Common FAQs for Shareholders and Directors

Here you can download our Common FAQs For Shareholder And Directors booklet. An example of the useful information you can find in the booklet is featured below.

1. How Do Shareholders’ And Directors' Roles Differ

A company is an independent legal entity separate from its Directors and Shareholders.

A Director of a company is responsible for directing its affairs on a day-to-day basis, promoting its success and protecting all stakeholders (i.e. Shareholders, employees, the company itself and, in certain circumstances, creditors).

The Shareholders of the company have an interest in the equity (i.e. the net value of its assets), which they own in accordance with the shares allocated to them. They have certain powers under the relevant legislation in terms of how their decisions (referred to as “resolutions”) are reached, how the structure of the company is managed (including its funding and Directors’ appointment) and how they can deal with company assets (e.g. payments to Directors). The Shareholders otherwise have no role in managing the company or determining its direction, other than as determined in the company’s constitution (i.e. the Memorandum and Articles of Association), any Shareholder’s agreement and by way of resolutions passed at general meetings of Shareholders.

Directors must call an Annual General Meeting of Shareholders (“AGM”) but there is also an ability for Shareholders, of the requisite number, to request a meeting outside of these time limits during the year – this is called an Extraordinary General Meeting (“EGM”). Shareholders’ decisions are normally reached by reference to the Shareholders present (or voting by a nominated proxy, usually the chairman) voting on specific decisions and such decisions are passed either by an Ordinary Resolution (requiring 50%) or a Special resolution (requiring 75%).

2. What Happens If Directors Or Shareholders Disagree On A Decision?

The Company’s Articles of Association and/or Shareholders’ Agreement sets out the rules as to how company decisions can be taken and what Directors can do as part of their day-to-day governance of the company’s affairs.

Beyond the day-to-day decisions, the majority of decisions made by a company (e.g. the removal of a Director and the approval of “conflict” situations) require a simple majority (i.e. 50.01%) of Shareholders present at a general meeting to agree to pass an “Ordinary Resolution”.

In the event that a Director or Shareholder disagrees with a decision made at a general meeting, it is first necessary to consider whether correct notice of the meeting was provided, all other formalities complied with and whether the appropriate Shareholder Resolution was passed to validate the decision being complained of. In the event that this is not the case then the decision (i.e. the Resolution) may be invalid and the decision will not stand. The status quo will therefore continue until a valid Resolution is passed and a decision made. This can raise difficulties in practice and specific advice should be sought on the relevant facts.

3. How Can A Director Be Removed From A Company?

The most important point to note is that the removal of a Director requires Shareholder support (save a decision to demote a Managing Director to Director).

At a general meeting, Shareholder support of in excess of 50% (i.e. an Ordinary Resolution) is normally required for a decision to be taken to remove a Director from a company (unless varied by the Shareholder Agreement or Articles of Association). It should be noted that 28 days notice (referred to as “Special Notice”) must be given to the Director of the resolution to remove him/her and, in the event that sufficient notice is not provided, the resolution to remove the Director will be invalid. Upon receipt of notice, the Director is entitled to distribute to Shareholders his/ her written representations contesting his/her removal as a Director. The Director is also entitled to make verbal representations at the general meeting itself (note that an actual meeting is required and that the resolution to remove a Director cannot be passed by way of written resolution in lieu of a meeting). Following representations in defence of his/ her position, the Director will or will not be removed depending on whether the requisite majority of Shareholder votes is cast in favour of the Resolution to remove the Director.

4. What Are A Director's Fiduciary Responsibilities?

Directors have a number of legal responsibilities and duties to the company, primarily stemming from a general duty to act in good faith in the best interests of the company.

More specifically, Directors are required to act within the powers conferred upon them by the company’s Articles of Association; they must promote the success of the company and exercise reasonable skill and care and diligence in their particular area of management; they must avoid conflicts of interest (save those declared and approved at a general meeting) and they must not accept personal benefits from third parties without authorisation at general meeting (subject to any alternate provisions within the Articles of Association).

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5. How To Resolve A "Deadlock" Situation

6. What Rights Do I Have As A Minority Shareholder?

Should you require any further assistance at all with these matters, then please contact one of our corporate specialists on 020 7841 0390 and we will be happy to discuss this with you.