Companies Act 2006 - Shareholders' Rights
by
Catherine Feechan and David Gilchrist
Nomination Provisions
Under the Companies Act 1985, as a general rule, only registered members have the right to exercise their rights as shareholders of the company, such as the right to attend and vote at company meetings or appoint a proxy. Part 9 of the 2006 Act introduces new provisions to allow indirect investors to exercise rights attached to shares.
Section 145 will from 1st October 2007 allow the company to make provision in its articles which will enable members to nominate another person or persons to enjoy or exercise all or any of the specified rights of the member in relation to the company. Where such a nomination has been made anything required or authorised by any provision of the Companies Acts to be done by the member may instead be done by the person nominated.
The rights that can be conferred in this way inlcude the right to:
- be sent proposed written resolutions;
- require circulation of written resolutions;
- require directors to call a general meeting;
- receive notice of general meetings;
- require circulation of a statement;
- appoint a proxy to act at a meeting;
- require circulation of resolutions at an AGM;
- be sent a copy of the annual accounts and report.
The company’s articles can allow some but not all of these rights to be exercised by the person nominated.
It is clarified that the persons nominated under Section 145 do not themselves become able to enforce their rights directly against the company. The registered member will need to enforce the rights through the articles. Also, only the registered member will be able to validly transfer the shares.
Once a person has been nominated to exercise the rights, that nomination can be brought to an end by notification from the member and will also end if the member concerned or the person nominated dies or ceases to exist.
Information Rights
For publicly traded companies a new information right is available from 1st October 2007 for persons who have shares in the company held by nominees.
Under Section 146 a member who holds shares on behalf of others may nominate a person on whose behalf he holds the shares to enjoy “information rights”. These are the right to receive a copy of all the communications that the company sends to its members generally, such as the company’s annual accounts and reports, or which the company sends to members holding the same class of shares as the member in respect of which the information rights are granted.
As well as receiving copies of communications the company sends out, the person with the information rights is also given the right to require hard copy versions of documents or information provided electronically. Where a member makes a nomination to enjoy information rights this must cover all the different rights available. It cannot relate only to certain rights and not to others. Unlike the nomination provision, no alterations to the articles are needed as the information rights are conferred by statute.
The nomination of a person to enjoy information rights may be terminated on the request of the member or the nominated person and will cease automatically on the death, bankruptcy or winding up of either of them. Nominations can be suspended when there are more nominated persons than the member has shares in the company. The company may also make an enquiry, annually, as to whether the nominated person wishes to retain information rights and if no response to this is received within 28 days, the nomination will cease to have effect.
Where a company sends a notice of meeting to a person nominated to enjoy information rights, the notice must be accompanied by a statement that under his agreement with a member the nominated person may have the right to appoint a proxy or be able to appoint someone else as proxy or if he does not have such a right or does not wish to exercise it he may under the agreement have the right to give instructions to the member as to how to vote.
The Secretary of State has retained power to amend these provisions.
It is important that all board members and office holders are made aware of these changes. Biggart Baillie LLP would be pleased to provide you with any further advice you require in relation to directors duties under the new Act, or on other aspects of the new legislation. If you are interested in any particular areas - please click here
The information contained in this article is given for general information only and does not constitute legal advice on any specific matter.