(First of three parts)

Company law reserves certain decisions on the running of a company to be taken by its shareholders. Shareholders in general meeting also play an important part in securing accountability of management.

Shareholder meetings are generally of two types: 'annual general meetings' and 'general meetings'; 'class meetings' may also be held to pass resolutions to bind only the shareholders of the class concerned.

The conduct of meetings, although affected by common law and the statutory provisions of the Companies Act 1981 (the "Act"), is very much a matter of a company's own regulations. The bye-laws and the rights attaching to a particular class of shares often modify, exclude, or supplement the Act. In certain limited circumstances, shareholder meetings may be convened by a direction of the court or by requisition of the shareholders. Normally, shareholder meetings are convened by the Board, although the administrative arrangements are usually delegated to the company secretary. The power that is vested in the directors to call general meetings must be exercised in the best interests of the company. Notice calling a meeting must state the place, date and time of the meeting and its purpose, must inform members of their right to appoint proxies, and should include a statement of a director's interest in any proposed transaction. In respect of an annual general meeting, the notice must designate the meeting as such.

The guiding principle is that the notice must be clearly framed so that the proposed business of the meeting is put fairly before the shareholders. This enables them to make an informed decision regarding whether it is in their interest to attend or to appoint a proxy to vote on their behalf.

It is a question of judgment in each case how much detail need be stated in the notice but it is often better to err on the side of inclusion rather than exclusion. Indeed, if anything of substance is kept back, this may invalidate the proceedings.

An agenda item "Any Other Business" is often included but care must be taken to ensure that it does not give shareholders the misleading impression that they vote on other business.

The chosen venue must be suitable for all those entitled to be admitted. Specifically, there should be no restrictions on entry and it should be large enough to accommodate everyone. Further, all those so entitled should be able to hear and be heard and to vote. Where necessary, an overflow room should be available including adequate audio-visual links to allow all shareholders in each room to participate simultaneously and instantaneously. The Act stipulates that at least five days 'clear' notice must be given of a shareholder meeting other than an adjourned meeting. The notice period must generally be reckoned exclusive of the day on which notice is served (or deemed to be served) and of the day for which the meeting is convened. Weekends and holidays are generally not excluded from the reckoning but regard must be had to the bye-laws in this respect.

Notwithstanding the above rule, shorter notice may be acceptable provided: (a) either before or at the meeting in question shareholders' attention is drawn to the fact that short notice is being given; (b) short notice is accepted as sufficient by a majority in number of the shareholders having a right to attend and vote at the meeting and who between them hold at least 95 per cent in nominal value of the shares carrying voting rights at it (or 100 per cent of the members entitled to attend and vote thereat in respect of an annual general meeting).

The Act also allows for the passing of resolutions by written consent in lieu of a meeting, provided the resolutions are unanimously assented to by all shareholders who would be entitled to vote on them at a meeting. A general meeting cannot be held unless proper notice of it has been given to all entitled thereto. Typically, notice of a general meeting must be served on every shareholder of record in the company on the day on which notice is dispatched and in the manner in which notices are required to be served. Bye-laws will often provide that in respect of joint holders, notice to one joint holder (usually, the first noted in the register of shareholders) shall be notice to all.

Modern bye-laws usually provide that the accidental omission to give notice or a shareholder's non-receipt of notice shall not invalidate the proceedings at the meeting.

The law on adequate notice aims to protect not the dissentient but the absent member who, having received and taken reasonable care to review the notice, has concluded that he will not oppose the business of the meeting but will leave it to the majority. The rules governing shareholder meetings are sometimes quite technical and their importance should never be underestimated. Indeed, unless correct procedures are adopted and followed, the rights of shareholders may be lost or compromised.

Partner Tammy Richardson is a member of the Banking and Asset Finance Team within the Corporate and Commercial Practice Group of Appleby. A copy of this column is available at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.