Shareholders Flashcards
(40 cards)
Decisions that shareholders make
Fall into two categories:
1) Decisions which the shareholders alone make e.g changing the articles of association of the company and changing the name of the company - both special resolutions
2) Decisions which give the directors permission to enter into certain types of contract which carry particular risks for the company or where the directors could potentially use their position as a director to benefit personally from the contract
Becoming a shareholder - First shareholders
The two people who sign the memorandum of association as subscribers automatically become the first shareholders of the company and must be entered on the company’s register of members
Becoming a shareholder - After the first shareholders
Once the company is up and running a person or company can become a new shareholder in one of two ways:
1) The new shareholder can obtain shares from an existing shareholder or
2) A company may allot new shares
Register of members
A company must enter the new shareholder on the register of members or reflect an existing shareholder’s increased number of shares as soon as practicable within 2 months
The PSC register
The purpose of the PSC register is to enable third parties to understand who holds power in the company. Any shareholder who owns more than 25% of the shares or controls more than 25% of the voting rights in the company must appear.
Shareholder’s rights - Articles of association
gives the shareholders a remedy for breach of contract if one or more shareholders or the company itself does not abide by the constitution.
Shareholder’s rights - Shareholder’s agreements
A shareholder’s agreement will bind all of the parties to the agreement and provide a remedy if one of its terms is breached. It’s main advantage is the protection of minority shareholders.
Protection of minority shareholders - Unfair prejudice petitions
Allows any shareholder to apply to the court for an order for a remedy where they feel that they have been unfairly prejudiced as a shareholder.
Protection of minority shareholders - Derivative claims
This is a claim instigated by a shareholder for a wrong done to a company which has arisen from an act or omission of a director.
Types of share - Ordinary shares
Generally give the shareholders the right to attend and vote at general meetings. Ordinary shares are also entitled to receive dividends.
Types of share - Preference shares
Preference shareholders receive enhanced rights of some sort over and above the ordinary shareholders. E.g they might have a guaranteed right to a dividend and the ordinary shareholder will only receive dividends if there are any profits left after the preferential shareholders have been paid. They don’t usually have the right to vote.
Ordinary resolution
For an ordinary resolution to be passed over half of the votes cast at a shareholder’s general meeting must be in favour of the resolution
Special resolution
For a special resolution to be passed 75% or more of votes cast at a shareholders’ general meeting must be in favour of the resolution
How to pass shareholders’ resolutions
2 ways:
1) General meeting
2) Written resolution
General meeting
Called by the board of directors by passing a board resolution. They will call a general meeting when they want the shareholders to pass a shareholder’s resolution. In order for a general meeting to be valid the notice requirements under the CA must have been complied with
Contents of the notice of general meeting
The directors must give notice to every shareholder and every director. It must be given in hard copy, in electronic form or by means of a website. The notice must set out:
1) The time, date and place of the meeting
2) The general nature of the business to be dealt with at the meeting
3) The exact wording of the special resolution if there is one
4) Each shareholders’ right to appoint a proxy to attend on their behalf
Notice period
14 clear days. Clear = the day the notice is deemed received and the day of the general meeting are not counted. Only the days between the two dates. If the notice is sent out by post or email it is deemed received 48 hours after the notice was posted or emailed.
Quorum
Quorum of a general meeting is 2.
Voting in a general meeting
Is on a show of hands and each shareholder has one vote.
Quorum and voting - personal interests
Unlike board meetings shareholders are not prevented from counting in the quorum or voting if they have a personal interest in the matter. There are two key shareholders’ resolutions where the votes of a shareholder with a personal interest are not counted:
1) A resolution to buy back some or all of a shareholder’s shares
2) An ordinary resolution to ratify a director’s breach of duty where the director in question is also a shareholder
Poll votes
Where shareholders vote in a general meeting on the basis of one vote per share. A poll vote may 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
d) A person or persons representing not less than one tenth of the total voting rights of all the shareholders
It can be demanded before a general meeting or during the meeting either before or after voting on a show of hands. If after the poll vote will override
Short notice
For a general meeting to be validly held on short notice:
- A majority in number if the company’s shareholders
- Who between them hold 90% or more of the company’s voting shares must consent.
The general meeting can be held straight away.
Written resolutions
Alternative to a general meeting. Must be circulated to every eligible member. It must include:
- how to signify agreement
- the deadline for returning the written resolution - lapse date (usually 28 days unless stated otherwise)
When are written resolutions passed?
They are passed when the required majority of eligible members have signified agreement to the resolution (sending it back). Each shareholder has one vote for each share that they own.
