Basic legal tips for shareholders

Do shareholders have to meet in order to make a decision ? Subject to certain exceptions, the answer is no, as long as the correct procedure under the Companies Act 2006 is followed. The exceptions to this rule include some major decisions such as removing a director and such a decision has to be made

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Do shareholders have to meet in order to make a decision ?

Subject to certain exceptions, the answer is no, as long as the correct procedure under the Companies Act 2006 is followed. The exceptions to this rule include some major decisions such as removing a director and such a decision has to be made by resolution at a meeting.

What happens with a written resolution ?

In terms of passing of a written resolution, the percentage of shares needed depends on whether the resolution is an ordinary resolution or a special resolution. To pass an ordinary resolution, over 50% is the requirement. For a special resolution to be passed, 75% or more of the total voting rights. The difference between a written resolution and a resolution at a meeting is that with written resolutions, the percentage needs to be of the total shares of the company whereas with a resolution at a meeting it is a percentage of the votes made at the meeting. So, it is easier to get a resolution through with a formal meeting rather than by written resolution.

Who chooses the company’s directors ?

This question is generally determined by the company’s articles of association and may be a matter for either the directors or shareholders of a company. This shows clearly how important it is to consider the company articles and set the rules when the company is set up if possible. Contact us if you want advice on this or shareholder agreements. If the articles are unaltered, they are based on what is known as “table A” articles.

What is the procedure for calling a shareholders meeting ?

All shareholders must be sent written notice of any intended meeting. the notice must state the date, place and time of the meeting, and advise the shareholders of how they can send a proxy in their place if they so choose. generally, with standard articles of association, the notice period for calling a meeting is not less than 14 days.

What percentage of shares give effective control of a company ?

Subject to a company’s articles of association and any shareholder’s agreement, there are various rights attached to having over a certain percentage of shares in a limited company and these are as follows :-

  • 75% or more results in the power to force the passing of both general and special resolutions at shareholders meetings. In simple terms, this will mean total control.
  • 50% or more enables the passing of an ordinary resolution.
  • 25% or more gives the ability to block special resolutions which are often the type of resolutions to remove directors and make fundamentally important changes to how the company is run and set up.
  •  5% or more creates the right to compel the calling of a general meeting.

Don’t forget that shareholders will often act together if there are a number of them, forming alliances, so this should also be borne in mind if you are a minority shareholder and know that certain shareholders will always support each other and act in concert.

commercial law • David Swede

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