Resolutions, regulations and rights: everything you need to know about shareholder decision-making
This article was originally published in October 2017 by Pitmans LLP.
Our overview of decision-making provides clarification as to when, where and how decisions can and should be made at shareholder level for both private and public companies.
Only public companies are required to hold annual general meetings (AGMs) and they must do so within six months of the end of the financial year. Private companies may hold AGMs if they wish but they are not obliged to. AGMs are an opportunity to meet certain statutory and regulatory requirements, such as consideration of the annual accounts, declaration of dividends, appointment or re-appointment of directors or auditors. Only public companies are required to present accounts to a general meeting.
Any meeting which is not an AGM is a general meeting (GM). A GM may be held at any time of the year for both private and public companies. Such ad-hoc meetings are generally used to deal with matters which cannot wait until the next scheduled AGM or to deal with an unusual scenario, which requires shareholder action (for example alteration of the company’s articles of association or ratification of the breach of directors’ duties).
Notice of meetings
All GMs require at least 14 clear days notice and AGMs 21 days notice, excluding the day of giving notice and the day of the meeting itself. A longer minimum notice period may be included in the articles. The articles may also deem a date of receipt of a notice, so this also needs to be factored into the calculation of the notice period. Shorter notice may be validly given in respect of all GMs if a majority in number of shareholders owning at least (for private companies) 90% or (for public companies) 95% of the shares carrying voting rights agree to such shorter notice. Holding a public company’s AGM on short notice requires the approval of each shareholder with voting rights.
Email or paper notification is the most common method of sending out notices. Website communication could be useful for companies with a large number of shareholders.
The shareholder must specifically agree to a notice being sent electronically (eg in email or text message) or via the company’s website (in which case the company must also notify the shareholder that the notice has been published on the website.)
In GMs, companies can only transact business by passing the appropriate type of resolution. There are two types of shareholder resolution: ordinary and special.
An ordinary resolution is one which requires more than 50% of the shareholders present at the meeting to agree to the decision and vote in favour. For routine matters or not of particular significance, such as approving the duration of a director’s service contract with a guaranteed term of more than two years, removal of a director or giving the directors authority to issue shares, an ordinary resolution will suffice.
For more ‘sensitive’ and significant matters, where the deemed prejudice to shareholders could be considerable special resolutions need to be passed. Special resolutions are passed if 75% of the shareholders present at the meeting vote in favour of the decision. For example alteration of the articles, changing the name of the company (subject to any alternative mechanism set out in the articles), reducing the share capital require a special resolution. Once passed, all special resolutions need to be filed with Companies House within 15 days.
Written resolution procedure
A private company may pass a written resolution in writing without a meeting or any previous notice being given. A director or an auditor of the company cannot be removed this way. Under the Companies Act 2006 it’s intended that the written resolution procedure becomes the default decision making-process for private companies, the Model Articles are drafted on this basis. Written resolutions are quite often a preferred alternative to the holding of a general meeting.