Although under the 2006 Act there is no legal requirement to hold an AGM, a company can change its default articles to require that one is held. The notice period for AGMs is a bare minimum of 21 days, which may or may not be clear days.
A general meeting of a company may be held by short notice, i.e. less than the length of time set out by the Companies Act 2006 s307. For Annual General Meetings (AGMs) there must be unanimous agreement of the members to hold a meeting by short notice. For Extraordinary General Meetings (EGMs) the agreement must be a majority in numbers as well as the members in agreement holding at least ninety per cent of the value of the company’s shares. The concept of short notice in regards to EGMs under the 2006 act is less regulated than the 1985 act, whereby members in agreement of short notice were required to hold at least ninety five per cent of the shares as well as a majority in numbers. The de regulation as seen in the 2006 act could be considered to be a great improvement. Ninety per cent is an overwhelming majority of a company’s shares and the requirement that majority must be in number as well as share value ensures that a single member who may hold a majority share in the company cannot call a meeting by short notice himself. The rules surrounding short notice are engineered in a way that no member can manipulate the holding of meetings merely due to the high value of his shares.
If a shareholder cannot attend a meeting he has the right to appoint a proxy. At common law, an individual does not have an absolute right to appoint a proxy to take his or her place at a meeting; rather a proxy may only be permitted if the rules governing that particular meeting allow for a proxy to be present. Under CA 2006 s324 (1) there is a mandatory requirement that a member of a company be allowed to appoint a proxy at a meeting he or she is unable to attend. The purpose of a proxy is to exercise the opinions and rights to vote of the absent members. Default Article 46 set out the information which must be given when appointing a proxy in a private company. Under this article a company may require that proxy notices be delivered by a specific means of communication and may specify different forms for different purposes. There is a rule under s327 which states that a company cannot require notice of a proxy any earlier than forty eight hours before a meeting is to take place. This provision ensures that if a member finds he cannot attend a meeting ‘last minute’ then he can appoint somebody in that forty eight hour time slot. Any longer than that would be not be fair or practical as a member may find he cannot attend a meeting only a day or two before it is due to take place. If the minimum requirement for appointing a proxy was one week for example, then that member would not have the opportunity to exercise his voice during the meetings.
A proxy is not able to vote by show of hands but does however have the ability to demand a poll vote under s282 (3) CA 2006, providing the member he or she is representing holds at least ten per cent of the shares. This is a highly significant provision as if a majority shareholder was unable to attend a meeting, he or she could still be assured that a resolution they were not in agreement with could not pass, as the fact they hold more shares would mean they have more voting power during a poll vote as one share is the equivalent to one vote during a poll, as opposed to the simpler method of a show of hands whereby one member equals one vote.
By common law, a chairman is required to demand a poll vote if he thinks the outcome would be different than that reached by a simple show of hands. If for example there were a number of proxies attending a meeting and no single one of them had the equivalent of ten per cent of the shares and therefore could not demand a poll vote, it would be the chairman’s duty to call a poll if he thought the outcome of the vote would vary if the proxies shares were counted.
The concept of a poll vote is vital as it is shareholders money that is invested in the company. It would be unjust to expect someone with only a minor shareholding to have exactly the same voting power as a member who had invested a significant amount in the company. A poll vote ensures that all members’ investments within the company are represented proportionately.
Part 13 of the Companies Act 2006 makes two important changes; it no longer requires for companies to hold Annual General Meetings and it introduces new and simpler procedures for decisions to be made by written resolution by private companies.
Written resolutions are an alternative to making decisions by means of physical meetings for members. The resolutions, which under the 1985 act, were required to be signed by all members, now; under s288 CA 2006 they operate in a similar way to how shareholder meetings would. The percentage required for agreement is the same as in a meeting, i.e. a simple majority (fifty per cent plus one vote) of the eligible shares for ordinary resolutions, or 75% plus one vote for special resolutions. This enables members to make simple or perhaps trivial decisions more efficiently. A decision which a member may know would garner majority agreement can be made by written resolution in order to avoid the time it would take to organise a physical meeting. Alternatively a decision which needs to be made quickly could be made in this way, to avoid the fourteen or twenty one days notice required for EGMs and AGMs. This sees a huge advancement from the Companies Act 1985, in which unanimous agreement was required for a written resolution. The 2006 act has completely streamlined the way in which members can make decisions. A written resolution cannot however be made for all decisions; for example a director can not be removed by written resolution, as under s169 CA 2006 a director has the right to defend himself at a meeting before the vote is taken to remove him.
The CA 2006 has made provisions for members to be able to alter the articles of association. This enables smaller companies to operate in a manner which will be more efficient and relevant for them. For example, a company may wish to amend Default Article 8 to remove the ability to make decisions through written resolutions. This ability enables companies to create more ‘custom made’ approaches to running their companies.
Under the 2006 Act, companies can circulate resolutions by email or even other electronic methods such as websites (with shareholder agreement). This will completely revolutionise the way in which members can make decisions, as most people in our current society are more likely to communicate via email in a professional environment than any other form of communication. Another advantage of electronically circulated resolutions is that the resolutions are written and most likely recorded (as many email service providers automatically save a copy of any correspondence sent from your account). This means that there will be electronic evidence of any resolutions which will be easily accessible. Although technology is not completely failsafe it does provide a ‘back up’ to a hard copy of a resolution.
In many smaller private companies the directors are often also shareholders. This sometimes makes for a confusing process when following the three stage decision making process. If, for example, a board of directors wishes to grant a fixed term service contract to a director for a period of longer than two years, they must first have the prior approval of the shareholders according to s188 CA 2006. Essentially, the board of directors must first meet to decide if it wishes to grant the service contract; this is stage one of the processes. The second stage is the members meeting to approve the granting of the contract and the final stage would be the directors meeting once again to award the contract to the director. Assuming the directors are also the members, this process could be deemed to be ludicrous and inefficient, thus totally going against the aim of the CA 2006. The CA 2006 could incorporate a provision to allow companies in which the directors and members are the same people to hold board meetings and general meetings in the same forum. This would greatly simplify the decision making process. It could be argued that such a restructuring would contravene the requirement for notice of a meeting but if all members/directors were present and able to assent to a decision being made then surely one amalgamated forum would provide for a more slick, resourceful and practical form of decision making. If the provision stated that the consolidation of the meetings was only to be used where directors and members were the same then the requirement for notice need not be contradicted, as it would still take place in larger companies where the directors and members were not identical. The CA 2006 has however failed to make such a provision, and as such directors who are members are required to go through the lengthy three staged decision process which can be deemed completely unnecessary.
Although the Companies Act 2006 has brought about many changes to create a more efficient and clear approach to how companies in England and Wales operate, there are still some ‘loose ends’. It can be said the new act has brought about a complete upheaval, especially considering the amendments of the articles of association, but upon closer examination the decision making process is still long winded and over regulated in many respects, e.g. the aforementioned decision making process of directors who are members. Although the new act can be criticised it has brought a forward change in the running of companies. It presents a step in the right direction in removing the more archaic and regimented provisions, although there is still a long way to go in perfecting the way in which company decisions are made.
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Bibliography
Books
French, D., Mayson, S. & Ryan, C., (2008-2009), Company Law, 25th Ed., Oxford: Oxford University Press.
Journal Articles
Cheung, R., ‘The use of statutory unanimous shareholder agreements and entrenched articles in reserving minority shareholders' rights: a comparative analysis’, (2008) 29 Company Lawyer 243-241.
Craig, R., ‘"The enormous turnip": a discussion on the Companies Act 2006 which like Topsy in the child's fairy tale is still growing’, (2008) 29 Company Lawyer 360-364.
Henning, J., ‘The Company Law Reform Bill, small businesses and private companies’, (2006) 27 Company Lawyer 97-98.
Keay, A., ‘Section 172(1) of the Companies Act 2006: an interpretation and assessment’, (2007) 28 Company Lawyer 106-110.
Keay, A., ‘The duty of directors to exercise independent judgment’, (2008) 29 Company Lawyer 290-296.
Linklater, L., ‘Promoting success: the Companies Act 2006’, (2008) 28 Company Lawyer 129-130.
Nolan, R.C., ‘The continuing evolution of shareholder governance’, (2006) 65 Cambridge Law Journal 92-127.
Scanlan, G., ‘Offences concerning directors and officers of a company - fraud and corruption in the United Kingdom - the future’ (2008) 29 Company Lawyer 264-271.
Web Pages
Henning, J., ‘The Company Law Reform Bill, small businesses and private companies’, (2006) 27 Company Lawyer 97-98.
Harben v Phillips (1882) 23 ChD 14