Business law lecture 4
Corporate Management
■ Company is a legal fiction
■ Two primary collective corporate organs:
■ Board of directors and shareholders in general meeting (sometimes referred to as
the company in general meeting)
■ Separation of ownership and control particularly striking in big companies-smaller
companies directors and shareholders may be the same humans so no strict
separation
■ Corporate decision making is carried out by Directors who are no longer thought of
as agents
■ Lecture will look at rules relating to shareholders’ meetings and start looking at
directors and the law relating to their duties
Relationship between Directors and Shareholders
■ Companies Act does not specify how power is to be distributed between directors
and shareholders except certain matters must be decided by shareholders (ie by
company in general meeting):
■ Alteration of articles a 21; Alteration of share capital ss 617 and 641 and
■ Delegation of authority to allot shares ss 560-561
■ Generally therefore relationship depends on articles (and a SA if there is one).
Remember articles 3 and 4 of Model Articles: power lies with the board –subject to
special resolution.
Separation of powers: Power to bring legal proceedings
■ Which organ has power to bring legal proceedings on behalf of the company: board
or shareholders?
■ Basic principle is that if a wrong has been done to the company it is the company
alone which has the power to..ie proper claimant is the company
■ Foss v Harbottle (1843) CA 2006 s 260
■ Power to sue is vested in the board
■ Company in general meeting cannot initiate or abandon proceedings...a decision not
to sue also cannot be challenged by shareholders
If wrong doers in control however minority may be able to bring a derivative action …
The general meeting of shareholders
■ See CA 2006, ss. 281-361 and Part 4 of the Model articles
■ Private companies are not required by law to hold meetings
■ Public companies must hold an annual general meeting
■ Quorum for single member companies: one person present
■ For all other companies subject to the articles: two
■ Note: as shareholders do not have executive authority the general meeting lacks
managerial power except where sufficient numbers for a special resolution (75%)
■ Ultimate sanction v director is removal s 168
, Decisions of the members
■ Decisions of members are by:
■ 1. resolution in general meeting
■ 2. by written resolution without a meeting (in the case of private companies only)
■ 3. under the Duomatic principle (see later)
■ See article by Len Sealy “Corporate Decisions, formal and informal” Co. L.N. 2011,
298, 1-4
Resolutions
■ 1. Ordinary resolutions: passed by bare majority at a general meeting, no notice
requirement: s. 282
■ 2. Special resolutions: passed by a majority of not less than 75% and notice of the
resolution given in the notice of the meeting: s. 282
■ Copies of special resolutions to be forwarded to the Registrar within 15 days: ss. 29
&30
■ 3. Written resolutions: introduced in 1989 but modified in 2006: ss. 288-300
■ Now the majority needed is that which would have been needed if the resolution
had been put to a meeting and this replaces any equivalent procedures under the
articles . Not available to dismiss a director or auditor
Common law:
Unanimous informal consent: the Duomatic principle
■ Flexibility and common sense prevail—consent found outside a meeting
■ Buckley J "where it can be shown that the shareholders who have a right to attend
and vote at a general meeting of the company assent to some matter which a
general meeting of the company could carry into effect, that assent is as binding as a
resolution in general meeting would be”
■ Here approval of directors’ remuneration by informal consent
Limits of the Duomatic principle
■ It will only apply if the requirement was for the protection of current members, ie
not for the protection of creditors or future members and it will not apply to the
removal of a director under s. 168
■ Re R W Peak (Kings Lynn) Ltd [1998] BCC 596 [no application where there was a
purchase by the company of a member’s shares]
■ See Sealy and role today with new written resolution procedure
Conduct of general meetings
■ Show of hands: s. 284(2) each member present has one vote without regard to other
factors, such as the number of shares held by him or her
■ Poll: s. 284(3) on a vote on a resolution on a poll taken at a meeting…in the case of a
company having a share capital, every member has one vote in respect of each share
■ S. 321 restricts the ability of the articles to exclude the right to demand a poll
■ Proxy voting: s. 285 members have the right to appoint a proxy “to exercise all or any
of his rights to attend and to speak and vote at a meeting of the company”: s. 324
Corporate Management
■ Company is a legal fiction
■ Two primary collective corporate organs:
■ Board of directors and shareholders in general meeting (sometimes referred to as
the company in general meeting)
■ Separation of ownership and control particularly striking in big companies-smaller
companies directors and shareholders may be the same humans so no strict
separation
■ Corporate decision making is carried out by Directors who are no longer thought of
as agents
■ Lecture will look at rules relating to shareholders’ meetings and start looking at
directors and the law relating to their duties
Relationship between Directors and Shareholders
■ Companies Act does not specify how power is to be distributed between directors
and shareholders except certain matters must be decided by shareholders (ie by
company in general meeting):
■ Alteration of articles a 21; Alteration of share capital ss 617 and 641 and
■ Delegation of authority to allot shares ss 560-561
■ Generally therefore relationship depends on articles (and a SA if there is one).
Remember articles 3 and 4 of Model Articles: power lies with the board –subject to
special resolution.
Separation of powers: Power to bring legal proceedings
■ Which organ has power to bring legal proceedings on behalf of the company: board
or shareholders?
■ Basic principle is that if a wrong has been done to the company it is the company
alone which has the power to..ie proper claimant is the company
■ Foss v Harbottle (1843) CA 2006 s 260
■ Power to sue is vested in the board
■ Company in general meeting cannot initiate or abandon proceedings...a decision not
to sue also cannot be challenged by shareholders
If wrong doers in control however minority may be able to bring a derivative action …
The general meeting of shareholders
■ See CA 2006, ss. 281-361 and Part 4 of the Model articles
■ Private companies are not required by law to hold meetings
■ Public companies must hold an annual general meeting
■ Quorum for single member companies: one person present
■ For all other companies subject to the articles: two
■ Note: as shareholders do not have executive authority the general meeting lacks
managerial power except where sufficient numbers for a special resolution (75%)
■ Ultimate sanction v director is removal s 168
, Decisions of the members
■ Decisions of members are by:
■ 1. resolution in general meeting
■ 2. by written resolution without a meeting (in the case of private companies only)
■ 3. under the Duomatic principle (see later)
■ See article by Len Sealy “Corporate Decisions, formal and informal” Co. L.N. 2011,
298, 1-4
Resolutions
■ 1. Ordinary resolutions: passed by bare majority at a general meeting, no notice
requirement: s. 282
■ 2. Special resolutions: passed by a majority of not less than 75% and notice of the
resolution given in the notice of the meeting: s. 282
■ Copies of special resolutions to be forwarded to the Registrar within 15 days: ss. 29
&30
■ 3. Written resolutions: introduced in 1989 but modified in 2006: ss. 288-300
■ Now the majority needed is that which would have been needed if the resolution
had been put to a meeting and this replaces any equivalent procedures under the
articles . Not available to dismiss a director or auditor
Common law:
Unanimous informal consent: the Duomatic principle
■ Flexibility and common sense prevail—consent found outside a meeting
■ Buckley J "where it can be shown that the shareholders who have a right to attend
and vote at a general meeting of the company assent to some matter which a
general meeting of the company could carry into effect, that assent is as binding as a
resolution in general meeting would be”
■ Here approval of directors’ remuneration by informal consent
Limits of the Duomatic principle
■ It will only apply if the requirement was for the protection of current members, ie
not for the protection of creditors or future members and it will not apply to the
removal of a director under s. 168
■ Re R W Peak (Kings Lynn) Ltd [1998] BCC 596 [no application where there was a
purchase by the company of a member’s shares]
■ See Sealy and role today with new written resolution procedure
Conduct of general meetings
■ Show of hands: s. 284(2) each member present has one vote without regard to other
factors, such as the number of shares held by him or her
■ Poll: s. 284(3) on a vote on a resolution on a poll taken at a meeting…in the case of a
company having a share capital, every member has one vote in respect of each share
■ S. 321 restricts the ability of the articles to exclude the right to demand a poll
■ Proxy voting: s. 285 members have the right to appoint a proxy “to exercise all or any
of his rights to attend and to speak and vote at a meeting of the company”: s. 324
