Shareholders’ duties and liabilities

Who are the shareholders?

The shareholders of a company are the company’s initial financial supporters.

They provide finance by purchasing shares in the company, and therefore become shareholders and part owners of the company.

Shareholders have certain rights, roles and duties to perform as set out in the Companies Acts and the company’s articles of association.

As shareholders of a limited company, they’re protected from liabilities, save for the amount of the shares they own but haven’t paid for.

Shareholders can also be directors of the company.

While directors are responsible for the day-to-day management of the company and making decisions, the shareholders have specific roles and duties in relation to their control over the company.

What do the shareholders do?

Major business decisions that could affect shareholders’ rights must be approved by the shareholders at a general meeting called by the directors of the company.

Certain decisions can only be made by the shareholders such as: removing a director from office or changing the name of the company.

In general, shareholders have little power over the directors and how they run the company.

Instead, their main role is to attend meetings and discuss whatever is on the agenda to ensure the directors do not go beyond their powers – and to also provide shareholders’ consent where required.

General meetings and written resolutions

General meetings are meetings of the company’s shareholders.

All general meetings, other than an AGM, are deemed to be Extraordinary General Meetings (EGMs).

While the company directors may call a general meeting at any time for any reason, shareholders can also request a general meeting, subject to conditions (i.e. those requesting the meeting must represent at least 10% of the company’s paid-up share capital or, if there isn’t any paid-up capital, 10% of the voting rights).

Where a special resolution is proposed the directors must call a general meeting within 21 days if the shareholders have a valid request.

If they don’t, there are procedures enabling shareholders to call one themselves.

If it’s not practical or desirable to hold a general meeting, then a written resolution can be used instead.

The written resolution is sent to all of the shareholders, and they simply sign it if they agree to the ordinary or special resolution(s) contained within before the end of the lapse period.

Every eligible member has one vote per share.

We recommend using written resolutions, as general meetings require a minimum of 7 clear days’ notice, which can prevent decisions from being made quickly.

It should be noted that written resolutions cannot be used to dismiss a director, a general meeting on special notice (21 days rather than 7 days) is required for this.

Annual general meetings

There’s no longer a statutory requirement to hold an annual general meeting if the company is a private company, unless required by its articles.

But the shareholders may request that one is held – or the directors may call an annual general meeting if desired.

In small companies, it’s often appropriate to have an annual general meeting where the shareholders aren’t all directors.

It provides the shareholders the opportunity to review the company accounts and ask the directors about decisions they have made.

If you’re a director of a private limited company holding an annual general meeting (AGM), you need to give the rest of the members (also called ‘shareholders’) at least 21 days’ notice.

Our notice of annual general meeting is the ideal template for this.

Duties of shareholders

The main duty of shareholders is to pass resolutions at general meetings by voting in their shareholder capacity.

This duty is particularly important as it allows the shareholders to exercise their ultimate control over the company and how it is managed.

Shareholders can vote in one of two ways: on a show of hands or through a poll vote, where each vote will be proportionate to the number of shares held by each shareholder.

A show of hands is usually the preferred method of voting that takes place at general meetings.

There are two resolutions that can be voted on at a shareholders meeting: an ordinary resolution, and a special resolution:

Ordinary resolution: An ordinary resolution is passed by the shareholders if a simple majority of shareholders present at the meeting vote in favour of the proposal.

Therefore, more than 50% of the votes cast must be in favour, usually displayed through a show of hands.

If there’s no specific mention of what type of resolution is required, the presumption is that there will be a vote on an ordinary resolution.

Special resolution: A special resolution is sometimes required by the Companies Act in certain cases; for instance, to change the articles of association, or for other important or sensitive matters.

The articles can also require a special resolution.

For a special resolution to be passed, a 75% majority must vote in favour.