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#3216 - Shareholders - Business Law and Practice

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Company Law – Private Limited Companies

SHAREHOLDERS

  • Powers of Shareholders

  • Shareholders Agreements

  • Substantial Property Transactions

  • Loans to Directors

Powers of Shareholders

  • Shareholders = Members

  • Members make the KEY decisions

  • Shareholders make decisions by:

Resolution at General Meetings (GMs):

  • Ordinary resolution: Where the members are voting at a general meeting by show of hands – the resolution is passed by simply majority (over 50%) of the members present and voting.

Where members are voting by written resolution : 50%+ of total voting rights of shareholders entitled to vote.

  • Special resolution at GM: requires 75% majority of those present and voting.

Vote with show of hands

Poll vote

Written resolution

Powers granted to Shareholders by:

  1. CA 2006;

  2. Company’s Articles of Association (special resolutions);

  3. Shareholder’s Agreement

How to call a General Meeting

WHO can call a GM: Directors (S.304), Shareholders (S.303), or the court (S.306)

REQUIREMENTS OF NOTICE:

  • S.301 = notice to be sent to every SH and Director

  • S.308: manner in which notice must be given

  • S.311: contents of notice: time / date / general nature of business to be dealt with etc.

  • S.360: 14 clear days (general meeting for Private company). This excludes the day of the meeting and the day notice was given.

  • Short notice = S.307(4) – (6)

  • Alternatively – board can propose shareholder written resolution (avoid calling GM altogether).

ATTENDANCE:

  • In person

  • Article 37: by electronic means

  • Corporate shareholders S.323 – person authorised to represent company may attend

  • Proxies

QUORUM

  • S.318: must be 2 present for meeting to be valid

Shareholders Agreements

Definition: A contract between the members of the company and the company.

Purpose / benefits:

  • They are private documents

  • Only bind those who are party to the agreement

  • Cannot be amended without unanimous consent of the parties to the contract

  • Articles are only biding on SH to the extent that they effect membership rights. A SH agreement can be binding on matters that do not deal with SH in their membership capacity.

  • BUT - A company cannot fetter its statutory powers (i.e. say in shareholder’s agreement it will not do something that it is permitted to do by law)

For more information – see notes on Joint Ventures.

2. Transactions that require approval of the members

  • S.190: Substantial property transactions

  • S.197: Loans to directors

Substantial property transactions [S.190]

  • S.190 imposes restrictions on directors – to prevent them abusing power (e.g. asset stripping, stop companies selling to director’s for over inflated value).

S.190 SPTs: requirement of members approval

(1)

  • A transaction between a company and its director or its holding company or a ‘connected person’ (i.e. family member)

  • Involving a non cash asset – S.1163

  • That is “substantial” – S.191

  • Requires a Ordinary resolution at general meeting with shareholders

(4) Director will need approval of the subsidiary company and the holding company UNLESS the subsidiary company (from which he is contracting with) is wholly owned by the holding company. No approval needed from subsidiary.

  1. In an arrangement involving more that 1 non-cash asset, or a series, their value shall be aggregated to see if the 100,000 or 10% threshold has been met

  2. S.190 does NOT apply to payment for loss of office as defined in S.215
S.191 Meaning of “Substantial”

(2) Asset is substantial if

  1. Its value exceeds 5000 AND exceeds 10% of company’s assets value; or

  2. Exceeds 100,000

(3) A company’s “asset value” at any time is:

  1. Value of company’s net assets determined by reference to its most recent statutory accounts; OR

  2. If no statutory accounts have been prepared, the amount of its called up share capital
S.1163 “Non-Cash Assets”

  1. Any property or interest in property other than cash

  2. Includes:

  • Creation or extinction of an estate or interest, or right over, any property, and

  • The discharge of a liability of any person, other than a liability for a liquidated sum.
S.252 Person connected with a director

  1. spouse / civil partner

  2. lives with director as a partner with family relationship

  3. children / step-children

  4. children under 18 who live with director and are kids of (b)

  5. director’s parents

NOT: brother, sister, uncle, aunt, nephew, niece, grandparents
S.253 Members of a director’s family List of included people
S.195: Consequences If D fails to get approval of SH by way of OR:

  • Consequences of contravention – contract is voidable by company.

[i.e. transaction is voidable if not approved].

  • Director who was party to transaction is liable to indemnify company for any loss suffered and to account to the company for any gain they have made.

NB. In exam: mention Director’s duties also – D has a duty to promote success of company therefore should not be doing anything like asset stripping etc. [S.172 / S.175 / A.176]

Loans to directors / guarantees for directors [S.197]

  1. Identify first – is the money being talked about a LOAN or a GIFT from the company to the Director?

  2. Is it is a loan – proceed to consider S.197: Consider the loan and the guarantee as separate transactions that need approval by Shareholders!

  3. Also – consider declaring an interest under S.182

197(1) General rule: company may not give loan / guarantee to director except when approved by ordinary resolution.
197(2) If the director is a director of the holding company also – ordinary resolution from members of the holding company must also be provided.
197(3)

How to go about making the resolution

  • All matters disclosed under S.197(4) must be set out in the Ordinary Res. [the memorandum]

  • If Written resolution is sought - memorandum must be sent to every member with the OR. [S.197(3)(a)

  • If OR is to be passed at a GM – the memorandum (which includes all info required under S.197(4) must be available at office for 15 days ending with date of the meeting [therefore NO short notice of GM is allowed]. Memorandum must also be at the meeting itself.
197(4)

Matters to be disclosed

  • Nature of transaction

  • Amount of loan

  • Extent to company’s liability
197(5)

Exception where no approval is needed if:

  • Company is outside UK

  • The company is wholly owned by the holding company. In this case just get OR from holding company.

In exam: always consider Director’s duties – are they being breached by giving the loan (S.172)

Exceptions [Ss.204-207] – where no ordinary resolution is needed: [apply this to both guarantee...
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