BUSINESS LAW AND PRACTICE: SGS 13-26: REVISION SUMMARY
TRANSACTIONS REQUIRING SHAREHOLDER APPROVAL: OVERVIEW
(1) Nature of Company – Type of company involved determines legal rules which are applicable:
(a) Private Companies NOT Associated with Plc – Only covered by s.197 Companies Act 2006.
(b) Public Companies + Private Companies Associated with Plc – Covered by ss.197/198/200/201 Companies
Act 2006.
- Companies Act 2006 s.256: Associated Companies – 2 companies are ‘associated’ if one is the subsidiary of the
other OR they are both subsidiaries of the same holding company.
(2) Nature of the Transaction – Type of transaction proposed will determine which, if any, legal rules applicable:
(a) Loan – s.197 Companies Act 2006 + s.200(2)(a) Companies Act 2006.
(b) Quasi-loan – s.198 Companies Act 2006 + s.200(2)(a) Companies Act 2006.
(c) Credit transaction or guarantee/security for a credit transaction – s.201 Companies Act 2006.
(d) Guarantee/security for a loan/quasi-loan – s.197(1)(b) + s.198(2)(b) + s.200(2)(b) Companies Act 2006.
(3) Who is the Transaction With? - Who is the other party to the transaction with the company:
(a) director of company (ss.197/198/200/201 Companies Act 2006)
(b) director of the company’s holding company (ss.197/198/201 Companies Act 2006)
(c) person connected with a director of the company/holding company (ss.200/201 Companies Act 2006)
(4) Shareholder Approval – Is an ordinary resolution of the shareholders required in order to approve the proposed
transaction:
(a) Companies Act 2006 s.197 – ALL COMPANIES – loan + guarantee/security to director of company/holding
company.
(b) Companies Act 2006 s.198 – PUBLIC COMPANIES + ASSOCIATED PRIVATE COMPANIES – quasi-loan
+ security/guarantee for a quasi-loan to director of company/holding company.
(c) Companies Act 2006 s.200 – PUBLIC COMPANIES + ASSOCIATED PRIVATE COMPANIES – loan/quasi-
loan + guarantee/security for loan/quasi-loan to person connected to director of company/holding company.
(d) Court of Appeal s.201 – PUBLIC COMPANIES + ASSOCIATED PRIVATE COMPANIES – credit
transaction + guarantee/security for loan/quasi-loan to director of company/holding company OR person connected
to director of company/holding company.
- Approval of Holding Company – Where transaction with director of holding company OR person connected to
director of the holding company, an ordinary resolution of the holding company is required to approve the proposed
transaction.
- Wholly-Owned Subsidiaries – No need for approval by shareholders where the company is a wholly-owned
subsidiary (as defined in s.1157(2) Companies Act 2006) BUT may still require approval by way of ordinary
resolution of holding company if transaction is with a director of holding company/person connected to director of
holding company.
(5) Which Company? – Which company must obtain shareholder approval in the form of an ordinary resolution:
(a) Company – Transaction with a director of the company/director of holding company OR with person connected
to director of company/holding company where the company is NOT a wholly-owned subsidiary.
(b) Holding Company – Transaction between subsidiary company and director of holding company or person
connected with the holding company regardless of whether/not the subsidiary company is a wholly-owned
subsidiary.
(c) Wholly-Owned Subsidiary Exception – Approval of members of a wholly-owned subsidiary (as defined under
Companies Act 2006 s.1157(2)) NOT required – means that either no approval OR approval only of the
shareholders of the holding company will be necessary.
(6) Exceptions – Do any of the statutory exceptions apply to negate any requirement for shareholder approval:
(a) Companies Act 2006 s.204 – Expenditure on company business.
(b) Companies Act 2006 s.205 – Expenditure on defending proceedings.
(c) Companies Act 2006 s.206 – Expenditure in relation to regulatory actions/regulatory proceedings.
(d) Companies Act 2006 s.207 – Exceptions for minor transactions + credit transactions in the ordinary course of
the company’s business.
(e) Companies Act 2006 s.208 – Intra-group transactions.
(f) Companies Act 2006 s.209 – Transactions by money-lending company in ordinary course of the company’s
business.
(7) Non-Compliance – Consequences of non-compliance with the requirement for shareholder approval:
- Companies Act 2006 s.213(2) – Transaction VOIDABLE at the instance of the company subject to specified bars
to rescission.
- Companies Act 2006 s.213(3)-(4) – Liability of specified persons to indemnify the company for loss + account
for any gain resulting from the transaction SUBJECT TO the defences in s.213(6)-(7) Companies Act 2006.
- Companies Act 2006 s.214 – Transaction entered into in contravention of ss.197/198/200/201/203 will NOT BE
VOIDABLE under s.213(2) IF within a REASONABLE PERIOD it is AFFIRMED:
(a) in case of breach of requirement for resolution of company, by a RESOLUTION OF MEMBERS OF THE
COMPANY; or
(b) in case of breach of requirement for resolution of holding company, by a RESOLUTION OF MEMBERS
OF THE HOLDING COMPANY.
1
TRANSACTIONS REQUIRING SHAREHOLDER APPROVAL: OVERVIEW
(1) Nature of Company – Type of company involved determines legal rules which are applicable:
(a) Private Companies NOT Associated with Plc – Only covered by s.197 Companies Act 2006.
(b) Public Companies + Private Companies Associated with Plc – Covered by ss.197/198/200/201 Companies
Act 2006.
- Companies Act 2006 s.256: Associated Companies – 2 companies are ‘associated’ if one is the subsidiary of the
other OR they are both subsidiaries of the same holding company.
(2) Nature of the Transaction – Type of transaction proposed will determine which, if any, legal rules applicable:
(a) Loan – s.197 Companies Act 2006 + s.200(2)(a) Companies Act 2006.
(b) Quasi-loan – s.198 Companies Act 2006 + s.200(2)(a) Companies Act 2006.
(c) Credit transaction or guarantee/security for a credit transaction – s.201 Companies Act 2006.
(d) Guarantee/security for a loan/quasi-loan – s.197(1)(b) + s.198(2)(b) + s.200(2)(b) Companies Act 2006.
(3) Who is the Transaction With? - Who is the other party to the transaction with the company:
(a) director of company (ss.197/198/200/201 Companies Act 2006)
(b) director of the company’s holding company (ss.197/198/201 Companies Act 2006)
(c) person connected with a director of the company/holding company (ss.200/201 Companies Act 2006)
(4) Shareholder Approval – Is an ordinary resolution of the shareholders required in order to approve the proposed
transaction:
(a) Companies Act 2006 s.197 – ALL COMPANIES – loan + guarantee/security to director of company/holding
company.
(b) Companies Act 2006 s.198 – PUBLIC COMPANIES + ASSOCIATED PRIVATE COMPANIES – quasi-loan
+ security/guarantee for a quasi-loan to director of company/holding company.
(c) Companies Act 2006 s.200 – PUBLIC COMPANIES + ASSOCIATED PRIVATE COMPANIES – loan/quasi-
loan + guarantee/security for loan/quasi-loan to person connected to director of company/holding company.
(d) Court of Appeal s.201 – PUBLIC COMPANIES + ASSOCIATED PRIVATE COMPANIES – credit
transaction + guarantee/security for loan/quasi-loan to director of company/holding company OR person connected
to director of company/holding company.
- Approval of Holding Company – Where transaction with director of holding company OR person connected to
director of the holding company, an ordinary resolution of the holding company is required to approve the proposed
transaction.
- Wholly-Owned Subsidiaries – No need for approval by shareholders where the company is a wholly-owned
subsidiary (as defined in s.1157(2) Companies Act 2006) BUT may still require approval by way of ordinary
resolution of holding company if transaction is with a director of holding company/person connected to director of
holding company.
(5) Which Company? – Which company must obtain shareholder approval in the form of an ordinary resolution:
(a) Company – Transaction with a director of the company/director of holding company OR with person connected
to director of company/holding company where the company is NOT a wholly-owned subsidiary.
(b) Holding Company – Transaction between subsidiary company and director of holding company or person
connected with the holding company regardless of whether/not the subsidiary company is a wholly-owned
subsidiary.
(c) Wholly-Owned Subsidiary Exception – Approval of members of a wholly-owned subsidiary (as defined under
Companies Act 2006 s.1157(2)) NOT required – means that either no approval OR approval only of the
shareholders of the holding company will be necessary.
(6) Exceptions – Do any of the statutory exceptions apply to negate any requirement for shareholder approval:
(a) Companies Act 2006 s.204 – Expenditure on company business.
(b) Companies Act 2006 s.205 – Expenditure on defending proceedings.
(c) Companies Act 2006 s.206 – Expenditure in relation to regulatory actions/regulatory proceedings.
(d) Companies Act 2006 s.207 – Exceptions for minor transactions + credit transactions in the ordinary course of
the company’s business.
(e) Companies Act 2006 s.208 – Intra-group transactions.
(f) Companies Act 2006 s.209 – Transactions by money-lending company in ordinary course of the company’s
business.
(7) Non-Compliance – Consequences of non-compliance with the requirement for shareholder approval:
- Companies Act 2006 s.213(2) – Transaction VOIDABLE at the instance of the company subject to specified bars
to rescission.
- Companies Act 2006 s.213(3)-(4) – Liability of specified persons to indemnify the company for loss + account
for any gain resulting from the transaction SUBJECT TO the defences in s.213(6)-(7) Companies Act 2006.
- Companies Act 2006 s.214 – Transaction entered into in contravention of ss.197/198/200/201/203 will NOT BE
VOIDABLE under s.213(2) IF within a REASONABLE PERIOD it is AFFIRMED:
(a) in case of breach of requirement for resolution of company, by a RESOLUTION OF MEMBERS OF THE
COMPANY; or
(b) in case of breach of requirement for resolution of holding company, by a RESOLUTION OF MEMBERS
OF THE HOLDING COMPANY.
1
