Power Within A Company Notes

Company Law Supervision III – Notes

SHAREHOLDERS, DIRECTORS AND POWER WITHIN A COMPANY

Division of Powers

• Overarching principle one of contractarianism.

• I.e. powers of company are vested where articles say they are.

• Are only very limited mandatory rules imposed extraneously.

• Thus location of power determined by construction of the constitution.

Article 3: POWERS OF DIRECTORS

• Under Model articles, directors:

1. Are responsible for management of company

2. may exercise all the powers of the company for this purpose

Article 4: RESERVE POWER OF MEMBERS

1. Members may direct the directors to take, or refrain from taking, specified action.

• This must be done via special resolution (i.e. 75% majority amongst those voting)

2. However any special resolution of this kind CANNOT invalidate any action of directors before passing of resolution.

• i.e. members can only invalidate acts of directors prospectively, not retrospectively.

Interference by Shareholders

• The shareholders cannot interfere with a decision of the board, save where this is permitted by the articles or statute.

• Automatic Self-Cleansing Filter Syndicate [1906]

• Thus members cannot pass resolutions or take action on behalf of company where articles vest this power in directors

  e.g. Quin & Axtens Ltd v Salmon [1909]

  Shareholders’ agreements may act as evidence that members believe a particular power to be vested in board

  Breckland Group Holdings [1989]

Exceptions

• Rights of members under Model Articles/Companies Act include:

1. Appointment of directors (Art 17/20)

2. Removal of directors (s.168)

3. Change the company’s constitution (s.21)

4. Approval of certain “risky” transaction (see supervision 6)

5. Ratification of director’s breach of duty (s.239)

SHAREHOLDERS

• Members normally make decisions by means of a vote at general meeting;

• However they may in some circumstances act informally outside of a general meeting

General Meeting

1. Calling of Meeting

• Public companies must hold AGMs on an annual basis

• Section 336

• although private companies need not do so

• Other meetings may be called either by:

1. directors

• section 302

2. members

• sections 303-305

3. the court

• section 306

Notices

• Section 310: Notice of meetings must be given.

  Those who must receive notice include:

  members

  directors

  auditors

  Where shareholder does not receive any notice, resolutions passed at meeting are invalid

  Colin Gwyer & Associates [2003] (NB case concerned board meeting)

• Section 307:

  • Notice must be given at least 14 days before the meeting

  • However an AGM may be called at shorter notice if majority of those entitled to attend and vote, who also hold at least 95% of shares, agree to this.

Nature of Notice

• Section 311(2): notice must specify the general nature of business to be transacted

  it must be fair and accurate in this regard

  if notice is misleading or fails to make reference to any important business to be voted upon at meeting, resolutions passed at meeting may be invalid

  Kaye v London Tramway [1898]

  Schedule 4: Notice may be in electronic form, or hard copy form

Special Notice (Removal of Directors)

• Section 168:

  Special notice must be given from members to company where it is proposed that a director be removed.

  Special notice of such a resolution must be given at least 28 days before meeting.

Power of Court to Call Meeting

• Section 306: Court has power to both:

1. Call meeting of members; and

2. To establish its terms

• Will use this power in event of deadlock between competing shareholders

  i.e. will use power to enable general meeting to be called for specific purpose, and bar some members from attending it.

  e.g. to let certain members appoint a new director so as to break deadlock.

• e.g. company with two members, with quorum requirement of 2.

• Whether it is appropriate to call a meeting is matter of construction of articles or any shareholder agreements.

• Union Music v Watson [2003]

Reasons for Non-Use

• Court will not use s.306 where a quorum requirement has been deliberately adopted so as to produce deadlock in event of disagreement between members.

  Union Music v Watson [2003]

• Court will refuse to use power to break deadlock if:

1. shareholders have equal voting rights; or

2. one shareholder has class rights attached to his shares (e.g. right of minority shareholder to veto decisions by the majority shareholders)

3. entrenched rights

• Union Music v Watson [2003]

Use of Power

• Where shareholdings are not held equally, court will often use s.306 to allow majority shareholder to call meeting.

• Relevant factors in exercise of power are:

1. Ability of company to run its affairs

2. Right of majority shareholder to exercise his voting power

• Union Music v Watson [2003]

2. Conduct of Meeting

1. Various rules as to conduct of meetings laid down in Model Articles.

   Articles 37-47 (private companies)

   Articles 28-41 (public companies)

2. Statute also provides certain minimum requirements

3. Where situation not covered by Model Articles or statute, common law default rules apply.

4. Even if company’s articles purport to limit someone’s powers, common law will still apply where particular situation has not been provided for by articles or statute.

   E.g. Byng v London Life [1990]

1. Quorum

• Section 318(1)+(2)

1. Quorum for a company with one member is one qualifying person.

2. Quorum for company with 2 or more members (both private and public) is two qualifying people; unless either:

   unless the two people are both proxies of the same person

• Article 30/38: if quorum is not present, any resolutions passed at meeting are invalid.

Who May Vote?

• Section 318(3): People qualified to vote are:

1. Members

2. Representatives of corporations (s.323)

   corporations have right to appoint representatives to exercise corporation’s voting rights

3. Proxies appointed by members

Proxies

• Section 324:

• Member of company may appoint a proxy to vote on his behalf.

• Multiple proxies may be appointed on behalf of same person, provided each is attached to...

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