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Flashcards in Setting up a company and allowing shares Deck (40):

Board meeting procedure

Who calls?
Notice period?


Who calls a board meeting?

Any director


How long is the notice period for a board meeting?

Reasonable notice
Reasonable according to what is usual for the company
Browne v La Trinidad


What is the quorum for a board meeting?

2 directors MA11(2)

Unless only 1, in which case 1


Agenda for a board meeting?

What to report on

Board resolutions to be passed etc

Approve form of notice of GM

Call GM (s302)

Give notice of GM


Voting requirements for a board meeting?

Board must agree by majority decision



Post Meeting Matters for BM1?

Co sec write up mins

Co sec give notice of GM


Next after meeting agenda / voting for board meeting?

Either close or adjourn

If adjourn - reconvene BM2


General meeting (shareholders) procedure

Notice period?


Notice period for a general meeting?

Minimum 14 clear days


What is the quorum for a general meeting?

1 SH if only 1 S318(1)
2 SH if 2 or more S318(2)


Agenda for a general meeting?

Propose a special resolution to...


Voting requirements for a general meeting?

75% under S283(1) and S283(4)

Is automatically a 'show of hands' unless a poll vote is demanded - MA42


What happens after the voting in a general meeting?

Meeting closed
BM 2


Agenda for BM2?

Report that the special resolution was passed at the GM

Propose board resolutions to...


Post meeting matters for BM2?

Co sec file X with registrar
Write up mins of board meeting and enter into minute book
Forms to co house i.e. appointment of director etc


How is a procedure plan different when it is via a WRITTEN RESOLUTION?

No GM to call or give notice for
Propose written resolution
Approve form of written resolution, and designate is a special resolution (S283(3)(a))
Give SH instructions on how to vote
Direct co-sec to send resolution to each member

After meeting - adjourn rather than close. (BMII is reconvened rather than opened)

A written resolution is passed when the required majority have signed - S283

Send copy of the written res to companies house within 15 days (S29)

Keep copy for 10 years (S355)


Within how many days should a written resolution be sent to companies house?

15 days (S29)


How many years should a copy of the written resolution be kept at the company?

10 years (S355)


What is the basic 6 STEP procedure for issuing shares?

1) Is there a CAP on the amount of share capital that can be issued by the company?

2) Do the Ds have authority to allot new shares?

3) Do pre-emption rights apply, and need to be disapplied?

4) Are new class rights being created?

5) Ds pass board resolution allotting shares

6) Post meeting matters


What is the first step of the procedure to issue shares?

Is there a cap on the amount of shares company can issue?

Firstly - check articles and memo of association, and any resolutions passed and filed at CH.

CA '06 company - no standard cap
CA '85 company - likely to have cap

If there is a cap and will exceed it, use SPECIAL RESOLUTION (75%) and remove it, or increase it.

Amending articles (S21 - by special resolution)

Under S617(2)(a) - share cap increases automatically when issue shares


What is S21 CA 06 and why is it relevant?

If want to amend articles, need special resolution

Relevant because may need to amend articles if there is a cap on issued share capital and it needs to be removed or increased


S617(2)(a) CA 06

For an 06 company, the authorised share capital will increase automatically everytime new shares are issued by the company


What is the second step of the procedure to issue shares?

2) Do the Ds have authority to allot?

Check memo of association & articles & resolutions

Under S549, Ds must not allow new shares unless either:

authorised by co (S551)

S551 authority can be given by articles or ORDINARY resolution

(or if is a private co with only 1 class of shares (S550), do not need authorisation unless otherwise prohibited)


S549 CA 06

Ds must not allot new shares unless they are authorised by the company, or is a private company with only one class of share


S551 CA 06

Ds can gain authority by including in the articles (amending articles requires a special resolution under S29) or by ordinary resolution (50%).

Ds will only ever have authority up to cap, if any, in step 1


S550 CA 06

The Ds of a private company with only one class of shares do not need special authorisation to allow new shares.

(unless specifically prohibited in articles etc).

'85 company can pass ordinary (50%+1) resolution to authorise use of this provision.


What is the third step of the procedure to issue shares?

Do pre-emption rights apply, and do they need to be disapplied?

S561 grants pre-emption rights to SH.

S561: Company cannot allot 'equity securities' to a person unless on same or more favourable terms.

If shares being issued have a cap on dividends AND capital on winding up, is NOT an equity security, and so pre-emption rights and S561 do not apply.


Can pre-emption rights be disapplied?

1) Can be generally disapplied by a special resolution or in articles under S570(1)

2) Can be disabled for specific allotment - needs a special resolution under S571

3) Private co can exclude pre-emption rights in articles (S567)

4) Private companies with one class of share can exclude pre-emption rights in articles (S569)


What is an equity security and where is it defined?

S560 - equity security is an ordinary share or the right to subscribe / convert to ordinary share.

S560(1) defines ordinary share as shares where right to dividends and capital on winding up is not capped.

SO if right to dividends and capital on winding up is capped? Not ordinary share. So not equity security. So doesn't come under pre-emption.


What is the fourth step of the procedure to issue shares?

Are new class rights being created?

(i.e. preference shares)

If so, will require a change of articles and therefore a SPECIAL resolution under S21.


What is the fifth step of the procedure to issue shares?

Ds pass board resolution at BM 11 - majority MA7(1)

All shareholder resolutions in GM must be before BM 11


What is the sixth step of the procedure to issue shares?

Post meeting matters

Filing new articles if amended
File SH01 and statement of capital at CH
File special resolutions under S29(1)(a)
File OR granting Ds to allot - S551
Update share member register
Send share certificates - S769


What is high gearing? When is a company 'highly geared?'

High gearing is bad because it shows a company are a credit risk

Being highly geared means that there are higher funds in the company from long term loans, than from selling shares (low equity).

If there is a lot of equity in a company, the company has to make lots of losses before it can't afford to pay back its creditors.

When a company has low equity, do not have much leeway before can't pay creditors.


Equity finance v Debt finance for a company, things to consider

Return on investment?
When get back investment?


Equity finance v Debt finance - return

Pay SHs dividends, but only if have made profit. SH may also make capital growth but that is not guaranteed.

With a loan, must pay the investor back interest regardless


Equity finance v Debt finance - priority

SH at the bottom of priority pile

Creditors will be paid before SH, could be at the top depending on what security they take


Equity finance v Debt finance - investment return

SH may get capital back on winding up

Can sell shares (difficult if not public), or company may buy back shares

Bank gets money back in period stated in loan agreement, or if they sale the debt (bonds, debentures)


Equity finance v Debt finance - control

SH have voting rights - extend of control will depend on how many and on what rights the shares give

Borrower will give lender various undertakings. Lender will almost certainly have received security.


Equity finance v Debt finance - other

Need people willing to buy shares which is influenced by market

Dividends are not tax deductible expense

Banks may not be willing to lend i.e. recession

May have already given security for previous loans

Interest on a loan is tax deductible - big advantage