Company meetings
This article is based on UK law. It was last updated in
August 2008.
Board meetings
The articles of a company will delegate the management of the
company to its board of directors (for more information on the
articles see the OUT-LAW guide to The
company constitution). The board will act collectively, meeting
regularly to consider and decide issues affecting the company. How
those board meetings are run is a matter largely for the articles
and for the board itself to decide. Unlike shareholders’ meetings,
which are more tightly regulated, board meetings are generally free
of legislative interference.
So there is nothing in statute about the notice to be given for
board meetings. Any director or the secretary can call a board
meeting and, unless the articles or a previous board meeting have
stipulated the length of notice to be given, the only requirement
is that it be reasonable.
What is reasonable will depend on the type of company and its
past practice. For a private company where all directors are
already on site, reasonable notice may be a few hours or even
minutes; for a large international company with directors scattered
over the globe and non-executives with other responsibilities,
board meetings will be fixed a year or more in advance. Again,
unless the articles or a board resolution say anything to the
contrary, the notice can be written or oral and need not detail an
agenda for the meeting.
That is the legal position, but there is a clear contrast here
with what today would be regarded as best practice. The
Combined Code for listed companies says that boards should meet
regularly, there should be a schedule of matters that may only be
settled by the board, and directors should be properly briefed.
(The ICSA website has further
guidance on this.) The Code now requires that the directors’ annual
report contains a record of attendance at board and committee
meetings.
The articles will usually stipulate a minimum number of
directors to form a quorum before the meeting can go ahead. But it
is important to realise that:
- having a quorum is not a substitute for giving notice of a
meeting. Achieving a quorum will not validate a board meeting if
reasonable notice has not first been given to all directors;
- when calculating the quorum, the articles will often exclude
any director who cannot vote on a particular resolution, perhaps
because they have an interest in a contract under
consideration.
Votes at a board meeting will be calculated on the basis of one
for each director present, with the chairman having a casting vote
in the event of a tie, unless the articles provide for anything
different. A director with a personal interest in a matter that is
the subject of the vote will usually be excluded from voting, but
the articles need to be checked on the point (see the OUT-LAW guide
to The company constitution).
In the case of larger companies, if the articles are well
drafted, board meetings by telephone or video conference will be
permitted. And for smaller companies, board resolutions may often
be in writing, signed by all the directors entitled to receive
notice.
Where a meeting is held, there is a legal requirement that
minutes are taken (and the Companies Act 2006 requires them to be
retained for at least 10 years). Minutes allow a director to have
their views on a matter recorded– something that can be useful if
questions are raised in the future, particularly after an
insolvency.
The board can delegate matters to sub-committees, and listed
companies are now required by the Combined Code to have audit,
remuneration and nomination committees. Resolutions establishing
committees may dictate quorum, notice and other requirements;
failing that, they will follow the same rules as for the full
board.
Annual General Meeting
A public company must hold an annual general meeting once each
calendar year, and there must not be more than 15 months between
each AGM.
The time and place of the AGM are matters for the board to
decide but, given that the AGM is a rare opportunity for
shareholders to have their say and to question directors publicly,
companies have faced criticism when they have opted for times and
venues that make it difficult for many shareholders to attend.
Under the Companies Act 2006, a private company does not have to
hold an AGM, though it can if it wants.
The Combined Code states that the chairmen of the board’s audit,
remuneration and nomination committees should be sure to attend the
meeting so that they can answer relevant questions from
shareholders. Shareholder attendance at AGMs is, however, usually
very low, with many choosing to vote by proxy on the standard
resolutions to be proposed, or not to vote at all.
Periodic furore at directors’ pay packages, and the requirement
that the directors’ remuneration report be put to shareholders for
approval, may, however, lead to increased numbers at AGMs, and some
consequent flexing of shareholders’ muscles.
The main purpose of most AGMs is for the directors 'to lay
before the company in general meeting' the previous year’s audited
accounts and accompanying reports. Note the wording here – there is
no requirement that shareholders approve the accounts or accept
them. Shareholders have no ability to reject the accounts. They
must stand as they are, having been prepared by the directors and
audited by the auditors. The AGM simply provides the opportunity
for the directors to present the accounts; the resolution put to
shareholders will usually be 'to receive' the accounts and
reports.
Apart from the accounts, usual business at the AGM will comprise
the declaration of any dividend proposed by the board, the
appointment of auditors and the fixing of their fees (the latter
task usually being delegated to the board), and the election of any
directors who are retiring because the articles say they must.
Listed companies will also commonly propose resolutions at the
AGM to:
- give directors authority to allot shares, up to a certain
limit;
- disapply pre-emption rights on the issue of shares, up to a
certain limit;
- renew authority for the company to buy up to 10 per cent of its
own shares;
- approve the directors’ remuneration report.
The AGM is not restricted to this business and, in addition,
will often be used to put to shareholders resolutions to amend the
articles, adopt new share schemes or do anything else that requires
their approval.
Shareholders can propose their own resolutions for an AGM but
they have to act in sufficient numbers: there must either be at
least 100 of them holding a certain amount of paid up share
capital, or enough of them to represent at least five per cent of
the votes.
Extraordinary General Meeting
If something requires shareholder approval and cannot wait until
the next AGM, an Extraordinary General Meeting (EGM) will be
called. Usually, it will be the directors who convene an EGM, but
the shareholders can force the directors to hold an EGM if they
collectively own at least one-tenth of the paid up voting share
capital. If the board then fails to comply within 21 days,
shareholders can go ahead and call the meeting themselves.
As with AGMs, the directors must act in good faith when
convening an EGM and should avoid picking a time and place with the
intention of making it difficult for shareholders to attend.
Notice
All shareholders are entitled to receive written notice of a
meeting unless the articles say otherwise (a smaller company’s
articles may often state that notice is only to be given to those
shareholders who have provided a UK address to the company). In
addition, notice of a general meeting must also be given to each
director (whether a shareholder or not) and to the auditors – a
point that can often be missed.
The articles will state how notice can be given to shareholders,
and it is important that their provisions are followed: failure to
do so can invalidate the notice, the meeting and the resolutions
passed at it.
Legislation introduced in 2000 allows notices to be sent
electronically (by e-mail or fax) if a shareholder is in agreement.
Since January 2007, a company has also been able to use a
website.
Documents and information to be sent to shareholders can be
posted on a website if a shareholder resolution allowing this has
been passed (or the articles permit it). Shareholders can opt out
and still require hard copies through the post. In any event, each
time a document is put on the website shareholders must be told,
usually by hard copy letter.
Where a notice is sent through the mail, the articles will
stipulate first or second class post and when the notice is deemed
given, usually 48 hours after posting. An AGM for a public company
requires 21 clear days’ notice; all other meetings – a private
company AGM (if held) and all EGMs – only need 14 clear days. For
these purposes, 'clear days' means exclusive of the day on which
the notice is deemed served and the day of the meeting.
An example will explain the way this works: a plc AGM notice may
be posted on July 1. If the articles state that notices sent by
post are served 48 hours later (excluding weekends and bank
holidays), notice will be deemed given on July 3. Day 1 of the
notice period will then be July 4; day 21 will be July 24, which
means that the meeting can be held on July 25. Note that the 14 and
21 day time limits apply from October 2007, unless a company’s
articles require longer notice. Before that date, all AGMs require
21 clear days, as do all special resolutions.
For listed companies, the Combined Code requires the AGM notice
and related papers to be sent to shareholders at least 20 working
days before the meeting.
The notice must give sufficient indication of the business of
the meeting, so that a shareholder can decide whether to attend or
not. This will usually be achieved by setting out in full the
resolutions to be proposed at the meeting; and with special
resolutions, it is a requirement that their full text is given, and
no amendment of substance is made. The notice must also tell
shareholders that they can appoint a proxy to attend and vote in
their place at the meeting.
These notice periods can be dispensed with if, in the case of a
private company, agreement is given by those holding at least 90
per cent of the nominal value of the voting shares. For a public
company, that figure goes up to 95 per cent, though a plc’s AGM
always has to be called on full notice.
Special notice
In two specific situations 'special notice' may be required:
- removing an auditor and appointing an auditor where there has
been a change since the last AGM;
- removing a director.
Special notice is a commonly misunderstood concept. Special
notice is not given by the company, but to the company by a
shareholder.
Notice to move the relevant resolution must be given to the
company at least 28 days before the meeting. Having received the
special notice, the company must inform shareholders of the
resolution when it gives notice of the meeting.
Shareholder circulars
Anything other than the routine AGM resolutions is likely to
require some form of explanation to shareholders by the board in
the form of a letter or circular. In the case of a listed company,
the Listing Rules contain requirements for such a circular. For
example, the directors must say whether they believe the proposal
is in the best interests of shareholders as a whole, and they must
recommend which way shareholders should vote.
Unless the circular is dealing with standard business of the
type described in the Listing Rules, it must be submitted to the UK
Listing Authority for approval before it is sent to
shareholders.
Resolutions
There are three types of resolution, each with a different
purpose and distinct requirements:
- ordinary – unless companies legislation or the
articles require anything different, an ordinary resolution will be
sufficient for all decisions to be taken by general meetings of
shareholders. If proposed at a plc AGM, 21 clear days’ notice will
be necessary; if proposed at a private company AGM or at any EGM,
only 14 clear days are needed (these limits are effective from
October 2007, subject to the company’s articles). An ordinary
resolution will be passed if a simple majority of those
shareholders who are present and vote are in favour. If a poll is
called, it needs a simple majority of all the votes cast (one share
giving one vote, unless the articles say differently). Note: it is
a simple majority of those who vote, not of all shareholders – or
even of all who attend the meeting.
- special – matters that are less routine and of
more importance, such as changes to the articles of a company, a
change of name or a switch from being a private to a public
company, or vice versa, will require a special resolution. Unless
proposed at a public company AGM, 14 clear days’ notice of the
resolution must be given (prior to October 2007, 21 clear days are
needed). The notice must clearly state that a special resolution is
to be proposed and it needs the support of 75 per cent of those
voting or, on a poll, 75 per cent of the votes cast.
- written – historically, it has been possible
for many resolutions of the members of a private company to be
passed without a meeting provided all the shareholders who would
otherwise be entitled to vote sign a written copy (not necessarily
the same piece of paper, just the same wording). The Companies Act
2006 relaxes this rule so that only shareholders with more than 50
per cent of a private company’s shares have to agree an ordinary
resolution; for a special resolution, the figure goes up to 75 per
cent. The resolution must still be circulated to all shareholders
(it is a criminal offence not to do so) but there is no need to get
a signature if a shareholder’s agreement is signified in writing in
some other way, such as an e-mail. This change, effective from
October 2007, allows much greater use of written resolutions and
means there will be little reason ever to hold a shareholder
meeting for a private company.
Shareholders do not have to wait for the directors to propose a
resolution: those holding at least five per cent of the votes can
require the company to circulate their own resolutions. Any
resolution circulated to the shareholders will lapse if it has not
been agreed to by the necessary majority within 28 days.
Note that written resolutions still cannot be used by
public companies.
