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Company Structure Separate Legal Entities Some shareholders find it difficult to grasp the concept that company property, assets and money belonging to the company are not the property of the shareholder(s) (often also called “members”), even if the company in question is 100% owned by the shareholder(s). Companies are what lawyers call “separate legal entities”. In other words, they have their own legal identity, they can own property, enter into contracts and sue/be sued in their own right. Each company in England and Wales is given a unique company number by Companies House and will retain (and be identified by) the same company number throughout its existence, no matter how many times the company changes its name.
Directors and Company Secretary Companies must have at least one Director and one Company Secretary at all times. The same individual can hold the position of both Company Director and Company Secretary, but if a Company has only one Director, he/she cannot also be the Company Secretary. There is no legal limit to the number of Company Directors that can be appointed, although a company’s own regulations may regulate the maximum or minimum number of Directors.
Shares A company must have at least one issued share but there is no maximum number of shares that a company may issue.
Company Books/Records A company must keep written books/records of the following matters (although many companies do not actually do so):- -
Register
of Directors/Secretaries
Memorandum/Articles of Association Every Private Limited Company in England and Wales has its own “Articles of Association” and “Memorandum of Association”. These are often simply referred to as “the Articles” or “the Memorandum”. Together, these documents form the “constitution” of the company and regulate the powers of the company and the rights of its shareholders. Generally speaking, in modern companies, the Memorandum of Association is now of less importance than it once was but a company’s Articles of Association remain fundamental in regulating how a company lawfully goes about its business and what rights its shareholders have. There is no specific form of Articles of Association and it is therefore essential to obtain an up to date copy of a company’s Articles (available from Companies House) before any analysis of a company’s legal position or the position of its shareholders. Whilst general statements about shareholder rights can be made, these are almost always subject to alteration by the company’s Articles of Association.
The Board of Directors The great majority of decisions made by a company are made through the Board of Directors and the day to day business of the company is run through the Board of Directors. Hence, the ability to control the Board of Directors is where the real power lies in any company. Generally speaking, any shareholder who (either on his own account or together with other shareholders) holds over 50% of the issued shares in the company will be able to control the Board of Directors (subject to contrary provision in the Articles of Association or elsewhere). Shareholders can enter into “Shareholder Agreements” with each other to regulate their rights and powers. In most cases, it is advisable to conclude a Shareholders Agreement at the outset of any business venture, particularly from the viewpoint of minority shareholders who can gain protection from being “out voted” or “frozen out” under a Shareholders Agreement. Most people who go into business together do so as friends and with a degree of trust and confidence in each other. Typically, therefore, the issue of “what happens if it all goes wrong or we fall out?” is not at the forefront of their minds and, in practice, most limited companies are not the subject of a Shareholders Agreement. This can cause real problems if a dispute arises.
Shareholders (“General”) Meetings Unless the shareholders have passed a resolution to the contrary, Companies must hold an Annual General Meeting in each calendar year. A “general” meeting is simply a meeting of shareholders. Generally speaking, every shareholder has the right to receive notice, attend and vote at the AGM. Where certain business matters cannot wait until the AGM, “Extraordinary” General Meetings can be called to deal with that business. Depending on the nature of the business to be dealt with at the meeting, shareholders must generally receive either 14 or 21 days notice of the meeting. A typical AGM will merely involve a vote to appoint or re-appoint Company Auditors and will “lay before” the shareholders a copy of the last year’s accounts. Contrary to popular belief, the shareholders are not asked to approve the accounts - they are merely provided with a copy of the accounts for information - although they can ask questions on matters contained within the accounts. However, there may be additional matters on which a vote is required (the Notice calling the meeting will tell you this). Normally voting will be by a show of hands and, as such, each shareholder has only one vote irrespective of the number of shares held, but a shareholder can demand that a “poll” vote is taken and a poll vote will count votes in proportion to the number of shares held by each shareholder. In this way the “bigger” shareholders can make the size of their shareholding count. In many cases, a shareholder need not physically attend a General Meeting in person to be able to vote as voting can be done by “proxy” - a form which the shareholder can complete and return before the Meeting.
©
BrabnersChaffeStreet 2003.
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