Company Governance

Shareholders

The majority of businesses in this country are small in size and trade as closely held companies. Often, directors and shareholders of these companies also work in their businesses. Owners of a business definitely wear more than one hat and the lines between acting as director, shareholder, or manager get very blurred. To ensure that directors/shareholders act appropriately, there are a number of legislative obligations that directors and shareholders must fulfil.

Power Behind the Throne

The directors of a company make the day to day decisions. Section 104 of the Companies Act 1993 (Act) restricts shareholder power, and the exercising of it, to the annual meetings and special meetings of shareholders (or a resolution in place of an actual meeting, which is often the preferred option). It must be remembered that a director may be linked to another entity which is a shareholder in the company, such as where a director is trustee and/or beneficiary of a family trust, holding shares in the company. In that situation, the role of independent trustees in those trusts becomes important in ensuring that the interests of the shareholders are met and that the shareholders do not simply rubber stamp the directors wishes.

Shareholder Power

The Act prescribes that certain powers must be exercised only by the shareholders of a company. These powers include adopting, altering or revoking a constitution (s32), altering shareholder rights (s119), approving a major financial transaction (s129), appointing and removing directors (s153), approving an amalgamation (s221) and putting the company into liquidation (s241). While the appointing and removing of directors is usually done by an ordinary shareholders resolution (simple majority vote) the other powers require a shareholders resolution to be passed by a majority of 75% (or higher if required by the company’s constitution) of those shareholders entitled to vote, and voting on the decision.

Sometimes All or Nothing

There are instances where unanimous resolutions from shareholders may circumvent the requirements of the Act. Under s107 of the Act shareholders acting unanimously may authorise a dividend, approve a discount scheme, allow a company to acquire or redeem its own shares, provide financial assistance to purchase its own shares and sign off on benefits, guarantees, remuneration packages and the like for the company’s directors. These unanimous resolutions however, do not override the requirement for the solvency test to be met by the company, and for the related directors solvency certificate under s108.

Role at Meetings

Annual meetings are the most usual ones for shareholders to turn their minds to. Business carried out in such a meeting may be limited to receiving and adopting financial reports, election of directors, appointment of auditors, any other business requiring a special resolution and general business.

Special meetings can be called at any time to discuss a specific resolution provided the calling procedure has been adhered to.

In signing a resolution in lieu of a meeting each shareholder must ensure that all the requirements are included in the resolution and all matters to be resolved are clearly stated — if there is any doubt seek clarification, have it rectified or have the actual meeting.

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