Directors & Shareholders
In many owner-managed private limited companies the roles of director and shareholder are often merged and difficult to distinguish. Rarely will consideration be given as to whether a decision is being made in the role of director or in relation to rights as a shareholder. It is often only when business partners are in dispute that consideration to the decision making powers and voting rights of the parties involved becomes relevant and important to the future viability and operations of the company’s business.
Directors
Directors are responsible for the day-to-day management and operations of the company and its business. Unless restricted under the Articles of Association, Shareholders’ Agreement, Service Agreement or other contract, directors operate and manage everything in relation to the business. Pursuant to the Companies Act 2006 (“CA 2006”), only certain matters are required to be submitted to shareholders for approval; these usually involve matters which affect the Articles of Association or rights relating to the shares held by the shareholders, thereby leaving the directors to deal with all managerial elements of the company and its business.
Decisions of directors are made at meetings of the Board, which (subject to any express provisions in the Articles of Association) can be held on short notice with all directors’ consent and do not require formal agendas to be submitted for consideration in advance.
Pursuant to the CA 2006, directors have certain statutory duties towards the company and its members and are required to take informed decisions with regard to promoting the company for the benefit of its members as a whole.
Directors may be restricted from voting on certain business decisions where they have a conflicting interest but are often given an opportunity to disclose such interest and, with shareholder consent, can still vote on such matters.
Any persons dealing with directors of a company are entitled to rely on that director having the requisite authority and a company will be bound by agreements made and entered into with a director acting (or purporting to act) on behalf of the company. A third party does not have to take steps to verify or confirm a director’s authority before entering into such an agreement.
Directors are responsible for ensuring all filing requirements of the company are dealt with (both in relation to the Registrar of Companies, HM Revenue & Customs and any other authority) and are required to review and approve the annual accounts for the company.
Directors may have service agreements confirming their employment and role as an officer of the company and are entitled to remuneration (in the form of a salary) for the work they undertake.
In the event of any insolvency or winding up of the company as a result of an insolvency event, directors may be held personally liable for actions taken by them in the months preceding the insolvency if they have acted fraudulently or taken steps to avoid payment to creditors or otherwise not acted in the best interest of the company.
Shareholders
Shareholders are not involved in general day to day management of the company and (unless there is a Shareholders’ Agreement which provides to the contrary) do not need to be consulted on any business or finance decisions. Save in relation to the final year end accounts, shareholders have no express rights to review any financial or other information relating to the business of the company.
If a shareholder is concerned about actions which directors are taking in relation to the company, they can take steps to try and limit the directors’ actions by proposing a resolution, blocking a resolution or making a Court application. Shareholders also have a right to requisition the removal of a director.
Shareholders are entitled to receive any dividends declared in relation to the shares held by them. Dividends are usually declared by the Board (unless the company has a dividend policy in place) and are subject to the company having sufficient reserves available for distribution.
A shareholder’s powers and right to influence any matter requiring shareholder approval will also be affected by the number and class of shares held by them. Different classes of shares can carry different voting, dividend and distribution rights. Different types of resolutions require different voting rights and so, depending on the voting rights held, a shareholder may be able to pass ordinary resolutions (requiring a simple majority) or special resolutions (requiring 75%).
Decisions requiring shareholder approval can be proposed at a meeting of the shareholders either held at an Annual General Meeting or an Extraordinary General Meeting. The resolutions proposed can affect the notice period and information required to be given to the shareholders prior to the meeting. In some circumstances written resolutions can be passed instead of having to hold a meeting.
In the event of the company entering an insolvency event the total liability for any shareholder will be limited to their shareholding investment in the company (assuming no separate loan arrangement has been entered into). Shareholders are not liable for actions taken by or in relation to the company.
Summary
Care should be taken, when making important decisions, to ensure the appropriate consents and correct procedures have been followed by the company to obtain the right approvals from the right persons in their relevant roles as director and/or shareholder.
For further assistance please contact Leilah Ashurst on 0161 819 4907 or at LAA@nexussolicitors.co.uk.
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