11 FAQs people ask about shareholder decisions in a private company.
- Do we have to appoint a chairperson of each shareholders' meeting?
- What does the chairperson actually do at shareholder meetings?
- Why do we need to hold shareholders' meetings at all?
- Can all the shareholders make a valid shareholders' decision without having to hold a meeting?
- How are shareholder meetings organised?
- How do we satisfy a shareholder who wants us to send them meeting documents electronically, and wants to send documents to us electronically?
- We have nine shareholders but only three turned up to a recent shareholders' meeting, and one walked out half way through. Was it valid?
- We are planning a shareholders' meeting, but a colleague says all the decisions need to be passed by at least 75% of the votes cast. Are they right?
- A shareholder says they are going to appoint a proxy to the next shareholders' meeting, so they do not have to attend. Can we stop them?
- What can we do as shareholders if we are unhappy and want a shareholders' meeting to be held?
- We've held our shareholders' meeting, what happens next?
1. Do we have to appoint a chairperson of each shareholders' meeting?
Articles of association usually say that a chairperson must be appointed to chair each meeting of the shareholders. If the board of directors of a company has already appointed a chairperson of the company generally, then the usual custom and practice is that they also chair shareholder meetings, (even if they are not a shareholder).
The articles usually say that if the board has not appointed a chairperson generally (or it has, but the chairperson is unwilling to chair it or is not present at the meeting within ten minutes after it is supposed to start), the directors present must choose one of their number who is willing to act, to be chairperson. In default, the shareholders at the meeting appoint a chairperson.
If the articles of association are silent on this point, the shareholders at the meeting must choose one of their number to chair the meeting.
2. What does the chairperson actually do at shareholder meetings?
The chairperson's main tasks are organising and presiding over the meeting, ensuring that proper notice and pre-meeting information is supplied, ensuring that meetings are properly conducted in accordance with the law and best practice, and ensuring that proceedings and decisions are properly recorded.
At the meeting they may have a casting vote, depending on whether the articles of association provided that they should have one immediately before 1 October 2007. If the company's articles did not give the chairperson a casting vote immediately before 1 October 2007, take advice, as they may not have a casting vote on an ordinary resolution at a general meeting of the shareholders, if the vote is put to a show of hands.
Under most companies' articles, voting at a general meeting of the shareholders is initially by a show of hands, which means each shareholder has one vote. However, the chairperson usually also has power to call for a poll, ie to require a fresh vote on an issue, that takes into account the number of shares held by each shareholder, rather than a vote on a show of hands. This can be important if shareholders have appointed multiple proxies to attend and vote on their behalf (they can appoint as many proxies as they have shares), as each proxy usually has one vote on a show of hands. This can mean a shareholder can cast more votes on a show of hands, if they appoint several proxies, than if they went to the meeting themselves. If the chairperson thinks the result might be different if voting is per number of shares held (ie, by poll), they usually have a duty to call for a poll.
3. Why do we need to hold shareholders' meetings at all?
Private companies no longer need to hold an annual general meeting of the shareholders unless their articles of association specifically require them to.
However, from time to time the directors may find that a decision needs to be made that has to be referred back to shareholders - usually because the Companies Act, the company's articles or some outside agreement such as a shareholders' agreement says they must. For example, the Act says the contents of a company's articles of association can only be changed if the shareholders decide (or 'resolve') that they can.
Even if all the shareholders are also directors of the company, they must therefore go through the process of calling a shareholders' meeting and complying with the rules to pass a shareholders' resolution.
The Act, articles or agreement will specify whether the shareholders need to pass an 'ordinary resolution' or a 'special resolution' - see 8 - for the majorities required for each. If they don't, an ordinary resolution is required, by default.
Alternatively, a shareholder decision, whether an ordinary or special resolution, can be passed by a resolution in writing in lieu of a meeting, subject to two exceptions - see 4. The Companies Act 2006 has made it easier to do this.
4. Can all the shareholders make a valid shareholders' decision without having to hold a meeting?
Shareholders of a private company can make any decision using a 'written resolution in writing' (subject to two exceptions - see below) instead of holding a shareholders' meeting. They must follow the procedure in the Companies Act 2006 - written resolutions passed pursuant to a provision in a company's articles of association are no longer allowed, so you should ignore any provision in your articles purporting to allow you to pass resolutions in writing.
The exceptions are resolutions to remove a director or an auditor from office. These must be passed at meetings because the Companies Act gives the director or auditor the right to state, at a meeting, why they should not be removed. There are also special rules governing the notice to be given of the meeting. Take advice.
A written resolution may be proposed by the board or by the shareholders, although it is usually proposed by the board. The company must send or submit a copy of the proposed resolution to every shareholder (and to the auditor, if any) together with a statement telling the shareholders how to indicate their agreement to the resolution and the date by which it will lapse if not agreed to by then.
If the written resolution put to the shareholders is an ordinary resolution (see 8), 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% of the total voting rights of the shareholders. It is no longer necessary for a written resolution to be agreed to by every shareholder, as it was before the 2006 Act, as long as the requisite majority of eligible members have signified their agreement to it.
Be careful - 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.
Each shareholder has 28 days, or any other period specified in the articles of association, to indicate their agreement to the written resolution. They agree either:
- By returning a signed hard copy of the resolution.
- If agreement is given electronically, by confirming the identity of the sender in any manner that has been specified by the company. If the company has not specified how the shareholder can confirm their identity, the document must be accompanied by a statement of the shareholder's identity, and the company must have no reason to doubt the statement.
If the requisite majority have not signified their approval within the period specified the proposal will lapse.
Shareholders holding at least 5% (or any lower percentage specified in the company's articles) of the total voting rights can require the directors to circulate a proposed written resolution (and an accompanying statement explaining the subject matter of the proposed resolution), provided they deposit “a sum reasonably sufficient to meet its expenses in doing so”. If the company is going to circulate the written resolution by email, that is likely to be a very small sum, but check with the directors. The directors must circulate the written resolution within 21 days.
Written resolutions can be sent to shareholders electronically, provided the rules in the 2006 Act relating to electronic communications are followed (see 6).
5. How are shareholder meetings organised?
The company must send shareholders, directors (and any auditors) a notice in writing, stating the date, place and time of the meeting, and setting out the rights of shareholders to appoint proxies - ie to appoint someone to go along to the shareholders' meeting in their place (see 9).
The notice period to be given is 14 days, although this may be increased by the articles of association. However, if the holders of shares representing 90% of the nominal value of the company's voting shares (or any higher percentage specified in the articles, to a maximum of 95%) agree, the meeting can be held at shorter notice.
The notice can be given to a shareholder electronically, including by making it available on a website, provided the company and the shareholder agree it can, and the other conditions in the Companies Act 2006 are met - see 6.
6. How do we satisfy a shareholder who wants us to send them meeting documents electronically, and wants to send documents to us electronically?
Under the Companies Act 2006, any document or information that the Act says must (or may) be sent by a company to its shareholders, and vice versa, can be sent or submitted electronically rather than in hard copy format, provided certain conditions are satisfied.
This covers documents like notices of meetings, shareholder resolutions in writing in lieu of a meeting, annual report and accounts, requests to convene a shareholders' meeting, invitations to appoint proxies and proxy forms.
Documents or information can, for example, be emailed (the most common method), faxed or texted. In the case of a company providing documents or information to its shareholders, they can also be made available 'via a website', ie the company posts it on a website and notifies the shareholder it is there - again, provided certain conditions are met.
Usually, each shareholder and the company must expressly consent to receiving documents or information electronically, and must provide the other with an email or other electronic address expressly for that purpose. They will usually agree which documents or information can be sent electronically, and the means of electronic communication(s) to be used, eg email and making available 'via a website'.
However, if the company is authorised to do so, either in its articles or by a resolution of the shareholders, it can send a shareholder a written request asking them to agree to receive all or certain documents or information via a website. The request must contain certain other specific information. If the shareholder has not responded within 28 days they are deemed to have agreed that those documents and/or information can be sent to them 'via a website'.
If a company sends out notice of a shareholders' meeting, or proxy documents, with an electronic address on, such as an email address or phone number, it is deemed to have agreed to receive documents or information relating to the meeting, or in relation to proxies at that meeting, from shareholders electronically, at that address, unless it says otherwise in the notice or proxy documents. Companies should check their notices and proxy documents to ensure they do not inadvertently include an electronic address.
Generally, companies should take advice before sending or receiving documents or information electronically, as there are areas that the company law rules do not cover. For example, what happens if emailed information 'bounces', or a document is sent as an email attachment that a shareholder cannot open? A company will wish to deal with issues like these in its articles or in an ecomms policy document.
A company may also have articles of association governing electronic communications that were drafted before the electronic communication provisions in the Companies Act 2006 came into force, in January 2007. If so, such provisions need to be read in the light of the 2006 Act rules. Take legal advice.
Finally, a shareholder who has agreed to receive documents electronically (including if they are deemed to have agreed - see above) can revoke their agreement at any time. A shareholder can also require the company to send a hard copy version of any document made available electronically, free of charge, within 21 days.
7. We have nine shareholders but only three turned up to a recent shareholders' meeting, and one walked out half way through. Was it valid?
The quorum at shareholders' meetings - the minimum number of shareholders required to be present for decisions taken to be valid and bind those who are not present - is set out in the Companies Act (although the articles of association can vary the rules in the Act). If the Act applies then, unless there is only one member, two members present in person (including a person sent to represent a corporate shareholder) or by proxy (see 9) are a quorum.
If a quorum is not reached within a certain time, articles of association often provide that the chairperson must adjourn the meeting, perhaps for a week or fortnight, or to another time agreed by the shareholders.
Articles also often provide that a meeting must be adjourned if it ceases to be quorate part way through - for example, if sufficient shareholders stage a walk-out, leaving the meeting without a quorum. But beware older articles, which sometimes provide that a quorum needs to be present only at the beginning of the meeting.
So your meeting is likely to have been quorate at the beginning, and may have remained so despite the walk-out, but you need to check your articles.
Generally, if a shareholder refuses to attend a meeting, for example in order to prevent there being a quorum, a director or shareholder can obtain a court order to hold the meeting. However, if the shareholders have deliberately structured the company so they can block each other if a meeting is called, the court will refuse to intervene.
8. We are planning a shareholders' meeting, but a colleague says all the decisions need to be passed by at least 75% of the votes cast. Are they right?
At shareholder meetings most decisions ('ordinary' resolutions) are passed if agreed to by a majority of the vote cast, but certain decisions ('special resolutions') require 75% or more of the votes cast.
Votes on resolutions are usually taken by a show of hands, so that each member present in person or by proxy has one vote, regardless of how many shares they hold. However, if a poll is demanded (and the articles will specify who can demand a poll in each particular company) votes are recorded according to the number of shares the voter represents.
Which decisions need to be passed as ordinary resolutions and which as special resolutions depends on the Companies Act, your articles of association and, sometimes, if you have one, an external agreement such as a shareholders' agreement. Normally resolutions to change a company's name or articles of association are among those that require a special resolution.
Be careful if you ask the shareholders to agree to a resolution in writing rather than hold a meeting, because the rules about the majorities required to pass written resolutions are slightly different from those that apply to resolutions at meetings, and the two methods of passing resolutions can result in different outcomes. See 4.
9. A shareholder says they are going to appoint a proxy to the next shareholders' meeting, so they do not have to attend. Can we stop them?
Shareholders are entitled to appoint one or more 'proxies' (provided the number of proxies does not exceed the number of shares they hold), who need not be shareholders in their own right, to represent them at a shareholder meeting, instead of going themselves. A company cannot stop members from doing this - their right to do so overrides anything in the company's articles of association.
The shareholder has to notify the company that they are appointing a proxy by filing a form of appointment at the registered office - usually 48 hours before the meeting. Check your articles of association.
Proxies are allowed to vote on a show of hands (when each shareholder usually has one vote, irrespective of the number of shares they hold - see 8, as well as on a poll or a demand for a poll. So if the shareholder has, say, ten shares they can send ten proxies, each of whom will have one vote - even though the shareholder would only have had one vote on a show of hands if they had gone to the meeting themselves. In those circumstances, the chairperson of the meeting will usually call a 'poll' (when all shareholders and their proxies vote according to the number of shares they hold, or that they represent at the meeting).
Corporate shareholders can either appoint proxies or send a 'corporate representative' to meetings instead. They can appoint a corporate representative by a resolution of their board (the corporate representative usually takes a copy of the relevant board minute, certified by a director or the secretary of the corporate shareholder, with them to the meeting, as proof of their appointment) and do not have to file anything with the company beforehand, as they do with a proxy. A corporate representative is treated as if they were a shareholder present at the meeting in their own right and can therefore vote on a show of hands, a poll and a demand for a poll.
Corporate shareholders can appoint multiple corporate representatives, but this creates legal problems - take advice.
10. What can we do as shareholders if we are unhappy and want a shareholders' meeting to be held?
The kinds of action shareholders could take include:
- Shareholders with at least 5% of the company's voting capital can serve a 'request' on the company at its registered office requiring the board to call a shareholders' meeting (and to circulate a statement to go with such proposed resolution). If the board fails to call a general meeting following such a request, the shareholders themselves can do so.
- It is only sensible to try and call a shareholders meeting if the shareholders think that they alone, or in combination with other shareholders, are likely to hold more than 50% of the voting rights.
- At the shareholders meeting, shareholders can attempt to dismiss a director or appoint new directors to the board, in the hope that they will secure a majority on the board. Alternatively they might try to pass a resolution limiting the power of the Board to make certain decisions.
- Shareholders can take legal action in the courts if they feel the directors are acting improperly.
- Minority shareholders can take action if they feel that their rights are being unfairly prejudiced by the majority.
If any of these look likely to happen, take advice immediately.
11. We've held our shareholders' meeting, what happens next?
If you have passed a special resolution at a meeting (see 8), a copy of the resolution must be signed by a director or the secretary (if any) of the company and filed at Companies House within 15 days of the meeting.
Copies of ordinary resolutions do not normally have to be notified, although exceptions include ordinary resolutions relating to making documents available on a website (see 6). Again, the 15-day time limit applies.
If a special or fileable ordinary resolution is passed by written resolution, a copy of the written resolution must be filed at Companies House.
A Companies House form may need to be filed in certain circumstances - for example, if a director has been appointed or removed from office. See the Companies House website for a full list of forms.