BUSINESS LAW TICE & PRACTICE · 2020. 7. 17. · BUSINESS LAW & PRACTICE: Company Decision Making...

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BUSINESS LAW

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Company Decision Making

Handout

BUSINESS LAW & PRACTICE:


© 2020 Nottingham Trent University T:\LAW\Academic Workspace\Teaching\LPC\Business\General BLP\Course for 2020-21\Company Procedure

Handout\B Company Procedure Handout.doc Page 1 of 29

CONTENTS

Page number

1. HOW ARE COMPANY DECISIONS MADE?

2

2. WHY MUST THE CORRECT PROCEDURES BE

FOLLOWED?

2

3. WHO WILL ACTUALLY MAKE ANY DECISIONS?

3

4. WHAT IS THE PROPER FORUM FOR MAKING

DECISIONS?

8

5. HOW ARE MEETINGS CALLED AND HOW MUCH NOTICE

DO YOU NEED TO GIVE PEOPLE?

9

6. WHAT IF YOU’RE IN A HURRY?

9

7. HOW MANY PEOPLE ACTUALLY NEED TO TURN UP TO

THE MEETING?

11

8. ONCE THEY’RE THERE, HOW DO THEY VOTE?

12

9. WHAT DO YOU HAVE TO DO AFTER A MEETING, IN

TERMS OF PAPERWORK ETC?

15

10. REGISTERS

16

11. CONSOLIDATION CASE STUDY – ERGO LIMITED

• BOARD MINUTES (FIRST BM)

• NOTICE OF GM

• CONSENT TO SHORT NOTICE

• MINUTES OF GM

• COPY OF SPECIAL RESOLTUION

• BOARD MINUTES (SECOND BM)

• WRITTEN RESOLUTION

• PROCEDURE PLAN

19- 20

21

22

23

24

25

26

27

28-29





1. HOW ARE COMPANY DECISIONS MADE?

A company has separate legal personality. However, it doesn’t actually have a mind and

body of its own. Therefore, it relies upon human intervention to be able to function. In

other words, a company functions by having real people make all its decisions for it, to tell

it what to do or what not to do etc. Inevitably this means there must be some formal

structure in place to ensure that those people reach decisions in a fair and rational manner.

This handout will address the following questions:

• Why must the correct procedures be followed?

• Who will actually make any decisions?

• What is the proper forum for making decisions?

• How are meetings called and how much notice do you need to give?

• What if you’re in a hurry?

• How many people actually need to turn up to the meeting?

• Once they’re there, how do they vote?

• What do you have to do after a meeting, in terms of paperwork etc?

To help you consolidate your understanding of these issues, you will find an example

towards the back of this handout relating to Ergo Limited. This example walks you through

a decision making process and also shows you a standard set of documentation for the

transaction.

Some decisions are made by directors. These are called directors’ decisions (or board

resolutions). Some decisions are made by shareholders. These are called shareholder (or

member) resolutions.

2. WHY MUST THE CORRECT PROCEDURES BE FOLLOWED?

If the rules of the game aren’t followed, then there could be somebody who feels they have

lost out as a result – shareholders, creditors etc. They will be looking around for someone

to sue, probably the directors. Moreover, the Companies Act 2006 requires that certain

procedures are followed for particular transactions. If they aren’t, someone will have to pay

a fine or might even face imprisonment. That someone is usually the directors.

A company’s articles of association might also set out procedures for certain matters.

Where that is the case, the shareholders have the right to expect that those procedures will

be followed. You will be familiar with the Model Articles that we’re using on the course.





3. WHO WILL ACTUALLY MAKE ANY DECISIONS?

The Directors

The directors are the people who do not own the company, but run it on a day to day

basis. These, therefore, are the people whom you would expect to see making any routine

decisions about what the company will do.

This is because of the effect of Model Article 3, which you should read in full. This says:

"Subject to the articles, the directors are responsible for the management of the

company’s business, for which purpose they may exercise all the powers of the

company."

In other words, all the day to day management of the company is the responsibility of the

directors, so they have the right to take all decisions appropriate for that routine

management.

In addition, a company’s articles will set out specific powers for its directors.

For example, consider Model Article 19, which says, amongst other things:

“Directors are entitled to such remuneration as the directors determine”.

In other words, the directors may fix their own salaries!

Much of the time, you will see the board of directors making decisions collectively.

However, individual directors, or a committee of directors, may be granted authority by the

other directors to make certain decisions without having to refer back to the board. This

power to delegate is set out in Model Article 5.

Essentially, Model Article 5 recognises that a requirement for all the directors to be involved

in every decision could seriously hamper the efficient running of the company.

For example, what happens if you want to place an order with a regular supplier? Do you

really want to get all the directors together and formally vote on that? It wouldn’t make a

lot of sense and it’s far better to give one director a primary responsibility to deal with

obtaining supplies. Model Article 5 lets you do that.

The company will then be bound by the contract even if the rest of the directors later decide

that they don’t like the terms. This is because the individual director has been given

authority to bind the company to the terms that he has negotiated. It’s a simple application

of agency law.

The Shareholders

The shareholders are the people who have shares in the company, which means that they

own it. They are not the people with the day to day management responsibility, however,

so you would not expect them to make routine decisions. However, there are certain

situations when the shareholders will be the people who have to decide what to do. This is

mainly when the company is involved in something that is very important or unusual. How

do you work out when the shareholders need to be involved? There are two broad

situations that you need to consider.





First, the Companies Act and/or a company’s articles of association may demand that

certain matters need prior shareholder approval. This means that, if the directors want

to do something, they must get permission from the shareholders first. They get the

shareholders together to give them that permission, but once that’s done, it is the directors

who go ahead and do the deal. They will also deal with any consequent paperwork and

filing requirements (see Section 9 of this handout).

Second, the Companies Act and/or the articles may say that certain decisions are the sole

preserve of a company’s shareholders. This means that the directors can’t make that

decision at all. It is actually the shareholders who take action, rather than just give the

directors permission to do it. Once the shareholders have taken that action, no other

formal decisions are required in order to do the deal. There will, of course, be consequent

paperwork and filing requirements, which will be dealt with by the directors.

Take careful note of the two paragraphs above because there is a legal distinction between

them that you need to understand.

In the first example, it will ultimately be the directors who decide whether to do the thing in

question. They just need to get some form of permission from their shareholders before

they are allowed to make that decision.

In the second example, the directors will not make the decision at all - that will be done by

the shareholders.

This is a tricky point, so it might help you to understand the distinction if you look at some

examples, all taken from the Companies Act 2006.

Example 1 – Section 551

Section 551 will apply to a private company that has more than one class of shares. Please

look at section 551(1). It says:

“The directors of a company may exercise a power of the company (a) to allot

shares in the company ... if they are authorised to do so by the company’s articles

or by resolution of the company.”

The words “may exercise … if” imply that the directors will ultimately exercise the power,

but there is a condition that must be fulfilled first. That condition is set out in the words

“authorised … resolution of the company”. Ignore the reference to the articles for now, as

that is unlikely to be much use in practice. A reference to “resolution of the company”

means that the shareholders must be involved in making the decision.

Therefore, if section 551 applies to the company (because it has more than one class of

shares), then the shareholders will have to give the directors permission to allot shares in

the company. In other words, it is still the directors who have to make the decision: Will

we allot shares or will we not? However, they have to obtain authority from the

shareholders before they can sit down together and agree what their decision will be.






Section 188 sets out special provisions that apply if the company proposes to grant a

service contract to a director under which the guaranteed term of the director’s

employment is, or may be, longer than two years.

Section 188(2) includes the following:

“A company may not agree to such a provision unless it has been approved (a) by

resolution of the members of the company”.

Under Model Article 3, it is the directors who will ultimately decide whether to award a

service contract to a director, using their general power of management. However, if the

service contract is to last for more than 2 years, the words “resolution of the members”

indicates that a shareholder resolution must be passed before the directors can make the

decision to award the contract.


During the course, you will look at the procedure that must be followed if a company wishes

to purchase its own shares. The company will need to prepare a contract setting out the

terms of the purchase.

If you read section 694(2), you will see that it says:

“the terms of the proposed contract must be authorised by a resolution of the

company before the contract is entered into … ”

The words “authorised by … the company” indicate that the shareholders must give their

consent. However, the words “before the contract is entered into” make it clear that

further action is then required before the contract will actually be completed.

In other words, it is ultimately the directors who will sign the contract, but they must obtain

permission from their shareholders before doing so.


Section 21(1) says:

“A company may amend its articles by special resolution.”

This section is worded very differently from Examples 1 – 3. There is no reference to

something being “authorised” or “approved”, words that indicate that prior shareholder

approval is required. Instead, section 21(1) says that it is the company that will alter its

articles. Since “the company” really means “the shareholders”, we can conclude that

section 21 is an example of something being the sole preserve of the shareholders.

In other words, as soon as the shareholders pass the resolution, the company’s articles

have effectively been changed. There is no need for the directors to take further action,

other than deal with the paperwork and filing.






Section 77(1) says:

“A company may change its name (a) by special resolution ...”.

Again, you should note the reference to “company” and the absence of words such as

“authorised” or “approved”. Therefore, action under section 77(1)(a) is the sole preserve of

the shareholders. Following the resolution, the directors will deal with any paperwork and

filing.

The Articles

You also need to be aware that the Companies Act is not the only source of procedural

requirements. Remember that the articles are the company’s internal constitution, its rule

book if you like, about how it will behave. Therefore, the company may, if it wishes,

include provisions in its articles stipulating that decisions are required for a particular

matter, even when the Companies Act doesn’t appear to require this.

For example, section 830 and its associated provisions restrict the circumstances in which a

company can pay a dividend to its shareholders. The Companies Act has quite a lot to say

about what money can be used for a dividend, but is silent as to the actual procedure that

should be followed. In this case, two alternative procedures are set out in Model Article 30.

Model Article 30(1) says:

“The company may by ordinary resolution …”

Model Article 30(2) adds to this:

“A dividend must not be declared unless the directors have made a recommendation

as to its amount.”

This presents an interesting twist on what we saw in the Companies Act examples. Those

examples indicated that the shareholders might act first, then after that the directors would

be in a position to make a decision. With Model Article 30, the position is reversed. It is

the directors who make the preliminary decision that a dividend should be paid (by deciding

to make a recommendation) and then the shareholders act on that recommendation by

formally resolving to pay the dividend.

Model Article 30(1) presents an alternative option, using the following language:

“The directors may decide ...”

It doesn’t contain the words “authorised” or “approved” or, indeed, any other language that

would suggest the shareholders must be involved. In the case of this alternative option

under Model Article 30, the directors have complete power to make the decision without

reference to their shareholders.

As you can see from Model Article 30, therefore, it isn’t always the case that the

shareholders must be involved in the decision making process. Sometimes, the directors

can make the decision on their own. This is true not just for the articles: sometimes, the

Companies Act gives the directors authority to do something, without reference to the

shareholders.





For example, consider section 87(1), which says:

“A company may change the address of its registered office by giving notice to the

registrar”.

Section 87 doesn’t require a “general meeting”, “shareholders” or “members”, nor does it

make reference to a particular type of resolution. Instead, it simply requires “notice to the

registrar”. This means that a pre-printed form must be completed and sent to the Registrar

of Companies. You would not ask your shareholders to fill in a form for you. Therefore,

you may conclude from this that is a decision that would be made by the directors on their

own.

Summary

In order to determine what procedure should be followed to complete a proposed

transaction, you need to work out who has the power to do the deal and how.

Please be aware that most transactions are initiated by the directors. This is because they

are the people who are usually first to know what the company wants to do. They are,

after all, the people who are running the company on a day to day basis.

Therefore, the directors must get together to consider the proposed transaction. They must

establish whether it is something that they are empowered to do all on their own (e.g.

because it falls within their general power or management under Model Article 3) or

whether they need to involve the shareholders.

In order to advise the directors, you will first need to consult the Companies Act to see

whether it contains provisions covering this type of transaction. If it does, you need to read

the relevant sections carefully in order to find out who has the power to make the decision.

If the shareholders must be involved, you need to identify whether it’s a case of “prior

approval” or “sole preserve”. If it’s a case of “prior approval” then please bear in mind that,

after the shareholders have given that approval, affirmative action of some sort must be

taken by the directors, by passing an appropriate board resolution.

In addition to checking the Companies Act, you must repeat the process with the articles of

association.

If there is nothing about the matter in either the Companies Act or the company’s articles,

then you can assume that it is entirely within the directors’ own power to make the

decision.

If you find that it is the directors who have the power to make the decision, then they will

need to pass a board resolution. Decisions may be unanimous, of course, but as a

minimum they generally require a simple majority in order to be passed. This means that

more directors must be in favour of the proposal than are against it for the resolution to be

passed.





Shareholder Resolutions

If, on the other hand, you find that you do need to involve your shareholders, then not only

do you need to establish the legal nature of the resolution, but you also need to find out

what type of resolution they should pass. This is because there are different types of

shareholder resolutions, depending upon the seriousness of the matter involved. You need

to know which type of resolution you need for your transaction, otherwise you won’t know

how many shareholders have to say “yes” before you have permission to go ahead.

Most decisions can be made by what is known as an ordinary resolution. This is the most

common kind of shareholder resolution and is used for routine business. According to

section 282(1), ordinary resolutions are passed by a simple majority, which means that, as

a minimum, over 50% must vote in favour of the resolution. Please note this carefully. To

pass that resolution needs more than 50%, not exactly 50%.

More serious business requires a special resolution. These are less common than ordinary

resolutions, because they are used only for serious or important business. According to

section 283(1), you need a majority of not less than 75%. In other words, you need a

minimum of exactly 75% to vote in favour of a special resolution for it to be passed.

To determine what type of shareholder resolution is needed, look at the provision in the

Companies Act or the articles that told you that you needed a resolution in the first place.

It will tell you explicitly if you need a special resolution.

For example, if you look again at sections 21 and 77 you will see that all of these specify a

special resolution.

The articles are usually equally explicit if an ordinary resolution is required – see Article

30(1) for example.

However, the Companies Act doesn’t always say explicitly when an ordinary resolution is

needed. For example, sections 188 and 551 don’t specify what type of resolution is

required.

Section 281(3) makes it clear that, if the Companies Act doesn’t specify what kind of

resolution is required, then all that is required is an ordinary resolution, unless the

company’s articles require a higher majority.

4. WHAT IS THE PROPER FORUM FOR MAKING DECISIONS?

Having identified that you need certain decisions/resolutions, how do you actually go about

getting them proposed and passed? Well, when we talk about a resolution being passed or

a decision being made, we really mean that certain people, either the directors or the

shareholders, will have to vote, usually in a meeting. The whole idea of meetings is to

provide a forum for discussion and voting.

In the case of the directors, this means holding a directors’ meeting (you will usually see

this referred to as a board meeting). In the case of shareholders, this means holding what

is known as a general meeting (GM). A GM is a shareholders’ meeting which is called at any

time when the directors need approval for something.





5. HOW ARE MEETINGS CALLED AND HOW MUCH NOTICE DO YOU NEED TO

GIVE PEOPLE?

Having decided that you need certain meetings, how do you actually go about getting

people together to have these meetings?

Getting a board meeting together is easy. Model Article 9 says:

“Any director may call a directors’ meeting by giving notice of the meeting to the

directors ...”

In other words, any director can call a board (directors’) meeting simply by giving his fellow

directors notice of the fact he wants to have one.

In terms of calling a GM, section 302 says:

“The directors of a company may call a general meeting of the company.”

Again, some form of notice to the shareholders will be required.

Therefore, both meetings need notice of some sort, but how much?

Notice Required For A Board Meeting

Model Article 9 doesn’t stipulate a particular notice period for board meetings. Therefore,

by implication, all that is needed for a board meeting is whatever notice is reasonable in the

circumstances. For example, if the matter was very urgent, a mere 5 minutes might be

perfectly reasonable.

Model Article 9(3) makes it clear that notice of a board meeting doesn’t have to be in

writing – you can just stick your head round the door.

Notice Required For A General Meeting

For general meetings, section 307(1) says that 14 days’ notice is required. However, s. 307

should be read in the light of s. 360, which stipulates that the period of notice should not

include the day of the meeting or the day on which notice is given – the so-called “clear

day” rule.

Section 311 tells you what information you should include in the notice, such as the date,

time and venue.

6. WHAT IF YOU’RE IN A HURRY?

Board (Directors’) Meetings

Model Article 7(1) makes it clear that it isn’t always necessary to hold board meetings. A

unanimous decision may be reached without holding a meeting.

Model Article 8 provides that directors can reach a unanimous decision if they simply

indicate to each other by any means that they share a common view on a matter. They

could do this in a board meeting, of course, but they could also do it outside of a meeting.

For example, they could circulate a written copy of the board resolution that needs to be





determined (a written resolution) and each director could indicate his or her agreement

simply by signing that written resolution. Alternatively, they could indicate to each other

orally, perhaps by telephone, that they agree to the proposal.

General Meetings

SHORT NOTICE

It might not be possible, or convenient, to wait 14 days before holding a GM. In that case,

you have two alternatives available to you:

Hold the meeting on short notice; or

Use the written resolution procedure.

Section 307 sets out a procedure by which a company can seek the consent of its

shareholders to holding a GM on shorter notice than would usually be required.

According to section 307(5), in order to get consent to short notice, you need the

agreement of the majority in number of the shareholders. In addition, that majority in

number must hold at least 90% of the voting rights between them.

Short notice can be as short as you wish. It may be only a day less than the usual 14 days,

or you may wish to hold the meeting at just an hour’s notice. As long as the requisite

majority consents, you can go ahead and hold the meeting.

You will find a specimen Consent To Short Notice towards the back of this handout, in

relation to the Ergo Limited example.

WRITTEN RESOLUTION

Just as directors can make decisions without holding a meeting, so can shareholders.

Whereas the directors’ written resolution procedure is set out in the Model Articles, the

shareholders’ written resolution procedure is set out in the Companies Act sections 282 -

300.

Section 288(3) says:

“A resolution may be proposed as a written resolution (a) by the directors of a

private company ... or (b) by the members of a private company ...”.

It is the first of these, proposal by the directors, which is most important for the BLP

course. This is because most shareholder resolutions, in practice, are initially proposed by

the directors, whether via the written resolution procedure or a GM.

Section 291(3) says that a written resolution can be circulated:

“... in hard copy form, in electronic form or by means of a website ...”

Section 288(5) says:

“A written resolution of a private company has effect as if passed (as the case may

be) (a) by the company in general meeting ...”

Section 282(2), relating to ordinary resolutions, says:

“A written resolution is passed by a simple majority ...”





Section 283(2), relating to special resolutions, says:

“A written resolution is passed by a majority of not less than 75% ...”

Section 284(1) says that:

“On a vote on a written resolution (a) in the case of a company having a share

capital, every member has one vote in respect of each share ... held by him ...”

Section 296(1) says a member signifies his agreement to a resolution when:

“the company receives from him ... an authenticated document (a) identifying the

resolution to which it relates, and (b) indicating his agreement to the resolution.”

Section 297(1) says a proposed written resolution lapses:

“... if it is not passed before the end of (a) the period specified for this purpose in

the company’s articles, or (b) if none is specified, the period of 28 days beginning

with the circulation date.”

Section 290 says that the circulation date for a written resolution is:

“... the date on which copies of it are sent or submitted to members ...”

Taken together, these sections mean that:

• It isn’t necessary to hold a GM in order to pass shareholder resolutions;

• The directors should circulate the resolution round the shareholders;

• Each shareholder then returns a hard copy or electronic document to the directors,

indicating his agreement;

• The same majority of shareholders must sign the written resolution as would be

required to vote in favour of it had it been proposed at a GM;

• The resolution is passed once the required majority have signified their agreement;

and

• They need to signify their agreement within 28 days of the written resolution being

sent to them, otherwise it will lapse.

The written resolution procedure can be a very quick process, especially where a company

only has two or three shareholders, and is used a lot by small private companies.

7. HOW MANY PEOPLE ACTUALLY NEED TO TURN UP TO THE MEETING?

In addition to making sure people get the right amount of notice of a meeting, you also

have to make sure that enough people turn up. You don’t necessarily need everyone to

attend, but you need a minimum number of people otherwise your meeting is not valid.

This minimum number is known as a quorum.

Model Article 11(2) - the quorum for a majority directors’ decision is 2 directors.





Section 318(1) - the quorum for a GM of a single member company is 1 member.

Section 318(2) - the quorum for a GM of other companies is 2 members.

8. ONCE THEY’RE THERE, HOW DO THEY VOTE?

Board meetings

Clearly there is no point having a meeting if all you do is sit around and talk. The whole

point of meetings is to make decisions. People make decisions by voting.

At a board meeting, the directors vote by show of hands. That means that each director

has one vote. Any shareholding that a director might have doesn’t change this basic

entitlement. As a minimum, you need a simple majority for a board resolution to be

passed.

When the chairman says “all those in favour” then all those in favour put their hands in the

air. The chairman counts the number of hands being waved at him. If more directors have

their hands up than down, then the vote is carried. This is called a simple majority.

What happens, then, if you have four directors and two vote in favour of a resolution, while

the other two are opposed to it? In other words, you have what is known as deadlock. In

this case, under Model Article 13 the Chairman has a second vote, known as a casting vote.

This enables the Chairman to break the deadlock and determine the outcome of the vote.

That sounds easy enough, but there are some extra things you need to remember.

First, under section 175, a director has a duty to avoid conflicts of interest. Under section

176, he is not supposed to accept benefits from third parties. These provisions do not

prevent him receiving an agreed salary for his services, but might prevent him making

money, or benefiting from his position as director, in other ways.

Therefore, directors must always think carefully when dealing with transactions that involve

the company. In the context of board meetings, which is what I am considering here, this

means that every time the directors vote on something, each one of them must ask

himself: “Do I stand to gain anything personally out of this deal”? If the answer to that is

“Yes”, then section 177 and Model Article 14 come into play.

These provisions are designed to help directors avoid trouble. They apply if a director is

interested in something being discussed at a board meeting.

If this is the case, then section 177 requires that, when the matter is first raised for

discussion, the affected director must tell his fellow directors that he is interested in it (a

declaration of interest). This includes telling them exactly what the nature of his interest is.

However, he is not obliged to make a declaration if either the directors should already know

of his interest or else his interest is unlikely to conflict with the company’s interest.

Section 177 simply obliges the director to make a declaration and nothing else. However,

whenever you have a director making a declaration about something, you also need to read

Model Article 14 because this rule might say that the director cannot participate in the

decision-making process in respect of that issue at the board meeting. This means he

might not be able to vote or count in the quorum.

Model Article 14 says that a director cannot participate if he has an interest, unless his

interest cannot reasonably be regarded as likely to give rise to a conflict of interest. There





are a few limited exceptions and you will get an opportunity to look at these during SGSs.

The purpose of Model Article 14 is simply to prevent a director, or perhaps more than one,

using his voting power to swing a vote in his favour on a matter where he might be

influenced primarily by thoughts of personal gain.

This might mean that your meeting becomes inquorate at that point, if the number of

directors present at the meeting and entitled to vote drops below two. Where that is the

case, Model Article 14(3)(a) says that you may convene a GM and ask your shareholders to

pass an ordinary resolution to suspend Article 14.

An important point you must remember in connection with section 177 and Model Article 14

is that they only apply to directors when they are voting at board (i.e. directors’)

meetings or reaching unanimous agreement under Model Article 8. These provisions are

not relevant to shareholder meetings.

Shareholder Meetings (GMs)

At a meeting of shareholders, there are two main ways of voting. Under Model Article 42,

the default method of voting is by a show of hands, just as at a board meeting.

However, this method of voting might not appeal to all shareholders.

Example - Company A.

Company A has four shareholders.

Anne, Mehmet and Ebun each hold 10% of the shares.

Adrian holds 70% of the shares.

Adrian has a much bigger stake in the company than the others. He feels that he should,

therefore, have a greater say than them at shareholder meetings, commensurate with his

level of investment in the company.

On a show of hands, however, he can easily be defeated because the size of his

shareholding has no relevance. He can always be outvoted 3 to 1 if the others don’t agree

with him.

Therefore, Model Article 42 says that it is possible for a shareholder to demand that voting

be by way of a poll rather than on a show of hands.

There are rules about shareholders demanding a poll and these are set out in Model Article

44. Adrian can demand a poll because he owns at least 10% of the company’s shares.

When the shareholders of Company A vote by way of a poll, they still put their hands in the

air. However, it is not a case of one hand equalling one vote. Instead, Adrian’s hand alone

will equal 70% of the vote, because this is the percentage of the company’s shares that he

actually owns.

Therefore, voting on a poll gives individual shareholders a much greater ability to sway the

vote.





One point you need to know is that these percentages are all about people who actually

turn up to the meeting and are entitled to vote at it. This means that if you call a meeting

and your resolution requires a 75% vote, it doesn’t matter if only 6 out of 10 shareholders

turn up. This is because the rule is that you need 75% of the people actually there i.e. all

of the 6 who have turned up. You can ignore the 4 who have stayed away – in effect; they

lose their chance to vote.

Example – Company X

Company X has five shareholders, owning ordinary shares as follows:

A - 400

B - 200

C - 100

D - 100

E - 200

Consider the following scenarios, at which all voting is taken on a poll at a GM.

Will the resolutions be passed?

a) The shareholders vote on an ordinary resolution. A and C vote in favour of the

resolution; B, D and E vote against.

b) The shareholders vote on a special resolution. E does not attend but all the others do.

The vote is unanimously in favour of the special resolution.

c) The shareholders vote on a special resolution. Neither D nor E attends but all the others

do. The vote is unanimously in favour of the special resolution.

d) The shareholders vote on a special resolution. E does not attend but all the others do. A,

C and D vote in favour of the special resolution; B votes against.

Company X has 5 shareholders, but they do not all own the same number of shares. There

are 1,000 shares in the company in total. Shareholder A has 400 of those shares, giving

him a 40% shareholding. Shareholders B and E each have 20% and shareholders C and D

each have 10%. Remember that, when voting on a poll, it is the percentage of the shares

each individual owns that is important

Scenario A – an ordinary resolution is passed if you get more than 50% of the votes in

favour of it.

All of the company’s shareholders have turned up to the meeting. A and C vote in favour of

the resolution, but the others vote against. A and C between them own 500 of the 1000

shares i.e. exactly 50%. The vote is not carried because you need more than 50% for an

ordinary resolution.

Scenario B - a special resolution is passed if you get at least 75% of the votes in favour of

it.

In this case, shareholder E, hasn’t turned up. All the others have voted in favour.

Remember that that is not a problem here in any event because shareholder E only holds

20% of the shares and all the others have 80% between them. Clearly this resolution will

be passed, whether E turns up or not.





Scenario C - a special resolution. In this case, shareholders D and E, who own 30% of the

shares between them, have stayed away. The shareholders who have turned up only own

70% of the shares between them. Does this mean that you only have a potential vote of

70%?

Remember that you need at least 75% of the votes for a special resolution to be passed,

but the rule is that you need 75% of those actually present. You can ignore any absentees.

Therefore, if all the shareholders who are actually there vote in favour, this resolution will in

fact be deemed to have been passed by a 100% majority.

Scenario D - a special resolution. Again, you have an absentee, so you are looking for 75%

of the shareholders who are actually there to vote in favour. However, just to be awkward,

one of the shareholders present at the meeting has voted against the resolution. This is a

bit tricky. The shareholders actually there hold 800 shares between them. To pass the

special resolution, you need, as a minimum, exactly 75% of those 800 shares to vote in

favour of it i.e. 600 shares.

Let’s do the maths. Shareholder A, who has 400 shares, owns exactly 50% of the shares in

terms of people actually present at the meeting. Therefore, his vote alone counts for 50%.

C and D hold 200 shares between them, so they have 25% of the vote between them. B,

who voted against, holds 200 shares so he also has 25% of the vote.

If A, C and D act together, then that means that 600 of the 800 shares, amounting to

exactly 75% of those present have voted in favour. Therefore, this resolution will be

passed.

9. WHAT DO YOU HAVE TO DO AFTER A MEETING, IN TERMS OF PAPERWORK ETC?

Paperwork is an ever-present in company law. There are two aspects of paperwork.

First, there are the records which the company must keep at its own registered office.

These are known as the company’s internal records. Examples of these include records of

who are your directors and who are your shareholders. If a company carries out any

transaction which means that the directors or shareholders have changed, then it must

update its registers.

Second, some transactions must be notified to the Registrar of Companies, usually by

sending a pre-printed form and sometimes copy documents and fees. It’s important that

you learn what filing is required for the different transactions you will carry out during the

year.

Finding out the filing is easier than it might sound. What you need to do is look at the

section of the Companies Act which told you about any resolutions you needed to pass.

That section, or one immediately following it, will tell you whether anything needs to be

sent to the Registrar.

If there is nothing there, then you need to look at sections 29 - 30, which are general filing

sections.

If there’s nothing there either, then that means there aren’t, in fact, any filing requirements

for that particular transaction.

Apart from registers and forms, it is important to keep a written record of the meetings you

hold and what was discussed at them. This is because a company is not a living breathing

human being – it has no memory of anything other than the memory you create for it by

writing things down.





Therefore, under section 248(1), formal minutes must be kept of all board meetings.

Under s355(1), formal records must be kept of all GMs and resolutions passed by

shareholders

10. REGISTERS

Every company is required to keep certain registers.

1. Register of Members – S113 CA

The name, address of every member and date of becoming/ceasing to be a member must

be entered in this register. This register will normally be kept at the company’s registered

office. Any member can view this register free of charge. Other persons can, on payment

of such fee as may be prescribed, request to see this register – see s116 & s117 for further

details.

2. Register of Directors – S162 CA

Every company must keep a register of director and it must contain the required particulars

as set out in s163 & s164. This register will normally be kept at the company’s registered

office. Any member can view this register free of charge. Other persons can, on payment

of such fee as may be prescribed, inspect this register.

3. Register of Directors’ Residential Addresses – S165 CA

Every company must keep a register of director’s residential addresses. This register is not

open to inspection.

4. The Register of People with Significant Control (“PSC Register”)– Part 21A

and Schedules 1A and 1B CA and The Register of People with Significant

Control Regs 2016/339

In order to enable transparency, with effect from April 2016 UK companies are required

to keep a PSC Register (s790M CA). UK companies admitted to trading on regulated

markets, such as the LSE or AIM, are not required to maintain a PSC Register as they

are governed by other disclosure and transparency rules.

An individual has significant control (“PSC”) of a company, if 1 or more of 5 conditions

is satisfied in relation to that company. These 5 conditions (from Schedule 1A) are:

1. Directly or indirectly hold more than 25% of the shares,

2. Directly or indirectly hold more than 25% of voting rights,

3. Directly or indirectly hold the right to appoint or remove a majority of

the directors,

4. Otherwise have the right to exercise, or actually exercise, significant

influence or control,

5. Having the right to exercise, or actually exercising, significant

influence or control over the activities of a trust or firm which is not a





legal entity, but would itself satisfy any of the first 4 conditions if it

were an individual.

Whilst the above conditions only relate to individuals, legal entities, such as UK companies,

may also be recorded in the PSC Register if they are a Relevant Legal Entities (“REL”) and

registrable in relation to the company.

A REL is a legal entity which satisfies one of the 5 conditions (mentioned above) in relation

to a company and which keeps its own PSC Register.1

A REL is registrable in relation to a company if it is the first REL in that company’s

ownership chain.

A company which has identified that it does not have any PSCs, will still need to keep a PSC

Register.

Every company must enter PSC information in its own PSC Register and the central register

held at Companies House.

S790M(2) provides that any changes to the PSCs must be reflected in the PSC Register

before the end of the period of 14 days beginning with the day after all the required

particulars of that individual are first confirmed.

Under s790VA, a company must file the following notices at Companies House before the

end of the period of 14 days beginning with the day after all the required particulars of that

individual are first confirmed:

• PSC01 – Notice of Individual PSC (this is used for first registration)

• PSC07 – Notice of Ceasing to be a PSC

• PSC04 – Notice of Changes of Details for a PSC (this is used where personal details

of PSC change or where there is a change to a condition(s) or PSC bands)

Almost all the information about a PSC will be available to view at Companies House. The

only information that won’t be publically available is the PSC’s residential address and date

of birth.

A company’s annual Confirmation Statement will also record any changes to the PSC

Register.

The PSC Register should normally be kept at the company’s registered office. Anyone may

request access to the PSC Register but access can be refused in certain circumstances

provided the correct procedure is followed.

The statement contained in the PSC Register confirming that the first 2 conditions have

been met, must be set out by reference to the following bands;

I. The person holds, directly or indirectly, more than 25% but not more than 50%...

II. The person holds, directly or indirectly, more than 50% but less than 75%...

III. The person holds, directly or indirectly, 75% or more ...

1 There are some additional situations when a legal entity would be a REL but these are

beyond the scope of this course.





5. Registers held at Companies House

Private companies can elect to keep all of their Registers (listed above), at Companies

House instead of at their registered office.





CONSOLIDATION – ERGO LIMITED

Ergo Limited, wishes to amend Article 18 of its articles of association.

First, ask yourself: what decisions are required and who makes those decisions?

When working on your own, you will need to use the index to your statute book to help you

find relevant provisions when preparing for SGSs. If you do that for Ergo, you will find the

law relating to the alteration of the articles in section 21. You have already looked at that

section, so you know that a company may alter its articles by getting its shareholders to

pass a special resolution. This is a “sole preserve” situation, so the articles are legally

altered as soon as the resolution has been passed.

Having established this, you need to think about what meetings you will hold. Most things

a company does are at least started off by the directors. Therefore, Ergo’s directors will

need to hold a board meeting.

Take a look at the Board Minutes in your handout and see what the directors actually do

at this meeting. First, the chairman checks that a quorum is present. This is important,

because without a quorum no valid business can be transacted. Satisfied about this, he

declares the meeting open. The next point, however, is interesting. Remember that what

the directors want to do is change the company’s articles. However, under section 21, this

right is reserved to the shareholders. Therefore, there isn’t really anything the directors

can do at this board meeting except agree to get the shareholders together. That is what is

happening at paragraphs 2 and 3 – approve the draft notice of GM and agree to send it out

to the shareholders. Since the directors can’t do anything without the input of the

shareholders, the board meeting then closes.

Now look at the notice of GM. This is sent to all of the company’s shareholders to tell

them that the company wants them to get together and give approval for something. It

tells them the date, time and place of the meeting, plus the nature of the business which is

to be transacted at that meeting. All of this information is required by section 311.

According to section 307(1), the directors should give their shareholders 14 days’ notice of

the meeting.

Now take a look at the next document. This is the consent to short notice. You would

use this if you didn’t want to wait the full 14 days before having your GM. What happens is

that when you send out your notice of GM, you also enclose this consent to short notice.

You ask your shareholders to sign and return it and tell them when it is that you really want

to hold the GM. You then wait for those consent forms to come back. If you get them back

from a majority in number holding at least 90% of the shares, then you can hold your

meeting early.

The GM will then be held. The shareholders will vote upon the resolution. Since this is a

special resolution, you will need at least 75% of the votes for it to be passed. We will

assume that this happens.

The GM can then close because the shareholders have done their bit. The articles have

effectively been changed because section 21 is one of those provisions which says

something is the sole preserve of the shareholders and it is they who actually do the deal.

The next document you have is the Minutes of GM. What this document does is it tells

you that the meeting has been held. It also tells you exactly what happened at that

meeting. This is important because you need some record as to whether or not the

resolution was passed. In this case, you can see that it was and, indeed, the vote was

carried unanimously. Therefore, the articles of the company have been changed.





The next document you have is a notice of the resolution passed. It basically confirms

what resolutions were passed and will be used to notify Companies House of this fact. (See

further commentary on this point below.)

There will then be another board meeting, for which another set of Board Minutes is

provided. This is where the day’s business is ultimately completed. You can see that the

directors acknowledge that the GM has been held and the resolution passed. The directors

then instruct a member of the board to deal with all filing. That meeting then concludes.

Filing here is set out in sections 26, 29 and 30.

Section 26(1) says:

“Where a company amends its articles it must send to the registrar a copy of the

articles as amended not later than 15 days after the amendment takes effect.”

In other words, the company must send a clean print of the new articles to the registrar

within 15 days after the GM.

Section 29(1) says:

“This Chapter applies to (a) any special resolution ...”

Section 30(1) says:

“A copy of every resolution or agreement to which this Chapter applies ... must be

forwarded to the registrar within 15 days after it is passed ...”

Therefore, as well as sending a clean print of the articles, the company must also send a

copy of the section 21 special resolution to the registrar within 15 days after the GM.

In terms of internal record keeping, the company will need to prepare minutes of the board

meeting and the GM and put these in the company’s minute book.

The next document you have is the written resolution and this would replace the notice of

GM, consent to short notice and minutes of GM. Instead of serving notice and holding that

GM, the directors would just send a copy of this piece of paper to each of the shareholders

(hard copy or electronically). If a 75% majority sign it (since it is a special resolution), then

the special resolution will be passed without the need to hold a formal meeting.

The final document you have is a procedure plan for changing Ergo’s articles of

association using short notice.





ERGO LIMITED

Minutes of a meeting of the board of directors of the company

held at [ ]

on at a.m. / p.m.

Present:

In attendance:

1. The chairman announced that a quorum was present and declared the meeting open.

2. A draft notice of a general meeting of the company in the form attached to these

minutes was presented to the meeting.

3. It was further resolved that the notice be approved and that such notice should be

given to all members of the company.

4. [ ] was instructed to send out the Notice of General Meeting.

5. There being no further business, the chairman declared the meeting closed.

..................................

Chairman





ERGO LIMITED

NOTICE OF A GENERAL MEETING

NOTICE IS HEREBY GIVEN that a general meeting of the company will be held on

at 6, Guildhall Lane, Nottingham, NG4 3FD at a.m. / p.m.

for the purpose of considering and, if thought fit, passing the following special resolution of

the company:

"That the provisions of the articles of association of the company be altered by the addition

of the following to article 18:-

(g) he shall for more than six consecutive months have been absent without permission

of the directors from meetings of directors held during that period and the directors

resolve that his office be vacated.”

By order of the board

.............................................

Chairman

Date:

Registered office: 6 Guildhall Lane, Nottingham, NG4 3FD

Note: A member entitled to attend and vote at the meeting convened by this notice is

entitled to appoint a proxy to attend and vote in his place. A proxy need not be a

member of the company. To be valid, forms of proxy must reach the registered

office before the time appointed for the holding of the meeting.





ERGO LIMITED

Consent to short notice

I, the undersigned, being a member having the right to attend and vote at meetings of Ergo

Limited hereby consent to the holding of a general meeting of the company in accordance

with the notice attached and to the passing of the special resolution specified in it as a

special resolution of the company, notwithstanding that less than fourteen day's notice of

the meeting and of the resolution has been given.

....................

[Shareholder]

Dated:





ERGO LIMITED

Minutes of a general meeting of the company

held at 6 Guildhall Lane, Nottingham, NG4 3FD

on at a.m. / p.m.

Present:

In attendance:

1. Notice and quorum

It was noted that due notice of the meeting had been given to all members. It was also

noted that a quorum was present and the meeting could proceed.

2. Special resolution

The chairman proposed the following resolution as a special resolution:





resolve that his office be vacated.

On a show of hands, the chairman declared the resolution passed unanimously.”

3. Close of meeting

There being no further business, the meeting terminated at a.m. / p.m.

........................

Chairman





ERGO LIMITED

Registered number: 876321

Copy of special resolution pursuant to s. 30 Companies Act 2006

At a general meeting of the above company held at 6, Guildhall Lane, Nottingham NG4 3FD

on , the following resolution was passed as a special resolution of that company:






.......................

Chairman





ERGO LIMITED

Minutes of a meeting of the board of directors of the company

held at 6 Guildhall Lane, Nottingham, NG4 3FD

on at a.m. / p.m.

Present:

In attendance:

1. The chairman announced that a quorum was present and declared the meeting open.

2. The chairman reported that the proposed special resolution amending the articles of

association of the company had today been passed at a general meeting of the

company.

3. It was resolved that a copy of the special resolution together with a copy of the

amended articles of association be filed with the registrar of companies.

4. [ ] was instructed to undertake the necessary filing.

5. There being no further business, the chairman declared the meeting closed.

..................................

Chairman





Company Number 876321

THE COMPANIES ACT 2006

COMPANY LIMITED BY SHARES

WRITTEN RESOLUTION OF

ERGO LIMITED

Pursuant to section 288 of the Companies Act 2006

I, the undersigned, being a member of the above-named company, hereby consent to the

passing by the company of the following resolution as a special resolution:






In order to signify your agreement to the passing of this proposed special resolution date

and sign where indicated below.

Dated:

Signed: …………………….

[Shareholder]

The proposed special resolution must be passed by [ ] failing which it will lapse.





PROCEDURE PLAN HANDOUT TO CHANGE THE COMPANY’S ARTICLES OF

ASSOCIATION

CALL FIRST BOARD MEETING

Any director can call by giving notice to all other directors (Art 9).

Notice period for board meeting has to be reasonable.

HOLD FIRST BOARD MEETING

Check quorum and declare open - quorum for board meetings is 2 (Art 11(2)).

Produce the following documents for approval:

▪ Notice of general meeting

▪ Consent to short notice

Board to vote by simple majority.

Resolve to:

• Approve documentation; and

• Call GM on short notice by sending out notices of GM and consent to short notice.

[ director ] instructed to send out the notices of GM and consent to short notice.

Close meeting.

GENERAL MEETING

Send Notice of GM and Consent to Short Notice to all shareholders.

Notice – s307 (1) requires 14 days’ notice of the meeting. Short notice can be

used here if the requisite majority agree. S307(4) – (6).

HOLD GM

Check quorum and declare open - quorum for GM is 2 - s318(2).

Voting on a show of hands or a poll. 75% is required to pass a special resolution – s283(1)

Resolution:

• S/R to amend the articles of association – s21.





Close GM.

CALL, THEN HOLD SECOND BOARD MEETING

Notice/Quorum - see above.

Report the passing of the ordinary resolution.

[director ] instructed to do the necessary filing.

Close meeting.

Post meetings filing

Send a copy of the articles of association to the Registrar not later than 15 days after the

amendment takes effect – s26(1)

Send a copy of the special resolution to the Registrar within 15 days of it being passed –

s29/30

File all minutes for GM and BMs in company’s minute book – s355, s248 and Art 15;

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