Solicitors in Birmingham

What is the procedure for calling a shareholder meeting ?

The company must send shareholders (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. 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 per cent of the nominal value of the company’s voting shares (or any higher percentage specified in the articles, to a maximum of 95 per cent) agree, the meeting can be held at shorter notice.

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.

What are the key proportions of shares that affect rights?

Broadly speaking, the key percentages are as follows. (The detailed position is slightly more complicated if not all classes of share carry the same voting rights.)

• 75 per cent gives the power to force through any resolution at a general meeting of the shareholders, including a special resolution.
• Over 50 per cent enables the power to pass an ordinary resolution at a general meeting of the shareholders.
• Over 25 per cent creates the ability to block a special resolution.
• A 5 per cent shareholding or more gives the ability to require the company to call a general meeting.

These percentages apply to either a single shareholder or a group of shareholders acting together.

What is unfair prejudice protection for minority shareholders ?

The general legal principle is that the directors of the company are required to treat all shareholders fairly but this is not straightforward. Other shareholders may exert significant control over the board’s decisions. Trying to prove that these decisions are unfair or having them overturned can be difficult, and can lead to long and costly court cases. This is a good reason for having a clear and appropriate shareholders’ agreement in place.

Can there be different classes of shareholders rights ?

The company’s articles may allow the company to issue different classes of shares. For example, some companies issue both voting and non-voting shares. This can be useful if you want to issue shares to other investors but retain voting control. As a shareholder, you will only have the rights attached to the class of shares that you own. However, different shareholders holding the same class of shares all have the same rights.

Can I prevent 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 .

By law does a company need to have a shareholders’ agreement?

A shareholders’ agreement is not a legal requirement. However, for private companies it is generally a good idea. In practical terms, drawing up a shareholders’ agreement is a good opportunity to work through key issues – such as what the company’s strategy will be and what will happen if a shareholder dies, wishes to retire or sell his shares.

How can a shareholder enforce rights?

Of course, the answer to this depends on the circumstances. For example:

• if other shareholders have breached the terms of a shareholders’ agreement  suing them is a possibility
• if the directors have failed to meet their responsibilities or have acted outside their powers, the company might be able to take legal action against them
• if you are an employee of the company, you might be able to take legal action to enforce your employment rights
• for minority shareholder unfair prejudice claims the court may order the company or other shareholders to buy the minority shareholding at a fair price
• if the company has failed to repay money it owes you, you might be able to sue the company or to instigate insolvency proceedings

If an outside investor takes shares in the company, would my rights be affected?

Potential concerns for existing shareholders in this situation include ;-

• If new shares are issued by the company this may reduce the percentage of the company which you own
• If the new investment results in changes to the company’s articles or shareholders’ agreement
• The new investor may want special voting rights that allow them to block or veto certain actions

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.

We need a board decision urgently and haven’t time to call a meeting – can we all agree without holding a meeting?

If the company’s articles allow, directors can take decisions without meeting, provided every single director who would have been entitled to attend and vote on a decision if a meeting had been held indicates agreement to it. The wording used in modern articles is often that all directors must “indicate to each other by any means that they share a common view on a matter”.

In practice, this usually means that they each sign an identical written resolution in lieu of a meeting. Written resolutions take effect once the last director indicates their agreement.

Are there any standard terms for trading overseas we can use ?

Subject to exercising caution and appreciating that all jurisdictions are different, there are some trading terms which are well known and accepted in many jurisdictions, these are known as INCOTERMS, and a new edition has recently been published. It is certainly worth exploring whether the INCOTERMS may be a useful starting point for a contract abroad and it may well be somewhat reassuring to know that a possible supplier or buyer overseas is aware of these international standards and willing to use them as a starting point.

Further and general information on business law can be found on our main business law page.

Topical updates, information, cases on business law in Birmingham can be found here.