East London Solicitors

What kind of accounts must a company maintain?

All companies are required by law to keep a full record of income, expenditure, assets, and liabilities.

What is “Wrongful trading” ?

This applies to allegations against a director or shadow director  which, if proven, can result in a requirement to contribute towards the debts or liabilities of a company. Wrongful trading can include not just actions by directors but also failure to act which has increased or does not minimise losses to creditors.

The basic legal test is whether it can be proven that before winding-up began the person knew or ought to have concluded that there was no reasonable prospect of the company avoiding liquidation and yet continued in the same way.

Is shareholder approval needed  to issue shares?

From 1 October 2009, directors, who have day to day control of a private company with only one class of share, no longer need specific authority from the shareholders to issue shares. However, it may be that the company’s articles provide that shareholder approval is necessary, and so the articles should be carefully checked.

Can shareholders make a decision without a meeting ?

Subject to certain exceptions, shareholders of a private company can make a decision using a written resolution instead of holding a shareholders’ meeting. They must follow the procedure in the Companies Act 2006. The exceptions are resolutions to remove a director or an auditor from office. These must be passed at meetings because the Companies Act gives the director or auditor the right to state, at a meeting, why they should not be removed. There are also special rules governing the notice to be given of the meeting. The company must send  a copy of the proposed resolution to every shareholder (and to the auditor, if any) together with a statement telling the shareholders how to indicate their agreement to the resolution and the date by which it will lapse if not agreed to by then.

What percentage of votes are needed for a written resolution ?

If the written resolution put to the shareholders is an ordinary resolution the percentage vote required is a simple majority of the total voting rights of the shareholders. For a special resolution it is not less than 75 per cent of the total voting rights of the shareholders. The percentages required to pass resolutions in writing are percentages of the total voting rights whereas, for meetings, they are percentages of the votes cast at the meeting. This can mean putting a decision to shareholders as a written resolution can result in a different outcome compared to the same resolution put to shareholders at a meeting, as votes of shareholders who are not at, or represented at, or who do not vote at, a meeting, are not counted.

As a shareholder, what right do I have to choose the company’s directors?

This depends on the company’s articles. Often new directors may be appointed by the board. Alternatively they may be appointed at a shareholders’ (general) meeting. Shareholders who wish to nominate a director must give notice of their intention to make the nomination, within strict time limits.

What is a distribution agreement ?

A distribution arrangement is made between the supplier (principal) who sells his goods to the distributor and the distributor will, as a separate transaction, sell the goods to his customer. There is no contract of sale between the supplier and the ultimate purchaser of the goods.

Key clauses in such agreements often include:

•             A detailed breakdown of the duties and responsibilities of both parties

•             The geographic region in which the Distributor will operate

•             Whether the Distributor will have exclusive or non-exclusive rights

•             The rate, method and timing of payments

•             Any non-compete agreement

•             Protection of trade secrets and confidential information

•             Supply of goods and minimum stock levels

•             The duration of the agreement, termination and how breaches of the agreement are handled

•             The principal’s option to buy-back products on termination of the agreement.

What is the procedure for calling a shareholder meeting ?

The company must send shareholders (and any auditors) a notice in writing, stating the date, place and time of the meeting, and setting out the rights of shareholders to appoint proxies. The notice period to be given is 14 days, although this may be increased by the articles of association. However, if the holders of shares representing 90 per cent of the nominal value of the company’s voting shares (or any higher percentage specified in the articles, to a maximum of 95 per cent) agree, the meeting can be held at shorter notice.

A director has requested a board meeting – do we have to hold one?

It depends on your articles of association but standard articles usually say that a director can call a board meeting, at any time, so you may wish to alter this

Are all partners in a partnership equal?

In the absence of any partnership agreement or other evidence to the contrary, all partners in a partnership are treated equally.

What are the key proportions of shares that affect rights?

Broadly speaking, the key percentages are as follows. (The detailed position is slightly more complicated if not all classes of share carry the same voting rights.)

•             75 per cent gives the power to force through any resolution at a general meeting of the shareholders, including a special resolution.

•             Over 50 per cent enables the power to pass an ordinary resolution at a general meeting of the shareholders.

•             Over 25 per cent creates the ability to block a special resolution.

•             A 5 per cent shareholding or more gives the ability to require the company to call a general meeting.

These percentages apply to either a single shareholder or a group of shareholders acting together.