PROCEDURE PLAN – COMPANY
- ENTER INTO A CONTRACT
• MA3, TA70 – directors have all the powers of management of the company but owe fiduciary duties to the company – may delegate powers to other persons – MA5
• Under s.40 – director has power to bind the company
• Under s.43 company may enter contract by (1)(a) writing under its common seal or (b) on behalf of company acting under its authority, express or implied – execution is dealt with in s.44
• S.171 – duty of director to (a) act in accordance with the company’s constitution and (b) only exercise powers for the purpose of which they were conferred
• S.172 – duty to promote the success of the company – loyalty
• S.173 – duty to exercise independent judgment – can take advice – important here for delegation
• S.174 – duty to exercise ‘reasonable care, skill and diligence’ – (2)(a) objective standard whilst (b) is subjective
• S.175 – duty to avoid conflict conflicts of interest – NB Exam company Articles – 3.2 – director not liable for benefit which he derives – transaction cannot be set aside – NB ss(4)(b) directors can ratify – for private company this provision applies automatically – ss(5)(a)
• S.176 – cannot accept benefits from third party – but ss(4) duty not infringed if acceptance cannot reasonably be regarded as giving rise to a conflict of interest – protects corporate hospitality
• NB under s.239 company can ratify breach of any duty by resolution – under ss(4) member who breached duty cannot vote to ratify
- NAME CHANGE
• s.77(1) – either by SR or other procedure in Articles
• Proposed name must comply with s.53 – must not cause offence, s.54 must not suggest involvement with government or other public authority, and s.55 other sensitive words or expressions which require consent of Secretary of State (also s.59 Private company must end with limited or Ltd and for public company s.58 – must end with public limited company, or plc)
• Assuming no procedure in Articles – follow SR procedure:
a) BOARD MEETING 1
• Calling – any one director can call – 88TA, MA9
• Notice – no set period – MA9 – must be called on reasonable notice – RE HOMER DISTRICT EX P. SMITH – notice must indicate (2)(a) proposed date and time, (b) where it is to take place and (c) how communication should happen – (3) notice to all D’s but not in writing, but (4) not if they have waived entitlement [NB notice under TA88 – not if D not in UK]
• Quorum – 89TA, MA11(2) – quorum is 2 unless otherwise stated – (NB for exam Article 3.2 has modified this to 1)
• Chairman – MA13 and TA88 – casting vote (NB for exam Article 1.2 – Reg 12 does not apply)
• Voting – done on majority vote – show of hands (TA 88)
• Conflicts – change of name it is irrelevant
• Resolutions – MA7, 88TA – passed on majority vote – here board resolves to call a GM for the purposes of name change by way of SR unless other method specified in Articles under s.77(1)(b)
b) GENERAL MEETING OF MEMBERS
• Calling – Directors may call under s.302 CA06, members may require the D’s to call under s.303 and directors have duty to call under s.304, under s.305 members may call GM at company’s expense, and under s.306 the court may call a meeting
• Notice – s.307 – notice of at least 14 clear days (unless AGM 21 days) [clear days is defined in s.360]– manner is which notice is sent dealt with under s.308, under s.310(1) notice to every member and director, and s.311 deals with the contents of the notice – (time and place and date) – under s.313 accidental failure to give notice can be forgiven – NB under s.283(6), if proposed SR, then notice must include text of the SR and intention to propose it as SR – also s.324 and s.325 – right to appoint a proxy
• Short Notice – s.307(4) – meeting may be called on shorter notice, if under (5) and (6) shorter notice agreed by majority in number of members who have right to attend and have 90% of shares for private company, or 95% for public company
• Quorum – no business can be carried out without it – MA38 – [exam – quorum is 1 – Article 2.1] – NB TA40 – 2 members constitute a quorum unless single member company
• Voting – Prima facie on show of hands – s.320, but under s.321 may be right to request a poll vote – MA44 – may be requested by chairman, directors, 2 or more persons having right to vote on the resolution or person representing not less than 1/10 of total voting rights of SH’s having right to vote on the transaction (Corporate representation at meeting – s.323(1)) [under TA55]
• Ordinary Resolution – s.282 passed if simple majority of the members present and voting are in favour
• Special Resolution – s.283 – need 75% majority of members to pass
• Admin – update and finalise minutes and keep them for 10 years – s.355(1)(b) and send copies of all SR’s to CH within 15 days (s.29(1) and s.30(1))
c) WRITTEN RESOLUTION
• Under s.281(1)(a) resolution of company may be passed by WR
• Calling – may be proposed by the directors or members (288(3)) – if D’s propose then at board meeting must resolve to approve the WR produced at the meeting and circulate a copy of it to every eligible member – NB notice must also be sent to Auditor – s.502
• Eligible members – defined s.289 – all members who would have been entitled to vote
• If proposed by D’s then under s.291 copy of the WR must be sent to all eligible members accompanies by statement informing member how to signify agreement and the date the resolution will be passed if not lapsed s.291(2)-(4)
• Voting – 1 vote per share – s.284(1)(a)
• Agreement – member signifies agreement when company receives back form signifying agreement in authenticated agreement
• Time for Agreement – s.297 – either period in Articles, or 28 days from circulation date (defined s.290)
• Admin – s.355(1)(a) must keep copies of all WR’s and also comply with s.29 and s.30 requirements
d) BOARD MEETING 2
• If BM1 and GM called on short notice then BM2 can just be reconvened, if not need full procedure as above
• Board resolve to execute the relevant requirements to effect the change of name – under s.78 send notice to the Registrar
• Also resolve to execute relevant formalities to comply with the Companies (Trading Disclosure) Regulations 2008 – change name of advertising, letterheads, stationery etc.
• Admin – update and finalise minutes and keep them for 10 years s.248 – MA15 – duty to keep records of every unanimous or majority decision by the D’s for 10 years
e) CHANGE EFFECTIVE
• Where notice sent under s.80, Registrar will consider the change of name and if satisfied will issue certificate of incorporation – under s.81, change of name effective on date which new certificate of incorporation is issued
- CHANGE OF REGISTERED OFFICE
• Dealt with under s.87(1) – power for the directors as falls under general power – MA3 so need board resolution (Above procedure for board meeting)
• S.87(1) serve notice to the registrar – form AD01
• Change takes effect upon notice being registered by the Registrar – s.87(2)
• Also compliance Companies (Trading Disclosure) Regulations 2008
- APPOINTMENT OF A DIRECTOR
• Private company must have at least 1 director – s.154 (public company at least 2) – Exam Article 5.1
• MA17 – (TA78 and TA79) decision to appoint either for the shareholders by OR, or for the directors
• Effective – whenever the Resolution says it will be effective
• Admin – update internal register of directors under s.162, update register of their residential addresses under s.165, and under s.167 there is duty to notify the registrar of any changes within 14 days – by filing form AP01
- GRANT OF SERVICE CONTRACT
• Contract for 2 years or shorter – this is a decision of the directors (MA19) – requires board resolution, and will be effective whenever the resolution says it will be
• Contract > 2 years – s.188(1) requires approval by the members under (2) – resolution of members required – because does not say, ordinary resolution required (s.281(3)(b))
• Under s.188(5) resolution to approve service contract unless memorandum setting out the proposed contract is made available to members – if WR used then must be sent out at same time or before the WR is sent out, or if GM – must be available for inspection by the members at registered office, at least 15 days before the meeting and at the meeting itself [NB this means cannot use GM procedure quickly – need to use WR]
• Note, director does not have to disclose interest in his own service contract (s.177(6)(c)) – exam material – given effect of Article 3.3, director can vote in favour of his own service contract
• NB exam material – article 6.1 – directors may appoint any one of them to position of Managing Director
• Admin – s.228(1)(a) – copy of directors service contract must be kept available at company’s registered office
- REMOVAL OF DIRECTOR
• s.168(1) CA06 – members have right to remove D from office at any time, regardless of anything to the contrary in the Articles, through passing OR (NB cannot use WR – s.288(2)(a))
• Member proposing resolution to remove D must give ‘special notice’ – s.168(2) – under s.312 special notice – formal notice at Registered Office at least 28 days before GM – if GM already called, then providing more than 28 days before, this will suffice
• Under s.312(4) if D’s call meeting before 28 days, deemed to be sufficient notice
• NB if D’s refuse to call meeting, then members may be able to providing they have the requisite shareholding under s.303-305 of the CA06
• Whenever company receives ‘special notice’ of resolution to remove D, board must immediately inform concerned D under s.169 – can make written representations to the members and circulate statement in writing – NB check whether there is a BUSHNELL v FAITH clause – gives D’s who are also members weighted voting rights
• If D is removed from board, any appointment to executive office shall terminate – Exam Article 6.2
• Retirement by Rotation – MA21 – also Exam Articles 5.2, and 7
• Compensation – s.215 payment for loss of office (eg. golden handshake) then need members approval by OR under s.217 – BUT payment in discharge of legal obligations under s.220, eg. for damages, or settlement or compromise agreement, then do not need members approval (also s.221 exception for payments < £200) – NB civil consequences of contravention under s.222
• Admin – s.162 update register of D’s, and residential addresses – s.165. Notify registrar under s.167 by sending form TM01
- SUBSTANTIAL PROPERTY TRANSACTION
• S.190(1) CA06 – company cannot enter into arrangement where (a) director/connected person of that director is going to buy from company a substantial non cash asset; or (b) the company is going to buy from the director or connected person
• Substantial defined in s.191(2) – 10% of company’s asset value and > £5k, or > £100,000
• Non cash asset – defined in s.1163 – (1) any property or interest in property other than cash, (2)(a) creation of an estate or interest in, or a right over, any property
• Connected persons – defined s.252 – (2)(a) members of the directors family, (2)(b) members of body corporate with which a director is connected, (2)(c) and (d) persons acting in capacities of trustees or partners
• Members of directors family defined in s.253 – covers spouse, children etc
• Director connected with body corporate – s.254 – (2)(a) and (b) if D or Connected Person has 20% of share capital or 20% control of the voting power
• Exception – s.190(4) – no approval if non UK registered company, or (b) body corporate is wholly owned subsidiary of another body corporate. Also under s.192(a) transaction between company and person in capacity as member, or (b) transaction between (i) holding company and its wholly owned subsidiary, (ii) two wholly-owned subsidiaries of the same holding company
• Consequences of failure to comply – s.195(2) transaction voidable at the instance of company but rescission only available if can be restored perfectly (DEMITE v PROTEC HEALTH) – under (3) persons (defined in (4) may be liable to account for any gain, or indemnify for any loss
a) BOARD MEETING 1
• Calling – any one director can call – 88TA, MA9
• Notice – no set period – MA9 – must be called on reasonable notice – RE HOMER DISTRICT EX P. SMITH – notice must indicate (2)(a) proposed date and time, (b) where it is to take place and (c) how communication should happen – (3) notice to all D’s but not in writing, but (4) not if they have waived entitlement [NB notice under TA88 – not if D not in UK]
• Quorum – 89TA, MA11(2) – quorum is 2 unless otherwise stated – (NB for exam Article 3.2 has modified this to 1) – NB MA14 and TA94 – director interested in the transaction cannot vote on it and will not count in the quorum – BUT EXAM – this has been disapplied – Article 1.2
• Chairman – MA13 and TA88 – casting vote (NB for exam Article 1.2 – Reg 12 does not apply)
• Voting – done on majority vote – show of hands (TA 88)
• Conflicts – normally duty to declare interest under s.177, but exception under s.177(6)(b) if the other directors should reasonably already be aware of it
• Resolutions – MA7, 88TA – passed on majority vote – here board resolves to call a GM for the purposes of name change by way of SR unless other method specified in Articles under s.77(1)(b)
b) GENERAL MEETING
• Calling – Directors may call under s.302 CA06, members may require the D’s to call under s.303 and directors have duty to call under s.304, under s.305 members may call GM at company’s expense, and under s.306 the court may call a meeting
• Notice – s.307 – notice of at least 14 clear days (unless AGM 21 days) [clear days is defined in s.360]– manner is which notice is sent dealt with under s.308, under s.310(1) notice to every member and director, and s.311 deals with the contents of the notice – (time and place and date) – under s.313 accidental failure to give notice can be forgiven – NB under s.283(6), if proposed SR, then notice must include text of the SR and intention to propose it as SR – also s.324 and s.325 – right to appoint a proxy
• Short Notice – s.307(4) – meeting may be called on shorter notice, if under (5) and (6) shorter notice agreed by majority in number of members who have right to attend and have 90% of shares for private company, or 95% for public company
• Quorum – no business can be carried out without it – MA38 – [exam – quorum is 1 – Article 2.1] – NB TA40 – 2 members constitute a quorum unless single member company
• Voting – Prima facie on show of hands – s.320, but under s.321 may be right to request a poll vote – MA44 – may be requested by chairman, directors, 2 or more persons having right to vote on the resolution or person representing not less than 1/10 of total voting rights of SH’s having right to vote on the transaction (Corporate representation at meeting – s.323(1)) [under TA55]
• Ordinary Resolution – s.190(1)(b) – refers to a resolution, which under s.281(3) means an OR – s.282 passed if simple majority of the members present and voting are in favour
• Admin – update and finalise minutes and keep them for 10 years – s.355(1)(b) and send copies of all SR’s to CH within 15 days (s.29(1) and s.30(1))
c) WRITTEN RESOLUTION
• Under s.281(1)(a) resolution of company may be passed by WR
• Calling – may be proposed by the directors or members (288(3)) – if D’s propose then at board meeting must resolve to approve the WR produced at the meeting and circulate a copy of it to every eligible member – NB notice must also be sent to Auditor – s.502
• Eligible members – defined s.289 – all members who would have been entitled to vote
• If proposed by D’s then under s.291 copy of the WR must be sent to all eligible members accompanies by statement informing member how to signify agreement and the date the resolution will be passed if not lapsed s.291(2)-(4)
• Voting – 1 vote per share – s.284(1)(a)
• Agreement – member signifies agreement when company receives back form signifying agreement in authenticated agreement
• Time for Agreement – s.297 – either period in Articles, or 28 days from circulation date (defined s.290)
• Admin – s.355(1)(a) must keep copies of all WR’s and also comply with s.29 and s.30 requirements
d) BOARD MEETING 2
• If BM1 and GM called on short notice then BM2 can just be reconvened, if not need full procedure as above
• Board resolve to execute the relevant transaction – either acquisition or sale of asset
• Admin – update and finalise minutes and keep them for 10 years s.248 – MA15 – duty to keep records of every unanimous or majority decision by the D’s for 10 years
- LOANS TO DIRECTORS
• s.197(1) company must not make loan to director of company or its holding company, or give guarantee/grant security in connection with the loan, unless transaction approved by resolution (default OR – s.281(3))
• s.197(3) – memorandum setting out the nature of the transaction, amount of the loan and purpose (4) must be available for inspection at registered office 15 days before GM ((3)(b)(i)) or if WR used, must be sent out before/with the WR ((3)(a))
• s.198 deals with quasi loans (defined s.199)
• Connected Persons – s.200 only applies for public companies – covers loans, or quasi loans, to connected persons, which also require members approval
• Exceptions – non UK based company, or wholly owned subsidiary of another body corporate (s.197(5))
• Exception for loan not exceeding £50k for expenditure on company business – s.204
• Exception under s.205 for money loaned to D to defend against criminal/civil proceedings
• Also exception for minor and business transactions – s.207(1) – no approval needed for loan to director of under £10k
• Consequences of Contravention – s.213 (same as s.195)
- ALLOTMENT OF SHARES
• Constitutional Restriction – general rule for company under the CA06 that they have no authorised share capital – no restriction – if there is then need SR to change Articles under s.21
• If company incorporated under 1985 Act then Authorised Share Capital clause may be in the Memorandum – remove with OR (special provision under the Transitional Provisions Order)
• Directors Power to Allot – s.550 for private company with one class of shares D’s have deemed authority subject to contrary in articles
• Otherwise need authority to allot – grant OR under s.551 – must state the maximum amount of shares that can be issued, and when it will expire (MA22 – company power to issue different classes of share through OR)
• NB for 1985 company, s.550 must be activated by an OR
• Under Exam Articles – D’s have power to allot shares under clause 4.3 to nominal value of £10M – authority lasts 5 years after incorporation (until 23rd November 2014) – then needs to be renewed by OR
• Pre-Emption Rights – basic position under s.561 that company cannot allot ‘equity securities’ (defined s.560) unless first offered to existing SH’s – under (1)(a) this must be on same terms, and (b) must wait for existing SH’s right to expire before offering to anyone else
• s.562 deals with the communication of pre-emption offers, whilst s.563 deals with the consequences of contravening s.562
• Under s.567(1) provisions within s.561 and s.562 may be excluded by provision in company’s articles – only for private company
• Consider whether the statutory rights of pre-emption may be irrelevant due to:
a. Non cash consideration – s.565
b. Allotment of shares which are not equity securities – non compliance with s.560
c. If it’s a private company and the Articles state the statutory regime does not apply – s.567
d. Articles impose their own pre-emption rights under s.568 (both public and private companies)
• Disapplication of pre-emption – s.569 directors of private company with one class of shares may, through power in Articles or by SR disapply the effect of s.561
• s.570 – if D acting under general s.551 power to allot then pre-emption rights of that allotment may be disapplied by Articles or SR – disapplication only for same time period as authority to allot
• NB must consider conduct issues – FSMA
• Admin:
- Resolutions – If OR used to remove authorised share capital under the TPO then copy needs to be sent to CH
- Any OR providing that D’s of 1985 Company with single class of shares have powers provided by s.550 and TPO must be sent to CH
- Any authority granting D’s authority to allot or use any SR dis-applying pre-emption rights must also be sent to CH under s.29-30
- Forms – return of allotment form accompanied by statement of capital form must be sent to CH within 1 month of allotment – s.555
- Own Registers – company must make entry for new member/amendment of existing members details in register of members (s.113) within 2 months (s.554)
- Preparation/Allocation Share Certificates – company must prepare share certificates within 2 months of the allotment – s.769
- DISPOSAL OF SHARES
• Under s.544 shares are transferable in accordance with the company’s articles – MA 26 – transfer may be in any way as approved by D’s – company cannot charge a fee for registering transfer
• Under MA 26(4) transferor remains holder of the share until transferee’s name is entered on register of members
• Under MA 26(5) D’s may refuse to register transfer of shares [this is same provision under exam articles – under 4.4 – addition ‘whether or not it is fully paid share’
• S.112(2) CA – entry of shareholders name on company’s register is evidence of share membership
• If s.770 requirements are complied with, company must register the transfer under s.771 – if the directors decide not to register the transfer in accordance with MA 26(5) then they must give transferee reasons for the refusal within 2 months, under s.771(1)(b) – breach of this is a criminal offence
• Transferee liable to pay stamp duty – 0.5% of consideration paid under the contract rounded up to nearest £5 – but, if transfer attracts stamp duty of £5 or less then is exempt (therefore any transfer of shares for less than £1000 is exempt)
- BUY BACK OF SHARES
• General prohibition for company buying its own shares under s.658, whilst there are some exceptions under s.659
• Under s.690(1) private company may purchase its own shares providing it will not be left with only redeemable or treasury shares (ss(2)) – no longer need express power in Articles to buy back shares, but check there is no restriction – also requirement that the shares must be fully paid
• Authorisation – private company is off market purchase – s.694(2) requires SR – members whose shares are being bought back cannot vote to effect the outcome (s.695(3)), whilst if use WR, then member whose shares are being acquired is not an eligible member (s.695(2))
• Under s.696(2) if WR used to get members consent then details of contract must be sent with WR, or if use GM, available for inspection 15 days before
• Funding – private company may use capital (s.709) but must first use distributable profits (s.710(1)(a)) and secondly proceeds from any fresh issue of shares for the purpose redemption/purchase s.710(1)(b)
• If use capital then additional requirements – s.714 must be directors and auditors solvency statement, and payment out of capital must be authorised by SR within 1 week of the statement (s.716(1), (2)) – member whose shares are being bought back cannot vote at GM (s.717(3)) nor through WR (s.712(2)) [NB this means you have to use the short notice procedure]
• If use WR, solvency statement must be circulated at same time (s.718(2)(a)) or available for members at GM 15 days before the meeting and at the meeting itself (s.718(2)(b))
• Execution – 2nd board meeting – must wait 5 weeks for payment under s.723 to allow an application to cancel the resolution by a member, under s.721
• Admin:
- Return to registrar under s.707 – form SH03 – may have to pay stamp duty
- Give registrar notice of cancellation of the shares in accordance with s.708 – form SH06
- Buy back contract must be kept at registered office for 10 years – s.702
- Company needs to update its register of members – s.113
- Also copies of board minutes – s.248
- Copies of SR’s validly passed must be forwarded to Registrar – s.29 and s.30
- (NB if you use capital – s.719 Notice in the Gazette and National Paper or notice in writing to all creditors)
• Accounting – dealt with in s.733 and 734
• Public Company – cannot buy back shares from capital under s.709, and if they are listed then must follow on market procedure – s.701 – authorisation by OR is sufficient
- REDUCTION OF CAPITAL
• Private Company – s.641(1)(a) private company may reduce the capital through SR supported by solvency statement – court sanction is no longer required
• s.642(1)(a) D’s make solvency statement within 15 days of passing resolution – if passed through WR must be sent before/within resolution (s.642(2)) or if GM must be made available throughout the GM – s.642(3) – NB 15 days life of the solvency statement means that will have to use short notice procedure, or short circulation date for WR
• Requirements of solvency statement of s.643, whilst under s.644, within 14 days after passing the resolution to reduce the share capital, the company must send to the registrar (1)(a) copy of solvency statement and (b) statement of capital (form SH19)
• Public Company – need SR in accordance with s.641(1)(b) and need court approval under s.645 – need to apply to court
• Under s.646 any creditor may object to reduction on ground that reduction would result in company being unable to discharge their debts/claims as they fall due
• Under s.648(2) the court may only give approval for the reduction if it is satisfied that every creditor has been sufficiently protected – registrar will register the order and statement under s.649
• Court has been vigilant to ensure that creditors are protected – their role is to ensure that the power of the company is exercised fairly (EX P WESTBURN SUGAR REFINERIES)
• NB s.761 and s.763 – public company has minimum share capital of £50k
• Also, reduction of capital is not regarded as financial assistance – s.681(2)(c)
