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Proprietary companies, also known as private limited companies, are among the most common companies and play a crucial role in the UK economy. Unlike public companies, private limited companies face less scrutiny than public ones but must still meet strict legal requirements for shareholder meetings to ensure transparency and accountability and protect shareholders’ rights. This article explains the key legal requirements for conducting shareholder meetings in private limited companies, including notice periods, quorum, voting procedures, and types of resolutions.
Types of Shareholder Meetings
Shareholder meetings in private companies can be divided into two main categories:
- annual general meetings (AGMs); and
- extraordinary general meetings (EGMs).
AGMs are not mandatory for private companies unless set out in their Articles or Shareholders Agreement required by the shareholders. Meetings are often held within a specified time frame, typically within six months of the company’s financial year-end. During an AGM, the company presents its financial statements, directors’ reports, and auditor’s reports (if applicable) to the shareholders. At this meeting, the company will usually discuss its progress in the previous financial year and plans for the next year.
Directors or shareholders holding at least 5% of the company’s shares can call EGMs to address urgent matters that cannot wait until the next AGM, such as discussing investments or issuing shares. The Companies Act, the company’s articles of association, or a shareholder agreement typically outline these rights.
Notice Requirements
One crucial requirement for shareholder meetings in proprietary companies is the proper service of notice. The Companies Act 2006 specifies the minimum notice period for different types of meetings unless a longer period is set out in the Company’s articles of association or shareholders agreement.
For AGMs, the notice period is typically 14 clear days, while for EGMs, it is also 14 days. The 14 day notice is deemed a reasonable amount of time to allow shareholders to make arrangements to attend the meeting and enough time to research and contemplate any resolutions proposed by directors. The notice must include the meeting’s date, time, venue, and agenda items. Failure to provide proper notice may render the meeting and any resolutions passed invalid.
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Quorum Requirements
Quorum requirements are another essential aspect of shareholder meetings. A quorum refers to the minimum number of members required for the meeting to proceed. This ensures that enough shareholders are present at the meeting and that shareholders have discussed any decisions adequately.
For proprietary companies, the quorum is typically two members unless the company’s articles of association specify a higher number or percentage of shareholders that need to be present. The articles of association can also specify that certain key shareholders (such as the company’s founder) must be present for a meeting to be quorate.
Voting Procedures
Shareholders typically have voting rights based on the number of shares they hold, with one vote per share being the standard. However, the company’s articles may specify different arrangements, such as certain classes of shares not granting voting rights. The company’s articles may also allow shareholders to vote by proxy, postal, or electronic means.
Keeping Accurate Meeting Minutes
Accurate minutes of shareholder meetings are a legal requirement for private limited companies. The minutes must include the date, time, venue, attendees, resolutions passed, and voting results. They must also be approved and signed, and shareholders have the right to access them upon request. Minutes are an important record of a company’s decision-making process and should be remembered.
This template refers to the minutes of the first meeting of the directors of a Company.
Types of Resolutions
Shareholder meetings also involve considering and passing resolutions. There are two common types of resolutions:
- special resolutions; and
- ordinary resolutions.
Special resolutions are usually required for matters such as amending the company’s articles of association or changing the company’s name. These resolutions typically require a higher voting threshold, such as a 75% majority of votes cast.
On the other hand, ordinary resolutions are used for routine matters like approving financial statements. They only require a simple majority of votes to be passed.
Consequences of Non-Compliance with Meeting Requirements
Non-compliance with the legal requirements for shareholder meetings can have severe consequences for private companies. Failure to hold AGMs or provide proper notice of meetings may result in legal action from shareholders or regulatory bodies.
Additionally, any resolutions passed at improperly conducted meetings may be challenged and invalid, leading to potential shareholder disputes and financial implications.
Key Takeaways
UK private companies must adhere to specific legal requirements for conducting shareholder meetings. These requirements cover various aspects, including notice periods, quorum, voting procedures, minutes, and the passing of resolutions. By complying with these requirements, private companies can ensure good corporate governance, maintain transparency, and protect the interests of all shareholders.
If you need further advice concerning shareholder meetings, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
AGMs are not mandatory for private limited companies unless required by the company’s Articles of Association or Shareholders Agreement.
The typical notice period for AGMs and Extraordinary General Meetings (EGMs) is 14 clear days unless a longer period is specified in the company’s Articles of Association or Shareholders Agreement.
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