Is it possible to have a shareholder agreement separate from the articles?
Yes it is and it is quite common.
What is the point of shareholder agreements?
Shareholder agreements operate in addition to the articles of association. If well drafted they bind the shareholders that are party to them and this can be all of the shareholders. They may regulate the relationship of the shareholders and give rights and obligations that could not be put into the articles, or would not be appropriate for inclusion in the articles. For example a shareholder agreement could give a minority shareholder the right to have a director of his choice on the board. It might be difficult or impossible to engineer this through the articles and there may not be the necessary level of support to change the articles. Shareholder agreements can be kept confidential, but this is not possible for the articles. The company itself can be a party to a shareholder agreement.
What sort of things might be suitable for inclusion in a shareholder agreement?
A minority shareholder in a private company can find himself effectively 'locked-in'. He may disagree with the direction that the company is taking, but the majority decides and he could be perpetually outvoted. It may be difficult or impossible to sell his shares because any buyer would face the same problems. A shareholder agreement might overcome this difficulty by providing a basis for the valuation of the shares, and by providing an opportunity or compulsion for the other shareholders to buy them. It can also give the other shareholders first refusal.
There are many other possibilities. They include the right to be a director or have a nominated person as a director and the right to act as a consultant. They can include such things as the obligations of the shareholders to provide loan finance if it is needed.
Execution of documents and the company seal
What documents must be executed?
Deeds, contracts without consideration, share certificates and certain other documents must be executed as a deed.
How are documents executed?
Section 44 of the Act reads (in part) as follows:
(1) Under the law of England and Wales or Northern Ireland a document is executed by a company by the affixing of its common seal, or by signature in accordance with the following provisions.
A document is validly executed by a company if it is signed on behalf of the company - by two authorised signatories, or by a director of the company in the presence of a witness who attests the signature.
The following are "authorised signatories" for the purposes of subsection
(2) every director of the company, and in the case of a private company with a secretary or a public company, the secretary (or any joint secretary) of the company.
A document signed in accordance with subsection
(3) and expressed, in whatever words, to be executed by the company, has the same effect as if executed under the common seal of the company.
Until 6th April 2008 it was a requirement that two persons signed when a document was executed. Since that date it has been possible, in any company, for one person to sign.
What is a suitable form of words when a company seal is not used?
If a document is intended to be a deed, and whose wording makes that fact clear, it will upon delivery have the effect of a deed. An example of such wording is:
Executed by Ltd as a deed and signed by
Is it compulsory for a company to have a company seal?
No it is not compulsory, though it was until 30th July 1990. However, many companies choose to still have and use a company seal, even though it is no longer a requirement.
There are now three possibilities:
A company can have a company seal and use it.
A company can decide not to have a company seal and use a suitable form of words instead.
A company can have a company seal but, on some or all occasions when its use would be required, elect to use a suitable form of words instead.
Who may sign when the company seal is used?
Signature or signatures must be in accordance with the articles. It should be noted that Table A differs from the model articles that apply from 1st October 2009.
What records should be kept of the use of the company seal?
The use of the company seal should be approved by the directors, or a committee of the directors, and this should be evidenced by a retrospective board minute that identifies the document on which the seal was used. If the company seal is used a lot, it is not desirable to have a string of individual board minutes. Instead all the uses should be entered in a Sealings Register. Blocks of entries in the register can then from time to time be approved by the directors and these decisions should be minuted.
The requirements concerning directors' approval, minutes and a sealing register are exactly the same if a form of words is used instead of the company seal.
Officers of the company
Who is an officer of the company?
Section 1261 of the Act defines an officer as follows:
'in relation to a body corporate, includes a director, a manager, a secretary or, where the affairs of the body are managed by its members, a member. '
This is not a very satisfactory definition because the term 'manager' is not defined, and the word 'includes' poses the obvious question of who else might be considered an officer.
All directors (including non-executive directors) are always officers, and so are all company secretaries. A company's auditor is an officer for just some purposes. The position of managers varies according to circumstances. If there is an active board of directors running the company on a day to day basis, the managers would probably not be held to be officers. On the other hand, if the board is totally non-executive, a general manager with day to day control would almost certainly be an officer.
What are the consequences of being an officer of the company?
Officers have special responsibilities for trying to ensure that the company complies with company law. The Act is peppered with many references to the term 'officer', and it gives them certain rights and many responsibilities. Various other Acts also give responsibilities to officers. The officers of a company are accountable for it and what it does. The Act provides many offences that can be committed by officers. Just one example is section 162 which relates to the register of directors. Subsection (6) reads as follows:
'If default is made in complying with subsection (1), (2) or (3) or if default is made for 14 days in complying with subsection (4), or if an inspection required under subsection (5) is refused, an offence is committed by - the company, and every officer of the company who is in default.
For this purpose a shadow director is treated as an officer of the company.'
Just one example from another Act is section 212 of the Insolvency Act which relates to the penalisation of directors and officers. It specifically relates to (among others) 'a person who is or has been an officer of the company'.
On a different tack, a company's financial statements must disclose certain transactions with its officers.
Can all officers commit all the offences?
No - some offences can only be committed by the directors. For example, the directors are required to prepare proper accounts, formally approve them and one director must sign the balance sheet. Only a director can sign the balance sheet and only the directors commit an offence if it is not done.
I am an officer of the company and it all sounds rather worrying. How worried should I be?
You should certainly take your responsibilities seriously but perhaps you should not worry too much. The great majority of officers manage without too many problems. You might take comfort from Section 1121(3) of the Act which states:
'An officer is "in default" for the purposes of the provision if he authorises or permits, participates in, or fails to take all reasonable steps to prevent the contravention.'
Directors are required to take all reasonable steps.