By default, companies registered at Companies House are governed by the Model Articles, a generic Articles of Association, which prescribe how the company, a distinct legal entity under UK law, and associated directors and shareholders interact to manage the governance of the company.
The Articles describe:
- Limitation of liability
- Directors’ power and responsibilities,
- Decision making by directors,
- Appointment of directors,
- Issuance and distribution of shares
- Dividends and other distributions
- Decision making by shareholders
- Administrative arrangements
- Directors indemnity and insurance
Central to the Articles is a hierarchy of decision making such that the directors are charged by the shareholders to manage the company on their behalf but with a set of Reserved Matters that are referred back to the shareholders for approval. All shareholders are invited to the Annual General Meeting (AGM) where the following topics are proposed by the directors through Written Resolutions and approved by a simple majority of shareholders.
Annual General Meeting:
- approval of annual accounts,
- appointments to the board of directors,
- appointment of external auditors,
- changes to corporate bylaws,
- company mergers, spin-offs and capital increases
- the dissolution of the company
Beyond these points the directors can call an Extraordinary General Meeting (EGM) to address other Reserved Matters or significant developments that require a super majority approval of 75% of the shareholders. These include issued that directly affect existing shareholders such as raising additional capital and modifications to the company structure or documentation. Typically an EGM requires 21 days notice to shareholders and this should be planned into any fund raising schedule.
Voting at AGMs and EGMs can be done by a show of hands giving each shareholder one vote or if requested by a poll which accounts for the shareholding of each shareholder. Typically, only the shareholder poll is used since this more correctly represents the shareholders interests and can be more readily recorded.
Other shareholder powers include the ability for 5% of holders of issued equity to call an EGM to vote on a written resolution and for a simple majority vote of shareholders to dismiss a director.
As the company grows and collects institutional investors they are likely to require the company to adopt more complex documentation as described elsewhere on the Foundry.Exchange