15th August 2022
15th August 2022
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4.8 - 2 votes
A shareholder as the name suggests is an entity that is the legal owner of shares in a private or public company. A shareholder can be either an individual or a company.
The shareholders of a company are also referred to as members, subscribers or owners.
Since shareholders are owners of the company, they also have to be involved in the company's decision-making. In order to make these decisions, shareholders have to hold meetings where they vote on issues and reach a resolution on the direction the company will take. Although directors are employed to make day-to-day management decisions that concern the company, the shareholders are the ones who make the overarching decisions that shape the way the company will operate in the larger picture. For example, it is the shareholders who meet and decide matters such as the appointment of directors who will serve the company, change in the company's business, change in company's name, approval of large expenses that exceed a certain amount of money and so on.
A resolution refers to proposals submitted by shareholders to be voted on at shareholders' meetings. In other words, shareholders recommend the proposal, and a resolution to that effect is addressed at the meeting and then voted on. If a prescribed majority of the shareholders vote in favour of the resolution, then the resolution will pass. Alternatively, if a prescribed majority of the shareholders vote against the resolution, the resolution will not pass.
A special resolution is a resolution that requires at least a 75% majority of the shareholders to vote in favour of it. If voting is taking place by a show of hands (i.e. one hand equals one vote), then at least 75% of the voting shareholders have to vote in favour of the resolution. If voting is taking place on a poll (i.e. by reference to the shares owned by each shareholder), then at least 75% of the shareholders representing the total voting rights of the members have to vote in favour of the resolution.
An ordinary resolution is a resolution that requires at least a simple majority (50.1%) of the shareholders to vote in favour of it. If voting is taking place by a show of hands (i.e. one hand equals one vote), then at least a simple majority of the voting shareholders have to vote in favour of the resolution. If voting is taking place on a poll (i.e. by reference to the shared owned by each shareholder), then at least a simple majority (50.1%) of the shareholders representing the total voting rights of the members have to vote in favour of the resolution.
There are two ways the Shareholders can make decisions about their company:
Shareholders' general meetings are sub-divided into two types namely:
Annual General Meeting
As the name suggests, an annual general meeting is held once a year where particular information is provided to all shareholders and important decisions are taken. More often, it is public companies (PLC) that hold AGMs and there is no statutory requirement under the Companies Act 2006 for private companies (LTD). Nonetheless, some private companies have AGMs as they are of importance to their business. At an AGM, the shareholders vote on issues concerning the company such as appointing persons to the company's board of directors and dividend payments.
A private company may choose to hold AGMs where the shareholders in the company are not all directors of the company. Hence, it gives those shareholders who are not on the board of directors, the opportunity to ask the directors questions at least once a year about the company strategy and the company's finances.
General Meeting
Simply put, any shareholders' meeting that is not an AGM will be classified as a general meeting (GM). Under the Companies Act 2006, companies are only required to hold GMs, but they can choose to hold AGMs if it is required by their articles of association. The GM is usually held when it is required for the shareholders to decide on any matter that requires their approval under statute or under the company's articles. The same kind of matters decided at an AGM can also be deliberated at a GM.
General Meetings were previously referred to as Extraordinary General Meetings. Some companies still refer to them using this terminology. Public companies still use the term as a way of differentiating between an AGM and a normal GM.
Written Resolutions serve as an alternative to calling general meetings. A company can circulate a written resolution to its shareholders. Written Resolutions serve as a common way for private companies to reach decisions as it is not as tedious as holding a general meeting. This is because a written resolution does not require any of the shareholders to meet face to face which makes it quicker and more cost-effective for the company.
The Companies Act 2006 however precludes public companies from using a written resolution procedure. On the other hand, private companies are always permitted to have written resolutions except where a director is being dismissed or where the company's auditors are being dismissed. The idea behind this is that the directors or auditors being dismissed have the opportunity to state their case before being dismissed.
Having these in mind, it is important to understand the procedure of calling and conducting a shareholders' meeting. A shareholders' meeting (AGM and GM) has to be called by either the directors or the shareholders of the company.
Directors call for a shareholders' general meeting by passing a board resolution at a directors' board meeting.
The shareholders of a company can call a shareholders' general meeting by asking the directors (or board of directors) to call the shareholders' general meeting. Although shareholders have such authority, in reality, it is rarely used as the directors would generally call shareholders general meetings at the normal intervals.
For a shareholder's meeting to hold, the following steps must be followed:
All the shareholders of the company must be given notice in advance of the meeting so that they can get themselves prepared for the meeting and consider how they will vote on the matters proposed at the meeting. The notice of a shareholder's meeting should be given to every shareholder, every director of the company, the personal representative(s) of a deceased shareholder and the trustee(s) in bankruptcy of a bankrupt shareholder. Notice of the shareholder's meeting must also be given to the company's auditors. The company's articles may also make provisions on who is to receive a notice and who is to be excluded.
Notice of the shareholders' meeting can be given either in hard-copy (on paper) or electronically (e.g. email or fax). It can also be found on the company's website or a combination of the methods can be used to inform all attendees. A hard-copy notice can be given in person or sent by post to the shareholders' or directors' address contained in the company's register of members or directors. For a notice to be valid, it must contain the following information:
Proxy: while all shareholders should endeavour to attend the shareholders' meeting, there may be circumstances where a shareholder is unable to attend a shareholders' meeting in person. A proxy is a person who is appointed by the absent shareholder to act and vote on their behalf at the shareholders' meeting. A statement of proxy then is a statement that tells a shareholder that if they cannot attend or do not wish to attend the shareholders' meeting in person, they can appoint someone else to act as their proxy and the proxy does not need to be a member (shareholder) of the company.
A notice does not need to conform to any particular format. As long as it contains the required information, it will count as a valid notice.
Shareholders need to be given at least 14 'clear' days notice of a shareholders' meeting. The term 'clear' days means that the day the notice is given and the day that the shareholders' meeting is to hold are not counted as part of the number of days' notice. Hence, the 14 days notice will begin from the day after the notice of the shareholders' meeting is given, and the meeting will hold on the day after the 14 days have expired. If the company is a public company, reference should be made to the Companies Act 2006, sections 306 and 307A as the rules are more complex than that of a private company.
In some situations, however, the normal notice period may be too long to follow. For example, where there is an impromptu pressing matter that the shareholders wish/need to address. In such an instance, short notice can be utilised. A short notice refers to any notice that is shorter than the required notice period (14 clear days in the case of private companies). The shareholders have to consent to a short notice being used to call a shareholders' meeting using the following conditions:
A quorum refers to the minimum number of shareholders required to attend a shareholders' meeting in order for the resolutions to be validly passed at the shareholders' meeting. Generally, a quorum only requires two shareholders to attend the shareholders' meeting (except the company only has one shareholder) but this number can be amended by the company's articles. A company can also increase the number of shareholders needed to constitute a quorum by a special resolution.
When a shareholders' meeting is starting, a quorum must be formed and remain for the duration of the meeting. If a quorum ceases to exist during the meeting, for example people leave the meeting and less than two (or the required number) shareholders remain at the meeting, the chairman should adjourn the meeting to a later date.
A chairperson should be appointed to preside over or conduct the shareholders' meeting. It is usually the person who serves as the chairperson of the board of directors meeting who also serves as the chairperson of the shareholders' meeting. The chairperson of the meeting can be elected through an ordinary resolution at a shareholders' meeting subject to the provisions of the company's articles. A proxy can also be elected as chairperson of the shareholders' meeting unless the company's articles do not permit such. The job of the chairperson is as follows:
At a quorate meeting, the shareholders may take decisions by voting on resolutions at the meeting. Voting can be done either by show of hands or through a poll vote. By voting through a show of hands, each shareholder has one vote. Whereas, on a poll vote each shareholders has one vote for every share that he or she owns. A shareholder's proxy may vote in either type of voting used. Shareholders who own a majority of the shares in a company will usually prefer to vote on a poll as they can rely on the number of shares they have and the voting rights it grants them. The company, through its directors, will act on the resolutions that the shareholders vote on at the shareholders' meeting.
There are perks to being a shareholder such as being an owner, sharing profits, getting dividend payments amongst other perks. It is always important to remember that along with those perks, also come responsibilities. Shareholders cannot just sit back and watch directors run the company. Shareholders cannot also look to just blame the directors if the company is not doing well. It is therefore necessary for shareholders to be involved in the decision making process of the company and know how they are to exercise their right to make those decisions. Shareholders' meetings (AGM and GM) give the shareholders the opportunity to be involved in those decisions and have a say on the direction that the company takes. Appreciating the need for the shareholders' meeting and knowing how to hold a valid one are therefore important parts in the life of a company.