Voting and Decision-Making:
Although the Companies Act and the Model Articles of Association provide a foundation for corporate governance and shareholder rights, companies have significant flexibility to tailor their Articles and to create comprehensive shareholder agreements that align with their specific needs and preferences. Shareholder agreements typically define how major decisions are made within the company. This can include specifying the threshold for majority votes, supermajority requirements for significant decisions, or unanimous consent for exceptional matters.
Case Study:
A shareholder agreement for a real estate investment company outlines decision-making protocols. While day-to-day operational decisions can be made by the company’s directors, major decisions, such as acquiring a high-value property, necessitate unanimous consent among the shareholders. This ensures that crucial decisions stay with the shareholders and align with the shareholders’ collective vision.
Dividend Policy:
There are some restrictions on the payment of dividends set out in the Companies Act 2006, which for private limited companies are concerned with having sufficient profits in the company to be able to pay a dividend. The procedure for paying dividends is usually set out in the Articles of Association and must be complied with. However, as long as these provisions are followed, shareholders can set out any term they wish concerning the payment of dividends, such as frequency, calculation method and level according to share class. Dividends are often of the upmost importance to shareholders and the terms concerning payment of dividends should be carefully considered.
Case Study:
Victoria, Thomas and Mark start a company. Their shareholder agreement includes a Dividend Policy to ensure equitable distribution of profits. The policy outlines that dividends will be calculated annually based on the company’s net profit after taxes. The policy also specifies that the board of directors can adjust the dividend amount based on the company’s capital needs for growth. This policy ensures transparency and fairness while allowing the company to reinvest in its expansion when necessary.
What Constitutes A Quorum:
A quorum refers to the minimum number of shareholders (or their proxies) required to be present for a meeting to have the authority to make decisions binding on the company. Setting a quorum ensures that important decisions are made with the participation of the number of shareholders sufficient to ensure transparency and fairness in running the company. In a shareholder agreement, quorum requirements can be customised to suit the company’s needs and the nature of the decisions being made. A quorum is typically expressed as a specific percentage of the total shares or a fixed number of shareholders who must be present or represented at a meeting for it to proceed.
Case Study:
In a family business, the shareholder agreement stipulates that for major decisions, such as approving a merger or significant acquisition, a quorum of at least 90% of the total shares must be present. This requirement ensures that the decision is made with substantial shareholder involvement and prevents a small group of shareholders from unilaterally deciding the company’s fate.
Termination of Agreement
Shareholder agreements will typically contain termination provisions. Termination clauses can protect shareholders’ interests by ensuring that they have the ability to exit an agreement that no longer serves their needs. Termination clauses may be triggered by specific events, such as the sale of the company, the departure of a key shareholder, or a change in ownership structure. Termination clauses also allow companies to adapt to changing circumstances and avoid being bound by outdated agreements.
Case Study:
A company’s shareholder agreement includes a termination clause that allows any shareholder to propose the termination of the agreement with at least 60 days’ notice. If all shareholders agree to terminate, the agreement dissolves. This provision offers flexibility for shareholders to adapt to evolving business strategies or accommodate new investors.