Company Meetings and Resolutions — SQE1 FLK1 Business Law and Practice

You hold 55% of the shares in a private company. Four members turn up to the general meeting. The resolution you oppose is put to a show of hands, three vote for it, you vote against, and the chairman declares it carried. Three votes to one. Have you just lost? No. One word from you and the count changes completely.

This is Company Meetings and Resolutions, and it is a topic made almost entirely of numbers. Notice periods, quorums, majorities, deadlines. Get the procedure wrong and the resolution is invalid, however sensible the decision was. Keep that 55% shareholder in mind. We are coming back for him.

Here is the route. First the types of meeting, and who can force one to be called. Then notice: how long, and what it must say. Then quorum, and the two ways of voting. Then the resolutions themselves, ordinary and special, and the written resolution shortcut that only private companies get. Then filing, special notice, and the rule that lets everyone skip the formalities altogether.

Start with why any of this exists. Shareholders own the company, but they do not run it day to day. That is the directors' job. So shareholders exercise their power in one way only: by meeting and resolving. The members vote on the big things. The board handles everything else.

Meetings first, and here is a difference worth locking in. Public companies must hold an annual general meeting every year, under s.336 of the Companies Act 2006. Private companies do not have to hold one at all. It must be held within 6 months of the accounting reference date, the year end. Failing to do so is a criminal offence for every officer in default.

What happens at one? The members receive the annual accounts, appoint or reappoint the auditors, appoint or re-elect directors, and approve final dividends. It is the annual health check, where shareholders question the board face to face. Any meeting of shareholders that is not the annual general meeting is simply a general meeting.

There is a third kind. If a company has different classes of shares, ordinary and preference, say, and you want to vary the rights attached to one class, that class meets on its own. Under s.630 you need the consent of 75% of that class, in writing or by special resolution at a class meeting. You cannot outvote a minority class in a general meeting.

Who can call a general meeting? Directors, whenever they decide one is needed. But what if the members want a meeting and the board will not call one? Under s.303, members holding at least 5% of the paid-up voting shares can require the directors to call one. The directors must then call it within 21 days of the request. Under s.304 the meeting must be held within 28 days of the date of the notice convening it.

And if the directors simply ignore a valid request? Under s.305 the members who made it can call the meeting themselves and claim their reasonable expenses from the company. The company then recovers those costs from the directors in default. There is also s.306: the court can order a meeting where it is impracticable to call one normally. Board deadlock, or a quorum that cannot be met.

Notice next, and you cannot spring a meeting on shareholders. They need time to prepare, to arrange to attend, or to appoint a proxy. Three figures. A private company, any meeting: 14 clear days, under s.307(1). A public company annual general meeting: 21 clear days, s.307(2)(a). A public company, any other meeting: 14 clear days, s.307(2)(b).

Clear days is the phrase that catches people. It means you count neither the day of sending nor the day of the meeting. So 14 clear days notice for a meeting on the 20th means the notice must go out by the 5th at the latest. Count wrong by a single day and the meeting is not properly called.

Members can agree to shorter notice, and the thresholds differ. For a private company, holders of at least 90% of the voting rights can consent, and the articles may raise that as high as 95%. For a public company general meeting, 95%. And for short notice of a public company's annual general meeting, every member entitled to attend and vote must agree. Every one.

Try that. A private company with four members holding 40%, 25%, 20% and 15%. The first three agree in writing to five days' notice. The fourth is travelling and cannot be reached. They hold 85% between them. Enough? No. The threshold is 90%, and silence is not agreement.

What must the notice say? Under s.311: the time, date and place. The general nature of the business. The full text of any special resolution. And a statement of the member's right to appoint a proxy. For a public company, add that a member may appoint more than one proxy.

And the description of the business must be accurate. If the notice says the members are approving the accounts, and at the meeting they vote to remove a director, that resolution is invalid. They were not told what they were coming to decide.

Quorum. A meeting is not valid unless enough people turn up. The default under s.318 is two qualifying persons, meaning members or proxies. The exception is the single-member company, where the quorum is one. The articles can set a higher figure, so check them.

No quorum within half an hour of the scheduled start, and the meeting is typically adjourned. Nothing can be validly transacted without one. Any resolution purportedly passed is void.

Now voting, and this is where our 55% shareholder is waiting. There are two methods, and they can produce opposite answers on the same resolution. A show of hands is the default. On a show of hands every person present gets one vote, whatever they hold. A member with one share has the same voting power as a member with a million.

A poll is the other. On a poll the votes are counted by shareholding: one share, one vote, or as the articles specify. That reflects economic reality. Under s.321 any provision in the articles is void if it excludes the right to demand a poll, except on electing a chairman or adjourning. At least 5 members, or members holding 10% of the voting rights, can demand one.

So the same meeting gives you two answers. On a show of hands, three small shareholders beat one major shareholder. On a poll, the shareholder with 60% wins. Always ask which method is in use, and remember that the losing side can usually just demand the poll.

Cannot attend at all? Appoint a proxy. Under s.324 every shareholder has that right, and any provision in the articles purporting to deny it is void. A proxy can speak at the meeting, vote on a show of hands unless the articles say otherwise, and vote on a poll.

One number on proxies. Under s.327 the articles cannot require the proxy form to be lodged more than 48 hours before the meeting, ignoring non-working days. A shorter deadline is allowed. A longer one is not.

Resolutions themselves. Two types matter. An ordinary resolution passes on a simple majority, more than 50% of the votes cast. It is the default: if neither the Act nor the articles say what is needed, an ordinary resolution will do. It appoints and removes directors, approves final dividends, appoints auditors, authorises an allotment of shares under s.551, approves substantial property transactions, and ratifies a director's breach.

A special resolution needs at least 75% of the votes cast, and it is reserved for fundamental things. Changing the company name. Amending the articles. Disapplying pre-emption rights. Reducing share capital. Approving an off-market purchase of the company's own shares. Re-registering as a different type of company. Winding up voluntarily.

Which gives you one of the most useful figures in company law. Hold more than 25% of the voting shares and you can block any special resolution. You pass nothing on your own, but nobody amends the articles or reduces the capital over your objection.

Now the shortcut, and it belongs to private companies alone. Under ss.288 to 300, instead of calling a meeting you circulate the resolution and the members signify their agreement in writing. No meeting at all. Public companies cannot do this. They must hold a real meeting.

Two traps sit inside the written resolution. First, the majorities are calculated on total voting rights, not on the members who bother to reply. An ordinary one needs a simple majority of the total; a special one needs 75% of the total. Silence counts against you. Second, it lapses if not passed within 28 days of circulation, or as the articles specify.

And there are two things a written resolution can never do. It cannot remove a director under s.168, and it cannot remove an auditor under s.510. The other members hold 82% and want a director out by Friday. Can they sign him out? No. Each of those people has a right to be heard, and that means a meeting.

Filing. Not every resolution goes to Companies House, but every special resolution does, within 15 days of being passed. Under s.30 you also file an ordinary resolution removing a director, a resolution appointing or removing auditors, anything affecting the constitution, and a resolution to wind up voluntarily.

Special notice next, and do not confuse it with a special resolution. They are different things entirely. Special notice, under s.312, is 28 days' advance warning to the company that a member intends to move a particular resolution. The company includes it in the notice of meeting, and the person affected may make representations.

Four resolutions need it. Removing a director. Appointing a director in place of one removed. Removing an auditor. Appointing an auditor other than the retiring one. Notice the pattern: every one is about somebody losing their position.

Last, the rule that quietly overrides all the procedure. If every shareholder agrees, do you really need the meeting? The courts say no. Directors paid themselves remuneration without any formal shareholder approval, but all the shareholders had informally agreed to it. Where all the shareholders with voting rights assent to a matter within the company's powers, their agreement binds as firmly as a resolution passed at a general meeting. Re Duomatic Ltd, from 1969.

But it is narrower than it sounds. Duomatic works only if all the shareholders assent, and they know all the material facts, and the matter is within the company's powers. It does nothing where something must be filed externally, or where third party rights are affected.

Two housekeeping points to finish. Someone has to run the meeting. The articles usually say who chairs; if not, the members present elect someone. The chairman keeps order, rules on procedure and declares the result, and normally has a casting vote on a tie, depending on the articles. On a poll his own shares count like anyone else's. The casting vote is extra.

And minutes. Under s.355 every company must keep minutes of its general meetings. Minutes signed by the chairman are evidence of the proceedings, though not conclusive proof. They must be kept for at least 10 years. Members can ask for copies of general meeting minutes, but not board minutes. Those stay private.

A word on how SQE1 tests this. You will not be asked to recall case names or section numbers. You get a scenario, five answers, and one instruction: pick the best. This topic is unusual, though, because the numbers really are the law. Learn the figures, not the citations.

If you keep only three things. The notice periods: 14 clear days, and 21 for a public company annual general meeting. The two majorities: more than 50% for an ordinary resolution, at least 75% for a special one, which makes anything over 25% a veto. And Re Duomatic Ltd, where everybody agreeing beats every procedure in the Act.

Four traps the examiners set. One: special notice is not a special resolution. They sound alike and they are unrelated. Special notice is 28 days' warning that a resolution will be moved. A special resolution is a 75% majority. Removing a director needs the first and is still only an ordinary resolution.

Two: the written resolution is not a universal shortcut. A public company cannot use it at all. A private company can, but never to remove a director or an auditor.

Three: short notice thresholds, and silence. A private company needs 90% of the voting rights, and the articles may push that to 95%. A public company general meeting needs 95%. A public company annual general meeting needs everybody. A member who does not answer the phone has not agreed.

Four: Duomatic has limits. All the shareholders must assent, they must know all the material facts, and the matter must be within the company's powers. It will not help where something has to be filed, or where a third party's rights are in play.

Quick check, and our shareholder is still standing there. Four members attend a general meeting of a private company to consider a resolution approving the sale of the company's principal asset. They hold 55%, 25%, 15% and 5% of the voting shares, on unamended model articles. The resolution goes to a show of hands. The member holding 55% votes against, the other three vote in favour, and the chairman declares it carried three votes to one.

Was the chairman right? Three candidate answers. One: no, because the member holding a majority of the shares voted against it. Two: yes, because on a show of hands each member present has one vote, whatever his holding. Three: no, because a sale of the principal asset must be decided on a poll. Pause here if you want a moment.

The answer is two. On a show of hands every member present in person has one vote. Voting power measured by shareholding belongs to a poll, where every member has one vote for each share held. Three voted in favour and one against, so the chairman counted correctly and the resolution was carried.

But he is not without an answer, and this is the word he needs. He may demand a poll, and on a poll his 55% prevails. Why the others fail. One applies the poll measure to a show of hands: the size of a holding is irrelevant until a poll is taken. Three invents a rule that does not exist.

Five things to take away. One: public companies must hold an annual general meeting, private companies need not, and members holding 5% can require the directors to call a general meeting. Two: notice is 14 clear days, or 21 clear days for a public company annual general meeting, and clear days exclude both ends.

Three: the quorum is two qualifying persons, unless it is a single-member company. Four: a show of hands is one person one vote, a poll is one share one vote, and our 55% shareholder wins only when he demands the poll.

Five: ordinary means more than 50%, special means at least 75%, written resolutions belong to private companies alone, and every special resolution is filed. Next time, Share Capital and Shareholders.

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