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Types of meetings in companies

Explain what must be done and by whom, to ensure that the validity of a meting and of the decisions taken are beyond legal challenge.

Structure: Issues, Legal rules and application

Introduction:

  1. Objectives of company meetings
  2. Types of meetings
  3. Notice of meetings
  4. Management and Procedures of company meetings

Analysis

The control of a company’s affairs is determined by the business laid before and carried out at the respective company meetings. This is particularly true at the general meeting of shareholders the members have right to either accept and approve or reject matters under consideration and ultimately control the affairs of the company. Generally the shareholders of the company tend to take a very passive role unless their investment is under threat.

The main objective of the company meeting is to ensure all the legal requirements and technicalities are met and meetings are managed efficiently. This is to ensure that there is a required quorum present at the meeting and voting rights of each shareholder are adhered to.

Every company has to have a general meeting every year unless it is exempted. The shareholders have a power to approve or reject the directors’ decision. The reason for shareholders having this ability is because the directors are treated as agents of the company and therefore body of shareholders can exert control over them.

As far as the directors’ meetings are concerned these can be called very informally and any of the directors can request such a meeting. However, the position regarding the general meeting is lot more complicated. The reason being the rules governing this area of company law are partly statutory and partly dependent on the provisions of the company’s own articles of association. The shareholders’ voting rights are protected by the statutory rules which entitle them to call meetings. This right is set in section 368 of the Act.[1]

Annual General Meetings (“A G M”)

Duties of directors are two fold: those duties which are derived from common law sources and duties which are bestowed upon him by Statute. Under common law duties, the director has a fiduciary duty of a trustee and as an agent of the company he has a duty of care and skill.

Section 366 of the Companies Act 1989 (“The Act”) requires every company to hold A G M every year. For a newly formed company the first A G M needs to be held within 18 months. In any case there must not be more than fifteen months gap between A G Ms. A private company has an option to elect to dispense with the holding of A G M. It is a responsibility of the directors of the company to ensure timely meetings are convened in order to comply with these requirements. If a director fails to do that then a member of the company can complain to the Secretary of State, who in turn requires a company to convene a meeting[2]. Pursuant to section 366 (4) of the Act failure to comply with these requirements renders the officer of the company or a director liable to a fine.

A 21 clear days notice must be given to all those who are entitled to attend the meeting. It is possible to convene a meeting at a short notice if all those members agree to it. It is usual to transact business at A G M by passing various resolutions. An A G M is necessary to approve annual accounts laid before it, to approve or reject reappointment of directors, reappointment of auditors and the approval of decision to declare final divided.

The exception to this rule is a private company which elects to dispense with holding an A G M by passing an Elective resolution to that effect[3]. Such a resolution is only effective in the year in which the resolution is passed and in the following years but the resolution does not have any effect retrospectively and therefore any defaults in holding A G M in the previous years may still incur a liability for the directors. If there is more than one member who are entitled to attend and vote at the A G M may require the company to hold such a meeting by giving three months notice before the end of that year. However, if there are less than three months remained before the end of the year and the elective resolution is not in effect then the directors need not hold an A G M unless a member has given such a notice. In addition to this if such an elective resolution is passed then, final divided needs to be approved by the company’s members either at a general meeting or by written resolution.

Extra Ordinary General Meeting (“E G M”)

All other meetings which are not A G Ms are E G Ms. If the company is using Table A as its Articles of Association then Article 37 of Table A entitles the directors of the company to convene such a meeting depending up on the importance of the business to be transacted. In addition to this holders of one tenth of voting shares at a general meeting can require the directors to convene such a meeting pursuant to section 368 of the Act. The requisition should state the objects of the meetings. The directors then have 28 days to convene such a meeting from the issue of the notice. If the directors fail to take necessary steps to call the meeting within 21 days then those shareholders who have requisitioned such a meeting may call the meeting themselves at the company’s expense. It is necessary to convene such a meeting within that time limit although it is allowed if the meeting is held after that time[4]. In a small company this does not pose a problem as directors are generally willing to convene a meeting.

It should be noted that section 370 of the Act provides that ‘two or more members holding not less than one tenth of the issued share capital’ are entitled to call a meeting. The difference between the requirements of section 368 and 370 is there is no need for shares to represent one tenth of paid up share capital, it only needs to be one tenth of the issued share capital. In addition to this there is no requirement that these shares should carry a voting right.

Pursuant to section 142 of the Act the directors of a Public Limited company must call a meeting within 28 days if there is a serious loss of capital.

Quorum

Table A, regulation 40 requires that no business can be conducted at a general meeting unless there is a quorum of members. They must be qualified and present and take part in and decide upon the questions[5]. A quorum cannot be formed by a single member even if representing several shareholders. This was the decision in M J Shanley Contracting Ltd[6]. However, it was held, that one member constituted a class meeting as he had all the shares of a class in East v Bennett Bros Ltd [7]. Under section 367 and 371 the Secretary of State and Court may direct that one member can make a meeting and as a sole member of a single member company may constitute a meeting under quorum provisions of section 370A.

Regulation 41 of Table A provides for the adjournment of the meeting if the quorum is not present within 30 minutes of the meeting time. The directors then can decide upon the new time and place for the meeting to take place.

Depending upon the size of the company, generally it can be difficult to have enough number of people present at companies meetings in order to pass a resolution. To pass a resolution successfully there must be sufficient number of shareholders present at the meeting which is difficult especially in a small company where a shareholder and the director are one and the same person. Most companies need at least two shareholders or members to be present depending on the provisions contained in the Articles of Association of the company.

Notice of Meetings

Service of notice

A proper notice of the meeting must be given in order for the business at the meeting to be carried out properly. Section 370 (2) provides that’ notice of the meeting of a company shall be served on every member of it in the manner in which notices are required to be served by Table A’[8]. Please note that this is likely to change under the Government’s white paper on Modernising Company law. Article 38 states that a notice of general meetings must be given to all the members including directors and auditors and any such persons who are entitled to a share in case of a death or bankruptcy of a member. Article 39 if the company accidentally does not give notice to someone who is entitled to it, this act would not render the meeting as invalid.

The length of the notice depends on the type of meeting being held and also the resolutions proposed for that meeting. If the company has called an A G M then it requires giving 21 clear days’ notice, which means exclusive of the date of service and the date of the meeting, to its members. On the other hand if the company has convened an E G M then it must give 14 clear days’ notice to everyone who is entitled to attend such meeting. It should be noted if a special resolution or an elective resolution is proposed or a resolution to appoint a director under Table A is being proposed at the E G M then 21 days notice is required.

If all the members who are entitled to attend the meeting and vote at that meeting agree then a short notice may validly given as per section 369 (3) and article 38 of Table A. On the other hand where an E G M is convened the member with 95% of the voting shares who are also entitled to vote at that meeting must agree to short notice. Only the Board of Directors has the authority to call a meeting and not the Company Secretary or individual Directors. In Parker & Cooper Ltd v Reading[9] it was held that if the company has issued a notice which is improper however, everyone attends the meeting nonetheless, then the meeting can be considered valid. The notice in such a situation therefore made good, provided no one takes any objections. This decision was followed in Cane v Jones[10]

Agenda

For any type of meeting a sufficient length of notice must be given as well as the business that would be transacted at that meeting should be fully described in the notice in order to enable the members to decide whether or not to attend the meeting.

Conclusion

The responsibility to ensure that the company meetings are validly held and the decisions taken at such meetings are according to the rules laid down in the Companies Act, lies with the Directors. It is possible that they might delegate this task to somebody else in the company however; the buck will always stop with them. If they fail to give notice as required or fail to convene a meeting then they are liable for a fine. The directors are required to act in good faith and in the best interest of the company

Bibliography

  1. Company Law by Douglas Smith published by Butterworth Heinemann
  2. www.swarb.co.uk/lawb)Wrigley Clayton solicitors
  3. Company law by Janet Dine
  4. CCH Companies Act
  5. Business Law by Scott Slorach & Jason Ellis published by Blackstone Press

1


Footnotes

[1] Smith v Paringa Mines Limited 1906 2 CH 193 page 169 and Baron v Potter 1914 1 CH 895 page 170

[2] Section 367 (1) Companies Act 1985

[3] Section 366 Companies Act 1985

[4]

[5] POW Services LTD v Clare [1995] 2 BCLC 435

[6] 1979 124 SJ 239 page 161 Company law by Janet Dine

[7] 1911 1 Ch 163 page 221 Charles worth on Company Law

[8] Table A Articles dealing with notices are 38-39 and 111-116.

[9] 1926, www.web.apu.ac.uk/cbt

[10] 1980 1 ALL ER 533 Company law Charles worth and Morse page 232


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