The coronavirus pandemic has brought into stark relief how shareholders can take decisions and how companies can communicate with their shareholders.
Transacting company business
In a separate article we explained how current circumstances are impacting on the ability of companies to hold general meetings. We suggested that, where possible, private companies look to deal with business by way of a written resolution.
Electronic communication between companies and shareholders can further assist remote working. This is a particular advantage whilst Stay at Home measures operate.
Written resolutions enable shareholders of private companies to take decisions without the need for a general meeting. With very limited exceptions (removal of director or auditor) shareholders can pass ordinary or special resolutions (with the approval of the requisite majority) by way of a written resolution.
Public companies cannot benefit from this statutory procedure, although all companies can take decisions with the unanimous consent of all members.
Key terms to note in the statutory written resolution procedure are listed below.
- A written resolution can be used in place of a class meeting as well as a general meeting;
- Written resolutions may be required by members (holding 5% (or such lower percentage as specified in the company’s articles) of the total voting rights) as well as directors of a company;
- A written resolution must be open for approval for 28 days (from the circulation date) or any different period specified in the company’s articles;
- A written resolution is passed as:
- an ordinary resolution when the company has received the approval of members holding a majority of the total voting rights of eligible members;
- a special resolution when the company has received the approval of members representing 75% of the total voting rights of eligible members.
- In neither case is it necessary to wait for the expiry of the full 28 day period.
To maximise the benefit of remote working, including circulating copies of written resolutions and accompanying signing instructions, we recommend companies to ensure that they have the authority to communicate electronically with shareholders.
Both private and public companies can communicate electronically with shareholders through a variety of mediums – the most popular being via e-mail or a website. Electronic communication provides a secure and fast method to contact shareholders and facilitate decision making. Importantly, at this unprecedented time, it does not contravene the Stay at Home measures, or compromise the health and wellbeing of anyone.
The key considerations to permit electronic communications (via e-mail and a website) are set out below.
- Review the company’s articles of association. In particular, consider any changes needed to permit the distribution of all relevant documents via a website. Alternatively, it is possible for an authorising resolution to permit website communication, but this would not allow for other changes to the articles that may be required.
- The authority required for a company to communicate electronically with a shareholder differs from that to enable a shareholder to communicate with a company.
- For a company to send documents to shareholders by email:
- check for provisions in the articles which restrict or contain specific requirements for email communications;
- specific, individual consent to receive communication by email is required from the shareholder;
- the shareholder must provide an address for such communication to be sent;
- each document is deemed to have been delivered 48 hours after being sent, unless the company’s articles specify a different period. Consider any need to amend the company’s articles in respect of the delivery period,
- For a company to send documents to shareholders via a website:
- individual consent to such communication is required from the shareholder, and is in addition to the company’s articles or a shareholders’ resolution authorising website communication;
- the request for consent must confirm that the shareholder will have provided deemed consent if no response is received within 28 days. If a shareholder refuses his consent within the 28 day period, the company must send him hard copy documents, and the company must wait at least 12 months to make a further request for website communication;
- shareholders must be notified each time a document is posted on the website, and the notification must provide details of the website. Unless the shareholder has consented otherwise, such notifications must still be sent in hard copy form;
- documents are deemed received on the later of the date of posting on website and when the recipient received notice of the fact that the material was available on the website;
- a document must be maintained on the website for the relevant period specified in the Companies Acts or 28 days from the date on which the notification of posting to the website is sent to the shareholder.
- A company must consent to shareholders communicating electronically with it. Such consent is deemed given where, for example, the company includes an email address in any document containing or accompanying a written resolution.
- On receipt of a document sent electronically, a company might additionally request authentication of the identity of the sender, and any reasonable evidence that it requires of a sender’s authority to act (on behalf of a third party).
In addition to the points highlighted above, companies whose securities are admitted to trading on a regulated market (for example, the London Stock Exchange but not AIM) also need to comply with the communication requirements in Chapter 6 of the Disclosure Guidance and Transparency Rules (“DTR”) of the Financial Conduct Authority (“FCA”). Whilst not introducing material obligations, the FCA has advised that the requirements of DTR 6 should be applied in a way that is consistent with the communications provisions outlined above.
The ongoing situation with the coronavirus has brought into question the ability of companies to operate remotely. Electronic communication is the simplest, quickest and most cost-effective way to communicate with shareholders (especially when circulating written resolutions or copies of reports) and to transact business by way of written resolutions. We expect different ways of remote working will continue to increase in popularity beyond the current crisis and companies should start to prepare for this change.