Company Decision-Making Flashcards
(74 cards)
1
Q
Is it common to see members appointed as Directors?
A
Yes, but only for smaller companies.
- For larger companies, members do not have any involvement in managing the company.
2
Q
What is another word for ‘directors’?
A
Officers
3
Q
Can directors bind the company?
A
Yes
4
Q
Can directors act for and on behalf of the company?
A
Yes
5
Q
Name some general powers that a director has
A
- The general power to exercise all of the powers of the company, in order to help manage its affairs.
- The power to delegate any power to any person or committee
- The power to determine own remuneration
6
Q
Where can you find the Directors powers?
A
In the Articles
7
Q
If a Director wants to increase his service contract to longer than the standard 2 years, what must he do?
A
He must get the members’ approval by OR.
Before this, the members have the opportunity to see a memorandum setting out contract.
- If approved, company must make contract available for inspection by registrar at registered office/SAIL
- If not approved, those specific provision of contract are rendered void. Contract only lasts 2 years at most.
8
Q
How do Directors exercise their powers?
A
Directors exercise their powers by voting at Board Meetings and passing Board Resolutions.
9
Q
Directors’ decisions are valid if they were…
A
Made at a Board Meeting
OR:
Otherwise agreed or acquiesced to by all directors.
10
Q
Do Directors need members’ consent for all decisions?
A
No, most decisions do not require shareholder consent.
11
Q
If somebody wanted to find a record of all decisions taken by a company’s directors, would they be able to do so?
A
Yes as companies keep a written record of every decision made for at least 10 years
12
Q
What happens if a director makes a decision but formalities are not adhered to?
A
The decision may still be valid so long as it is unanimous, but this is not good practice and it leaves the decision more open to be challenged.
13
Q
How many directors are needed to call a Board Meeting?
A
Only one
14
Q
How should a director call a Board Meeting?
A
By giving notice to the other directors
- no minimum notice requirement but notice must be reasonable and specify date, time, venue and method of communication.
- notice can be given orally or in writing.
- ‘reasonableness’ of notice depends on circumstances i.e. smaller companies may not need long notice and can happen on site but larger companies may need notice months in advance.
15
Q
If a director is not given notice, what can happen?
A
The Director can order the BM to be re-held with him present
- however, director can also waive requirement to be given notice for up to 7 days after meeting, so that BM doesn’t need to be re-held.
16
Q
Does the ‘notice’ rule for BM also apply for Board Meetings that are routinely held at the same time and place regularly?
A
No, formal notice is not needed for these kinds of Board Meetings as the directors would already be aware.
17
Q
Define Quorum and how does it apply to Board Meetings?
A
Quorum: A pre-specified minimum number of attendeesneeded for a meeting to go ahead (as set out in AAs)
- In order for a BM to be validly held, it must be quorate. The quorum for a BM is two, unless AAs state otherwise.
18
Q
For a meeting to be quorate, do directors need to be in the same room?
A
No, as long they are able to communicate with each other, it is fine. e.g. remote meetings can count as a BM
19
Q
What main 2 criteria does a BM need to be present to allow directors to pass resolutions as they see fit?
A
The BM needs to be
1. validly called
2. Quorate
20
Q
Can directors pass ANY resolution that they want at a Board Meeting?
A
No. There are certain requirements enshrined n legislation which directors cannot overwrite, e.g.
- Requirement to declare personal interest in a transaction (these directors will not be able to vote usually)
- Requirement that shareholder approval is required for some resolutions.
21
Q
What voting system is used to make decisions at a BM?
A
Simple majority
22
Q
If there is an even split vote count at a Board Meeting, how are final decisions made?
A
By giving the Chairperson of the Board a casting vote
23
Q
What kind of decisions can be taken by SHAREHOLDERS?
A
- Altering the Articles - must be in good faith.
- Change company name
- Approve changes in registration status
- Appoint/remove directors
- approve transactions involving directors
- Approve new share issues
- Approve share buybacks
- Agree to wind up
- Order directors to take certain actions
- Act where directors unable to - perhaps due to board deadlock
24
Q
Where and how can shareholders vote to make decisions?
A
Either;
- Through a General Meeting, as OR or SR
- By way of written resolution (rather than meeting), as OR or SR
- By unanimous consent/duomatic principle
25
Give examples of specific types of transactions that require shareholder consent.
- Director service contracts over two years
- Substantial property transactions
- Loans, quasi loans, and credit transactions
- Removal of directors and award of any compensation for directors' loss of office
26
If members vote on an OR and the result is an even 50/50 split, what happens?
The Ordinary Resolution is not passed.
- It must be above 50%.
27
What is the duomatic principle?
Passing a decision by gaining unanimous consent of all shareholders
- No need to call GM or circulate written resolution to get formal consent if unanimity can be shown
- agreement can be express or implied by conduct
- Those giving assent must be fully informed.
28
Can the duomatic principle be used to ratify dishonest acts or those not in the bona fide interests of the company?
No it cannot.
- Those types of decisions would not be passed even if there was unanimous agreement.
29
What is Quorum and how does it apply to GENERAL meetings?
The Quorum is the minimum number of qualifying members needed for GM to go ahead, as set out in AAs.
- Unless stated otherwise in AAs, a qualifying member will be a member, a member's representative, or a proxy vote of a member.
- Unless stated otherwise in AAs, a meeting will be quorate if min. 2 qualifying members attend.
30
What are the 2 methods of voting at a GM?
1. On a poll
2. On a show of hands (model article 42) - more common method
31
How does voting 'on a poll' work?
Give an example
Votes are proportionate to the members' shareholdings
e.g. if there are 10 shareholders and 4 of the shareholders hold 20% each and the other 6 own 3.33%, then OR could be passed through only 3 of major shareholders (as this is 60% in favour and OR only needs over 50% majority).
32
How does voting 'on a show of hands' work?
Give an example
One vote per member
Example: for a company with 10 members, 6 votes in favour needed to pass OR. 8 votes in favour needed to pass SR.
33
What is the shareholder duty of 'bona fides'?
This is the duty that a shareholder or a director-shareholder has to act in good faith when voting.
- A shareholder can vote in their own interests but must be in good faith.
- e.g. the court found a vote to dilute the voting power of the minority shareholder was not in good faith.
34
Which types of companies are required to hold at least one GM a year?
public companies only
- private companies don't need to hold GM's and can pass all decisions through written resolutions or unanimous consent procedures.
35
What are the requirements for calling a GM?
Give compliant notice
1. For priv companies, min. 14 days notice must be given (this excludes day notice given and day of meeting). For public companies, at least 21 days notice needed.
2. Notice must provide agenda, details, time, date, place.
3. Notice must be given to ALL company's members, directors, and any auditor.
4. Must include exact wording of any SR to be proposed at GM.
5. Notice must inform members of right to appoint proxy - missing this off is an offence but doesn't invalidate meeting.
36
We previously said the quorum for a GM was 2. What if it is a single-member company?
Then the quorum is 1
37
Other than the members needing to attend, and not directors, what is another difference between GMs and BMs?
Clue: casting vote
Unlike in BMs, the Chairperson will not have a casting vote to decide any deadlocked resolution in GMs.
38
Why may larger shareholders prefer to vote via poll?
Because their larger voting power would be reflected in the vote count
39
Under MA 44, who is able to demand a poll vote?
1. The Chair of the meeting
2. the directors
3. 2 or more people with right to vote on resolution
4. shareholders with at least 10% of rights to vote on resolution.
40
Do companies need to keep minutes of every GM?
Yes, for at least 10 years.
41
notice and voting rights are subject to...
What does this mean?
The AAs
- this means that some people may have weighted votes or be unable to vote on certain resolutions.
42
Can companies agree shorter notice periods? (shorter than 14 days?)
Yes, as long as agreement is reached from:
1. members who are majority in number of eligible voters AND;
2. Members who represent at least 90% of eligible share capital.
43
At what time of year would an AGM usually be held?
Within 6 months of the end of the financial year
44
What must be produced at an AGM?
An annual report summarizing the company's operations and financial performance for the previous year
45
What kind of issues can members decide on at the AGM?
Few examples:
1. Appointment of directors and auditors
2. Executive remuneration
3. Whether a dividend should be paid.
46
What are the advantages of making decisions via written resolutions vs other methods?
1. Faster and more efficient: No minimum notice required and no need to be physically present
2. Resolutions can be proposed by either directors or members (if sufficient number agree - i.e. 5%)
47
Can a decision to remove a director or auditor be passed using the written resolution procedure?
No
48
If a written resolution is proposed by a director, what must they make sure to do to ensure that the resolution is eligible?
They must provide a copy of the statement informing members how to signify agreement (i.e. hard or e-copy) and deadline for doing so.
This can be done either by:
- sending hard or e-copy
- Making copy available online.
- Circulating same copy around several members.
49
If written resolution is proposed by members, what must they make sure to do to ensure that the request is eligible?
They must ensure that it:
- is in hard or e-copy
- identifies resolution and includes accompanying statement of 1000 words.
- is authenticated by person making request.
- is not ineffective, defamatory, or frivolous or vexatious.
50
If the company (or anyone) believes that the written resolution procedure is being abused, what can they do?
They can apply to the court to stop the resolution from being circulated.
51
If members propose the resolution, who might be required to pay costs associated with circulating it?
The members themselves.
52
What are the required voting thresholds for written resolutions?
Same as for a GM
- Over 50% for OR
- over 75% for SR.
53
What system is used to count votes for written resolutions?
1 vote per share system unless AAs say otherwise
54
Can members revoke their agreement after voting on a written resolution?
No they cannot.
55
When is a written resolution passed?
As soon as a required majority have signified agreement.
- no need to wait for time frame to expire or everyone to respond.
56
What is a time frame that a resolution needs to be passed, in order for the time to not lapse?
28 days (inclusive of circulation date) or whatever the period stated on AAs.
57
What is the 'circulation date'?
The circulation date is the date copies of a written resolution are circulated to members.
58
*State MCQ tip for considering different procedures of making resolutions*
* For every procedure, consider "NQAV": The notice, quorum, agenda and voting requirements
* When considering BMs, also consider any proposed or existing interests directors may have which must be declared first.
59
The Articles are a contract between...
- a company and its members; and
- each member and each other member.
60
What are some difference between AAs and simple contracts?
1. AAs: not formed by agreement but by s.33 CA 2006 and are binding. All companies must have AAs.
2. AAs can be altered by a majority (by way of SR), whereas all parties need to agree for simple contracts.
3. Only some AA terms can be enforced by members if breached i.e. terms relating to membership rights. For simple contracts, any term can be enforced.
4. TP can enforce simple contract if it purports to confer benefit but TP cant interfere in AAs
5. Mistake, representation, duress, undue influence irrelevant for AAs.
6. Court doesn't rectify 'incomplete' constitution (but might for simple contracts).
7. Greater scope for implying terms on AAs.
61
What do membership rights include?
1. Right to attend, speak or vote at GM.
2. How vote is to be counted.
3. Share transfer and registration rights
4. Rights to dividends
5. Rights to capital on a winding up.
62
What other document, other than AAs, might contain members rights against each other?
The (optional) shareholder agreement
63
What is the Shareholders Agreement?
A simple contract, not bound by CA 2006 and not registered at CH, between members but can include Company as member.
- sets out how members will look after their rights and how they will vote to run the company.
- Can agree things beyond AAs too.
64
Can shareholders agree between each other not to issue further share capital?
No, a court found this term to be unenforceable
- they can however agree how much they will sell their shares if one wishes to leave
65
In the event of a conflict between CA 2006 and shareholder agreements, what takes priority?
Shareholders agreement
66
What happens if a member does not stick by what they had agreed in the shareholder agreement?
The other members can sue for breach of contract and claim a remedy e.g. damages or specific performance.
67
Other than membership rights, what are some other rights that shareholders have?
How much shareholding is needed to exercise these rights?
1. Right to require directors to call GM (5% needed)
- If directors fail to call GM themselves, members who first requested GM or those with 50>% of voting rights can call GM directly.
2. Right to require circulation of statements regarding resolutions proposed to be heard at GM (min. 5% shareholding needed).
3. Right to force resolutions onto agenda of AGM.
4. Right to demand poll vote. (min. 10% needed)
5. Consent to short notice of a GM (Shareholding of 90% must agree)
68
If a director wanted to extend his service agreement, what permission does he need?
What happens if the director defaults on the agreement?
Permission from members via OR
- memorandum setting out contract to be circulated 15 days before meeting.
IN EVENT OF DEFAULT:
- company can terminate agreement at any stage by giving notice.
69
For substantial property transactions between company and directors or 'connected persons', what permissions are needed?
What happens if directors default on the agreement?
Permission from members via OR
IN EVENT OF DEFAULT, transaction is voidable - unless
- this would impact innocent TP. or;
- company has been indemnified (by directors, who may also be held liable for account of profits).
- No longer possible to void transaction
70
What counts as a 'substantial' property transaction?
Substantial is either:
1. >10% of company asset value and worth > £5000; or;
2. Worth > £100,000
71
What counts as a 'connected person', for the purpose of making substantial property transactions?
Close family members, business partners, trustees of trusts benefitting directors or those connected with them and companies in which directors hold > 20% shares
72
For loans to and from directors (including quasi loans and credit transactions for PLCs, what permissions are needed?
What happens if directors default on the agreement?
Permission from members via OR
- must provide members with full details of loan inc. amount and purpose at least 15 days before meeting.
IN EVENT OF DEFAULT: Loan is voidable - unless;
- this would impact innocent TP. or;
- company has been indemnified (by directors, who may also be held liable for account of profits).
- No longer possible to void transaction
73
For payments for loss of office by director, what permissions are needed?
What happens if the director defaults on the payment agreement?
Permission from members needed via OR - UNLESS
- payment made in goodwill
- payment made by way of damages or settlement of claim
- payment made by way of pension
- amount less than <£200.
IN EVENT OF DEFAULT, director holds payment on trust for company.
74
*refer to the flowchart for company decision-making*
*Page 59*
