COMPANY LAW: Ownership & Management Part 2 - MEMBERS

1. Saturday 11th August 2012 COMPANY LAW:Ownership& ManagementPart 2 - MEMBERS Lecturer: Rowin Gurusami

2. Person who has agreed to be a member and whose name has been entered in Register of Members Subscribers to Memorandum deemed to have agreed to become members of company Other means: Applying and being allotted shares Presenting to company for registration a transfer of shares to them Applying as personal representative/trustee of deceased or bankrupt member MEMBERS OF A COMPANY Lecturer: Rowin Gurusami

3. To be sent copy of annual accounts & reports To require directors to call general meeting To appoint a proxy to attend & vote at meetings in their place To nominate someone to enjoy information rights (only for members of listed companies who hold shares on behalf of someone else) To enforce personal rights provided by virtue of their shares RIGHTS OF MEMBERS Lecturer: Rowin Gurusami

4. Certain actions with regards to directors require approval of members in general meetings: Approval of director’s service contract (if guaranteed term of 2 years or more) Substantial property transactions Loans to directors Payments or benefits for loss of office or retirement Approval of directors Actions Lecturer: Rowin Gurusami

5. It is the members who truly control the company; i.e. through special resolutions Minority does not have recourse against majority The rule in Foss v Harbottle (1843): The company is a separate person from its members and thus only the company can protect its rights in an action The company decide whether to bring legal proceedings through general meeting MAJORITY RULE Lecturer: Rowin Gurusami

6. Minority can bring an action to court if: Statute provides for a specific power to the minority Derivative action for negligence, breach of duty, default or breach of trust by the directors (under s 260) Derivative action in respect of unfairly prejudicial conduct by the majority (under s 994) Petition to wind up the company on grounds that it is just and equitable to do so MINORITY PROTECTION Lecturer: Rowin Gurusami

7. Statutory rights of minorities: In situations where class rights have been varied, a dissenting minority can apply to the court to have the variation cancelled as ‘unfairly prejudicial. Can requisition company meeting Must be provided notice of members’ resolutions Apply to court to prevent payment out of capital for purchase of its own shares (by private company) MINORITY PROTECTION Lecturer: Rowin Gurusami

8. Claim by member on behalf of company in respect of an actual or proposed act or omission by a director Must involve negligence or breach of duty (or breach of trust) Permission of the court must be obtained for the case to be allowed Permission refused if: Continuing case would go against duty to promote success of company Act or omission has been authorised by company beforehand or ratified subsequently Derivative Action – NEGLIGENCE/BREACH OF DUTY Lecturer: Rowin Gurusami

9. Factors taken into consideration by the court: Member must be acting in good faith Action must not be against duty to promote the success of the company Whether there is possibility company would authorise or ratify the act or omission If company has decided or not to pursue the claim If member can pursue claim in his own right instead View of members with no personal interest in the matter PERMISSION FROM THE COURT Lecturer: Rowin Gurusami

10. Action by member or Secretary of State on grounds that company’s affairs are being conducted in a manner which is unfairly prejudicial to the interests of members generally (or some part of member’s interests The effect of the conduct is considered; i.e. its aftermath Exclusion & removal from board (if director had legitimate expectation to be involved in management) Improper allotment of shares Making inaccurate statement to shareholders Diversion of company’s business to director-controlled company Derivative Action – UNFAIRLY PREJUDICIAL CONDUCT Lecturer: Rowin Gurusami

11. Courts will normally not intervene in cases of dispute about management, unless in extreme circumstances Courts will also consider the petitioner’s conduct (remember this is an equitable remedy being claimed, thus has to abide by principles of equity) Remedies that can be awarded by the court include: Regulating future conduct of company’s affairs Authorising legal proceedings on behalf of company Requiring company to do an act or refrain from doing an act Purchase of shares of minority by other members Requiring company to make alterations to articles or prevent any alteration without leave of the court UNFAIRLY PREJUDICIAL CONDUCT Lecturer: Rowin Gurusami

12. Member dissatisfied with directors or controlling shareholders over the management of the company may petition the court for company to be wound up on the just and equitable ground Member must show that no other remedy is available Not enough for member to be dissatisfied to make it just and equitable since winding up a healthy company is a drastic step JUST AND EQUITABLE GROUND Lecturer: Rowin Gurusami

13. The only or main object(s) of company cannot be or can no longer be achieved Re German Date Coffee Co (1882): Objects clause specified coffee only manufactured under a German patent. Patent not granted, member petitioned for compulsory winding up and court held company existed only to ‘work under a particular patent’ and as it could no do so, it should be wound up Company formed for an illegal or fraudulent purpose or there is complete deadlock in management of its affairs JUST AND EQUITABLE – EXAMPLES Lecturer: Rowin Gurusami

14. Re Yenidje Tobacco Co Ltd (1916): The only two directors quarrelled bitterly, one sued another for fraud, refused to speak to each other and conducted meetings through notes passed through secretary. Court held it was just and equitable to order liquidation Directors deliberately withheld information; loss in confidence from shareholders It is just and equitable to wind up the company in the absence of any other remedy JUST AND EQUITABLE – EXAMPLES Lecturer: Rowin Gurusami

15. Management of company in hands of directors, but decisions which affect existence of company, its structure and scope are reserved to members in general meetings Decision of GM only valid and binding if meeting properly convened by notice and if business of meeting is fairly and properly conducted Meetings allow members to exercise control (to a limited extent) over directors: -can remove directors by ordinary resolution (s168) -Need to approve items such as exceeding delegated power, allotting shares, granting long-service agreements, appointment/removal of auditors MEETINGS Lecturer: RowinGurusami

16. AGM is a statutorily protected way for members to have regular assessment and discussion of their company and its management Private companies not required to hold AGM each year and thus, their business is usually conducted through written resolutions However members holding sufficient shares or votes can request a general meeting or written resolution Business of AGM includes: Considering accounts, receiving directors’ report/remuneration report and auditors’ report Dividends Electing directors and appointing auditors ANNUAL GENERAL MEETING Lecturer: RowinGurusami

17. Public companies must hold AGM within 6 months of their year end and not more than 15 months may elapse between meetings (s336) Notice of the meeting (s337): Must be in writing and in accordance with articles May be in hard or electronic form or by website (s308) At least 21 days notice should be given (longer if stated by articles) Shorter notice only valid if all members agree Must specify time, date and place and that meeting is an AGM Where notice given on website, it must be available from date of notification until conclusion of meeting (s309) ANNUAL GENERAL MEETING Lecturer: RowinGurusami

18. Directors can, under articles, convene a general meeting whenever they see it Directors of public and private companies may be required to convene general meeting by requisition of members (s303) Requisitioning members of public companies must hold at least 10% of paid up share capital holding voting rights. For private companies, they need either 5% or 10% depending on when last meeting was held at which members has a right to vote (over 12 months ago= 5%, under 12 months = 10%) (14 days notice required) GENERAL MEETINGS Lecturer: RowinGurusami

19. Members must deposit a signed requisition at registered office or make request in electronic form Must state the ‘objects of the meeting’; the resolutions proposed (s303(5)) Notice conveying meeting to be sent out within 21days and meeting must be held within 28 days of notice If directors have not called meeting within 21 days of requisition, members may convene meeting for a date within 3 months of deposit of requisition If no quorum present, meeting is adjourned REQUISITIONING A ‘GM’ Lecturer: RowinGurusami

20. Court, on application of director or member entitled to vote, may order meeting shall be held and may give instructions for that purpose, including fixing quorum of one (s 306) Auditor who gives statement of circumstances for resignation or other loss of office in their written notice may requisition a meeting to receive and consider their explanation (s 518) Directors of a public company must convene a general meeting if net assets fall to half or less of the amount of its called-up share capital (s 656) GENERAL MEETINGS Lecturer: RowinGurusami

21. Ordinary Resolution For most businesses Requires simple (50%+) majority of votes cast 14 days notice Special Resolution For major changes Requires 75% majority of votes cast 14 days notice Written Resolutions (Private companies only) Used for all general meeting resolutions except removing director or auditor before term expires Either simple or 75% majority required depending on business being passed RESOLUTIONS Lecturer: RowinGurusami

22. Main differences between ordinary and special resolutions are: Text of special resolution must be set out in full in notice convening the meeting and must be described as special resolution Signed copy of every special resolution delivered to Registrar for filing Special resolution required for major changes: Change of name Restriction of objects & alteration of articles Reduction of share capital Winding up of company Presenting a petition by company for an order of compulsory winding up SPECIAL RESOLUTIONS Lecturer: RowinGurusami

23. Private co. not required to hold GM, thus CA provides mechanism for directors and members to conduct business solely by written resolutions Must be sent to each member eligible to vote by hard copy, electronically or by website Resolution must be accompanied by statement informing members: How to signify their agreement to resolution Date the resolution must be passed by WRITTEN RESOLUTIONS Lecturer: RowinGurusami

24. 21 days notice for AGM Date, time and place of meeting must be given An AGM or special resolution must be described as such Information to be given of business of meeting sufficient to enable members to understand what will be done at meeting In issuing notice of AGM, standard practice to merely list items of ordinary or routine business: Declaration of dividends (if any) Election of directors Appointment of auditors and fixing their remuneration CONTENTS OF NOTICE Lecturer: RowinGurusami

25. Notice of 28 days given to company by members: Remove auditor or appoint an auditor other than the one appointed at last year’s meeting Remove director from office or appoint substitute in their place after removal On receiving special notice, public company may be obliged to include resolution in AGM notice SPECIAL NOTICE OF RESOLUTION Lecturer: RowinGurusami

26. Meeting only reaches binding decisions if: Properly convened by notice Quorum is present Chairman presides Business is properly transacted and resolutions put to the vote Usually only members with power to vote are present (except in full general meetings and class meetings) Members may propose amendments to any resolution proposed and chairman approves or rejects PROCEEDINGS OF MEETING Lecturer: RowinGurusami

27. Articles usually provide that chairman of board of directors preside at general meetings Chairman derives authority from articles and has no voting rights unless articles give them one Duties are to maintain order, and to deal with the agenda in a methodical way so that the businesses of the meeting may be properly transacted Chairman may dissolve or adjourn meeting if it has become disorderly or if members present agree Chairman must adjourn if the meeting instructs them to do so CHAIRMAN Lecturer: RowinGurusami

28. Minimum number of persons required to be present at particular type of company meeting Usually the figure is 2 (in person or by proxy) unless articles provide otherwise Proxy is an agent appointed by shareholder to vote on behalf of that shareholder at company meetings (s 324) (has same voting rights as member) Meeting of one member is not valid Can be quorum of one if: Class meeting and all shares of that class held by 1 member Court fixes the quorum at one Company is single member private company Inquorate meetings should be adjourned QUORUM Lecturer: RowinGurusami

29. Usually one vote per share but preference shares may carry no voting rights normally Voting on a show of hands Method of voting for or against resolution by raising hands Each member has one vote irrespective of shareholding Voting on a poll Method of voting which allows member to use as many votes as shareholding grants them May be demanded by: Not less than 5 members Members representing not less than 1/10 of total voting rights or of paid-up capital Number of votes cast determines the result VOTING AND POLLS Lecturer: RowinGurusami

30. CA 2006 provides that minutes have to be kept at all general, directors’ and management meetings Company required to keep minutes; formal written record of proceedings of GM for ten years (s 355) Chairman normally signs the minutes making them admissible evidence of proceedings Members of company have right to inspect minutes of general meetings which have to be held at registered office (or other permitted locations) NOTE: A unanimous decision of members treated as substitute for formal decision in GM (assent principle) MINUTES OF MEETINGS Lecturer: RowinGurusami

31. Held where interests of different groups of shareholders may be affected in different ways For variation of rights attached to different types of shares Same procedural rules (such as issuing notices and voting) as for general meetings apply CLASS MEETINGS Lecturer: RowinGurusami

32. Special rules for private companies with only one shareholder If sole member takes decision (normally taken in general meeting), that member shall (unless it is written resolution) provide company with a written record of it Allows sole member to conduct members’ businesses informally without notice or minutes Filing requirements still apply in case of alteration of articles SINGLE MEMBER PRIVATE COMPANIES Lecturer: RowinGurusami