I am a shareholder in a construction company in the North of England. I only became a shareholder in the company 6 months ago and have been invited to shareholders meeting. I am not entirely sure what powers do shareholders in a company have, can you please explain what powers I as a shareholder have?
Company directors also attend our shareholders meeting, can you please explain what the difference between shareholders and directors are in terms of powers in a company?
The Answer from Solicitors Online
The source of shareholders powers
A company is made up of a board of directors and its shareholders. The role and powers of shareholders in a company are established and described in:
(a) The company’s articles of association
(b) The Companies Act 2006 and the Insolvency Act 1986
(c) Legal cases that recognise the power and rights of shareholders in specific instances of company management
The role of shareholders in a company
The shareholders decisions that relate to the managing of a company are decided by a majority vote amongst the shareholders. In some circumstances, this is a vote where more than 50% of the shareholders are in agreement with a specific management decision. In some circumstances a minimum of 75% of the shareholders in a company need to be in agreement with a specific management decision, for the decision to progress.
However shareholders can also act in an individual capacity to enforce their personal rights as a shareholder in the company.
The majority vote of shareholders has the power to decide matters that fundamentally influence the management of a company. Shareholders are therefore regarded as the ultimate controllers of a company’s destiny.
The division of power between the board of directors and the shareholders
Directors’ powers in managing a company are stated under the model articles of association for private companies limited by shares. Article 3 states “the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company”. However these power are subject to other articles in a company’s articles of association.
Shareholders powers in managing a company are stated in the model articles of association for private companies limited by shares. Article 4 states “the shareholders may, by special resolution, direct the directors to take, or refrain from taking specified action”.
A list of shareholders powers from the Companies Act 2006
Shareholders have the following specific powers under the Companies Act 2006
The power to amend the company’s constitution – section 21(1)
The power to resolve to reregister the company e.g. from private to public or vice versa – section 90 & 97
The power to remove directors by ordinary resolution – section 168
The power to approve director service contracts if employment is guaranteed for more than 2 years – section 188(2)
The power to approve substantial property transactions – section 190(1) and loans, section 197 between the company and a director.
The power to approve compensation to a director for loss of office – section 217
The power to ratify directors breaches of duty – section 239
The power to authorise the board to allot shares – section 551
The power to disapply pre-emption rights – section 569-571
The power to reduce share capital – section 641(1)
The power to authorise the company to purchase its own shares – section 694, 701
The power to approve a payment out of capital for redemption of a company’s own shares – section 716.
Shareholders powers from the Insolvency Act 1986
Under the Insolvency Act 84 (1) shareholders have the power to decide to wind-up the company voluntarily.
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