LEGAL ADVICE FOR SHAREHOLDERS

General meetings are meetings of the company’s shareholders. Whilst the company directors may call a general meeting at any time for any reason shareholders can also request a general meeting, subject to conditions (i.e. those requesting the meeting must represent at least 5% of the company’s paid up share capital or, if there is no paid up capital, 5% of the voting rights). The directors must call a general meeting within 21 days if the shareholders have made a valid request. If they don’t, there are procedures enabling shareholders to call one themselves.

If the company is a private company there is no requirement to hold an annual general meeting (unless required by its articles). However shareholders may request that one is held (or the directors may call an annual general meeting). In small companies it is often appropriate to have an annual general meeting where the shareholders are not all directors. It provides the shareholders the opportunity to review the company accounts and ask the directors about decisions they have made.

The main duty of a shareholder is to pass resolutions at general meetings. This duty is particularly important as it allows the shareholders to exercise their ultimate control over the company and how it is to be managed. Each vote will be proportionate to the number of shares held by each shareholder.

There are two resolutions that can be passed at a shareholders meetings: an ordinary resolution and a special resolution. An ordinary resolution is passed by the shareholders if a simple majority of shareholders present at the meeting vote in favor of the proposal. Therefore more than 50% of the votes cast must be in favor usually displayed through a show of hands. A special resolution is sometimes required by the Companies Act in certain cases. For instance, to change the articles of association, or for other important or sensitive matters. The articles can also require a special resolution for certain decisions. For a special resolution to be passed, a 75% majority must vote in favor. If there is no specific mention of what type of resolution is required the presumption is that there will be a vote on an ordinary resolution.  

Shareholders rights and responsibilities should be set out in the shareholders agreement. It is important to ensure that these are up to date and cover everything to ensure that both the shareholders and the company are protected.