Company Meetings and Resolutions

Company Meetings:

Gatherings of shareholders or directors to discuss and decide on company matters.

Types of company meeting:

Company meetings may be:

• Class meetings, or
•  General meetings.

General meetings may be:

• An annual general meeting or
• An extraordinary general meeting.

 Class meetings:

If a company has more than one class of shareholders, it may occasionally be necessary to call a meeting of a particular class of shareholders. A class meeting is called to ask the class of shareholders to vote on a matter that affects them, for which their approval is required.

 General meetings:

A general meeting is a meeting of the shareholders (‘members’) of the company who are entitled by the company’s constitution to attend and vote at such meetings.

Usually, the ordinary shareholders of a company have the right to attend and vote at general meetings, but preference shareholders do not (provided that their dividend payments are not in arrears).

General meetings allow the members to make decisions on matters of importance, and restrict the powers of the directors.

For example, the members in general meeting may:

• Hold the directors to account
• Remove directors from office
• Restrict the powers of the directors by altering articles of association of the company
• Resolve any differences between the shareholders themselves.

However the power of the shareholders in general meeting is often fairly limited.

• Resolutions at general meetings are usually proposed by the directors. Individual shareholders, or a number of shareholders acting together, may have the right to propose resolutions that all the members will vote on, but it is unusual for shareholders to exercise this right.
• Many of the resolutions voted on by the members, particularly at annual general meetings, are routine. The approval of resolutions is therefore often a formality, where the company is simply complying with procedures required by law.

General meetings are usually chaired by the chairman of the board of directors, and other directors also attend. However, the directors do not have a right to vote at a general meeting unless they are also a member of the company. They can then vote at the meeting as a member.

Quorum for a General meeting:

The articles of association may specify the minimum number of members who must attend a general meeting in order to have a quorum. Unless a quorum is obtained, the meeting cannot be held.

In the absence of any other specification in the articles, a quorum consists of two members (or individuals representing a member at the meeting as a proxy). However, there are situations where a general meeting or a class meeting can be held with a quorum of just one member. These include situations where:

• There is just one shareholder in the class of shares for which the meeting is held; for example when there is a company with just one member.
• The court makes an order that a general meeting should be held with a quorum of one (an example is given later).

The Right to call General meetings:

Various persons may have the right to call a general meeting. The right to call a general meeting is normally exercised by the board of directors. However, in certain circumstances, a general meeting may be called by:

•  A shareholder or group of shareholders
• The company’s auditors
• The court.

The directors are given the power to call general meetings by the articles of association of the company. The Companies Act (s656 CA2006) requires the directors of a public company to call a general meeting if the net assets fall below half the called up share capital, so that the members can discuss the state of affairs of the company.

The members of the company can require the directors to call a general meeting, provided that the shareholders who requisition the meeting own at least 10% of the voting shares in the company (s303 CA2006). If the directors fail to hold a meeting that shareholders have demanded in this way, the shareholders themselves then have the right to call the meeting (and recover any related expenses from the company).

The auditors of the company have a right to require the directors call a general meeting of the company, if they resign as auditors. At this meeting, they can explain to the members the reasons for their resignation (s518 CA2006).

In some cases, the court may order the company to hold a general meeting when it is impracticable for anyone else to call a meeting in any other way.

Chairman of a General meeting:

The chairman of a general meeting is usually the chairman of the board of directors. In his absence, another member of the board usually acts as the chairman. If necessary, the members can appoint any member to act as chairman.

The chairman is therefore responsible for the conduct of the meeting. Each item on the agenda is taken in turn and discussed. Where appropriate, a vote is taken on a resolution when the matter has been discussed.

Resolutions:

Decisions are taken by members in a general meeting by making proposals for a resolution and voting on them. Each resolution is voted on separately. Depending on the type of resolution, a minimum size of majority is required for the resolution to be passed (and the proposal accepted).

Under the provisions of the Companies Act 1985, the main types of resolution were

• Ordinary resolution
•  Special resolution
• Extraordinary resolution.

There were also written resolutions and elective resolutions, which were somewhat different in nature. The Companies Act 2006 abolished extraordinary resolutions and elective resolutions, so now there are ordinary resolutions, special resolutions and written resolutions.

 Ordinary resolutions:

An ordinary resolution is passed if it receives the support of a simple majority. This is a majority of the members attending the meeting or who are represented at the meeting by a proxy.

The articles of association of the company should specify matters for which an ordinary resolution of members is required. As a general rule, ordinary resolutions are sufficient for fairly ‘routine’ decisions and relatively unimportant decisions.

Some ordinary resolutions require ‘special notice’. This requirement may arise when one or more shareholders wish to propose a resolution at a general meeting. Special notice must be given by the members concerned to the company 28 days before the meeting. This is to give the directors and the auditors sufficient warning of the proposed resolution. Two areas that require special notice are as follows:

• A proposal by members for the removal of a director
• A proposal by members to remove the auditors before their term of office has expired, or to re-elect at the AGM any auditor other than the retiring auditor.

Special resolutions:

A special resolution is passed if it receives the support of at least 75% of the members who attend and vote (in person or by proxy).

The law specifies situations where a special resolution of the members is required. Examples where the approval of the members of a company is required by special resolution are special resolutions to:

•  Alter the company’s articles of association
•  Change the company’s name
•  Reduce the company’s share capital
•  Re-register a private company as a public company
• Re-register a public company as a private company
• Authorise an off-market purchase of the company’s shares.

 Written resolutions in private companies:

Private companies are permitted to pass resolutions by written agreement, without the need to call a general meeting of the shareholders. Written resolutions can be used, instead of resolutions at general meetings, for making any decisions except the removal of a director or the removal of the auditors.

When a private company wishes to pass a written resolution:

• There is no need to call a general meeting of the company, and
• There is no need to give any notice of the intention to pass a written resolution.

The Companies Act 2006 made it much easier than before for private companies to use written resolutions and dispense with the need for general meetings entirely except in special circumstances (such as when there is a proposal to dismiss a director or dismiss the auditors before expiry of their term of office, for which written resolutions cannot be made).

There are two types of written resolution:

• An ordinary written resolution. This is like an ordinary resolution at a general meeting, and requires a simple majority of the members who are eligible to vote.
• A special written resolution. This is like a special resolution at a general meeting, and requires a majority of at least 75% of the members who are eligible to vote.

The key elements of the new written resolution procedure are as follows:

• A written resolution can be proposed by the directors, or by members holding at least 5% of the voting rights.
• A written resolution can be communicated to members in either hard copy or electronic form, depending on the arrangements that it has made for electronic communications with its members.
• A written resolution does not have to be physically signed by each member. A member is treated as signifying his agreement to a written resolution when the company receives from him an authenticated document (which may be in hard copy form or electronic form) indicating his agreement to the resolution.
• A proposed written resolution lapses if it does not obtain the required majority before the end of a period specified for its acceptance (which ought to be specified in the articles, or is otherwise 28 days after its initial circulation to members).
• When members propose a written resolution, a statement of up to 1,000 words may be sent out with the proposed resolution when it is circulated.

The reduction in the required majority for a written resolution and the ability to circulate resolutions and acceptances electronically mean that private companies should in future use written resolutions for most members’ decisions, and avoid the need for general meetings entirely (including AGMs) except in special circumstances.

Methods of voting at General meetings

Resolutions are passed at a general meeting by means of a vote on each resolution individually. There are two methods that may be used to vote on resolutions at general meetings:

• By a show of hands of the members present at the meeting
• By a poll vote.

It is for the chairman to decide how the business of the meeting should be conducted. Normal procedure is for the chairman to take a vote on a show of hands. If the vote is divided, the chairman will then go on to take a poll vote. However, poll votes may be time-consuming, especially when there are many shareholders, and the chairman will usually want to avoid these if possible.

 Voting by a show of hands:

When a vote is taken by a show of hands, each member present at the meeting has one vote. The chairman of the company (who chairs the general meeting) calls for a show of hands to vote on a resolution, and declares the result of the vote.

Voting by a show of hands is quick and simple when there only a small number of members are present at the meeting. It is also a convenient method of voting for non-controversial resolutions where unanimous agreement is expected.

The disadvantages of voting by a show of hands are as follows:

• A member owning 100,000 shares has only the same voting power as a member with 1 share.
• A small group of members acting together can attend a meeting and win a vote on a share of hands, against the recommendation of the board of directors.

 Voting by poll:

In a poll vote, each member usually has one vote for each share that he or she holds. This means, for example, that a member with 100,000 shares has 100,000 votes, whereas a member with one share has just one vote.

In addition, the member does not have to attend the meeting personally in order to vote. Members can nominate a proxy, who is authorised to vote on their behalf.

 Proxies

A member of a company who is entitled to attend and vote at a general meeting has the right to appoint an agent, called a ‘proxy’, to attend and vote for him.

• Proxies can vote on a show of hands as well as vote in a poll vote on behalf of the member.
•  A proxy does not have to be a member of the company.
• A proxy might be a specially-appointed person who attends the meeting in place of the member. Under the provisions of the Companies Act 2006 proxies can speak at general meetings on behalf of the absent member.
• In practice, members often appoint the chairman of the board of directors to act as their proxy.

The articles of a company allow members, if they wish, to instruct their proxy how to vote in a poll on each individual resolution. The instruction to the proxy will be to vote in favour of the resolution or against. A third option is to instruct the proxy to abstain from voting on a particular resolution, and the ‘abstain’ option is now included in the proxy voting forms of UK listed companies as a ‘positive’ voting option.

Where the members appoint the chairman of the board of directors, or any other director of the company, to act as their proxy, the instructions on how to vote on each resolution may be submitted to the company before the meeting:

• Voting by proxy: in writing, on ‘proxy cards’ that are sent to shareholders before the general meeting: a proxy card lists the resolutions that will be voted on at the meeting, and provides space for the member to indicate how he wishes to vote on each resolution; or
• Electronically: nearly all quoted companies now allow shareholders to submit proxy votes electronically using the company’s website.

An advantage of submitting proxy votes in advance of a general meeting is that this gives the company time to count the proxy votes before the meeting is held. This saves time at the meeting. It also allows the chairman to judge the opinion of the shareholders in advance of the meeting, and make a decision about whether to call for a poll vote or a vote by a show of hands.

Written by: Mahnoor Maqbool, Bright Student of ACCA