The relationship between board of directors and general meeting in limited companies

The responsibilities and duties of a company director

the relationship between board of directors and general meeting in limited companies

For public companies, the liability of members is limited by shares, and for private . Approving amendments to the company's articles of association. Issues to be approved by shareholders in a general meeting .. If the board refuses to co- operate, the shareholder can seek an order from the court to. In a public limited liability company, directors can be shareholders or third . The Association of the Luxembourg Fund Industry Code of Conduct must be reported to the general meeting (or to the board of directors for. Meetings of a company's shareholders ("General Meetings") and its directors (" Board Meetings") will be governed by: (a) the provisions of private companies limited by shares formed on or after this date (save to the extent their There are less prescribed rules in relation to meetings, resolutions and decision- making.

Is there any form of relief for a breach of the general duties? If a director finds he or she has acted in a way which breaches the general duties owed to the company the following help may be available: Do I have any other responsibilities under the Companies Act ?

The Companies Act imposes an array of other obligations on you as a director. Some are personal in nature and are specifically addressed to the directors. Others arise from the responsibility of the directors to ensure that the company carries out its obligations where both the company and the directors may face liability in the event of a failure. Potential penalties depend on the specific obligation breached but typically involve a fine or rarely, for the most serious offences only, imprisonment.

Some other key obligations relate to the restrictions and conditions placed on transactions between a director and his or her company and loans made by the company to a director. What about other duties and obligations? Obligations are also imposed on you as a director from other sources beyond the main companies legislation. Directors are responsible for ensuring that the company complies with its obligations relating to the health, safety and welfare at work of its workers, under health and safety legislation.

Similarly, obligations arise under environmental legislation and anti-corruption legislation. What are my responsibilities on insolvency? Where a company is in financial difficulties the directors should seek independent advice as soon as possible if they are to avoid potential personal liability under insolvency legislation.

The potential risks for a director in this area are complex and include the risk of being disqualified from holding the position of director or being involved in the promotion or management of a company for a period of up to 15 years. Some of the key issues for a director of a company which is insolvent or approaching insolvency are: A director does not need to have been dishonest to be liable for wrongful trading and he or she cannot avoid responsibility by resigning from the company when potential difficulties are spotted.

This is a particularly thorny area for directors to navigate and proper advice should always be sought. Misfeasance — a director can be guilty of this if he or she has misapplied or retained company assets or wrongly exercised authority.

It does not necessarily involve moral blame. Can the company indemnify or insure me against claims? A company may but is not obliged to indemnify you in respect of certain proceedings brought against you by third parties.

An indemnity can potentially cover both the cost of the claim itself and the costs involved in defending it but never the following: Requirement to hold an annual general meeting AGM Public companies must hold an AGM in each period of six months beginning with the day following their accounting reference date. Private companies do not need to hold an AGM, although they can choose to do so. Approving the company's report and accounts. Approving the directors' remuneration report and remuneration policy if applicable see Question Approving the company's final dividend.

Appointing or re-appointing the company's auditors. Electing or re-electing the company's directors. Approving amendments to the company's articles of association. Granting authority for the directors to allot new shares. Buying back the company's own shares. Approving the making of political donations. Issues to be approved by shareholders in a general meeting For private companies, the only decisions that must be approved in a meeting rather than through a written resolution, see Removal of directors.

The written resolution route is only available to private companies. Therefore, for a public company, all issues which require shareholder approval must be approved at a meeting. Listed companies must obtain further shareholder approvals at general meetings for certain transactions.

The Companies Act does not prevent a company from conducting a meeting by electronic means — "nothing is to be taken to preclude the holding and conducting of a meeting in such a way that persons who are not present together at the same place may be electronic means attend and speak and vote at it" section A, Companies Act However, the Companies Act requires the notice of a meeting to state the "place" of the meeting. There are differing views as to whether "place" can include a virtual place, but the more cautious view is that a physical place is required.

Institutional investor bodies such as the Investment Association will not support changes to amendments to a company's articles that would allow virtual-only annual general meetings that is, meetings where there is no physical locationbut will not oppose amendments relating to the holding of a "hybrid meeting" a physical meeting alongside any electronic meeting element.

If a company wishes to permit electronic participation at its general meetings, it is advisable to amend the company's articles to expressly allow such participation and to include provisions to cater for a breakdown in technology affecting electronic participation.

Private companies can pass resolutions in writing to avoid the need for a physical meeting written resolution. In such a case, the resolution is sent to all shareholders who are entitled to vote on the resolution. Shareholders indicate their agreement by signing and returning it to the company.

The resolution is passed when the required voting threshold is reached.

the relationship between board of directors and general meeting in limited companies

The written resolution route usually only works in the case of small private companies with relatively few shareholders. What are the notice, information, and quorum requirements for holding general meetings and passing resolutions? Notice For notices the notice period and the content of the notice must be considered. The notice period for meetings of a private company must be at least 14 days although the articles may specify a longer period.

For public companies, notice requirements are as follows unless the company's articles provide for a longer notice period: These periods of notice are "clear" days that is, the day of sending the notice and the day of the meeting itself are not counted. Companies must also factor in deemed receipt when sending notices. Under the Companies Actboth emails and postal notices are deemed to be received 48 hours after sending, However, this position can be varied by the company's articles sectionCompanies Act For traded companies that is, companies whose securities are traded on a regulated market for example, the Main Market of the London Stock Exchange in the UKthe following conditions must also be met before a meeting can be held on 14 days' notice: A special resolution must be passed allowing a day notice period this is usually passed at the company's AGM.

The company must offer the possibility to vote by electronic means. This means that it must be possible to appoint a proxy through a website. The UK Corporate Governance Code also states that the notice should be at least 20 working days for AGMs and 14 working days for other general meetings. Content of the notice. All shareholders are generally entitled to receive notice of a general meeting.

However, the company's articles may provide that the notice does not need to be sent to those shareholders who do not have an address in the UK and have not provided the company with a postal address in the UK to which notices may be sent. The notice must state the general nature of the business to be dealt with at the meeting. In practice, notices usually set out the actual resolutions to be approved at the meeting and may include an explanation of the resolution.

Listed companies provide detailed explanations of the resolutions. In addition to sending the notice, listed companies must publish prescribed information in relation to their share capital, voting rights on their website in advance of the general meeting and the information must remain on their website for two years.

Notices of listed company AGMs tend to follow a particular format and there are various notes to the notice that must be included, for example in relation to uncertificated securities, members' rights and persons nominated by a member to enjoy information rights.

Quorum Unless the company's articles provide otherwise, the quorum for a general meeting is two unless the two persons are acting as proxy or corporate representative of the same member. For a sole member company, the quorum is one. Written resolutions There are no quorum or notice requirements for passing a written resolution a procedure that is available for private companies only, see Question 9.

Provided that the resolution has been circulated to all eligible members, it will be passed when the requisite majority is reached see Question What are the voting requirements for passing resolutions at general meetings? The voting requirements for passing resolutions at general meetings are as follows: Voting can be in person or by proxy. A proxy has the same voting rights as a shareholder. A corporate shareholder can also be appointed by a corporate representative.

A company's articles usually provide that each resolution put to the vote at a general meeting will be decided by a show of hands unless a poll is duly demanded. The articles will set out who is entitled to call a poll. On a show of hands, the default position under the Companies Act is that every shareholder present in person has one vote, regardless of the number of ordinary shares held. On a poll, each shareholder has one vote for each share held.

The default position can be varied by a company's articles. A written resolution can be passed by a private company as an ordinary or special resolution. The thresholds for passing a written resolution see above are calculated by reference to the total voting rights of all shareholders who are entitled to vote when the resolution is circulated.

A shareholder can appoint one or more persons to act as his proxy. If he appoints multiple proxies, they must be appointed in relation to different shares. It is possible for articles to provide for weighted voting rights for example to attach additional votes to certain shares on certain occasions. It is also possible for shareholders to agree to aggregate their shares to exercise their voting rights in a particular way for example, to vote for or against a particular resolution.

This would be more likely to happen in the case of a contentious resolution. What voting requirements and majorities apply? Unless otherwise stated, such resolutions are ordinary resolutions that is, they must be approved by a simple majority of shareholders. Corporate actions that require an ordinary resolution include: Approving the payment of a political donation. Approving a loan to, or a substantial property transaction involving, a director. Approving a payment for loss of office to a director.

the relationship between board of directors and general meeting in limited companies

Removing an auditor from office. Approving a liability limitation agreement between an auditor and the company. Corporate actions that require a special resolution include: Amending the company's articles. Changing the company's name unless an alternative procedure is set out in the company's articles. Approving a reduction of capital or share buy-back out of capital.

Re-registration of a private company as public and vice versa. These resolutions can be approved in a general meeting or by way of written resolution for a private company. Shareholder rights relating to general meetings Can a shareholder require a general meeting to be called?

What level of shareholding is required to do this? Can a shareholder ask a court or government body to call or intervene in a general meeting? A shareholder cannot ask a court or government body to call or intervene in a general meeting. Can a shareholder require an issue to be included and voted on at a general meeting? Can a shareholder require information from the board about the meeting's agenda? Shareholders of a public company can require the company to circulate a resolution to be voted on at the company's AGM where such a request is made by either: Shareholders of either a private or public company can also require the company to circulate to other shareholders a statement of not more than 1, words on a matter referred to in a proposed resolution or other matter to be dealt with at the meeting.

The required levels of shareholding for making such a request are the same as above. Shareholders who require further information must engage directly with the company. In large listed public companies, corporate governance guidelines encourage companies to engage with their shareholders, particularly in relation to any potentially contentious resolutions. However, price-sensitive information should not be released on a selective basis.

Shareholders will receive notice of the meeting, which sets out the meeting's agenda. For a public listed company, the notice will be detailed and will include explanations of the proposed resolutions. There may also be a separate circular providing further information.

In some cases, shareholders will also receive a copy or description of the documents to which the resolutions relate, for example the company's annual accounts or a director's long-term service contract. As a result, shareholders are unlikely to require further details. Do shareholders have a right to resolve in a general meeting on matters which are not on the agenda?

In relation to shareholders' rights to require circulation of a resolution in advance of an annual general meeting, see Question Members of traded companies can also add items other than resolutions to the agenda of an AGM section A, Companies Act The minimum threshold required to make a demand is the same as for circulating resolutions see Question A shareholder cannot add a new resolution or change a resolution at the meeting itself.

Can a shareholder challenge a resolution adopted by a general meeting? Is a certain shareholding level required to do this? What is the time limit and procedure to challenge a general meeting resolution?

Any shareholder can challenge the decisions adopted by a general meeting on procedural grounds for example, for failure to give proper notice of the meeting or inquorate meeting. However, depending on the circumstances, such decisions may still be enforceable. For example, intentional failure to give notice will invalidate the decisions made at the meeting, but it is likely that accidental failure will not invalidate such decisions.

A shareholder who attended and voted at a meeting cannot claim that a resolution has not been passed when no such objection was raised at the meeting. If a decision is thought to be unfairly prejudicial to minority shareholders, a shareholder may bring an "unfair prejudice" claim. There is no minimum shareholding level for bringing such an action.

No limitation period applies to a petition for the relief of unfairly prejudicial conduct. However, the court has discretion on whether to grant relief. Shareholders of a quoted company that is, a company with shares listed on the UKLA Official List can require an independent assessor to report on any poll taken or to be taken at a general meeting. The request must be made by either: The independent assessor's report must cover whether: The procedures adopted in relation to the poll were adequate.

The votes cast were fairly and accurately reported and counted. The validity of any proxy appointments was fairly assessed.

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The notice of the meeting complied with the relevant provisions of the Companies Act CA Where the meeting suffered some form of procedural irregularity, a shareholder will usually raise this issue with the board of the company.

If the board refuses to co-operate, the shareholder can seek an order from the court to prevent the company relying on the decisions made at the meeting. If the meeting has not taken place, a shareholder can ask the company to postpone the meeting or seek a remedy such as an injunction to prevent the meeting from taking place. There is no specific statutory time limit to challenge a general meeting resolution, although the length of time between the date of the meeting and the challenge may have an impact on the remedies available.

However, there are time limits for actions taken in relation to specific resolutions. For example an application to cancel a resolution approving a payment out of capital for the redemption or purchase of the company's shares must be made within five weeks after the resolution is passed.

Shareholders' rights against directors What is the procedure to appoint and remove a director? Appointment A company's articles usually contain provisions relating to the appointment of a director and the termination of such appointment. The standard model articles that apply to private and public companies by default under the Companies Act these apply, if the company does not adopt its own articles or, if it does adopt articles, to the extent that these do not exclude or modify the relevant model articles provide that a director can be appointed through either: Removal The appointment of a director can be terminated in various ways.

For example, a director will be automatically removed from office if: He is prohibited by law from being a director. A bankruptcy order is made against him. A director can also resign or be removed in accordance with the provisions of the articles. A director of a public listed company is normally required, under the corporate governance requirements and articles of association, to retire by rotation every three years.

Such a director can then be re-appointed by ordinary resolution of shareholders. A director can also be removed from office if the shareholders pass an ordinary resolution Companies Act Prohibition from one year to 20 years for exercising a mandate or commercial activity. Personal extension of the bankrupt to the director. In the case of excessive indebtedness, liability for the liabilities in the context of an action for repayment. Imprisonment from one month to two years for a bankruptcy where, for example, the director has not declared a cessation of payment or kept complete and regular accounts.

Imprisonment from five to ten years for fraudulent bankruptcy where, for example, the director has deliberately deleted information in the books or concealed assets of the company. Briefly outline the potential liability for directors under environment and health and safety laws. Directors can be subject to the following penalties: Imprisonment from eight days to six months and a fine of EUR to EUR, for any violation of the Law dated 3 Decemberas amended, on environment, in particular for any company that fails to handle waste management.

Under the Labour Code, any employer to whom the director is assimilated must ensure the health and safety of its employees in relation to their work and prevent any professional risks or be subject to imprisonment from eight days to six months and a fine from EUR to EUR25, Briefly outline the potential liability for directors under anti-trust laws. Any infringement of the Law of 23 October on competition, as amended, may incur: A fine in proportion to the gravity and length of the facts based on cartels and abuse of a dominant position.

A fine for any directors who supplied incorrect, incomplete or misleading information. Briefly outline any other liability that directors can incur under other specific laws. The main additional liabilities that can be incurred by directors include the following: Tax law provides that directors must comply with the tax requirements declaration and payments. The Social Security Code punishes any infringement of its provisions relating to payment or perception of social security contributions and incorrect, incomplete or misleading information.

The Law dated 2 September regulating access to the trades of skilled craftsmen, retailers, manufacturers and to certain professions punishes the non-authorised exploitation of a company. The Law of 12 November against money laundering and the financing of terrorism punishes knowingly failing in a directors' obligation to co-operate in the fight against money laundering. The Law dated 18 July amended the Luxembourg Criminal Code to punish anyone who fraudulently intends to produce, sell, obtain, hold, import, diffuse or dispose of a computing device in order to violate the e-commerce law.

Can a director's liability be restricted or limited? Is it possible for the company to indemnify a director against liabilities? A director's liability to the company can be contractually limited, but not its liability to third parties.

Directors receive a discharge from the annual ordinary general meeting approving the annual accounts for their management of the company, including any irregular acts or management faults.

In practice it is typical for the company to take over the fees and expenses for any litigation relating to a director's civil liability not criminal by way of an indemnity letter.

Corporate governance and directors' duties in Luxembourg: overview

Can a director obtain insurance against personal liability? If so, can the company pay the insurance premium? The directors or the company on behalf of its directors can take out an insurance policy to protect against civil liability for professional mismanagement.

However, the insurance will exclude gross negligence or wilful misconduct as well as any criminal liability. Can a third party such as a parent company or controlling shareholder be liable as a de facto director even though such person has not been formally appointed as a director?

Any person who, even though not appointed as a director of the company, is directly or indirectly and actively involved in the management of the company can be: Civilly liable to the company or third parties for any damage caused to them.

Liable jointly with the company for its liabilities in the case of bankruptcy. Transactions with directors and conflicts Are there general rules relating to conflicts of interest between a director and the company? The existence of any conflict of interest must be reported to the general meeting or to the board of directors for conflicts of interest concerning a member of the management committee.

Are there restrictions on particular transactions between a company and its directors? Apart from the transactions in which a director has a conflict of interest, most of the restrictions on transactions between third parties and the company also apply to transactions between third parties and a director. In particular a company cannot grant loans, advances or securities for the purpose of allowing a third party including any director to acquire shares in the company, unless: The transaction is realised on fair market conditions, especially with regard to interest received and security granted by the company.

The transaction is submitted for prior approval by the general meeting, which must be provided with a written management report indicating the: The aggregate financial assistance granted to third parties will not result in the reduction of the net assets below the subscribed capital plus non-distributable reserves.

Are there restrictions on the purchase or sale by a director of the shares and other securities of the company he is a director of? Most of the restrictions on transactions between third parties and the company also apply to transactions between third parties and a director. In particular, a company cannot redeem its own shares from a shareholder including a director if certain conditions are not fulfilled and if the acquisition offer is not made on the same terms and conditions to all the shareholders who are in the same position, unless: The acquisition of the company's own shares is necessary to prevent serious and imminent harm.

The shares are acquired to be distributed to the employees.

the relationship between board of directors and general meeting in limited companies

Disclosure of information Do directors have to disclose information about the company to shareholders, the public or regulatory bodies? Shareholders Shareholders can obtain, free of charge, copies of the latest annual accounts, the management report and the report by the statutory auditor and its proposed amendments when share capital is issued without nominal value or the company is to be converted into another legal form, respectively eight days or 15 days before the meeting.

For mergers and demergers, the common draft terms, annual accounts and management report s must be made available to the shareholders one month before the meeting at the registered office of the company or on request. Shareholders can inspect the following at the registered office of the company eight days before the general meeting to approve the annual accounts: The list of board members, the supervisory board and the approved statutory auditor.

The list of sovereign debt, shares, bonds and company securities. The list of shareholders who have not paid-up their shares. The management report and supervisory auditors' report. Any proposed amendments to the articles. Listed companies Listed companies must disclose the following: Information concerning the drawing-up, approval and distribution when securities are offered to the public or admitted to trading on a regulated market Law on prospectuses for securities of 10 July Issuers of securities must provide ongoing and periodic information called "regulated information".

the relationship between board of directors and general meeting in limited companies

Regulated information includes periodic financial reports, major holdings and inside information. Issuers must ensure Law of 11 January on transparency requirements for issuers of securities: Any inside information linked to them Law dated 23 December on market abuses.

Shareholder rights Company meetings Does a company have to hold an annual shareholders' meeting? What issues must be discussed and approved? Extraordinary general meetings must be convened to amend the company's articles. Most other meetings can be ordinary general meetings. The following rules apply: Except in the event of amendments to the articles, it is not compulsory to hold a general meeting in a private limited liability company where the number of shareholders is less than The articles can authorise any shareholder to cast its vote by mail using a voting form.

In a public limited liability company, at least one general meeting must be held each year within six months of the financial year end, to approve the annual accounts. Unless provided otherwise in the articles, there is no obligation for a simplified joint stock company to convene a general meeting.

What are the notice, quorum and voting requirements for holding meetings and passing resolutions? Notice All notice requirements are set out in the company's articles of association: Private limited liability company.

Corporate governance and directors' duties in Luxembourg: overview | Practical Law

Shareholders' meetings are convened by the managers, the supervisory board if anyor by shareholders representing more than half of the capital. There are no specific provisions in the Law dated 10 August modernising the companies law dated 10 Augustas amended Companies Law on convening shareholders' meetings except that registered letters are compulsory if the shareholders must be convened or consulted a second time. Meetings must be convened with reasonable notice.

The convening notice includes the agenda of the meeting. Public limited liability company. The board of directors, management board, supervisory board if any and the internal auditors commissaires can all convene a general meeting.

For registered shares that require notice by registered letter, they must be sent at least eight days before the meeting unless the addressees have individually agreed to receive it by another means of communication.

If the company issued bearer bonds, publication with the RESA is required. The agenda must contain and detail the amendments to the articles. Shareholders can unanimously waive the convening notice. Attendance Shareholders with or without voting rights of profit shares and bonds have the right to attend the meeting.

Shareholders must attend the meeting physically, or through a proxy or subject to the articles using telecommunication methods. Voting requirements Each shareholder can take part in collective decisions irrespective of the number of shares they own. Unless shares are issued without voting rights, each shareholder has voting rights commensurate with its shareholding. Where shares do not have an equal value, or where there is no indication of value, each share unless otherwise provided for in the articles will carry the right to a number of votes proportionate to the share capital represented by it with one vote being allocated to the share that represents the lowest proportion.

In public and private limited liability companies shareholders can waive their voting rights temporarily or definitively. The management body can suspend a shareholder's voting rights where there has been a breach of provisions of the articles or any separate agreement. Voting arrangements are allowed subject to specific conditions. Majority and quorum The following apply for ordinary general meetings: A public limited liability company has no quorum conditions.

Decisions are adopted by a majority of the votes cast irrespective of the number of shares represented. The following apply for extraordinary general meetings: Decisions are adopted by at least two-thirds of the votes cast. In the second notice, resolutions can be passed by the same two-thirds majority, regardless of the number of shares represented.

Quorum and majority requirements provided by the Companies Law can only be increased by a company's articles. Are specific voting majorities required by statute for certain corporate actions?