Company Law - Management & Corporate Governance (Part 1)

What is corporate governance?

The term ‘corporate governance’ actually covers a very wide range of issues – essentially, it is concerned with the formal and informal regulation of both the internal and external relations of the company. Despite this, it has been said that it “is a fashionable concept, but like most fashionable ideas it is remarkably imprecise”.

However, over time the concept has become more influential, particularly after a number of large-scale scandals such as the Robert Maxwell scandal in the early 1990s, criticisms of the level of directors’ remuneration in the late 1990s and the more recent collapse of Enron and WorldCom.


It can be said that corporate governance, in the narrower sense, is concerned with ‘alignment’. The shareholders (and often creditors) have contributed assets to the company, and it is important to align the interests of these contributors with those charged with managing the company. There is a danger that, without this, the manager may choose to do anything from putting in only the barest effort required in return for their remuneration to simply stealing the assets.

This is achieved through both ‘internal’ and ‘external’ mechanisms:

The ‘internal’ mechanism is the power of the shareholders to control or influence the board of directors, both through general meetings and the use of litigation to enforce directors’ obligations.

The ‘external’ mechanisms are those regulatory requirements within which the company operates. For example, this can include the detection and prosecution of corporate fraud, and detailed insolvency procedures.

The stock market

It has been suggested that the stock market can play an important part in corporate governance in that the company’s share price can influence the management. For example, if there is little confidence in the company, then its share price will be lower, resulting in criticism at both shareholder meetings and in the financial media. This can be enhanced further by offering share options to the management, offering an additional incentive to enhance the value of the shares.

A low share price may also render the company liable to a hostile take-over bid, which could result in the management being replaced upon take-over.

Stakeholder company law

Corporate governance, in the wider sense, can include stakeholders other than the shareholders and creditors. It has been suggested that as a separate legal person, the company has a duty to be socially responsible. Therefore, it is arguable that ‘corporate social responsibility’ is an aspect which should be built into the corporate governance model. Therefore, it becomes important to consider the interests of, for example, employees, the environment, the locality in which the company operates and so on.

Company Law - Members and Meetings (Part 2)

Types of voting

Members can vote at general meetings in one of two ways – on a show of hands or on a poll vote.

Show of hands

If a vote is taken on a show of hands every member present at the meeting has one vote.

Initially, all votes will be taken on a show of hands. If the result is not unanimous then a poll vote may be demanded.

Poll vote

On a poll vote, each member has one vote for every share he owns.

The articles will specify who can ask for a poll vote. Under art.46, Table A, a poll vote must be taken if requested by the chairman, any two members or any member(s) holding at least 10% of the shares. Therefore, under Table A, the only member or proxy who has no right to a poll vote is a single member who owns less than 10% of the company’s shares.

The chairman

The chairman at general meetings will usually be the same person who is appointed to be the chairman for board meetings. His task is to preside at meetings and to keep order. He will declare whether a particular resolution has been passes or defeated.

The chairman will also have the casting vote in addition to any other vote he may have (art.50 Table A) unless a special article has been inserted to remove this. The casting vote will be used where, without it the number of votes for and against a resolution would be equal.

Where a company consists of two members, to give the chairman a casting vote would effectively give him complete control and accordingly this is considered inappropriate. However in other cases the casting vote is a useful way of reaching a decision where there is deadlock.

In the situation where there is no chairman’s casting vote, the rule is that where the amount of voted for and against a resolution is equal, the negative view prevails. The resolution will therefore be defeated.


A proxy is a person who attends a general meeting in place of a member. If a member wants to send a proxy to a meeting rather than attending personally, he must appoint the person as his proxy by sending written notice thereof to the company’s registered office.

Procedure after the meeting

Copies of all resolutions passed, with the exception of some ordinary resolutions, must be sent to the Registrar of companies within 15 days.

Rights of members

The rights of members will be governed by the articles of the company. As set out in Session 2, only ‘insider’ rights may be enforced. The following are examples of some of the insider rights a member will commonly have.

- The right to vote (s.370 Companies Act 1985);

- The right to receive notice of general meetings (s.370 Companies Act 1985);

- The right to restrain an ultra vires act (s.35 (2) Companies Act 1985);

- The right to receive a dividend, if one is declared (art.104 Table A);

- The right not to be unfairly prejudiced (s.459 Companies Act 1985 / s.994 Companies Act 2006).

Company Law - Members and Meetings (Part 1)


The term members and shareholders mean the same in the context of companies. The members’ finance the company by purchasing shares in it and so become shareholders. Members may or may not be directors.

Functions of the Member

The amount of involvement the member has in the company will depend on the amount of shares he or she holds, the size of the company and the member’s own wishes. However, control of the company ultimately rests with the general meeting, where shareholders vote on important issues.

Functions of Directors

Because many shareholders do not wish to get involved in the day-to-day affairs of the company (particularly in larger public companies), directors will manage the company.

They take business decisions and make contracts on the company’s behalf. However, some major decisions, which may have an effect on the members’ rights, have to be approved by the members in general meeting. For example, this will include issuing new shares or removing a director from office.

General Meetings

Normally it is the directors who have power to call meetings. All members are entitled to attend general meetings and to speak and vote on resolutions. Directors are also allowed to attend and speak but cannot vote unless they are also members.

However, the members may force a meeting on a particular issue if the directors refuse.


Resolutions are validly passed at a general meeting if that meeting is quorate – that is, a certain number of people are present at the meeting.

Section 370 Companies Act 1985 and art. 40 Table A fixes the quorum for general meetings at two, unless the company only has one member or the company agrees otherwise.

Types of Resolution

Members participate in the company by passing resolutions at general meetings. There are four types of resolution, which reflect the varying importance of various actions which may be taken by the members. The most common types are the ordinary resolution and the special resolution.

1. Ordinary resolution

This requires a simple majority of members voting in order to pass the resolution (i.e. 50% + 1 vote).

Examples of ordinary resolutions include the removal of a director (s.303 Companies Act 1985), the approval of directors’ service contracts (s.319 Companies Act 1985) and the increase of share capital (s.121 Companies Act 1985).

Only some ordinary resolutions need to be registered at Companies House, which are the aforementioned increase of share capital or directors’ authority to allot shares (s.80 Companies Act 1985).

2. Special resolution.

Generally this applies to more significant resolutions, and so a majority of 75% is required. All special resolutions must be registered at Companies House.

Examples of special resolutions include the disapplication of pre-emption rights (s.95 Companies Act 1985) and the alteration of the articles of association (s.9 Companies Act 1985).

3. Extraordinary resolution.

Again, a 75% majority is required to pass the resolution. All extraordinary resolutions are registered at Companies House.

An example of such a resolution is where the members vote on the voluntary liquidation of the company.

4. Elective resolution.

This type of resolution requires the unanimous consent of all the members.

All elective resolutions are registered at Companies House.

Company Law - Lifting The Corporate Veil (Part 2)


Under certain circumstances, statute may permit the veil to be pierced and liability imposed on the directors and/or members.

State of National Emergency

See Daimler v Continental Tyre & Rubber Co


In some situations, a proper analysis of the business arrangements may reveal an agency agreement between a parent and subsidiary company. However, it is not sufficient to show that economically the two companies are inter-dependent:

“[Counsel] suggested… that it would be technical for us to distinguish between parent and subsidiary company in this context; economically, he said, they were one. But we are concerned not with economics but with law. The distinction between the two is, in law, fundamental and cannot here be bridged”.

Rather, what must be shown is an express agency agreement – Adams v Cape Industries


Over time, the courts’ acceptance of ‘justice’ as a reason for lifting the veil has changed.

Lord Denning was a particular proponent of this approach, which he can be seen developing in the cases of Wallersteiner v Moir,
and DHN Food Distributors Ltd v London Borough of Tower Hamlets.

However, a retreat of some kind can be seen by the House of Lords in Woolfson v Strathclyde Regional Council
. Here, their Lords said that the veil should only be pierced in special circumstances, although they did not define exactly what would constitute ‘special circumstances. 

This approach was followed in the Canadian case of Transamerica Life Assurance Co of Canada v Canada Life Assurance Co, where it was said that “the cases and authorities… indicate that it will be difficult to define precisely when the corporate veil is to be lifted, but that lack of a precise test does not mean that a court is free to act as it pleases on some loosely defined ‘just and equitable’ standard”.

Similarly, in the ‘mammoth judgment’ of Adams v Cape Industries, Slade LJ said “save in cases which turn on the wording of particular statutes or contracts, the court is not free to disregard the principle of Salomon… merely because it considers that justice so requires”.


As a consequence, the courts are rarely willing to life the corporate veil. This has led some academics and judges to voice concerns about the strictness and potential inflexibility of the present rules:

“It is perhaps permissible under modern commercial conditions to regret the existence of these principles. But it is impossible to deny, ignore or disobey them” - As per Roskill LJ, The Albazero [1977]

Related Posts Plugin for WordPress, Blogger...
Need Law Introduction ... click HERE
Private Policy About Us Contact Us Content References

LAW (LLB) NOTES is intended merely as an informational and educational resource and is not intended to offer legal advice, nor does it offer legal advice. The exchange of information, by electronic mail or otherwise, relating in any way to LAW (LLB) NOTES is not intended to create an attorney-client relationship, nor does it create an attorney-client relationship.