Lecture 3: Shares, Membership and the General Meetings of Members

CHARLES STURT UNIVERSITY LECTURE 3: SHARES, MEMBERSHIP, AND THE GENERAL MEETINGS OF MEMBERS

LECTURE OVERVIEW

  • Today's lecture will cover the following main points:

    • Introduction

    • Shares

    • Membership

    • Directors’ meetings

    • What is a general meeting?

    • The right of shareholders to convene a meeting

    • Court-ordered general meetings

    • Notice of meeting

    • Shareholder input regarding resolutions of company general meetings

    • Conducting the meeting

    • Voting at meetings

    • Equitable duty of directors to disclose matters material to shareholder judgment

INTRODUCTION

  • Some aspects of company law can become tedious and detailed, often requiring extensive statutory knowledge that is difficult to remember.

  • Today's topic involves significant statutory provisions that will be summarized, focusing on the most pertinent details without exhaustive engagement with every provision.

SHARES

SHARES AS SECURITIES

  • Definition: Shares are classified as a form of securities according to Section 92 of the Corporations Act.

  • **References:

    • Flinders Diamonds Ltd v Tiger International Resources Inc & Ors No. Scciv-02-1281 [2004] SASC 119 indicates that “Securities” is defined to include shares.

    • Maritime Workers of Australia Credit Union Limited v MSB Credit Union Limited [2005] FCA 1211 reiterates that securities encompass shares.

    • Paula Susan Chappell as Executor of the Estate of Robert Hastings Hitchcock v Goldspan Investments Pty Ltd [2021] WASCA 205 confirms the definition of securities includes shares.

SECURITIES DEFINITION IN THE CORPORATIONS ACT

  • Corporations Act 2001 - Section 92:

    • (1) "Securities" means:

    • (a) debentures, stocks, or bonds issued or proposed by a government;

    • (b) shares in or debentures of a body;

    • (c) interests in a managed investment scheme;

    • (d) units of such shares;

    • Exclusions:

      • (f) derivatives (as defined in section 761D), other than options to acquire a security.

      • (g) excluded securities.

ORDINARY AND PREFERENCE SHARES

  • The two most common types of shares:

    • Ordinary Shares: Provide voting and dividend rights.

    • Preference Shares: Typically offer higher dividend rights than ordinary shares, may include various subclasses:

    • Cumulative vs. Non-cumulative

    • Participating vs. Non-participating

    • Convertible vs. Non-convertible

    • Redeemable vs. Non-redeemable

  • Obligations (s 254M, s 254Q):

    • Partly paid shares require shareholders to cover any outstanding calls.

    • No liability companies may forfeit shares if calls are not paid but do not require payments from shareholders.

PREFERENCE SHARES IN DEPTH

  • Historical Context: Preference shares emerged to raise additional capital for infrastructure Corporations in the UK during the 18th and 19th centuries (reference to Beck v Weinstock [2013] HCA 15).

  • Preference shares can’t exist without preferential rights over other class shares, as stated in Re Capel Finance Ltd [2005] NSWSC 286.

  • Regulations (s 254A(2):

    • Preference shares must have clear rights concerning:

    • (a) repayment of capital;

    • (b) participation in surplus assets and profits;

    • (c) cumulative/non-cumulative dividends;

    • (d) voting rights;

    • (e) priority regarding payment of capital and dividends.

TRANSFER OF SHARES

  • Nature of Shares: Shares are personal property according to section 1070A of the Corporations Act and subject to the company's constitution.

  • Shares are also considered choses in action, entailing rights that cannot be physically possessed until issued.

  • Transfer Methods: Transfers must follow the rules laid down by the company’s constitution or statutory provisions.

  • Rights of Pre-Emption: Share constitutions may provide existing shareholders with a first right to purchase shares before they're offered publicly (s 254D).

REDUCING SHARES - CAPITAL REDUCTIONS

  • General prohibition on companies buying back their shares, detailed in section 259A of the Corporations Act, exists to protect creditors.

  • Any reduction in share capital must comply with statutory procedures as established in the historical case Trevor v Whitworth (1887).

MEMBERSHIP

INTRODUCTION TO MEMBERSHIP

  • A distinction exists between membership and shareholding:

    • Membership: Legal presence on the register of members, allowing several rights under company law.

    • Shareholding: Reflects ownership which overlaps but isn’t limited to membership.

LEGAL SIGNIFICANCE OF MEMBERSHIP

  • Membership rights (subject to company constitution) include:

    • Right to dividends (if declared) (s 254V).

    • Right to vote to appoint/remove directors (s 203C).

    • Right to call and attend meetings (s 249D & s 249J).

    • Right to inspect company registers without charge (s 173(2)).

    • Right to seek company wind-up (s 462).

DIRECTORS' MEETINGS

DIRECTORS' POWER OF MANAGEMENT

  • Directors manage the company under replaceable rule s 198A, reducing members' influence in operational decisions.

  • Attempts from members to intervene in managerial matters can contravene section 249Q. Directors must meet regularly, with meetings called via reasonable notice (s 248C).

QUORUM FOR DIRECTORS' MEETINGS

  • A minimum quorum of two directors is mandated by section 248F, with provisions for collective rather than individual action.

GENERAL MEETINGS

TYPES OF GENERAL MEETINGS

  • Includes Annual General Meetings (AGMs) and Extraordinary General Meetings (EGMs).

  • Public companies are mandated to hold AGMs once a year complying with financial legislation (s 250N).

CONVENING GENERAL MEETINGS

  • General meetings can be convened by:

    • Directors, members with applicable voting rights, or court order if impractical.

  • Must fulfill reasonable time/place conditions to maintain member attendance (s 249R).

SHAREHOLDER INPUT INTO GENERAL MEETINGS

  • Shareholders can add resolutions to the agenda if supported by requisite member votes (s 249N, s 249P).

CONCLUSION

  • Directors have equitable obligations under common law to disclose relevant information to shareholders to ensure informed decision-making during meetings.

  • Overall, the lecture underscores the fundamental principles of shareholder rights and directors’ responsibilities within the framework of company law as stipulated in the Corporations Act.

Cases

  • Flinders Diamonds Ltd v Tiger International Resources Inc & Ors No. Scciv-02-1281 [2004] SASC 119: This case establishes that the term "Securities" includes shares as classified under company law.

  • Maritime Workers of Australia Credit Union Limited v MSB Credit Union Limited [2005] FCA 1211: This case reaffirms that shares are considered securities within the framework of the Corporations Act.

  • Paula Susan Chappell as Executor of the Estate of Robert Hastings Hitchcock v Goldspan Investments Pty Ltd [2021] WASCA 205: It confirms the definition of securities within the context of company law, confirming shares as a form of securities.

  • Beck v Weinstock [2013] HCA 15: This case provides historical context for preference shares, illustrating their use in raising capital for infrastructure Corporations in the UK during the 18th and 19th centuries.

  • Re Capel Finance Ltd [2005] NSWSC 286: It states that preference shares cannot exist without having preferential rights over other class shares, underlining the significance of these rights in shareholder agreements.

  • Trevor v Whitworth (1887): This historical case dictates that any reduction in share capital must adhere to statutory procedures, serving as a precedent for the protection of creditors in corporate financial dealings.

Legislation

  • Corporations Act 2001 - Section 92: Defines "Securities" to include various forms of financial assets like debentures and shares, which are significant to understanding corporate finance and shareholding.

  • Section 254M, 254Q: Addresses obligations related to partly paid shares, including shareholder responsibilities for paying calls and regulations surrounding no liability companies.

  • Section 254A(2): Outlines regulations for preference shares, detailing rights regarding dividend payments, capital repayment, voting rights, and priority in payment of capital and profits.

  • Section 1070A: Classifies shares as personal property and establishes the framework for transfer and ownership of shares within a company's constitution.

  • Section 259A: Contains a general prohibition on companies buying back their shares, emphasizing the protection of creditors in share capital management.

  • Section 254D: Establishes rights of pre-emption, allowing existing shareholders the first opportunity to purchase shares before they are offered to the public.

  • Section 254V: Affirms member rights to dividends, ensuring fair treatment of shareholders.

  • Section 203C: Grants shareholders the right to vote on the appointment and removal of directors, fundamental to corporate governance.

  • Section 249D & 249J: Provides shareholders the rights to call and attend meetings, a key aspect of democratic governance in companies.

  • Section 462: Provides members the right to seek a company wind-up under certain conditions, ensuring accountability in corporate operations.

  • Section 248C: Addresses the notice requirements for director meetings, ensuring timely communication within company governance.