BUSI 2301 : Business Law : Protect Minority Shareholders

1. What is the governing document of a company registered under the Corporations Act 2001 (Cth) and what is the purpose?

It is with respect to the Australian Charities and not for profits Commission that there are certain governing documents which need to be presented towards them. Following the current version of your governing documents there are laws and regulations framed. There is enclosure of information containing law and regulations passed on through the governing documents (Joo, 2015). These are usually basic containers of information which the governing bodies might wish to transform rapidly without getting entangled into formal proceedings. Approval received from members relevant to the project shall not be taken into consideration before changing the rules.

There are strong reasons to support the provision of governing documents and keep updated about any kind of changes taking place. It is the governing documents which are made to use by the ACNC to decide upon whether the organization or company is eligible to get registered as a charitable one. This is to bring to consideration in order to remain one charitable one. A copy of the current governing document is necessary to be provided before the application towards the registry of charity is conducted towards the company (Watts, 2016). The internet address is one of the significant detail that is relevant to trace and contact the people. It is however found that all information provided shall be made available on the public ACNC register. This shall not just merely foster transparency but equally allow each of the members of the public to see how the organization is operates being governed. The various charitable purposes are also highlighted in this process. In case of not wanting to reveal any confidential information such as personal details it needs to be removed. The address, contact details of the members and directors are required to include the governing documents. Just as the provision of the documentation relevant to the organizations is necessary to be provided it is equally significant to protect the privacy of the people associated. On publishing the governing documents on the ACNC register the protection measures need to be maintained.

2. Can a company’s constitution be amended and, if so, what are the requirements? Do you think the requirements are sufficient to protect minority shareholders?

Amendment of law is possible to take place once the ownership is established upon an organization. While a new company is being bought it is most likely that changes are regulated and managed. One of the most crucial of documents to amend in these cases is regarding the constitution of the company. The company constitution is that aspect which acts as a contour depicting the overall objectives of the company. The rights, duties, powers as well as obligations bestowed upon the organization depict the company constitution, the board of directors along with their shareholders. According to the latest update generated on 3 January 2016, the Constitution is necessary to constitute both the Memorandum relevant to the Association along with the Articles of Association. Amendments of actions are certainly not required if the company that is purchased or merged with has their own layout of Memorandum and Articles of Association. However, the new company formed might opt for adapting to a new Constitution having merged contents from various Memorandums and Articles of Association (Welch et al. 2016). It becomes almost mandate for a newly established company to submit the Constitution in a new format.

With effect to amendment of Constitution there is certain criterion or requirements that need to be fulfilled. As a provision to the act of amendment the Memorandum as well as the Article necessitates a special resolution to be passed. This is one such resolution that demands support getting directed from the shareholders in as large as 75%. This needs to be served along with a requisite notice period. In case of privately operated companies the notice period lasts for 14 days tenure and that for a public company 21 days.

The process of amendment of the company Constitution comes along ensuring that Constitution to be an enforcing one. The Constitution being regarded as a statutory contract between the company and its associate members, a perpetual action of enforcement to provisions of the Constitutions needs to be implemented. These members with whom the company establishes the contract are otherwise mentioned as the shareholders. In a similar manner the company gets the authority to compel their members to comply with the Constitution’s provision. While the company’s Constitution is thought of being crafted or emended the consequences relevant to them are to be considered crucially. It might result in limiting and restraining one’s actions and operations conducted as business owners or shareholders (Coates IV, 2015). The other connected shareholders and company in generals shall also be affected similarly.

Although the shareholders collectively own the company but they do not necessarily get involved in the day to day processes. They are restrained from exercising any sort of control upon the running of the daily operations of the organization. It is by far signified as the role and responsibility of the company director. No matter how much the shareholders feel minority among them but in exchange of the investments they make towards the company get are conferred with certain rights. There are a range of rights available and retain that power over making definite major company decisions. It is after the Company Act of 2006 that the authority of shareholder rights was ideally put into course of action. There are certainly definite modifications that may take shape accordingly to company articles of association but specific terms of share issues are settled through shareholder’s’ agreement. With the amendment of company Constitution the rights and authorities resting with the shareholders of the company have come to terms with compromise (Chakrabarti, 2018). However there are instances when the shareholders lack coping resources to find them strength enough to take up necessary actions to handle the situations. Shareholders gain their rights and amount of accessibility only through the quotient of shares that they have secured for themselves.

In order to balance the circumstances and save situations go beyond their limit and control, it becomes imperative for shareholders to manage their company shares by following certain easy means.

Although these steps ensure the fundamental rights to be accessed by the shareholder, however they are regardless of the amount of shares they hold.

• Attending general meetings and votes
• It is the right of every shareholder to receive notice of the general meetings held and attend them all. They might include the Annual General Meetings and the Extraordinary General Meetings. It falls under the general right of the shareholders to vote their opinions in the General Meetings (Means, 2017). Although following the convention, each share carries one vote but this does not necessarily hold true in all classes. Some shares might result in giving multiple votes’ right to the holder.
• On occasions when shareholders find these requirements as insufficient to protect the minority shareholders, it is time to rise higher. Receiving greater shares in the company’s profit shall save the situation for them. As dividend can be paid through the profits incurred there shall not be any obligation on the part of the directors to declare dividend towards shareholders. Dividends are also fixed amounts paid on the basis of shares procured by the individual.

The shareholders shall receive certain specific documents from the company with regard to their interests. Some of the prime documents of interest might be the annual report and accounts of the company that shall render them with the sense of power and authority. It is the fundamental right of the shareholders to receive these on being issued generally and over request. The shareholders being rendered with a written copy of the resolution which is proposed by the directors is a must. A regular update about the company shall be manifested in different documents issued (Taub, 2015. There have been debates raised with the concern whether shareholders shall be given the right to receive the share certificate. It shall be made mandate according to the company’s articles of association that the mention of the shareholders are made in the company’s register of members. This essentially indicates to be a legal proof of an individual or a member to be the shareholder of the respective company.

They can be further brought closer to attain accessibility over their rights and authorities by inspecting the statutory books along with the constitutional documents. It is only after the sanction of the Companies Act 2006 which confers the shareholders with their rights, especially to ask to see the documents. These mandatory company documents are necessary to include:

• The Register of Members, according to the section 116 of the Companies Act
• The terms of the director indemnity provisions following section 238
• The terms of the directors service agreements according to section 229
• Records of resolutions made and the tenure of the general meetings in minutes

3. In regard to amending a company’s constitution, are these limits on the power of the majority shareholders regarding the variation of member rights?

Amendment of the Constitution of an existing company surely requires generation of power. A company possesses the ability to modify or repel its constitution using special resolution of shareholders (Connelly et al. 2017). This requires being passed attaining at least 75% of the votes from these shareholders. It is manifested in the form of a contract which necessitates the agreement from all parties before any amendment takes shape. On the formation of a company there are varied shareholders involved, some form the minority and some majority. However the question gets raised with the issues if the amendment that is likely to initiate and get eventually implemented does not result in binding the shareholders.

It is through the Corporations Act and common law that shareholders receive a shield of protection. These are likely to contain:

• There are certain amendments within the company Constitution which have an effect of impounding the shares resting with the minority shareholders or even seize the accessibility rights associated to those shares
• There may exist disparity and cancellation of the class rights
• Amendments may be signified towards specific provisions of a company’s constitution

The Corporations Act Part2F.2 indicates how the procedure of company amendments lead to cancellation or expropriation of rights and power contained with the majority shareholders. It states that:

• Constitution of the company does not have a set procedure for either verification or cancellation of the class rights. These may be signified as those rights which require special resolutions to get passed during the meetings conducted by the shareholders. A written consent from the majority shareholders shall be projected after giving their approval for being among the affected class demanding 75% of the agreement among them.
• The Constitution of the company shall follow stipulated procedures in accordance with the verification and cancellation of the rights

It is evident fact that subsequent limitation is caused regarding the accessibility off the majority shareholders. The power possessed by the majority shareholders for conducting the amendment of Constitution in context with confiscating the shares from the minorities shall restore the dismantled situation (Bottomley, 2016). This was the decision which got eventually implemented after being declared by the Australian Court in Gambotto v WCP Ltd. Following this case it was considered that majority power can prevail through amendment of constitution by expropriating the shares of the minorities. The shares of the minorities shall be granted valid only if:

• They are projected for a valid purpose
• It shall never operate oppressively in relation to the minority shareholders, which grants fairness to all circumstances

The judgment of the Court with respect to validation of power exercise upon majority shall be implemented by the process of seizing the shares from the minorities. They require complete disclosure of the entire relevant information document set. The independent expert’s valuation for shares to be expropriated shall adhere to market value of the shares (Neubauer and Lank, 2016). It is interesting to find that the minority shareholders held privately by the companies shall be protected against amendments of the constitution. It is according to section 140(2) of the Corporations Act that minority shareholders are required to obtain additional shares. This is obvious to enhance their liability to contribute to the share capital of the company.

Reference:

Bottomley, S., 2016. The constitutional corporation: Rethinking corporate governance. Routledge.

Chakrabarti, R., 2018. Corporate Governance—Evolution And Challenges In the New Companies Act.

Coates IV, J.C., 2015. Corporate speech & the First Amendment: history, data, and implications. Const. Comment., 30, p.223.

Connelly, B.L., Shi, W. and Zyung, J., 2017. Managerial response to constitutional constraints on shareholder power. Strategic Management Journal, 38(7), pp.1499-1517.

Joo, T.W., 2015. Corporate speech & the rights of others. Const. Comment., 30, p.335.

Means, G., 2017. The modern corporation and private property. Routledge.

Neubauer, F. and Lank, A.G., 2016. The family business: Its governance for sustainability. Springer.

Taub, J.S., 2015. Is Hobby Lobby a tool for limiting corporate constitutional rights. Const. Comment., 30, p.403.

Watts, P.G., 2016. Shareholder Supremacy in Classical Company Law—With Particular Reference to the Making of Business Decisions by Shareholders on Behalf of Their Company.

Welch, E.P., Saunders, R.S., Land, A.L., Turezyn, A.J. and Voss, J.C., 2016. Folk on the Delaware General Corporation Law: Fundamentals. Wolters Kluwer Law & Business.