Unit 3

Question 1

What are the notice requirements for a valid board meeting?

Answer 1

• Notice must be reasonable
• What is reasonable depends on the facts & it may be reasonable to give a few minutes’ notice of a board meeting if all the directors work in the same building for a small company.
• There is no need for a notice to be in writing, but the notice must include the time, date and place of the meeting (MA 9(3).
• If it is not intended that the directors should meet in the same place, the notice must state the method of communication, for example, Skype or an instant messaging service could be acceptable, as long as the directors can each communicate to the others any information or opinions they have on any particular item of the business of the meeting (MA 10(1)(b).

Question 2

What is quorum for a board meeting?

Answer 2

Quorum = minimum number of directors who must be present for the meeting to be valid.

Minimum of 2 directors must be present at all times.

Question 3

What is MA 14?

Answer 3

A director may not count in 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.
• In which a director is interested.

NOTE – A company can disapply this in its articles

Question 4

What is Rule s 177 CA 2006?

Answer 4

Where a director has a personal interest in a proposed transaction or arrangement with the company, they must declare the nature and extent of this interest to the board.

Exceptions to this are:

1. No conflict of interest – If it cannot reasonably be regarded as likely to give rise to a conflict of interest;
2. Directors already aware of it – If, or to the extent that, the other directors are already aware of it; or
3. Service contract – 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.

This applies even where MA 14 is disapplied.

Question 5

How are board resolutions passed?

Answer 5

MA 7 – Passed by simple majority (over half – 51%).

Voting used by show of hands.

Question 6

When can unanimous decision process be used?

Answer 6

When all directors are in favour of a resolution as long as they use any method which shows all eligible directors have indiciated they have a common view on the matter.

Question 7

How is an ordinary resolution passed?

Answer 7

Simple majority = more than 50% of members voting in favour.

Question 8

How is special resolution passed?

Answer 8

Minimum 75% shareholder approval. Exactly 75% is sufficient, does not need to be over 75%.

Question 9

Can ORs and SRs be passed as a written resolution procedure?

Answer 9

Yes.

Question 10

Can the articles exclude the written resolution procedure?

Answer 10

No.

Question 11

When can written resolution procedure not be used?

Answer 11

To remove a director or auditor.

Question 12

Are private companies required to hold general meetings?

Answer 12

No.

Question 13

Are public companies required to hold general meetings?

Answer 13

Yes. At least 1 annually.

Question 14

What are notice requirements of calling a general meeting?

Answer 14

14 days clear notice. Clear notice excludes the day on which notice is given and the day of the meeting itself.

Question 15

If notice of GM is sent by email what are the requirements?

Answer 15

16 clear days notice.

Question 16

How many days notice are required for the AGM of a public company?

Answer 16

21 clear days.

Question 17

When can a shorter notice period for a GM be used?

Answer 17

• The company can agree to a shorter notice period if shareholders who are both a majority in number of eligible voters and represent at least 90% of eligible share capital agree (s. 307(5) & (6).

Question 18

What should be on the notice of a GM?

Answer 18

• The notice must provide an agenda: details also must be given of the time, date and place of the meeting, and details of any business to be conducted at the meeting.
• The notice should include the right of members to appoint a proxy should they be unable to attend. Failure to do so could invalidate the meeting.

Question 19

Who should be given notice of a GM?

Answer 19

• Company’s members
• Directors
  -Auditor

Question 20

When is a GM quorate?

Answer 20

2 qualifying members present. Only 1 is needed where the company has only 1 member.

Question 21

What are the rules of voting by hand?

Answer 21

one vote per member.

Question 22

Poll vote rule are:

Answer 22

Votes are proportionate to the members’ shareholdings.

Question 23

Who can demand a poll vote?

Answer 23

• Chair
• Directors
• 2 or more people with the right to vote on the resolution; or
  Shareholders with at least 10% of the rights to vote on the resolution

Question 24

When can shareholders call a GM themselves?

Answer 24

Shareholders can require the directors to call a GM. If so required, the directors have a duty to call it. If they fail, the shareholders can call a GM directly themselves under s 305.

Question 25

If directors propose to use written resolution what are the formalities?

Answer 25

The company must provide a copy of the resolution to every eligible member accompanied by a statement informing members how to signify their agreement and the time frame for doing so

This can be by either:

– Sending members a hardcopy or electric copy;
– Making a copy of the resolution available online; or
– By circulating the same copy around sever members (s. 291(3).

Question 26

If at least 5% shareholders request a written resolution procedure what are the formalities?

Answer 26

The company is required to circulate a written resolution which may be accompanied by an explanatory statement of up to 1,000 words.

Any such member’s request:

• May be in hard copy or in electronic form;
• Must identify the resolution and any accompanying statement; and
• Must be authenticated by the person(s) making it.

Question 27

When does a written resolution lapse?

Answer 27

When it is not passed after 28 days from the date it was circulated.

Question 28

When is a written resolution passed?

Answer 28

OR = over 50%

SR = 75% exactly

Question 29

What is the duomatic principle?

Answer 29

Where there is 100% unanimity, the resolution can be passed without a gm or written resolution.

Question 30

What resolutions are required to be filed at Companies House?

Answer 30

• Copies of all special resolutions must be filed at Companies House.
• Ordinary resolutions which are 1) re-denomination of shares to another currency and 2) Agreeing that a company may send or supply documents or information to members by making them available must be filed at CH.
• Resolution must be sent to CH within 15 days.
• Fine for failing to comply with notification requirements is a fine for the company and all of its officers.

Question 31

What are the regulations on board minutes for companies?

Answer 31

• Companies must keep board minutes for every board meeting which takes place and minutes of every general meeting.
• These must be kept with a record of the outcome of any written resolutions, at the company’s registered office (or SAIL) for ten years.

Question 32

Define a “small company”

Answer 32

Company with a balance sheet total of not more than £5.1m, a turnover of not more than £10.2m and no more than 50 employees in a particular financial year.

Question 33

Define “mirco-entity”

Answer 33

Company with a balance sheet total of not more than £316,000, a turnover of not more than £632,000, and no more than ten employees in a particular financial year.

Question 34

Do small or micro companies need to file a directors’ report for each financial year at Companies House?

Answer 34

No. But they do need to file accounts at Companies House.

Question 35

Are public companies required to have a company secretary?

Answer 35

Yes. Can have more than 1.

Question 36

What are company secretary’s responsibilities?

Answer 36

• Legal administrative requirements
• Writing company’s board minutes of GMs.
• Usually have apparent authority to enter into contracts of an administrative nature but not trading contracts.

Question 37

How is companys secretary appointed?

Answer 37

First appointment on form IN01 or by board resolution after incorporation.

Question 38

How can directors remove company secretary?

Answer 38

Board resolution.

Question 39

What are notification requirements of appointing / removing a company secretary?

Answer 39

– Company must notify the Registrar of Companies on form AP03 (for a human secretary) or AP04 (for a corporate secretary) within 14 days of the appointment of a company secretary.

– Every company that has a company secretary must keep a register of secretaries with certain specified particulars.

– Private companies are permitted to elect not to keep their own register of secretaries, and instead ensure that the information is filed and kept up-to-date on the central register for the company at Companies House.

– When a company secretary resigns or is removed from office, the company must notify the Registrar of Companies within 14 days of their resignation or removal on form TM02. Register of secretaries will then need to be amended to reflect the fact the company has left office.

– The company must notify the Registrar of Companies within 14 days of any change in particulars of the company secretary kept in the register of secretaries on form CH03 (for human secretary) and CH04 (for corporate secretary). The register of secretaries will need to be amended to reflect the changes.

Question 40

Are private companies obligated to appoint auditors to review their accounts?

Answer 40

Yes. Small companies are exempt from this.

Question 41

Who can be an auditor?

Answer 41

• Must be qualified (e.g., chartered accountant);
• Independent (no-one involved in the company).

Question 42

How is auditor appointed?

Answer 42

Ordinary resolution

Question 43

What is the auditors’ common law duty of care?

Answer 43

Auditors general duty of care is owed to the company itself, not the directors and not shareholders.

Question 44

To remove an auditor, the shareholders need to pass an…

Answer 44

Ordinary resolution.

• Special notice must be given of the proposal to remove the auditor.

Question 45

When must a new shareholders’ name be reflected on the register of members?

Answer 45

As soon as practicable and within 2 months of allotment.

Question 46

When must share certificates be issued?

Answer 46

As soon as practicable and within 2 months of a transfer of shares being lodged with the company.

Question 47

When can a shareholder take action against the other shareholders of the company?

Answer 47

When their membership rights have been infringed.

E.g., their voting rights and their right to dividends.

Question 48

What are the 2 main mechanisms to protect minority shareholders?

Answer 48

1) Unfair prejudice actions and
2) Derivative claims

Question 49

What are the grounds for petition for an unfair prejudice petition?

Answer 49

• 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
• An actual or proposed act or omission of the company is or would be so prejudicial.

“Prejudicial” = causes harm to one or more shareholders, and it must also be unfair.

Question 50

What are common court orders for unfair prejudice?

Answer 50

• An order that the other shareholders must buy back the shares of the unfairly prejudiced shareholder, or an order for the company to buy back the unfairly prejudiced shareholder’s shares.
• May also include a restriction on the company altering its articles of association without the leave of the court.
• May also include an order that the unfairly prejudiced shareholder has permission to bring a derivative action.

Objective test – Would a hypothetical bystander believe the act or omission to be unfair?

Note – where the conduct complained of is in accordance with the company’s articles of association, it’s harder to argue for unfair prejudice.

Question 51

What is a derivative claim?

Answer 51

• Derivative claims are instigated by a shareholder for a wrong done to the company which has arisen from an act or omission of a director.

Question 52

When can derivative claims be brought?

Answer 52

Derivative claims can only be brought against a director or other person in limited circumstances, where the cause of an action arises from actual or proposed:

• Negligence on the part of the director;
• Default on the part of the director (i.e., failure to perform a legal obligation, e.g., appearing in court when required);
• Breach of duty by the director; or
• Breach of trust by the director.
• A common form of derivative claim – and well recognised exception to the rule in Foss v Harbottle – is where fraud is alleged by the directors of the company

It is a shareholder remedy which allows the shareholder to bring a claim on behalf of the company instead of the directors. The claimant is still the company itself.

Question 53

Can derivative claims only be brought with permission of the court?

Answer 53

Yes.

Permission stage 1 = Court will dismiss the claim automatically if there is no prima facie evidence. Claim will only go ahead if there is substantial evidence.

Permission stage 2 = Court will conisder:

• is another action more suitable?
• is the shareholder’s action in good faith?
• how important is the claim?

Court must refuse leave if:

• The actions have been ratified by other shareholders/directors
• A person acting in accordance with s 172 (duty to promote success of company) would not progress the claim