Senior Pensions Consultant
Out-Law Guide | 04 Jul 2007 | 12:12 pm | 11 min. read
This guide is based on UK law as at 1st February 2010, unless otherwise stated.
The articles of association will delegate the management of a company to its board of directors (see: Company personnel, an OUT-LAW guide). The board will act collectively, meeting regularly to consider and decide issues affecting the company. How those board meetings are run is a matter largely for the articles and for the board itself to decide. Unlike shareholders’ meetings, which are more tightly regulated, board meetings are generally free of legislative interference.
So there is nothing in statute about the notice to be given for board meetings. Any director or the secretary can call a board meeting and, unless the articles or a previous board meeting have stipulated the length of notice to be given, the only requirement is that it be reasonable.
What is reasonable will depend on the type of company and its past practice. For a private company where all directors are already on site, reasonable notice may be a few hours or even minutes; unless the articles or a board resolution say anything to the contrary, the notice can be written or oral and need not detail an agenda for the meeting. For a large international company with directors scattered over the globe and non-executives with other responsibilities, board meetings will be fixed a year or more ahead.
That's the legal position, but there's a clear contrast here with what today would be regarded as best practice. Our guide on Corporate governance describes, the UK Corporate Governance Code for listed companies says that boards should meet regularly, that there should be a schedule of matters that may only be settled by the board, and directors should be properly briefed. (The ICSA website has further guidance on this.) In addition, the Code requires that the directors’ annual report contains a record of attendance at board and committee meetings.
The articles will usually stipulate a minimum number of directors to form a quorum before the meeting can go ahead. But it's important to realise that:
Votes at a board meeting will be calculated on the basis of one for each director present, with the chairman having a casting vote in the event of a tie, unless the articles provide for anything different. A director excluded from the quorum because of a personal interest in a matter will also be excluded from voting.
If the articles are well drafted, board meetings by telephone or video conference will be permitted. And for smaller companies, board resolutions may often be in writing, signed by all the directors entitled to receive notice.
Where a meeting is held, there is a legal requirement that minutes are taken (and the Companies Act 2006 requires them to be retained for at least 10 years). Minutes allow a director to have their views on a matter recorded – something that can be useful if questions are raised in the future, particularly after an insolvency. (Actions that minimise the risks of liability is addressed in our guide on Financial difficulty and insolvency: an introduction). Minutes can also act as evidence of the factors taken into account by the board when reaching a decision. (See: Decision Taking and Record Keeping.)
The board can delegate matters to sub-committees, and listed companies are now required by the Corporate Governance Code to have audit, remuneration and nomination committees. Resolutions establishing committees may dictate quorum, notice and other requirements; failing that, they will follow the same rules as for the full board.
A public company must hold an annual general meeting within six months of its year end. (Listed companies have to publish their report and accounts within four months, so in practice will call an AGM within that period.)
The time and place of the AGM are matters for the board to decide but, given that the AGM is a rare opportunity for shareholders to have their say and to question directors publicly, companies have faced criticism when they have opted for times and venues that make it difficult for many shareholders to attend.
Under the Companies Act 2006, a private company does not have to hold an AGM, though it can if it wants (and, indeed, may still be required to do so by an old set of articles).
The Corporate Governance Code states that the chairmen of the board’s audit, remuneration and nomination committees should be sure to attend the meeting so that they can answer relevant questions from shareholders. Shareholder attendance at AGMs is, however, usually very low, with many choosing to vote by proxy on the standard resolutions to be proposed, or not to vote at all.
Periodic furore at directors’ pay packages, and the requirement that the directors’ remuneration report be put to shareholders for approval, may, however, lead to increased numbers at AGMs, and some consequent flexing of shareholder muscle.
The main purpose of most AGMs, though, is for the directors 'to lay before the company in general meeting' the previous year’s audited accounts and accompanying reports. Note the wording here – there is no requirement that shareholders approve the accounts or accept them. Shareholders have no ability to reject the accounts. They must stand as they are, having been prepared by the directors and audited by the auditors. A public company AGM simply provides the opportunity for the directors to present the accounts; the resolution put to shareholders will usually be 'to receive' the accounts and reports.
Apart from the accounts, usual business at the AGM will comprise the declaration of any dividend proposed by the board, the appointment of auditors and the fixing of their fees (the latter task usually being delegated to the board), and the election of any directors who are retiring because the articles say they must (see: Company personnel, an OUT-LAW guide).
Listed companies will also commonly propose resolutions at the AGM to:
The AGM is not restricted to this business and, in addition, will often be used to put to shareholders resolutions to amend the articles, adopt new share schemes or do anything else that requires their approval.
Shareholders can propose their own resolutions for an AGM but they have to act in sufficient numbers: there must either be at least 100 of them holding a certain amount of paid up share capital, or enough of them to represent at least five per cent of the votes.
If something requires shareholder approval and cannot wait until the next AGM, a general meeting of shareholders can be called (known as an extraordinary general meeting until the Companies Act 2006 dropped the term). Usually, it will be the directors who convene the meeting, but the shareholders can force the directors' hand if they collectively own at least one-tenth of the paid-up voting share capital (one-twentieth in certain circumstances). If the board then fails to comply within 21 days, shareholders can go ahead and call the meeting themselves.
As with AGMs, the directors must act in good faith when convening an EGM and should avoid picking a time and place with the intention of making it difficult for shareholders to attend.
Many private companies with a small number of shareholders will have no need to hold general meetings - where a shareholder vote is needed, a written resolution can be used (see below).
All shareholders are entitled to receive written notice of a meeting unless the articles say otherwise. In addition, notice of a general meeting must also be given to each director (whether a shareholder or not). Older articles may also require it to be sent to the auditors – a point that can often be missed.
Notice can be given to shareholders in hard-copy form, electronically or via a website. Whichever method is chosen, it's important that the relevant provisions in the Companies Act and the articles are followed: failure to do so can invalidate the notice, the meeting and the resolutions passed at it.
Documents and information to be sent to shareholders can be posted on a website if a shareholder resolution allowing this has been passed (or the articles permit it). Shareholders can opt out and still require hard copies through the post. In any event, each time a document is put on the website shareholders must be told, usually by hard-copy letter.
Email can be used to send notices and other documents where a shareholder has specifically agreed to that method. (Electronic communication with shareholders is addressed in: Company secretary: Other information, an OUT-LAW guide.)
Where a notice is sent through the mail, the Companies Act stipulates that it will be deemed to have been received 48 hours after posting, excluding weekends and bank holidays, unless a company’s articles have a different rule. An AGM for a public company requires 21 clear days’ notice; all other meetings – a private company AGM (if held) and all other general meetings – only need 14 clear days. (In the case of listed company general meetings, the 14 days has to be approved at each year’s AGM; otherwise it’s 21 days.) For these purposes, ‘clear days’ means exclusive of the day on which the notice is deemed served and the day of the meeting.
An example will explain the way this works: a plc AGM notice may be posted on July 1. If the articles state that notices sent by post are served 48 hours later (excluding weekends and bank holidays), notice will be deemed given on July 3. Day 1 of the notice period will then be July 4; day 21 will be July 24, which means that the meeting can be held on July 25. If weekends and bank holidays are to be excluded, the notice period can be longer by eight days or more.
For listed companies, the Corporate Governance Code requires the AGM notice and related papers to be sent to shareholders at least 20 working days before the meeting.
The notice must give sufficient indication of the business of the meeting, so that a shareholder can decide whether to attend or not. This will usually be achieved by setting out in full the resolutions to be proposed at the meeting; and for special resolutions, the full text must be given. The notice must also tell shareholders that they can appoint a proxy to attend and vote in their place.
These notice periods can be dispensed with if, in the case of a private company, agreement is given by those holding at least 90 per cent of the nominal value of the voting shares. For a public company, that figure goes up to 95 per cent, though a plc’s AGM always has to be called on full notice.
In two specific situations 'special notice' may be required:
Special notice is a commonly misunderstood concept. Special notice is not given by the company, but to the company by a shareholder.
Notice to move the relevant resolution must be given to the company at least 28 days before the meeting. Having received the special notice, the company must inform shareholders of the resolution when it gives notice of the meeting.
Anything other than the routine AGM resolutions is likely to require some form of explanation to shareholders by the board in the form of a letter or circular. In the case of a listed company, the Listing Rules contain requirements for such a circular. For example, the directors must say whether they believe the proposal is in the best interests of shareholders as a whole, and they must recommend which way shareholders should vote.
Unless the circular is dealing with standard business of the type described in the Listing Rules, it must be submitted to the UK Listing Authority for approval before it is sent to shareholders.
There are three types of resolution, each with a different purpose and distinct requirements:
Shareholders do not have to wait for the directors to propose a resolution: those holding at least five per cent of the votes can require the company to circulate their own resolutions. Any resolution circulated to the shareholders will lapse if it has not been agreed to by the necessary majority within 28 days.
Note that written resolutions still cannot be used by public companies.
Senior Pensions Consultant