l7 condensed

legal nature of capital companies

capaital companies are legal persons

• they exist seperately from their founders/shareholders

• however unlike natural persons they cannot think, decide or act

• therefore they require organs/bodies to function in reality

functions performed by company bodies

company bodies have 4 essential roles

• form the companys will= decide what the company wants to do ie business startegy

• express the companys will= formalise decisions ie passing resolutions

• execute actions= impliment decisions/resolutions in practice ie singning contracts

• deal with third parties= external intereactions ie customers and suppliers

without these bodies the company would exist legally but could not operate in practice

mandatory company bodies

every company must havr 2 essential organs

• general meeting of shareholders= main decision making body

  • composed of all shareholders

  • makes fundamental company decisions

  • discusses important matters

    • ie profit distribution and appointment or removal of directors

  • vote using majority principle

  • approve key decisions

    • annual accounts, ammendments to bylaws, major transactions

  • where the companys will is formed and expressed

• management body ie directors= responsible for management and representation

  • run day to day operations

  • take operational and strategic decisions ie pricing

  • represent the company externally

    • contracts, legal proceedings, third party dealings

  • where the companys will is executed

the gm decides and creates the companys will; the directors act and carry out the will

gm definition

• a formal gathering of shareholders

• properly convened according to the law

• discusses and votes on company matters

• decisions taken by majority rule (over 50%)

key characteristics

organ= not the company itself

• part of the internal strcuture of the company; not seperate

internal body= does not deal with third partys

• no external representation (directors job)

sovereign body= highest authority in the. company

• decides major matters affecting structure

• not accountable to other organs

  • directors are acountable to the gm

ephemeral nature= temporary

• exists only when convened and ceases after meeting ends

limits to the gm

despite its power the gm must

• act within the law and the companys interest (not shareholder self interest)

it cannot

• act outside legal powers

• breach bylaws

• harm the company

• act in private shareholder interest

• interefere in directors day to day management

  • exception art 161 to seperation of director gm roles= the gm may

    • give binding instructions to directors

    • require prior authorisation for decisions

powers of the gm

ordinary matters

• approval of accounts

• profit allocation ie dividends

• approval of directors management

coproate control functions

• appointment and removal of

  • liquidators

  • auditors

  • directors

structural/consitutional powers

• amend bylaws

• increase/decrease share capital

• remove premeption rights

• mergers and restructuring

• dissolution

assets and liquidation

• approve aqusiition or disposal of essential assets

• supervise liqudiation

• approve final liquidation balance

types of general meetings

ordinary general meeting= mandatory

• held within the first 6 months of the financial year

• convened by directors

  • if directors fail to convene shareholders may request court clerk or commercial registrar to convene

• mandatory agenda to be discussed

  • approval of accounts

  • review of management/directors

  • profit allocation

extraordinary general meeting= any other meeting

• flexible agenda

• called when needed

• must be convened if shareholders with more than 5% capital request it

universal general meeting= exception to formal rules

• 100% share capital present or represented

• all shareholders agree to hold the meeting

• all shareholders agree to the meeting agenda

• no formal notice required

• can be held anywhere

• majority voting unless unanimity required

calling the gm

purpose

• inform shareholders to allow participation and voting

who can convene

• directors for anual ogm or when needed/requested for egm

  • if directors fail shareholders can request court clerk/registrar

  • if there are no directors clerk/registrar directly

methods of calling

• preffered method = company website

  • if there is no website the official gazette and a widely circulated newspaper

• alternative method= indovidual written notice to shareholders

  • modern tools= emails, online platforms, shareholder notification

notice period for shareholders

• sa= 1 month notice (longer as more)

• sl= 15 days

• if idnidual written notice the period begins from the last notification

types of call

• first call= intial meeting

• second call= if first fails due to insuffcient attendance

  • must be a minimum of 24 hours gap between the dates

  • if there is no sheduled second call and the first fails a new meeting must be sheduled within 15 days for at least 10 days notice away

agenda

• list of topics to be discussed at the gm

• only listed items can be voted on

  • exceptions= always allowed to vote despite not being in the agenda for

    • removal of directors

    • liability actions for directors

supplements to the agenda SA ONLY (more shareholder interaction)

• shareholders with more than 5% capital can request topics within 5 days of calling

valid constitution of the meeting

requirements:

1. proper calling procedure

2. correct place= registered office locality

3. attendance list= who is present and who is represented

4. allocated chairsperson= leeds the meeting and maintains order

quorum for SA ONLY (shareholder articipation more)

• ordinary matters=

  • 25% for the first call

  • 2nd call= no minimum

• special matters= requires more participation

  • 50% for 1st call

  • 25% for second

SL has no minimum attendance requirement

minutes of the gm

minutes purpose=

• provide legal certainty

  • makes resolutions enforceable

• proof of decisions/resolutions

  • provides official certification

• protection of shareholder roghts

  • shareholders may request certification at anytime

requirements

• recording = mandatory for every gm meeting

• approval= either immediately or within 15 days

  • by chairsperson + 2 scrutineers (allocated shareholders)

• signing= signed by the secretary

• entry= entered into the minutes book

• registry= registerabe resolutions must be filed within 8 days

notorial minutes= certified by notary

• higher evidentiary value

• optional at directors request

• required if requested by

  • shareholders with 1% in SA (more shareholder participation so lower threshold)

  • shareholders with 5% in SL (more closed so higher requirement)

shareholders rights

core principles

• participation in meetings ie attenandance

• flexibility in meetings ie proxy voting/ representation

• protection in meetings

attendance

attendance

• shareholders attendance is voluntaru

• directors attendance is mandatory for accountability

• non shareholders ie lawyers and auditors are only allowed if permitted

  • they cannot vote only participate in discussion

right to attend

• SL= cannot be restricted due to personal nature of shareholders

• sa= can require minimum shares due to large sharholdings to prevent over crowiding

  • general sa= 0.01%

  • listed= 1000 shares

  • additional requirements:

    • idenitty verification

    • share deposit

    • registration to attend 5 days before meeting

representation ie poxy

general rules

• shareholders may appoint a proxy

  • 1 representative only

• revocable at anytime

  • cancelled if the shareholder attends personaly

who

• sa: anyone reflecting open nature of company

• sl= restricted reflecting closed nature

  • family members, another shareholder, legal representative

formal requirements

• sa = strict due to anyone being allowed

  • written or electronic consent document

  • new document for each meeting

    • exception= if proxy is a family member or general power of attorney is valid for all meetings

• sl= more flexible as proxys already limited

  • written/ electronic consent

  • new doc for each meeting

    • exception= if nptirised proxy its valid for all meetings

grouping of shares

• shareholders can combine their shares to meet minimum requirements common in large sas

• appoint one representative to act on behalf of all

public request for proxy

• if one proxy is representing more than 3 shareholders their document must include

  • the meeting agenda

  • voting instructions

  • default voting rules if no instructions

voting structure

seperate voting requirements

• appointment/removal of directors must be voted for individually

• by law ammendments must be voted for seperately cannot be grouped together

conflict of interest= shareholders cannot vote when

• authorising share trasnfers

• releasing them of obligations

• providing financial assistance

• waiving duty of loyalty

voting basis= based on share capital amount not the number of shareholders

• majority rule principle

• more shares= more power

• sa voting: more flexible focusing on attendance

  • ordinary matters= simple majority

    • more votes in favour than against

  • spcial matters= requires higher threshold

    • if over 50% of capital is present requires absolute majority

      • more than half of votes cast

    • if 25-50% present requires 2/3rds of votes cast

      • the lower the attendance the harder it is to pass

• SL votinf: stricter focusing on total capital not just those present

  • ordinary matter= 1/3 of total capital

  • special matters=

    • capital and bylaws= at least 50% of total capital must vote in favour

    • strucrual= 2/3rds of total capital

challenging resolutions

grounds

• contrary to law

• contrary to bylaws

• harms the company

  • ie abuse of majority power for shareholders interests

limits ie cannot challenge if

• already annulled or replaced

• minor procedural defects not affecting result

• non decisive errors not affecting the result

who can challenge

• serious cases= no time limit

  • any shareholder

  • director

  • third parties

    • no time limit

• other cases= 1 year time limit from resolution

  • directors

  • third parties

  • only shareholders who

    • were holders prior to the meeting

    • + with more than 10% capital

• small shareholders with less than 1% cannot challenge resolutions directly but can claim damages if effected