A reoccurring theme, when advising directors and shareholders of small and medium sized enterprises, is whether a particular decision rests with the board of directors or with the shareholders.
This distinction can be academic, particularly if the directors and shareholders are one and the same and there is agreement on what the course of action should be. However, where this is not the case, it is very easy to fall foul of company law if a director or shareholder forgets which ‘hat’ they are wearing for a particular decision.
The board of directors are responsible for the management of the company. A company’s constitution will usually say that the directors are empowered to exercise all the powers of the company. These powers must usually be exercised by the board collectively at a properly convened meeting. Unless otherwise stated in the company’s constitution or shareholders’ agreement, each director present at the meeting will have one vote. In the case of a deadlock, the chairman may or may not have the casting vote, again, depending upon what the company’s constitution or shareholders’ agreement says.
Typically, a board will delegate decisions to committees or to individual directors. So, for instance, the finance director, sales director or operations director will each have responsibility for certain areas within the business and delegated authority to make decisions concerning those areas.
A shareholder owns shares in a business but this does not mean that the shareholder automatically has any managerial control over the affairs of a business. Indeed, a shareholder may not necessarily be a director of the company and may not even be an employee.
A shareholder’s power derives from the fact that certain types of shares carry an entitlement to vote at shareholder meetings or on shareholder written resolutions. Some shares do not carry voting rights so it is important to check the company’s constitution or any shareholders’ agreement to ascertain the position.
There are two main types or resolution that a shareholder can vote on: ordinary and special resolutions.
An ordinary resolution is passed at a meeting on a show of hands by a simple majority or, if a poll vote is requested, by the shareholders representing a simple majority of the total voting rights of the shareholders.
A special resolution is passed at a meeting on a show of hands if it is passed by a majority of not less than 75% of the votes cast by those entitled to vote or, if a poll vote is requested, by shareholders representing not less than 75% of the total voting rights of the shareholders.
Common shareholder decisions
Below is a list of matters which commonly require shareholder approval although this is subject to the company’s articles of association and shareholders’ agreement.
• Removal of directors
• Approval of director’s long term service contracts
• Approval of loans to directors
• Ratification of acts by directors
• Authorising political donations
• Removing an auditor from office
• Authorising a share buy-back, sub-division or consolidation of shares
• Amendment of articles of association
• Change of name
• Disapplication of share pre-emption rights
• Reduction of share capital
- Sale and purchase of business, asset and shares
- Business start-ups and SME’s
- Management Buy-Outs (MBO’s) and Buy-Ins (MBI)
- Share buy backs
- Due diligence
- Company re-organisation and re-structuring advice
- Shareholders’ and partnership agreements
- LLP and Partnership advice
- Shareholder disputes
- Drafting inter-creditor, facility, guarantee and other security agreements
- Subordination and priority arrangements
- Advice on personal and corporate guarantees
- Joint ventures and collaboration agreements
- Terms and conditions of sale or purchase for goods/services
- Agency and distribution agreements
- Non-disclosure agreements (NDA)
- Bespoke trading agreements
- Intellectual property protection
- Incorporation of limited liability partnerships and companies
- Creating and/or maintaining statutory registers, minute books and share certificates
- Preparing board minutes, resolutions and notices
- Assisting with your annual return
- Drafting or amending Articles of Association
- Dissolving or striking companies off the register
- Implementing changes to your share capital
- Drafting and filing of Companies House forms.