Professional Documents
Culture Documents
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Corporate Administration and Management
A. Meetings
Types of Meetings
Section 318 of the Companies Act 2006 states that there must be one ‘qualifying person’
in the case of a single member company, and, subject to the provisions of the Articles,
two ‘qualifying persons’ in any other case, for the meeting to be valid. The company’s
Articles may set their own quorum for that particular company.
Quorum: This is the minimum number of people that must be present in a meeting for the
business to be validly transacted.
The law says that there shall be an Annual General Meeting every year and that no more
than 15 months shall elapse between one meeting and the next. The first meeting must be
held within 18 months of incorporation.
If no meeting takes place then the directors are liable to fines and the Secretary of State,
on the application of any member, can direct the calling of an AGM
A court can call an AGM or an EGM “if for any reason it is impracticable to call a
meeting according to the Articles”.
N.B: There is no longer a statutory requirement for private companies to hold an AGM.
There are no limits on the number of such meetings in a year or the intervals between
them. They will usually be called if
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a) The directors want some business to be approved by the shareholders, and they do
not want to wait a year until the next AGM.
b) The holders of 10% or more of the paid-up capital carrying voting rights ask for a
meeting. If they ask for a meeting and one is not held then they can organize a
meeting themselves and their expenses must be paid for by the company
Proceedings at Meetings
A meeting may only proceed to deal with business if the following requirements have
been satisfied:
1. The correct amount of notice of the meeting has been given (the Board must give 21
days notice of an AGM and 14 days for an EGM).
2. There is a quorum present at the meeting.
The meeting is presided over by a Chairman. The Chairman of the Board of Directors
shall preside as chairman at every general meeting. If he or she is ill/ unable to attend,
then another director should act as chairman.
Resolutions
This is the method by which companies decide what they are going to do. When a
decision has to be reached at a meeting the Chairman will ask the members to vote on a
resolution. The type of resolution used will depend on the type of decision to be taken.
1. Ordinary Resolutions
An ordinary resolution can be passed by a simple majority of those voting i.e. 50% + 1.
It should be noted that the rule is one vote per share, not one vote per person. Someone
holding 50% plus of the voting shares can therefore dictate what will be passed.
Ordinary resolutions are used for the appointment and removal of directors. They are also
used for the appointment and removal of auditors.
2. Special Resolutions
A special resolution is a resolution passed by at least three quarters of the members. They
are normally used for reaching more significant decisions or carrying out significant
changes. They are used for:
Alteration of the Articles of Association
Alteration of the Memorandum
Change of the company’s name
There are some other types of resolutions that companies can use. These are usually used
by private companies only. These are:
Written Resolutions
Under sections 281(2) and 283(2) of the Companies Act 2006, a private company can
make important decisions without a meeting if there is a resolution signed by either 50%
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of the members entitled to vote (for ordinary resolutions) or 75% of the members entitled
to vote (for special resolutions).
Voting At a Meeting
All decisions are made at a meeting by shareholders voting to pass or refusing to pass
resolutions.
• Poll vote- a written record of each member’s vote. With this system, every
member gets one vote for each share they own i.e. a vote for every share (1 share
= 1 vote).
An important point about company meetings is that shareholders do not always have to
appear at the meeting in person; they can appoint another person (called a Proxy) to
attend the meeting and to vote on their behalf. This is called Proxy Voting.
The Board of the company sends out proxy forms, which allow shareholders to appoint
the proxy. Forms must be sent to everyone so that all shareholders have a free choice as
to whom they wish to choose to be their proxy.
The Articles usually provide that the proxy form appointing a proxy must be lodged at
the registered office not later than 48 hours before the meeting. If a shareholder changes
his mind and decides to attend the meeting in person then his personal vote will override
that of a proxy.
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B. Directors
The law generally refers to ‘the directors’, but the terms ‘the Board’ and ‘the Board of
Directors’ are also commonly used to refer to the directors acting collectively as one
body.
Types of Director
Executive Director
They play an active role in the company, normally as the company’s managers (for
example the managing director, chief executive, finance director, etc). They are usually
employees of the company.
Non-Executive Director
Non-Executive Directors are those directors who have no role in the day to day
management of the company. They sometimes operate in a part-time capacity; their role
is generally to attend board meetings, advise with due diligence and in good faith, and to
take a constructive part in making decisions. Their prestige and business experience may
also be valuable to the company.
b) De Facto Director
This is someone who acts as a director (e.g. by participating in board meetings). They
will usually perform the functions of a director even though they have NOT yet been
formally appointed, and because the Board permits them to perform the functions of a
director they are treated as directors by the law.
c) Shadow Director
This is a “person, in accordance, with whose directions or instructions the directors of the
company are accustomed to act”. They could, therefore, be liable to the company in the
event of its insolvency.
Number of Directors
According to the Companies Act 2006, section 154, a public company (PLC) must have
at least 2 directors.
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A private company (LTD) must have at least one.
A company’s Articles may increase the minimum number of directors required, or set a
maximum.
The first directors of the company are named in a statement filed when a company is
formed.
The shareholders have a guaranteed right to remove any director by ordinary resolution
(Companies Act 2006, section 168)
Liability of directors
While the company is operational:
a) Anyone disqualified by the court (under the Company Directors Disqualification
Act 1986) will be personally liable for the company’s debts if he disobeys the
court order.
b) Any director who personally guarantees the debts of a company will be personally
liable.
b) A director may also be personally liable for wrongful trading (Insolvency Act
1986, section 214). A director who knows, or ought reasonably, to know that a
business has no reasonable prospect of survival or recovery must take immediate
steps to minimize loss to creditors. Directors must be careful not to carry on
trading when the company is failing.
Directors’ Duties
There are two ways in which the duties that directors owe towards their companies are
viewed.
1. Shareholder Primacy
Companies to be run primarily for the benefit of their shareholders. The easiest way
to assess the benefit of the shareholders is to look at the company’s financial
performance, i.e. profits.
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Views companies as profit-maximizing entities, with no other objectives other than
maximizing shareholders’ profits.
This approach views all of these wider interests as enhancing the reputation of the
company and the quality of living in the wider community, and therefore in the best
interests of the shareholders.
As a general rule, directors owe their duties to the company itself, and they have to act in
the best interests of the company as a whole (Companies Act 2006, section 170(1)).
Directors do not owe any general fiduciary duties to the company’s shareholders
personally. Their duties are owed to the company.
Directors do not owe any general duty of care to the company’s creditors (but they might
be under a duty to minimize losses if the company becomes insolvent).
2. Duty to promote the success of the company (Companies Act 2006, section 172)
Directors must exercise their powers for the company’s benefit. This means that they
must exercise their powers in the best interests of the company. They are bound to
exercise their powers ‘bona fide in the interests of the company’.
It is a duty of honesty and good faith.
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Traditionally the interests of the company were often linked to the interests of the
shareholders, BUT nowadays it extends to other members of the company. This is
because Corporate Social Responsibility (CSR) now requires directors take into account
of other matters in addition to shareholders’ profits. These other matters include:
(c) the need to foster the company’s business relationships with suppliers, customers and
others
(d) the impact of the company’s operations on the community and the environment
(e) the desirability of the company maintaining a reputation for high standards of
business conduct
4. Duty to exercise reasonable care, skill and diligence (Companies Act 2006, section
174)
Directors must always exercise reasonable care, skill diligence when carrying out their
duties. According to the Companies Act 2006, ‘reasonable care, skill and diligence’ is
defined as
a) the general knowledge, skill and experience that may reasonably be expected of a
person carrying out the same functions (objective element), AND
b) the general knowledge, skill and experience of that particular director (subjective
element).
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Held: The two had broken their duties. They had NOT acted as conscientious directors
and they had not made available their professional accountancy skills. By not
paying attention to what the managing director was doing, and by signing blank
cheques without questioning what they were for, the two had failed to exercise
any skill and care in the performance of their duties.
This duty is similar to the fiduciary duty that a trustee would have with regards to a trust.
The duty to avoid conflicts of interest applies to the use of any property, information or
opportunity, whether or not the company could take advantage of such property,
information or opportunity.
If a conflict of interest does arise, the director concerned must inform the Board of
directors promptly, and full disclosure of the conflict of interest must be made.
It used to be known as the rule against secret profits, and it banned directors from making
undisclosed profits by virtue of their position as directors.
Any payments, favours, commissions or other advantages a director receives from a third
party must be disclosed to the company in general meeting, and all shareholders must
authorize it.
Third parties are defined as ‘someone other than the company, an associated body
corporate or a person acting on behalf of the company or an associated body corporate
(Companies Act 2006, section 176(2)).
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Held: He had to account for the money because it was a secret profit, and this is NOT
allowed.
A director must disclose any interest (whether it is direct or indirect), that he has in
relation to a proposed transaction or arrangement with the company.
Since the interest can be direct or indirect, the director does not need to be a party to the
transaction for the duty to apply. However, the interest must be one that can reasonably
be regarded as likely to give rise to a conflict of interest.
The director must declare the nature and extent of his interest to the other directors. It is
not enough to state merely that he has an interest. Disclosure can be made by written
notice, general notice or disclosure at a meeting of the directors.
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Seminar Questions
1. What is an Annual General Meeting?
2. Discuss the methods by which companies decide what they are going to
do?
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