Learning Outcomes
This article provides an overview of the decision-making processes within companies, focusing on board meetings and general meetings. It outlines the procedures for calling and conducting meetings, the types of resolutions passed, and the associated administrative requirements. For the SQE1 assessments, you need to understand how directors and shareholders make decisions, the rules governing meetings and resolutions (including ordinary and special resolutions, and written resolutions), and the importance of complying with the Companies Act 2006 and the company's articles. This knowledge will enable you to apply these principles to SQE1-style multiple-choice questions.
SQE1 Syllabus
For SQE1, you are required to understand the core principles of corporate governance and compliance relating to decision-making processes. This involves knowing the procedures for board and general meetings, including notice, quorum, and voting requirements, and the distinction between different types of resolutions. Your understanding of company administration and filing requirements is also assessed.
As you work through this article, remember to pay particular attention in your revision to:
- the division of decision-making powers between directors and shareholders
- the procedures for calling and conducting valid board meetings (BMs)
- the requirements for calling and conducting valid general meetings (GMs)
- the difference between ordinary resolutions (ORs) and special resolutions (SRs), including the majorities required
- the procedure for passing written resolutions (WRs) in private companies
- the administrative and filing requirements associated with company resolutions and meetings.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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What is the default quorum required for a valid board meeting under the Model Articles for private companies?
- One director
- Two directors
- A majority of the directors
- All directors.
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Which type of resolution requires a majority of 75% or more of the votes cast to be passed?
- Board resolution
- Ordinary resolution
- Special resolution
- Written resolution.
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A private company wishes to call a general meeting. What is the minimum notice period required under the Companies Act 2006, assuming no agreement to short notice?
- 7 clear days
- 14 days
- 14 clear days
- 21 clear days.
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Which of the following decisions typically requires a special resolution?
- Appointing a director
- Declaring a dividend
- Removing a director
- Amending the articles of association.
Introduction
Effective decision-making is fundamental to the proper functioning and governance of a company. The Companies Act 2006 (CA 2006), along with a company's articles of association, establishes the framework for how decisions are made. Power is typically divided between the directors, who manage the company's day-to-day business, and the shareholders (members), who own the company and vote on significant matters. Directors usually make decisions collectively at board meetings (BMs), while shareholders make decisions by passing resolutions, either at general meetings (GMs) or via written resolutions (for private companies). Understanding these distinct processes and the rules governing them is essential for compliance and for advising clients.
Directors' Decision-Making: Board Meetings
The directors are responsible for the management of the company's business and typically exercise their powers collectively through board meetings (BMs).
Calling Board Meetings
Under the Model Articles for private companies (MAs), any director may call a board meeting (MA 9(1)). Notice must be given to every director, wherever they are (MA 9(1)). The notice does not need to be in writing (MA 9(3)). What constitutes sufficient notice depends on what is reasonable in the circumstances (Browne v La Trinidad). The notice must indicate the proposed date, time, and place of the meeting, and how directors participating remotely can communicate (MA 9(2), MA 10(2)).
Quorum
For a BM to be valid, a minimum number of directors must be present. This minimum number is known as the quorum.
Key Term: Quorum
The minimum number of directors (or members, for a general meeting) who must be present for valid decisions to be taken at a meeting.
Under the MAs, the quorum for BMs is two directors (MA 11(2)), unless the company only has one director (MA 7(2)) or the articles specify a different number. If the number of directors falls below the quorum requirement, the remaining director(s) can only act to appoint further directors or call a general meeting (MA 11(3)). Directors do not need to be physically in the same place, provided they can communicate with each other (MA 10).
Voting at Board Meetings
Decisions at BMs are usually taken by a majority vote on a show of hands (MA 7(1)). Each director typically has one vote. The articles may grant the chairperson a casting vote in the event of a tie (MA 13(1)). Directors with a personal interest in a matter being discussed may be precluded from voting or counting towards the quorum under the company's articles (e.g., MA 14), although exceptions exist (MA 14(3), (4)).
Unanimous Decisions
Directors can also make decisions without a formal BM if all eligible directors indicate to each other that they share a common view on a matter (MA 8(1)). This allows for flexibility, particularly in smaller companies, where decisions can be documented through a directors' written resolution signed by all eligible directors.
Record Keeping
Companies must keep records of all board proceedings (minutes) for at least ten years (s 248 CA 2006, MA 15).
Worked Example 1.1
TechStart Ltd has three directors: Alice, Ben, and Chloe. Its articles incorporate MA 11 and MA 14 without amendment. A board meeting is called to approve a contract with a supplier company in which Ben has a significant personal financial interest. Alice and Chloe attend the meeting, but Ben is travelling and cannot attend. Can the remaining directors approve the contract?
Answer: Yes. The quorum required is two directors (MA 11(2)). Alice and Chloe constitute a quorum. Ben has a personal interest and would not have been able to vote or count in the quorum under MA 14 had he attended. Provided Alice and Chloe both vote in favour (a majority of those present and eligible to vote), the resolution to approve the contract can be validly passed. Ben must still declare his interest under s 177 CA 2006.
Shareholders' Decision-Making: General Meetings and Resolutions
While directors handle day-to-day management, certain key decisions are reserved for the shareholders (members), either by statute or the articles. Shareholders exercise their power by passing resolutions.
Types of Resolution
There are two main types of shareholder resolution:
Key Term: Ordinary Resolution
A resolution passed by a simple majority (more than 50%) of the votes cast by members entitled to vote (s 282 CA 2006). This is the default resolution unless statute or the articles require a special resolution.Key Term: Special Resolution
A resolution passed by a majority of not less than 75% of the votes cast by members entitled to vote (s 283 CA 2006). Required for more significant decisions, such as changing the company name (s 77) or amending the articles (s 21).
Methods of Passing Resolutions
Shareholders can pass resolutions either at general meetings (GMs) or, for private companies, by using the written resolution procedure.
General Meetings (GMs)
Key Term: General Meeting
A formal meeting of the company's members (shareholders) where they vote on resolutions.
Public companies must hold an Annual General Meeting (AGM) within six months of their financial year-end (s 336 CA 2006). Private companies are not required to hold AGMs unless their articles specify. Any other meeting of members is simply a General Meeting (GM).
Calling General Meetings
GMs are usually called by the directors (s 302 CA 2006). However, members holding at least 5% of the paid-up voting share capital can require the directors to call a GM (s 303 CA 2006). If the directors fail to do so within 21 days, the requisitioning members (or members representing over 50% of the total voting rights of the requisitionists) may call the meeting themselves (s 305 CA 2006). The court also has the power to order a meeting (s 306 CA 2006).
Notice of General Meetings
Proper notice is essential for a valid GM (s 301 CA 2006).
- Period: At least 14 clear days' notice is required (s 307(1) CA 2006).
Key Term: Clear Days
A period excluding the day the notice is given (or deemed given) and the day of the meeting itself (s 360 CA 2006).
Note: Add 48 hours for deemed service if notice is sent by post or electronically (s 1147 CA 2006), effectively making the minimum notice period 16 days + 48 hours. Public company AGMs require 21 clear days' notice (s 307(2)).
- Short Notice: A GM can be held on shorter notice if agreed by a majority in number of members who together hold at least 90% of the nominal value of the voting shares (95% for PLCs) (s 307(5),(6) CA 2006).
- Content: Notice must state the time, date, place, and general nature of the business (s 311 CA 2006). It must include the full text of any proposed SR (s 283(6)) and inform members of their right to appoint a proxy (s 325).
- Recipients: Notice must go to all members, directors, and auditors (s 310, s 502 CA 2006).
Quorum at General Meetings
The default quorum for a GM is two qualifying persons (members or their proxies/corporate representatives), unless the company has only one member (quorum is one) or the articles specify otherwise (s 318 CA 2006).
Voting at General Meetings
Voting is typically by a show of hands (one vote per member present), unless a poll vote is demanded (MA 42). A poll vote means votes are counted according to the number of shares held (one vote per share). A poll can be demanded by the chair, directors, two or more members with voting rights, or members holding at least 10% of the total voting rights (MA 44).
Worked Example 1.2
A private company with unamended MAs has 100 issued £1 ordinary shares. Shareholder A holds 60 shares, Shareholder B holds 30 shares, and Shareholder C holds 10 shares. An ordinary resolution is proposed at a GM attended by all three shareholders. How will the resolution pass on a show of hands versus a poll vote?
Answer: On a show of hands, each shareholder has one vote. To pass an OR, more than 50% must vote in favour. This means at least two shareholders must vote yes. A and B voting yes would pass it (2/3 votes). B and C voting yes would pass it (2/3 votes). A and C voting yes would pass it (2/3 votes).
On a poll vote, votes are per share. A has 60 votes, B has 30, C has 10. Total votes = 100. An OR needs >50 votes. A can pass the resolution alone (60 votes). B and C together cannot pass it (40 votes).
Written Resolutions (WRs)
Private companies can use written resolutions as an alternative to holding a GM (s 288 CA 2006), except for resolutions to remove a director or auditor (s 288(2)).
Key Term: Written Resolution
A resolution passed by the members of a private company in writing, rather than at a general meeting.
Procedure
- Proposal: Can be proposed by directors or members holding at least 5% of voting rights (s 292).
- Circulation: Must be sent to all eligible members (s 291).
- Voting: Members signify agreement in writing. Requires the same majority as a resolution at a GM (>50% for OR, 75%+ for SR), but calculated based on the total voting rights of all eligible members, not just those who respond (s 282(2), s 283(2)).
- Lapse Date: Usually 28 days from circulation, unless the articles specify otherwise (s 297). The resolution passes as soon as the required majority is reached.
Record-Keeping and Filing Requirements
Minutes
Companies must keep minutes of all BMs and GMs (and records of WRs) for at least 10 years (s 248, s 355 CA 2006). These are usually kept at the registered office or SAIL address.
Filing Resolutions
Copies of all special resolutions must be filed with Companies House within 15 days of being passed (s 29, s 30 CA 2006). Certain ordinary resolutions also require filing, notably an OR under s 551 CA 2006 granting directors authority to allot shares.
Exam Warning
Be careful to distinguish between the requirements for board meetings and general meetings. Notice periods, quorum rules, and voting thresholds differ significantly. Also, remember that written resolutions are only available to private companies and cannot be used for all types of decisions.
Key Point Checklist
This article has covered the following key knowledge points:
- Decisions in a company are made by directors (at BMs) or shareholders (at GMs or by WRs).
- Directors manage the company's day-to-day business (MA 3).
- BMs require reasonable notice and a quorum (usually two directors under MAs). Decisions are by majority vote.
- Shareholders vote on significant matters via ordinary resolutions (ORs >50%) or special resolutions (SRs 75%+).
- GMs require 14 clear days' notice (longer for public AGMs), unless short notice is agreed. Quorum is usually two members.
- Voting at GMs is usually by show of hands unless a poll is demanded.
- Private companies can use written resolutions (WRs) instead of GMs for most decisions, requiring the same majorities based on total eligible votes.
- Minutes of all meetings must be kept, and SRs (and some ORs) must be filed at Companies House.
Key Terms and Concepts
- Quorum
- Ordinary Resolution
- Special Resolution
- General Meeting
- Clear Days
- Written Resolution
