Company Decision Making

Question 1

What are the shareholder rights to call a general meeting?

Answer 1

Shareholders who either individually or together hold 5% of paid up voting shares in the company may request the directors to hold a general meeting.

Question 2

Define a substantial property transaction

Answer 2

The purchase or sale of a non-cash asset of either:

• a value of over 10% of the company’s net asset value; or
• a value of over £100,000.

to or from a director or a person connected to a director of the company or its holding company.

Question 3

What are the minimum execution formalities required for a purchase contract to be binding on a company?

Answer 3

It must be signed by the company, by a person authorised to act on behalf of the company (express or implied).

Question 4

How can the accounting period of a private limited company be changed?

Answer 4

There is no limit on the amount of times a company can change its accounting period however there are two conditions:

1) it will not be effective if it is changed less than 5 years later than the previous time it was changed; or
2) where the new accounting period date will result in a new accounting period exceeding 18 months.

Question 5

If the conditions are met, can the directors change the accounting period of the company at a board meeting without shareholder approval?

Answer 5

Yes

Question 6

Briefly explain the duomatic principle.

Answer 6

Where all shareholders having a right to attend and vote at a meeting, and having discussed the matter, unanimously agree to the passing of a resolution, then the company will be bound without the need for a meeting or written resolution.

This is because the matter could have been put into effect by a resolution had the general meeting been held.

Question 7

What must a notice of a general meeting include?

Answer 7

The right for shareholders who cannot attend to appoint a proxy.

Question 8

What is the general rule regarding deadlock of voting at a board meeting?

Answer 8

The negative view will prevail if the voting is tied (ie the resolution will not pass).

The chairperson can break the deadlock with their casting vote if they so choose (unless bespoke articles suggest otherwise).

Question 9

What is required to remove company auditors?

Answer 9

The passing of an ordinary resolution is required.

Question 10

Which three main decisions need to be approved by special resolution?

Answer 10

• Changing articles of association;
• Changing the name of the company;
• Buyback of shares out of capital.

Question 11

Give an example where shareholders have to give permission to the directors to go ahead with the decision.

Answer 11

Substantial property transactions (eg buying property from a property from a director).

Question 12

Explain the requirements of reasonable notice for a board meeting.

Answer 12

Where a director calls a board meeting, they must give reasonable notice to the other directors. This is subjective on the facts.

• the noice must include the time, date and place of the. meeting (MA 9(3));
• if it is not intended they are in the same place (eg teams), notice must state method of communication, and the means of communication must be able to communicate to the others any info or options they have on articular items of business (MA 10(1)(b)).

Question 13

What is the minimum amount of directors which can be present at a board meeting to ensure a quorum is present (MA 11)?

Answer 13

Two directors (for model articles).

Question 14

Explain the procedure where director has a personal interest in a proposed transaction or arrangement with the company.

Answer 14

They must declare the nature and extent of their interest to the board (s177 CA 2006).

S177(6) sets out the following situations where a director does not need to declare their personal interest in a proposed transaction or arrangement:

1. if it cannot reasonably be regarded as likely to give rise to a conflict of interest;
2. if, or to the extent that, the other directors are already aware of it; or
3. if, or to the extent that, it concerns terms of a service contract that have been or are to be considered…by a meeting of the directors.

Question 14

Explain the rules on directors voting on matters where they have an actual or proposed interest.

Answer 14

(MA 14) Director won’t count for the quorum or vote if a proposed decision of the board is concerned with an actual or proposed transaction or arrangement with the company in which a director is interested.

MA14 can be dissapplied in the articles.

Question 15

What does model article 8 provide for?

Answer 15

That a meeting does not have to be called.

A board resolution can take place in written form (or any other method which can effectively sow the agreement).

Where written method is used (eg board minutes), unanimous decision is needed as opposed to 50% majority for physical meetings.

Question 16

Name the two ways a shareholder resolution can be passed.

Answer 16

• Written resolution;
• Resolution at a general meeting.

Question 17

How is a shareholder meetings called?

Answer 17

Directors will call a general meeting of the shareholders by passing a board resolution.

This will be done where the directors want the shareholders to pass a shareholder resolution, or if the shareholders have requested that the board call a meeting to enable the shareholders to vote and pass on one or more resolutions.

Question 18

What is an AGM and are they applicable to all companies?

Answer 18

Annual General Meeting.

Companies formed under CA 2006 will not hold AGMs unless they include a provision in the articles to achieve this.

Question 19

Explain the notice requirements for general meetings of shareholders to be called.

Answer 19

Directors must give notice to every shareholder and every director, and to the auditor if there is one;

They must be given a hard copy, ether in electronic form or by means of a website, or a combination of the two.

Notice must set out the following:
a) time, date and place of the meeting (s311 (1) CA 2006);
b) general nature of the business to be dealt with at the meeting;
c) if a special resolution is proposed, the exact wording of the special resolution; and
d) each shareholder’s right to appoint a proxy to attend on their behalf (s325).

Question 20

What is the minimum notice period required to be given to shareholders for a general meeting?

Answer 20

14 clear days.

The day the shareholders receive the notice and the day of the meeting are not counted as clear days.

If the notice is sent out by post or email, the notice is deemed received 48 hours after the notice was posted/ emailed.

Question 21

Are shareholder prevented from voting in a proposed transaction where they have an interest?

Answer 21

No.

Question 22

Nam the two exceptions where a shareholder would be prevented from voting in a transaction in which they have an interest.

Answer 22

1) where the shareholder is also a director, and the vote is deciding whether or not to ratify a breach of that director (ie ratifying their own breach);

2) resolution for the buyback of some or all of their own shares.

Question 23

Can a shareholder with a personal interest in a matter vote where they are also a director?

Answer 23

Yes, as in such a case they will be voting in their capacity as a shareholder, not a director.

Question 24

What is a poll vote?

Answer 24

Where shareholders vote in a general meeting on the basis of one vote for each share they own, instead of the usual one vote per person.

Question 25

List the circumstances where a poll vote can be called.

Answer 25

Under model article 44(2) a poll vote can be demanded by:

a) the chair of the meeting;
b) the directors;
c) two or more persons having the right to vote on the resolution; or
d) a person or persons representing not less than one tenth of the total voting rights of all the shareholders having the right to vote on the resolution.

Question 26

What happens where a poll vote is called after shareholders have already voted on a show of hands, and the results are different?

Answer 26

The poll vote will override the vote on a show of hands.

Question 27

Under s307(5)-(6) CA 2006, what are the requirements to call a short notice general meeting?

Answer 27

Consent of:

a) a majority in number of the company’s shareholders;

b) who between them hold 90% or more of the company’s voting shares.

(95% for public limited companies).

If the requisite number of shareholders consent, the meeting can be held straight away or at a later date.

Question 28

What are the two pieces of information which need to be contained on a written resolution?

Answer 28

• How to signify agreement;
• The deadline for returning the written resolution, otherwise known as the lapse date (which is always 28 days from the circulation date unless the articles specify otherwise).

Question 29

What is the default method of voting in relation to written resolutions?

Answer 29

Each shareholder has one vote for each share they own (s282(2) CA 2006).

Question 30

What is the default method of voting for general meetings (shareholder resolutions)?

Answer 30

Each shareholder gets one vote regardless of their shareholding, unless a poll vote is called.

Question 31

How can shareholders force the company to circulate a written resolution (s292 CA 2006) and how long do the directors have to comply with this request?

Answer 31

• A shareholder or shareholders who have 5% or more of the voting rights in the company are entitled to require the company to circulate a written resolution.
• The company’s articles can reduce this threshold to less than 5%, but cannot increase it to more than 5%.
• A copy of the resolution must then be sent to all eligible shareholders within 21 days of the shareholders’ request.

Question 32

Can shareholders require a general meeting to be called by the directors?

Answer 32

Yes, provided the shareholder (or shareholders’) represent at least 5% of such paid-up capital in the company (which carries voting rights).

Directors must then call the meeting within 21 days of the request. The meeting must be held within 28 days.

Question 33

Where can statutory books be kept?

Answer 33

Either at the company’s registered office or a Single Alternative Inspection Location. Alternatively they can be kept on the central Companies House register instead.

Question 34

True or False: Companies do not have to keep minutes of every board meeting which takes place.

Answer 34

False. This is required by s248 CA 2006.

Question 35

True or False: Companies must keep minutes of every general meeting of shareholders.

Answer 35

True (as required by s355 CA 2006).

Question 36

Who has responsibility for ensuring accounts are produced for every financial year and what needs to be included with the accounts?

Answer 36

The directors. these accounts must give a true and accurate view of the state of affairs at the company.

Included with the accounts needs to be a directors’ report (unless a small company or micro-entity under s382 or 384 of CA 2006).

Question 37

What are the criteria to be classed as:

a) a small company;
b) micro entity.

Answer 37

a) Small company - balance sheet totalling not more than £5.1 million, a turnover of not more than £10.2 million, and no more than 50 employees in that financial year;

b) Micro-entity - company with a balance sheet total of not more than £316,000, a turnover of not more than £632,000, and no more than 10 employees in a particular financial year.

Question 38

What is the time limit for filing annual accounts for:

a) private companies;
b) public companies

Answer 38

a) 9 months from the end of the accounting reference period;

b) 6 months from the end of the accounting reference period for a public company.

Question 39

Is a company secretary a requirement?

Answer 39

It is a requirement for public companies but not private companies.

Question 40

What contracts do the company secretaries have apparent authority to enter into?

Answer 40

Contracts of an administrative nature (but not contracts for trading such as borrowing money).

Question 41

How is a company secretary appointed?

Answer 41

Either on incorporation (form IN01) or by the directors by board resolution.

Question 42

List the administrative and notification requirements in relation to company secretaries.

Answer 42

1) company must notify CH on form Ap03 (human secretary) or AP04 (corporate secretary) within 14 days of the appointment of a company secretary;

2) all companies with company secretaries must keep register of secretaries;
3) S279A CA 2006 - private companies can elect not to keep a register of secretaries, and instead ensure the information is filed and kept up to date on the central register for the company at CH;

4) when company secretary resigns/ is removed, CH must be notified (form TM02) and register of secretaries needs to be amended;

5) company must notify CH within 14 days of a change of particulars in relation to a company secretary.

Question 43

Do company accounts need to be audited?

Answer 43

Yes unless they are a small, micro, or dormant company. The auditor must be qualified and a certified chartered accountant, as well as independent.

Question 44

Who appoints auditors?

Answer 44

The director’s will initially appoint an auditor. The shareholders also have the power to appoint the auditor by ordinary resolution.

Question 45

Do auditors owe a duty of care either to the shareholders or potential new shareholders?

Answer 45

No. However they can be sued in negligence by the company.

Question 46

How is an auditor removed?

Answer 46

Shareholders can remove an auditor by ordinary resolution. However, the shareholders must give special notice to the company of the proposal to remove the auditor.

Question 47

How long does a company have to add a shareholder to the register of members following the transfer being lodged with the company?

Answer 47

2 months.

Question 48

How long does a company have to issue a share certificate to the shareholder following the transfer/ allotment being lodged with the company?

Answer 48

2 months.

Question 49

What does s33(1) of CA 2006 provide?

Answer 49

There is a statutory contract between a shareholder and the other shareholders.

The effect of this is that one shareholder can sue the other shareholders for breach of contract if their membership rights are infringed.

These rights include their rights to dividends and voting rights.

Question 50

What are the two ways a shareholder could sue the other shareholders for breach?

Answer 50

• Under the statutory contract set out by s33 CA 2006; or
• Provisions in any existing shareholders agreement (to which that shareholder and the shareholders they are burning action against have entered).

Question 51

List the rights shareholders have in connection with voting.

Answer 51

1. Right to send a proxy to a general meeting on their behalf.
2. Right to a poll vote.
3. Right to receive notice of general meetings.
4. Right to requisition a general meeting.
5. Right to apply to the court to call a general meeting, if for some reason it is not possible for one to be held otherwise (s 306 CA 2006). An example would be where the other shareholders are refusing to attend a general meeting and so it is not possible to hold a meeting which is quorate.
6. Right for a shareholder or shareholders with 5% or more of the voting rights in the
   company (or 100 or more shareholders with the right to vote, as long as they have paid up an average of £100 or more on their shares) to require the circulation of a written statement of up to a thousand words with respect to any resolution or business to be dealt with at a general meeting.
7. Right for shareholders holding 5% or more of the company’s shares to require the
   company to circulate a written resolution and accompanying statement.

Question 52

What criteria will determine whether a company is a subsidiary of a holding company?

Answer 52

(a) that other company holds a majority of the voting rights in it; or
(b) that other company is a member of it and has the right to appoint or remove a majority of its board of directors; or
(c) that other company is a member of it and controls alone, pursuant to an agreement with
other members, a majority of the voting rights in it; or
(d) it is a subsidiary of a company that is itself a subsidiary of that other company.

Question 53

True or False: a statement in the register of members is needed where there is only one shareholder in the company.

Answer 53

True. If the number of shareholders in the company subsequently increases, a statement of cessation (ie stating the company ceases to have only one shareholder) will be necessary.

Question 54

Explain the concept of joint shareholders.

Answer 54

Shares may be held jointly. In such a situation, the register of members needs to record both names but only one address.

Question 55

Explain the cumulative/noncumulative distinction regarding preference shares.

Answer 55

If the share is described as cumulative, this means that the shareholder has to be paid any missed dividends from pervious financial years, as well as the current financial years’ dividend.

If a share is described as non-cumulative, this means they do not carry the above right (ie they can’t claim the missed dividends from previous financial years).

Question 56

What does it mean if someone holds a participating preference share?

Answer 56

Participating shareholders have a further right to receive profits or assets in addition to other preference share rights.

Question 57

Explain the procedure for bringing unfair prejudice petitions.

Answer 57

S994 CA 2006 - allows any shareholder to apply to court for remedy if they feel they have been unfairly prejudiced as a shareholder. The ground are:

1) the company’s affairs have been conducted in a manner that is unfairly prejudicial
to the interests of the members generally, or some part of its members (including the
claimant); or

2) an actual or proposed act or omission of the company is or would be so prejudicial.

Question 58

List three examples of conduct which may give rise to prejudicial treatment for an unfair prejudice petition.

Answer 58

• diverting opportunities to competing businesses where the majority shareholder holds an interest;
• awarding excessive pay to directors; or
• excluding shareholder from management of the company where, when the company was incorporated, shareholders’ negotiations led to shareholder believing they would participate in management.

Question 59

What is the most common order where the court is satisfied unfair prejudice has occurred?

Answer 59

That the other shareholders buy the shares of the prejudiced shareholder, or the company buys back that shareholder’s shares.

Question 60

What test do the court use to determine whether a shareholder has been subject to unfair prejudice?

Answer 60

Objective bystander test - ie whether a hypothetical bystander would believe the act or omission to be unfair.

Question 61

Define derivative claims.

Answer 61

Claims brought by shareholders in relation to the wrong done to a company which has arisen from an act or omission of a director. A derivative claim may only be brought in relation to a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director (s 260(3)). The defendant to a derivative claim is usually a director but can be another person.

Question 62

What are the three cases where a court MUST refuse permission to continue a derivative claim at the hearing stage?

Answer 62

1) Where the court is satisfied that a person acting in accordance with s 172 CA 2006
would not seek to continue the claim. In effect, this means that the court will not allow an individual who is not promoting the success of the company to continue the claim;

2) Where the cause of action arises from an act or omission that has not yet occurred, but which has already been authorised by the company; or

3) When the act or omission has already occurred and was authorised before it occurred or has been ratified by the company since it occurred.

Question 63

What factors must the court take into account when deciding whether to continue with a derivative claim?

Answer 63

• Whether the shareholder is acting in good faith in seeking to continue the claim;
• The importance that someone acting in accordance with s 172 (somebody who is acting in good faith to promote the company’s success) would attach to continuing;
• Whether any past or future action or omission was authorised, or if not, would be likely to be ratified;
• Whether the company has decided not to pursue the claim; and
• Whether the act or omission gives rise to a cause of action that a member could pursue in their own right.