III. COMPANY LAW
SHAREHOLDERS AND DIRECTORS: ROLE, POWERS AND DECISION MAKING
1. GENERAL PRINCIPLES
• A key principle of company law is that articles of association may deal with any matter which is not,
or to the extent that it is not, otherwise regulated. The precise division of power within a company is
therefore a matter determined by the articles of association, subject to provision in CA 2006.
• Every company will have directors (s.154, CA 2006) and members (s.112, CA 2006).
• Traditionally, companies have been viewed as a ‘shareholder city state’ with most management
powers delegated to directors and shareholders fulfilling an oversight role through certain reserved
powers.
The traditional model of directorial accountability to shareholders depends heavily upon the ability of
the shareholders to review the performance of the board, and to take decisions if they think that
performance has not been adequate.
• The powers of directors under the Model Articles (for Ltd and plc) are set out in Articles 3 & 4:
3. Directors’ general authority
Subject to the articles, the directors are responsible for the management of the
company’s business, for which purpose they may exercise all the powers of the
company.
4. Members’ reserve power
(1) The members may, by special resolution, direct the directors to take, or
refrain from taking, specified action.
(2) No such special resolution invalidates anything which the directors have
done before the passing of the resolution.
2. THE MEMBERS OF THE COMPANY
2.1. Who is a ‘member’?
• Section 112: The subscribers of a company’s memorandum, and any other person who agrees to
become a member of the company.
• NB ‘Shareholders’ are not always members (e.g. in the case of a person who owns shares by
operation of law, such as the personal representative a deceased person), but the terms ‘members’
and ‘shareholders’ are often used interchangeably.
2.2. What are the rights of the members?
• Members are residual claimants on the assets of the company in the event of solvent winding-up and
may be entitled to receive a share of company profits through dividend payments (subject to rules in
the company’s articles and general rules of law etc.).
• Members have many other powers, such as power over:
The contents of the articles (s.21 CA 2006);
The appointment and removal of directors (s.168, CA 2006);
Ratifying breaches of duty by directors (s.239, CA 2006); and
, Generally any other matter reserved for the general meeting by statute or the company’s
articles.
• Not all members necessarily have the same rights. Through the creation of different ‘classes’ of
shares some members may have preferential voting rights on some or all resolutions as well as
preferential dividend and distribution rights.
3. THE MECHANICS OF DECISION MAKING BY MEMBERS
3.1. The General Meeting
• Section 284: Members, not shareholders, may vote at a general meeting.
• Section 303: Directors have the power to call a general meeting. However, 5% of voting (and paid-
up) members may also summon a meeting by making a request to directors (ss.303 & 304).
• Section 336: Public companies must hold an ‘Annual General Meeting’. Private companies are not
required to hold an ‘AGM’.
• Section 307-313: Notice of meetings
• In general, at least 14 days’ notice of a general meeting must be given to members, directors,
auditors and shareholders. Notice must state the time, date and venue of the meeting and the general
nature of the business to be transacted at the meeting.
• The minimum period of notice for an AGM of a public company is 21 days.
• Articles of association may provide for longer periods of notice than the statutory minimum, while
in certain circumstances the CA provides that a meeting may be called at short notice than the
statutory minimum.
• Section 306: The courts have a power to convene a meeting of members.
3.2. Rules for the Conduct of the General Meeting
• The articles of association typically play a leading role in setting out rules for the conduct of the
general meeting.
• The provisions of the Model Articles cover important matters such as the requirement for a quorum
at meetings, procedures for voting, and procedures for adjourning meetings.
For example section 318(2): two qualifying persons constitute a quorum except in a one-man company.
• A series of default and mandatory rules applicable to the running of the general meeting are also set
down in the Companies Act 2006.
3.3. Decision-Making by the Members: Resolutions
• Directors may propose resolutions when calling a general meeting. Members also have some limited
powers to propose resolutions.
• In order to facilitate decision-making in private companies, the Companies Act allows private
companies to take decisions by written resolutions i.e. without the need for a meeting.
• In general a private company may do anything by written resolution that it is permitted to do by
resolution in a general meeting.
SHAREHOLDERS AND DIRECTORS: ROLE, POWERS AND DECISION MAKING
1. GENERAL PRINCIPLES
• A key principle of company law is that articles of association may deal with any matter which is not,
or to the extent that it is not, otherwise regulated. The precise division of power within a company is
therefore a matter determined by the articles of association, subject to provision in CA 2006.
• Every company will have directors (s.154, CA 2006) and members (s.112, CA 2006).
• Traditionally, companies have been viewed as a ‘shareholder city state’ with most management
powers delegated to directors and shareholders fulfilling an oversight role through certain reserved
powers.
The traditional model of directorial accountability to shareholders depends heavily upon the ability of
the shareholders to review the performance of the board, and to take decisions if they think that
performance has not been adequate.
• The powers of directors under the Model Articles (for Ltd and plc) are set out in Articles 3 & 4:
3. Directors’ general authority
Subject to the articles, the directors are responsible for the management of the
company’s business, for which purpose they may exercise all the powers of the
company.
4. Members’ reserve power
(1) The members may, by special resolution, direct the directors to take, or
refrain from taking, specified action.
(2) No such special resolution invalidates anything which the directors have
done before the passing of the resolution.
2. THE MEMBERS OF THE COMPANY
2.1. Who is a ‘member’?
• Section 112: The subscribers of a company’s memorandum, and any other person who agrees to
become a member of the company.
• NB ‘Shareholders’ are not always members (e.g. in the case of a person who owns shares by
operation of law, such as the personal representative a deceased person), but the terms ‘members’
and ‘shareholders’ are often used interchangeably.
2.2. What are the rights of the members?
• Members are residual claimants on the assets of the company in the event of solvent winding-up and
may be entitled to receive a share of company profits through dividend payments (subject to rules in
the company’s articles and general rules of law etc.).
• Members have many other powers, such as power over:
The contents of the articles (s.21 CA 2006);
The appointment and removal of directors (s.168, CA 2006);
Ratifying breaches of duty by directors (s.239, CA 2006); and
, Generally any other matter reserved for the general meeting by statute or the company’s
articles.
• Not all members necessarily have the same rights. Through the creation of different ‘classes’ of
shares some members may have preferential voting rights on some or all resolutions as well as
preferential dividend and distribution rights.
3. THE MECHANICS OF DECISION MAKING BY MEMBERS
3.1. The General Meeting
• Section 284: Members, not shareholders, may vote at a general meeting.
• Section 303: Directors have the power to call a general meeting. However, 5% of voting (and paid-
up) members may also summon a meeting by making a request to directors (ss.303 & 304).
• Section 336: Public companies must hold an ‘Annual General Meeting’. Private companies are not
required to hold an ‘AGM’.
• Section 307-313: Notice of meetings
• In general, at least 14 days’ notice of a general meeting must be given to members, directors,
auditors and shareholders. Notice must state the time, date and venue of the meeting and the general
nature of the business to be transacted at the meeting.
• The minimum period of notice for an AGM of a public company is 21 days.
• Articles of association may provide for longer periods of notice than the statutory minimum, while
in certain circumstances the CA provides that a meeting may be called at short notice than the
statutory minimum.
• Section 306: The courts have a power to convene a meeting of members.
3.2. Rules for the Conduct of the General Meeting
• The articles of association typically play a leading role in setting out rules for the conduct of the
general meeting.
• The provisions of the Model Articles cover important matters such as the requirement for a quorum
at meetings, procedures for voting, and procedures for adjourning meetings.
For example section 318(2): two qualifying persons constitute a quorum except in a one-man company.
• A series of default and mandatory rules applicable to the running of the general meeting are also set
down in the Companies Act 2006.
3.3. Decision-Making by the Members: Resolutions
• Directors may propose resolutions when calling a general meeting. Members also have some limited
powers to propose resolutions.
• In order to facilitate decision-making in private companies, the Companies Act allows private
companies to take decisions by written resolutions i.e. without the need for a meeting.
• In general a private company may do anything by written resolution that it is permitted to do by
resolution in a general meeting.
