A step of setting up a business UK is to gather members and allot them shares and appoint directors. It becomes a requirement to divide the authorities of the company between the legal persons of the company after registering a new business UK. This article discusses some exceptional cases where a member is given favour over a director in terms of voting rights despite the fact that he/she holds minor shares in the company having UK incorporation.
Dividing Authorities between Members and Directors
The rights given to members regarding the voting procedure at a meeting, prove very essential in taking some very crucial decisions of the company after founding a company in UK. However, they may be subjected to certain limitations as well. Because it is equally necessary to maintain a balance between the members and the directors while distributing powers between them. Although, majority of the authorities lie within the capacity of directors, yet some of the powers given to the members prove sufficient to protect their rights.
Binding on a Member while Voting
If there is a contract signed by a member that requires him/her to vote in a specific manner or according to the directions of some other person then, it will bind the member and may be implemented via a compulsory injunction. The case study of Puddephatt is presented in the text below to elaborate this rule.
The defendant had been mortgaged the company’s shares by the plaintiff and they had been transferred in his name. And simultaneously via a letter, it was pledged by the defendant that he would vote for his shares as per the directions of the plaintiff. It was ordered by the court that the defendant had to abide by the undertaking.
After Sargent J stated the facts of the case and termed the undertaking of the defendant as a collateral agreement binding on him, it was held by Sargent J that:
General Rule of Voting Rights of Mortgaged Shares
In UK after registering a new business UK general rule regarding the voting rights of mortgaged shares is that the person who mortgaged the shares is independent of any influence or dictation of the mortgagor while casting the votes of those shares. As in the case of Siemens Bros and Stablewood Properties. However, the case mentioned above is an exception to this ruling.
Another case is that a shares’ unpaid vendor who is in the register of shares is also entitled to freely make use of his/her rights without any influence of the purchaser. For instance, in the case of Musselwhite v CH. Although, in cases where there is a contract that can be enforced in particular, such rights may be restrained by a fiducial restriction, for regarding the interests of the purchaser. For instance, in the case of Michaels v Harley. However, in situations where the full price has been paid by the purchaser, the shares are held by the vendor as a trustee only, as in Hawkes v McArthur, and is under an obligation to vote according to the will of the purchaser. For example, in the case of Re Piccadilly.
Cases concerning Several Shareholders
The case of Puddephatt included only one shareholder. There may be situations where more than one shareholders are present in a company. And they have signed an agreement between them. The agreement obliges all the contracting shareholders to coordinate their votes. Or such contracts may also require them to entrust their voting powers to one of the contractors. This phenomenon is known as “Voting Trust”. And it is legitimate. This phenomenon has a wider following in the United States than in the United Kingdom and can be used powerfully to focus the control behind the administration or use as a counter power against it.
Protection of Minorities
Minorities are those shareholders who do not hold the major number of shares of the company. After founding a company in UK, there is always a threat to their rights because normally the decisions are taken by voting and the majority’s decision usually gets implemented. Hence the minorities have to implement upon themselves the decisions that are at times not per their will. However, there is an exception to this general practice:
“When a majority takes a decision via voting that is enforcing oppression upon the minorities then that decision can be set aside”.
For a clearer understanding, consider the next case study:
The defendant company’s shares were divided in the following ratio between the plaintiff and her aunt, Miss Clemens. 45% of the shares were held by the plaintiff and the rest were held by her aunt. The current members of the company were conferred a right of pre-emption in situations where any other member willed to make a transfer of his shares. It was hence expected by the plaintiff that she would have a full control over the company after demise of her aunt and she also believed that she would enjoy an authority of negative control which is a power to impede a special resolution while her aunt was alive. The directorship of the company was conferred upon four persons who did not hold any shares in the company and the aunt. A proposition was made by the directors that an increment should be brought in the capital of the shares by making an issuance of 200 ordinary shares to each of the four non-shareholder directors and 850 shares should be issued to a trust of employees. The aunt had passed the resolutions that presented these proposals at a general meeting. A claim was made that the goal for this proposition was the benefit of the company, the opinion of the court was that the real goal for such a proposition was to keep the plaintiff away from making use of her control to the full extent and henceforth, the resolutions were considered void.
It was held by Foster J that:
His Lordship then continued by reading some excerpts from the verdict given in cases like Greenhalgh etc. and then continued:
Inference from the Case
The case under study resulted in a fair verdict, although the verdict was doubted because in past the niece had not cooperated much with her aunt. But the judgement was given in contrast to past cases. The reference given to the case of Greenhalgh, defines certain rules that are related to special resolutions for changing the articles, which had never been applicable to resolutions previously. Foster J commented, after citing the paragraph of Greenhalgh in which the idea of a test of individual hypothetical shareholder was given, that: