold at least 5% of voting shares.
This empowers minority shareholders to influence company decisions, within limits.
Foss v Harbottle (Rule of Majority)
Facts: 2 minority shareholders brought action stating land was sold to company with inflated prices and directors should be held accountable
Decision: Proper plaintiff rule applied, meaning if wrong is done to a company, company itself should take up court proceedings, not minority
Majority rule applies as courts wont interfere if majority approve action
What is a Derivative Claim
Brought by a shareholder on behalf of the company.
Targets director misconduct (negligence, breach of duty/trust).
Requires court permission.
Compensation goes to the company, not the shareholder.
Court denies permission if majority ratified the decision.
Stainer v Lee (Derivative Claims)
Facts: Minority shareholder wanted permission to take derivative action against directors of a company.
Decision: Court allowed the claim since the directors had allowed company to make interest free loans to another company owned by the directors
This loan resulted in a company loss, therefore a breach of duty by directors
Unfairly Prejudicial Conduct (Companies Act 2006 S994)
Definition: Shareholders may apply to court if the company’s affairs are conducted in a way unfairly prejudicial to them.
Common Grounds:
Excessive director pay reducing dividends.
Diversion of business to another company.
Misuse of company assets.
Dishonest communication with shareholders.
Outcome: Courts may:
Order purchase of minority’s shares at fair value.
Grant any relief it considers just.
Rodcliffe (Simon) v Rodcliffe (Guy) & Home Office Fire Extinguishers
Facts: S and G were Directors and shareholders of C Ltd.. S had asked G for a salary advance from C Ltd, but G refused because the company was struggling financially. Subsequently, G and S had a fight, and both alleged that the other had attacked them with a hammer.
Decision: The court ordered the compulsory purchase of S’s shares.
Legal Principle/Reasoning: The court’s decision was based on the finding that S’s attack constituted “unfairly prejudicial conduct”. This case serves as an example of conduct, potentially outside typical business decisions, that a court deemed unfairly prejudicial under s994.
Winding Up (Insolvency Act 1986)
Definition: Court may wind up a company if it’s just and equitable to do so.
Key Points:
Last resort – described as the “nuclear option”.
Granted only when no other remedy is reasonable.
Complainant must have “clean hands” (no misconduct).
Often resolved by buy-out of minority at fair price before court action completes.
