Croydon Solicitors

COMPANY LAW & BUSINESS LAW FAQ’S – CROYDON BUSINESS LAWYERS

Is shareholder approval needed  to issue shares?

From 1 October 2009, directors, who have day to day control of a private company with only one class of share, no longer need specific authority from the shareholders to issue shares. However, it may be that the company’s articles provide that shareholder approval is necessary, and so the articles should be carefully checked.

What percentage of votes are needed to pass a written resolution ?

If a written resolution put to the shareholders is an ordinary resolution the percentage vote required is a simple majority of the total voting rights of the shareholders. For a special resolution it is not less than 75 per cent of the total voting rights of the shareholders. The percentages required to pass resolutions in writing are percentages of the total voting rights whereas, for meetings, they are percentages of the votes cast at the meeting. This can mean putting a decision to shareholders as a written resolution can result in a different outcome compared to the same resolution put to shareholders at a meeting, as votes of shareholders who are not at, or represented at, or who do not vote at, a meeting, are not counted.

A director has requested a board meeting – do we have to hold one?

It depends on your articles of association but standard articles usually say that a director can call a board meeting, at any time, so you may wish to alter this

Are all partners in a partnership equal?

In the absence of any partnership agreement or other evidence to the contrary, all partners in a partnership are treated equally.

Can I prevent my shares being sold to other investors?

In general, you can only prevent shares being sold to other investors if the company’s articles of association or any shareholders’ agreement  provide such rights, which can arise by  :-

• Rights of pre-emption – in simple terms if an existing investor wants to sell his, her or their shares must first be offered to other existing shareholders, generally in proportion to their shareholdings, before being sold to new investors.
• The articles of association may also include restrictions on the transfer of existing shares. The articles might, for example, give the directors the right to refuse to register the transfer of shares to another investor.

Can shareholders overrule directors?

Under company law, there are only a limited number of decisions which require shareholder approval. The company’s articles of association may give the shareholders further rights to take decisions. Otherwise, day to day decisions are made by the directors and cannot easily be overruled.

Shareholders with at least 5 per cent of the voting rights can require the company to call a shareholders’ general meeting, and to consider a resolution. This resolution could address a specific decision which the shareholders wish to overturn. Alternatively, the resolution could be aimed at replacing the existing board with new directors who are expected to take decisions with which the shareholders agree .

Does a non-executive director have the same legal duties as an executive director?

In general, yes. In practice, you might not be required to show the same degree of care and skill as, for example, a qualified accountant who acts as the finance director. It would, however, be very dangerous to rely on this as a defence.

What are my rights as a shareholder in a private limited company?

Under company law (this is separate from rights in the articles or shareholder agreement), your minimum rights are:

• To be sent important information, such as the annual report and accounts.
• To inspect the various registers the company keeps, such as the register of directors.
• To see a copy of the company’s memorandum and articles of association
• To attend general meetings
• To vote at general meetings
• To receive a dividend (if one is declared)
• To receive a proportion of anything left over if the company is wound up

When can a director be held personally liable?

If a company goes into insolvency procedure, conduct of the directors and the company’s transactions would generally be considered going back 3 years.

Directors may be held personally liable and be ordered to pay money to the company for the benefit of its creditors under several circumstances :-

• Wrongful Trading – continuing to trade or enter into contracts after the director or shadow director, knew or ought to have known that there was no reasonable prospect of avoiding insolvent liquidation. If a court considers there has been wrongfully trading, it can order a contribution to the company without financial limit and disqualify a person from acting as a director for up to 15 years.
• Fraudulent Trading – carrying on a business with the intention to defraud creditors or  other fraudulent purpose. Examples might be taking deposits for orders which will not be fulfilled, or giving wrong or inaccurate information to obtain credit or contracts. If a court considers there has been fraudulent trading, it can a contribution to the company without financial limit and it can result in going to prison you for up to 7 years.
• Personal guarantees – Personal guarantees may have been given by directors to obtain credit for the company. Most guarantees are on a “joint and several liability” basis, which means that there is no requirement for the lender to pursue the company in preference to the individual.
• Misfeasance - This is a breach of fiduciary duties of care legally owed to the company as a director. Examples are taking out money wrongly from the company or using company money for matters not associated with company business. If a court considers there has been  misfeasance, it can order the director to make a contribution to the company without financial limit.
• Preferences – relates to an advantage given to one creditor in preference to another which is unlawful as creditors must be treated equally (subject to there being a difference between secured and unsecured creditors). The penalties for this include setting aside the transaction, and ordering the beneficiary of the preference to refund  the company.
• Transactions at an undervalue – where a company has allegedly transferred assets for significantly less than their market value. The sanction may be to set aside the transaction and for the recipient to refund money or return assets to the company.