Corporate Governance – What directors need to tell shareholders

In summary, directors are not obliged to keep shareholders informed in any detail about the day to day running of the company.

However, this is subject to certain rights that the shareholders have which are largely contained in the Companies Act 2006

There are certain things which a director must inform shareholders about / information that must be provided. 

Things which directors must inform shareholders of include:

• Notices of general meetings (i.e. shareholder meetings not board meetings) or any proposed written shareholder resolution.
• Entry into a directors’ service agreement of over 2 year duration (shareholder approval required).
• The director entering into a substantial property transaction with the company or if the company is loaning the director money (shareholder approval required).
• Payments being made to directors for loss of office (shareholder approval required).
• Any proposed ratification by the company of any act of a director in breach of duty (shareholder approval required).
• The company’s annual statutory accounts (note that shareholders with a holding of at least 10% can also require the company to prepare audited accounts).

Information which must be supplied to shareholders on request includes:

• Sufficient information to enable shareholders to make an informed decision on a resolution being put to them at a general meeting
• Access to the registers of members, directors, debentures (and copies on request).
• The Articles of Association of the company.
• Copies of directors’ service agreements.
• Copies of any provision indemnifying directors.
• Access to records of resolutions and general meetings (and copies on request)

These are some of the questions that arise in this context.  The answers reflect the position under basic company law but see the points to note below.

Question:      Can shareholders insist on attending board meetings?

Answer:        No.  The only people who can of right attend board meetings are the directors.

Question:      Do directors have to give notices of board meetings or copies of board agendas to shareholders?

Answer:        No, directors can generally manage their proceedings as they see fit without reference to shareholders.

Question:      Can shareholders insist on seeing board minutes?

Answer:        No.  The board of directors does not need to allow that level of scrutiny.

Question:      Can shareholders insist on seeing management accounts, bank statements or other detailed financial information?

Answer:        No.  Their rights to see financial information are limited to the company’s annual filed accounts.

Question:      Can shareholders insist that directors take or refrain from taking any decision about the management of the company?

Answer:        No, unless they are entitled to do so by virtue of any mechanism in a shareholders agreement or the company’s constitutional documents.

This guidance note sets out the basic position with regard to the provision of information by directors to shareholders.  However, the factual context is different for each company and therefore specific legal advice should be sought if the question of what information can or should be supplied is an important one.

The following points should be specifically noted.

Directors have fiduciary duties to the company under the Companies Act, for example to exercise powers in good faith and only for the purposes for which they were conferred.

On that basis, improper exercise of powers to restrict access to information on the part of shareholders can amount to a breach of fiduciary duty.  This can give rise to a claim on the part of the company against the director which shareholders can enforce by what is known as a derivative action.  Restricting access to information can also amount to “unfair prejudice” to shareholders if they have a “legitimate expectation” to be supplied with such information.

In addition, shareholders agreements may contain much wider entitlements on the part of shareholders to information and documentation.  Bespoke articles of association can also contain such entitlements.  Standard articles of association also include the right of shareholders to pass a special resolution (requiring 75% or more of the shareholder vote) requiring the directors to take or refrain from taking specified action.  This can include the provision of information.

These documents therefore require careful analysis to determine their effect in any specific context.