Dr R L Williams

Christ’s College, Michaelmas Term 2023

COMPANY LAW 2023-2024

Shareholders and Directors: Role, Powers and Decision Making

A. GENERAL PRINCIPLES

Every company will have directors (s 154, CA 2006) and members (see e.g. s 112,
CA 2006).

The precise division of power within a company is a matter determined by the articles
of association, subject to provisions of the CA 2006 (see e.g., s 366 CA 2006
(political donations by companies)).

Statutory rules may be either mandatory rules (e.g., s 366, ss 190-196, CA 2006
(substantial property transactions)), or default rules.

Traditionally, companies have been viewed as a ‘shareholder city state’ with most
management powers delegated to directors and shareholders fulfilling an oversight
role through certain reserved powers.

The general powers of directors under the Model Articles (for Ltd and plc) are set out
in articles 3:

“3. Directors’ general authority

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.”

The principle of ‘non-interference’:

Automatic Self-Cleansing Filter Syndicate v Cuninghame [1906] 2 Ch. 34

Relationship to s.21 CA 2006: A bare majority cannot effectively alter the

articles (Imperial Hydropathic Hotel Co, Blackpool v Hampson (1882) 23 Ch
D 1)

But note Article 4 MAs:

“ 4. Members’ reserve power

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Christ’s College, Michaelmas Term 2023

(1) The members may, by special resolution, direct the directors to

take, or refrain from taking, specified action.
(2) No such special resolution invalidates anything which the
directors have done before the passing of the resolution.”

Companies may, and often do, use their articles to adopt their own rules on the
division of powers.

B. THE MEMBERS OF THE COMPANY

Who is a ‘member’?

Companies Act 2006, s 112(1) & (2). Re BW Estates Ltd [2017] EWCA Civ 1201,
[71]: any person whose name is entered on the register of members is a member
“whether alive or dead, and, if corporate, whether subsisting, in an insolvency
procedure or dissolved”.

N.B. ‘Shareholders’ are not always members, but the terms ‘members’ and
‘shareholders’ are often used interchangeably.

What are the rights of the members?

Members are residual claimants on the assets of the company in the event of solvent
winding-up and may be entitled to receive a share of company profits through
dividend payments (subject to rules in the company’s articles and general rules of law
etc.).

Members have many other powers, such as power over: the contents of the articles (s
21 CA 2006); the appointment and removal of directors (Model Articles, Art, 17 (Ltd)
& 20 (plc), s 168, CA 2006 see further below); ratifying breaches of duty by
directors (s 239, CA 2006); and generally any other matter reserved for the
general meeting by statute or the company’s articles.

Not all members necessarily have the same rights. Through the creation of different
‘classes’ of shares some members may have preferential voting rights on some or all
resolutions as well as preferential dividend and distribution rights.

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Christ’s College, Michaelmas Term 2023

C. THE MECHANICS OF DECISION MAKING BY MEMBERS.

Note that some of this material in this section is self-explanatory and as such will not
be dwelt on in lectures.

The General Meeting.

Usual forum for decision making by members. Members, not shareholders, may vote
at a general meeting (s 284, CA 2006).

Directors have the power to call a general meeting (s 302, CA 2006); 5% of voting
(and paid-up) members may also summon a meeting by making a request to directors
(ss 303 & 304, CA 2006).

Companies Act 2006, s 336: Public companies must hold an ‘Annual General
Meeting’. Private companies are not required to hold an ‘AGM’.

Notice of meetings (ss 307-313, CA 2006).

In general, at least 14 days’ notice (s 307(1) CA 2006) of a general meeting

must be given to members, directors, auditors and shareholders (s 310, CA
2006 though N.B, s 310(4)(b), CA 2006). Notice must state the time, date
and venue of the meeting and the general nature of the business to be
transacted at the meeting (s 311, CA 2006).

The minimum period of notice for an AGM of a public company is 21 days (s

307(2)(a), CA 2006).

Articles of association may provide for longer periods of notice than the
statutory minimum. Equally though, the CA provides that meeting may be
called at shorter notice than the statutory minimum (s 307 (4)-(6), CA 2006),
subject to conditions

Notices of meetings must be fair, accurate and comprehensible, see e.g.

Kaye v Croydon Tramways [1898] 1 Ch. 358

Rules for the Conduct of the General Meeting

Note the special rules for AGMs in public companies in ss 336-340B, CA 2006.

The articles of association typically play a leading role in setting out rules for the
conduct of the general meeting, see e.g. Model Articles, Arts 37-47 (Ltd) and 28-41
(plc).

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Christ’s College, Michaelmas Term 2023

The provisions of the Model Articles cover important matters such as the requirement
for a quorum at meetings (Art 38 (Ltd), Art 30 (plc)), procedures for voting (Arts 42-
47(Ltd), Arts 34-40 (plc)) and procedures for adjourning meetings (Art 41(Ltd), Art
33 (plc)).

A series of default and mandatory rules applicable to the running of the general
meeting are also set down in the Companies Act 2006.

See, for example: default rules as to the quorum in s 318(2), CA 2006 (two
qualifying persons constitute a quorum, except in a one-man company);
default rules concerning the election of the chairman (s 319, CA 2006); and
default rules on voting (s 284, CA 2006).

Mandatory rules include: the rule guaranteeing the right to demand a poll on
the election of the chairman or on the adjournment of the meeting (s 321, CA
2006); the rule that members do not have to vote all their shares the same way
(s 322, CA 2006); and the members’ right to appoint a proxy to vote and speak
on their behalf (s 324 CA 2006).

Meetings may be held electronically, see e.g. Model Articles, Arts 37 (Ltd) & 29 (plc)
& s 360A, CA 2006.

The Role and Powers of the Chairman

National Dwellings Society v Sykes [1894] 3 Ch. 159 (role)

Byng v London Life Assurance Ltd [1990] Ch. 170 (chair must exercise
powers fairly and reasonably)

Powers of the Court to Convene a Meeting of Members.

Companies Act 2006, s 306.

Union Music Ltd v Watson [2004] BCC 37

Smith v Butler [2012] EWCA 314 (applied)

Decision-Making by the Members: Resolutions.

Directors may propose resolutions when calling a general meeting under s 302, CA
2006. See also s 291, CA 2006 (written resolutions in private companies).

Members have some powers to move resolutions. See ss 292-295 CA 2006 (written
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Christ’s College, Michaelmas Term 2023

resolutions); s 303 CA, 2006 (i.e. requesting a general meeting); s 338-

340(resolutions at AGMs of public companies)

Written Resolutions.

In order to facilitate decision-making in private companies, the Companies

Act allows private companies to take decisions by written resolutions i.e.
without the need for a meeting.

In general a private company may do anything by written resolution that it is

permitted to do by resolution in a general meeting (s 281(1), CA 2006), save
that the written resolution procedure may not be used in relation to a
resolution under s 168, CA 2006 removing a director before the expiration of
his period of office or a resolution under section 510, CA 2006 removing an
auditor before the expiration of his term of office (s 288(2)(a)&(b), CA 2006).

Detailed procedures on written resolutions are set out in ss 288-300, CA 2006.

Note also s.285A – articles of private companies may not provide for different
voting rights between votes by poll and votes on written resolutions.

Records must be kept of resolutions, see e.g. ss. 355-356 CA 2006.

Types of Resolution.

Ordinary resolutions: CA 2006, s. 282 (simply majority of votes).

 Where a vote is by a show of hands, an ordinary resolution requires a majority

of the members and proxies present and voting in person.
 Where the vote is by a poll an ordinary resolution requires a simple majority
of votes cast by members (and proxies).
 Where the resolution is a written resolution (these only apply to private
companies, s 281 CA 2006), an ordinary resolution requires a majority of the
votes of members eligible to participate in the vote (s. 289, CA 2006).

Special resolutions: CA 2006, s. 283 (super-majority (75%) required).

 Where a vote is by a show of hands a special resolution requires a 75%

majority of the members and proxies present in person and voting.
 Where the vote is a vote by a poll a special resolution requires the affirmative
votes of 75% the votes cast by members (and proxies).
 Where the resolution is a written resolution, a special resolution requires a
75% majority of the votes of eligible members.

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Christ’s College, Michaelmas Term 2023

Voting by the members

Default rule is voting by a show of hands (see e.g. Model Articles, Art. 42 (Ltd), Art.
34 (plc)). Poll votes may be demanded by members (e.g. Arts. 44 (Ltd.) and 36 (plc)).
Note that poll voting generally allows voting per share. In general the Companies Act
states a ‘one vote per share’ rule (s 284, CA 2006), this is only a default rules and the
articles can specify that some shares carry multiple votes (recall facts of Citco
Banking Corporation NV v Pusser’s Ltd. [2007] UKPC 13), or no votes at all.

Members do not need to vote in person and may nominate a proxy to vote on their
behalf (s 324, CA 2006)

The nature of the right to vote.

Pender v. Lushington (1877) 6 Ch.D. 70 (the vote as an aspect of the

‘property’ in the share).

North-West Transportation Co. Ltd. v Beatty (1887) 12 App Cas. 589

(members may vote their shares as they see fit).

Allen v Gold Reefs of West Africa [1900] 1 Ch. 656 (N.B the ‘bona fide’ test).

Postal voting is permitted, s 322A CA 2006.

Decision making without the need to vote: The Unanimous Consent Rule.

Members may act informally if all agree

Re Duomatic Ltd [1969] 2 Ch. 365

Cane v Jones [1980] 1 WLR 1451

Stubbins Marketing Ltd v Stubbins Food Partnership Ltd [2020] EWHC 1266
(members must be fully informed)

Consent may be express or by acquiescence

Schofield v Schofield [2011] 2 BCLC 319 (consent must be objectively

‘determinable’)

Re Home Treat Ltd [1991] BCLC 705; EIC Services Ltd v Phipps [2003]
EWHC 1507 (Ch).

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Christ’s College, Michaelmas Term 2023

Sharma v Sharma [2014] BCC 173[52], (acquiescence cannot be inferred from

silence unless, (i) the shareholders where aware that their consent was required
on the particular matter in question or, (ii) that the circumstances were such
that it would be unconscionable for the shareholders to remain silent at that
time and object afterwards). N.B. Re BW Estates Ltd [2017] EWCA Civ 1201
(can be no acquiescence where member incapable of giving consent)

Speechley v Allott [2014] EWCA Civ 230 (inference of agreement under

Duomatic)

Re Express Engineering Works Ltd [1920] 1 Ch. 466

Re Torvale Group Ltd [1999] 2 BCLC 605 (application to class meetings)

The unanimous consent rule may not apply where third party rights intrude:

Precision Dipping Ltd v Precision Dipping Marketing Ltd [1985] BCLC 385
Wright v Atlas Wright (Europe) Ltd [1999] 2 BCLC 301
Kinlan v Crimmin [2007] 2 BCLC 67

The Duomatic principle will not apply where the company is of doubtful solvency.

Lexi Holdings Plc (In Administration) v Luqman [2007] EWHC 2652 (Ch);
Madoff Securities International Ltd (In Liquidation) v Raven [2013] EWHC
3147 (Comm).

The principle will not apply where the act in question would be ultra vires the
company

See e.g. Satyam Enterprises Ltd v Burton [2021] EWCA Civ 287

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Christ’s College, Michaelmas Term 2023

D. DIRECTORS: APPOINTMENT AND REMOVAL

The requirement to have directors: s 154 & 155, CA 2006.

The first director(s): ss. 9(4)(c), 12 , CA 2006.

Subsequent appointments to the board: see e.g. Model Articles, Arts 17-20 (Ltd.), 20-
24 (plc), s 160, CA 2006 (appointments in public companies must be voted on
individually).

The identity of directors must be publicly disclosed, see ss 162-167 CA 2006.

A company may appoint a managing director: see e.g. Model Articles, Art. 5 (Ltd and
plc).

Directors may be removed from office by a resolution of the members: ss. 168-169
CA 2006. This is an important regulatory power of shareholders, at least in principle.
Consider, however:

Bushell v Faith [1970] A.C. 1099

Executive and ‘non-executive’ directors. See e.g. Equitable Life v Bowley [2003]
BCC 829, at [35] - [41].

E. DIRECTORS’ POWERS AND DECISION MAKING.

Directors usually have broad collective decision making powers to manage the affairs
of the company (Model Articles, Art3 (Ltd and plc). Sometimes powers will be
granted to individual directors by the articles of association or under powers of
delegation, e.g. Model Articles, Art 5 (Ltd & plc). Note, however, Guinness plc v
Saunders [1990] 2 AC 663(limits on power to delegate).

Decisions of the board are often termed ‘board resolutions’.

Proceedings of the board are regulated by the articles of association, see e.g. Model
Articles, Arts. 7-16 (Ltd.) and 7-19 (plc). The Model Articles, for example, set the
default quorum for a board meeting at 2 directors (Arts 11 (Ltd) & 10 (plc), and
provide for decision making by a majority of directors present (Arts 7 (Ltd) & 13
(plc), and set rules for calling directors’ meetings (Art 9 (Ltd) & Art 8 (plc)).

Directors may take decisions outside of a meeting (a ‘written resolution’) if the

articles so permit, see e.g. Model Articles, Arts17-18 (plc).

Informal decision taking in private companies is facilitated by Art 8 of the Model

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Christ’s College, Michaelmas Term 2023

Articles (Ltd), provided all directors agree. See also Runciman v Walter Runciman plc
[1993] BCC 223.

Directors may be disqualified from the board’s decision making process where they
suffer from a conflict of interest, see e.g. Model Articles, Art 14 (Ltd), Art 16 (plc).

F. WHERE THE BOARD CANNOT ACT: RESERVE POWER OF

SHAREHOLDERS.

If the board becomes deadlocked, decision making power may devolve to the
shareholders. When will a board be deadlocked? Consider:

Barron v Potter [1914] 1 Ch. 895

Quin & Axtens v Salmon [1909] AC 442

Other circumstances where the shareholders may act:

Foster v. Foster [1916] 1 Ch. 532

Euro Brokers Holdings Ltd. v. Monecor (London) Ltd. [2003] 1 BCLC 506,
[61]:

“In the case, however, of a board which is unable to exercise its

powers, ‘there must be some power in the company to do itself that
which under other circumstances would be otherwise done’: see
Barron v Potter [1914] 1 Ch 895, at p.903 per Warrington J. That
power is exercisable by the agreement of all the shareholders.”

Alexander Ward & Co v Samyang Navigation Co [1975] 1 WLR 673

G. DIRECTORS’ REMUNERATION

Directors have no fixed entitlement to remuneration. Rather, rules on payments made to

directors (if any) will be set out in the articles, or a director’s terms/contract of employment.

Default provisions on remuneration are set out in MA, Art 19-20 (private), Art 23-24
(public).

“Employed” directors must have a written service contract: CA 2006, ss.227-230. Note the
difference between a director’s role as a director, and as an employee. CA 2006, s.168 only
gives shareholders the right to remove directors from their role on the board. Generally,
where the Model Articles apply, the board itself makes the decision as to whether to employ

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Christ’s College, Michaelmas Term 2023

or dismiss employees (although, in practice, boards will necessarily be influenced by

shareholders, given the power of shareholders to shape the board).

Note 2-year limit in directors’ contracts of employment, unless agreed by shareholders, CA

2006, ss.188 and 189, CA 2006.

There are some specific rules on directors’ remuneration in CA 2006, see, for example,
ss.215-222 concerning payments for “loss of office” (generally for non-listed companies; for
quoted/traded companies, see: s.226C).

Directors’ remuneration is subject to more regulation in quoted/traded companies. For

quoted/traded companies, a remuneration report must be published annually - ss.420-422,
439-440 CA 2006. Also, see: CA 2006, ss.226B-F (remuneration must be consistent with
company remuneration policy and approved by a vote of the shareholders).

Directors’ remuneration is rarely successfully challenged in the Courts, provided payments

are by way of genuine remuneration. See, for example, Re Halt Garage (1964) Ltd [1982] 3
All ER 1016.

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