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Case and Matter Analysis > PFA - Business > Flashcards

PFA - Business Flashcards

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1
Q

What do you need to be thinking about when you are faced with a question re board meetings?

A
  1. How do you call the meeting
  2. Notice
  3. Quorum
  4. Whether or not a director has an interest in a transaction
  5. What resolutions are going to be passed
  6. Filing requirements
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2
Q

How is a director’s meeting called?

A

Any director, or secretary, can call a board meeting.

There are no formal requirements - all that is needed is reasonable notice.

What is considered reasonable will vary from situation to situation

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3
Q

How many directors are needed for a meeting to be quorate?

A

Model articles - at least 2
Need to check articles to see if there is anything that changes this

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4
Q

What are the 2 things to consider when looking at whether a director has an interest in a transaction?

A
  1. Do they need to declare it under the Companies Act?
  2. Can they then vote and count towards the quorum for that resolution?
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5
Q

When will you need a shareholders’ meeting?

A
  1. If a decision is reserved for the shareholders, or
  2. A decision needs shareholder approval.
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6
Q

What notice is needed for a shareholders’ meeting? What is required of the notice?

A

Notice must be:
i. in writing,
ii. sent to all shareholders,
iii. including the following information:
- company name,
- date, time + place of the meeting,
- exact wording of any special resolutions that are proposed to be passed
- information about appoint a proxy.

14 clear days’ notice + if not delivered by hand, an additional 2 days is needed for deemed service

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7
Q

What is needed for an ordinary resolution?

A

Over 50%

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8
Q

What is needed for a special resolution?

A

75% or more

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9
Q

What is the quorate for a shareholders’ meeting?

A

Usually 2 unless anything in the articles changes this.

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10
Q

How do directors vote?

A

Each director has 1 vote, assuming they can vote + count towards the quorum, and are not prevented from voting because they have a personal interest in that decision

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11
Q

What is needed to pass a board resolution?

A

A majority

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12
Q

When will a Chairman’s casting vote be used?

A

Board meetings.
Only if the board is equally weighted when they first vote.

They only use the vote if they want the resolution to pass

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13
Q

When do directors not need to declare a personal interest in a transaction?

A
  1. The rest of the board already knows about the interest,
  2. It’s the director’s service contract

However, it is still good practice for the director to disclose interests regardless

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14
Q

What is needed if a director does disclose an interest?

A

You need to say which director declared which interest in which transaction + then explain the nature and extent of the interest.

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15
Q

What can shareholders do if a director has a personal interest in a transaction?

A

The articles allow for a personal interest provision to be suspended for that particular transaction –> done by ordinary resolution of the shareholders

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16
Q

What are the 2 steps directors do when a board enters into a contract?

A
  1. The board resolves to approve that contract.
  2. Board resolve to enter into the contract + they need to authorise 1 or more directors to sign the contract on behalf of the company.
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17
Q

When can shareholders not vote?

A

There are a few scenarios where a shareholder can’t vote, and this is usually to protect third parties.

For example:
1. Shareholders cannot vote to ratify their own breach
2. A shareholder cannot vote when the company is deciding whether to buy back their shares.

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18
Q

What is the default type of vote in a general meeting?

A

Show of hands
Each shareholder gets 1 vote.

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19
Q

What kind of vote can shareholders request?

A

Poll vote.
1 vote per share.

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20
Q

When can a shareholder’s personal representative vote?

A

Not until they have been registered as a member of the company

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21
Q

Who can appoint new directors?

A

Under the Model Articles, either the directors or the shareholders (through an ordinary resolution) can appoint new directors.

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22
Q

When must the Registrar of Companies be notified re a company’s directors?

A

The company must notify the Registrar of Companies within 14 days of:
- any new director appointments, and
- of any changes to the details (e.g., their address) of existing directors.

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23
Q

What is a de facto director?

A

A person who acts a director, claims to be a director, but who has never been appointed as a director

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24
Q

What is a shadow director?

A

A person who influences other directors, but who does not claim to be a director, and has not been appointed as a director.

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25
What are executive directors?
Responsible for the day-to-day running of the company + are employees of the company
26
What are non-executive directors?
Usually consultants + take more of a supervisory role overseeing the activity of the executive directors
27
What is a nominee director?
Appointed to the board to represent the interests of a particular stakeholder, usually a shareholder. Must still act in the best interests of the company.
28
What common law duty does a director have?
Common law fiduciary duty to act in good faith + in the best interests of the company as a whole
29
What is the effect of any provision in the articles or a contract that purports to exempt a director for liability that would otherwise attach to the director for breach of duty, negligence, or breach of trust in relation to the company?
Such provision is void.
30
What may a company do to protect a director from liability for breach of duty, negligence, or trust?
Company may purchase insurance for the directors to protect them against such liability
31
When may a company indemnify directors against liability incurred on claims by third parties?
May indemnify directors against liability they incur on claims by third parties against the directors based on their position with the company EXCEPT with respect to criminal or regulatory fines.
32
What may a former director not do?
Even after their term as a director, a former director may not exploit property, information, or opportunities of which they become aware while a director.
33
What can directors consider when they are deciding what's best for the company as a whole?
Under the concept of 'enlightened shareholder value', in addition to maximising profits, directors may consider the effects of decisions on the interests of: i. shareholders, ii. suppliers, iii. customers, iv. the community, and the like.
34
What must directors consider if the company is insolvent or is on the brink of becoming insolvent?
The directors must consider or act in the interests of the creditors of the company. The duty to shareholders is displaced.
35
What standard of care, skill, and diligence must a director exercise?
A director must exercise the higher of the care, skill, and diligence that would be exercised by a reasonably diligent person with: i. the general knowledge, skill, and experience that reasonably may be expected of a person carrying out the duties of a director (objective), or ii. the general knowledge, skill, and experience the director in question actually has (subjective).
36
What doesn't the duty to exercise independent judgment prevent?
This doesn't prevent a director from seeking independent advice of experts so long as the director makes the final decision
37
When is the duty to avoid conflicts of interest not breached by the director?
If: 1. the conflict relates to a transaction with the company itself + the board knows the director has an interest, 2. the situation isn't likely to give rise to a conflict, or 3. the matter has been authorised by the directors after receiving full disclosure
38
What duty does a director have to disclose interests?
A director has a duty to disclose their interest in proposed or existing transactions.
39
When can a director not accept a benefit from a third party?
If it has been conferred to them by reason of them being a director. E.g., a director shouldn't take a bribe.
40
What is the effect of a director's vote if they have an interest in the transaction?
If a director has a personal interest in a transaction, the director cannot be counted as forming part of the quorum needed for the directors to vote on the transaction.
41
When can a director obtain a loan from the company?
Director cannot obtain a loan from the company unless the transaction is approved by the board.
42
Who must notice of a board meeting be given to ?
Must be given to each director
43
How may a board meeting be held?
May be by telephone or other electronic means, so long as the directors can communicate with each other
44
How can directors pass resolutions?
1. Approval of a resolution by majority vote of directors at board meeting (with at least 2 directors attending), or 2. Written resolution without a meeting if all the directors approve (unanimous approval)
45
How can shareholders remove a director?
By ordinary resolution
46
How can a director who is also a shareholder be protected from removal?
Generally, the shareholders' right to remove a director by majority vote can't be overridden. However, the articles may be modified to add a clause giving weighted voting to a director who is also a shareholder. - A Bushell v Faith clause
47
What happens is a director's removal violates their service contract?
Although the shareholders have a right to remove a director with or without cause, if the removal violates the director's service contract, the company would be liable in contract for breach.
48
What notice is needed to adopt a resolution to remove a director?
At least 28 days before the meeting + the director must be given notice and a right to respond in writing + orally at the meeting
49
What do directors of a PLC do at the first AGM ?
The directors initially appointed in the registration statement must retire at the first annual meeting + seek reappointment by the shareholders.
50
How may a director be disqualified from office for misconduct in connection with a company?
E.g., for a conviction of an indictable offence regarding: i. promotion, ii. formation, iii. management, iv. liquidation of a company, v. fraudulent trading, or the like
51
Who must hold an annual shareholders' meeting?
Public companies must. Private companies aren't obligated to.
52
Who may call a general meeting?
Directors may call a general meeting of their own accord. Shareholders owning shares representing at least 5% of the paid-up voting capital shares can demand a meeting.
53
What must the directors do if the shareholders request a general meeting?
The directors must call it within 21 days of the request + it must be held within 28 days
54
Who must notice of a general shareholders' meeting be given to?
1. The shareholders 2. All directors, 3. Personal representatives of any deceased shareholders, and 4. The trustee in bankruptcy of any bankrupt shareholders
55
What form can notice of a general meeting take?
Can be given: - in writing, - electronically, - by email, or - via a website
56
What notice must be given for the AGM of a public company?
21 clear days' notice
57
When must notice of a general meeting be give?
At least 14 clear days in advance of the meeting, PLUS 2 days for deemed delivery if the notice is not hand delivered
58
When may a general meeting be held on short notice?
If agreed by a majority in number of the shareholders, who hold 90% of the shares. - 95% for non-traded public companies
59
Who may request a poll vote?
May be requested by: 1. 5 or more shareholders, or 2. Shareholders with at least 10% of the voting rights, or 3. Shareholders with at least 10% of the paid-up capital of the company
60
When can written resolutions not be used?
Cannot be used to dismiss a director or auditor
61
Who will decide whether to circulate a written resolution?
Normally, the board will decide whether to circulate the written resolution. However, shareholders who hold at least 5% of the total voting rights can require the directors to do so.
62
Who must a shareholders' written resolution be circulated to?
All members eligible to vote
63
What must a written resolution inform shareholders of?
1. How to signify agreement, and 2. If unamended articles are being used, that the resolution will lapse after 28 days from and including the day of circulation.
64
How is a written resolution passed?
The percentage of votes needed to pass is the same as is used in general meetings, but it's based on all shareholders entitled to vote + is based on 1 vote per share.
65
What is the procedure if a decision requires both director + shareholder approval?
1. Board meeting - resolution to approve the matter, 2. Board will pass resolution to call a general shareholders' meeting or circulate a written resolution for the members to resolve to approve the matter, 3. Shareholders vote on whether to pass the resolution, and if they do, the resolution is passed. 4. Sometimes, no further action is required, but sometimes another board resolution is necessary to facilitate the decision
66
What matters require shareholder approve by ordinary resolution?
1. Appointment/removal of director/auditor, 2. Adoption of annual accounts + reports of the directors and auditors, 3. Approval of a declaration of dividends, 4. Approval of the directors' decision to allot shares, 5. Approval of substantial property transactions, 6. Ratification of a director's breach of duty, 7. Entering a service contract with a director for more than 2 years, 8. Making a loan to a director, 9. Giving a director a payment for loss of office
67
What is a substantial property transaction?
Involves a director with a personal interest in the transaction. It is valued at more than £100,000 or is more than £5,000 and the contract value exceeds 10% of the company's assets.
68
What matters require shareholder approval by special resolution?
1. Most decisions to buy back company shares, 2. Changes to the company's articles of association, 3. Changes to the company's name
69
When must filing be made at Companies House re a resolution?
If a resolution affects information filed at Companies House, a copy of the changes must typically be filed at Companies House within 14 days
70
Who are a company's subscribers?
Persons who have signed the company's memorandum of association + agreed to purchase a certain number of shares .
71
What will the board of directors do once the company is formed re a company's subscribers?
Board of directors will allot the agreed shares to the subscribers + receive payment for the shares. The money received on account of the nominal or par value becomes a company's share capital. This is a fund of money that cannot be returned to the shareholders
72
When do directors have the power to allot additional shares?
If: 1. the company has only 1 class of shares, and 2. there is no restriction removing the power in the articles. The model articles have no restriction.
73
What must directors do if they wish to allot shares when the company has more than 1 class of shares/there are restrictions removing their power to do so?
The directors must seek permission from the existing shareholders through an ordinary resolution.
74
What is the general procedure for allotting additional shares?
1.Directors will determine price + no. of shares and will resolve to allot the shares. 2. Generally, shares are issued in exchange for cash, but can be for property as well, 3. Under the Model Articles, the full value of the shares must be paid to the company on allotment, 4. If the shares have a nominal or par value, the money received on account of that value will be added to the company's share capital, 5. Any amount received beyond the nominal value is known as a premium.
75
How must a premium be recorded?
Although this amount is still share capital, the premium must be recorded separately in a share premium account.
76
When do pre-emption rights apply?
When a company proposes to issue additional shares in exchange for cash. Unless its articles provide otherwise, those shares must first be offered to the existing shareholders so that they have the opportunity to maintain their proportional share of ownership + voting strength in the company.
77
What must be done if pre-emption rights do apply?
The shares must be offered on the same terms for which the shares would be offered in the open market. The existing shareholders must be given at least 14 days to accept.
78
When do pre-emption rights not apply?
To shares issued for non-cash consideration.
79
How can the pre-emption rights be disapplied?
By special resolution.
80
What happens if a shareholder decides to sell shares to a third party?
That is not an allocation by the company. The right to make such a transfer is governed by the articles. The model articles for private companies grant the directors an absolute power to refuse to allow a transfer of shares

Case and Matter Analysis (3 decks)

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