Further members exercise control through their power

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Further, members exercise control through their power to authorise directors to allot shares (an authority directors are not allowed to exceed) and the power to increase or reduce their company’s share capital. The authorisation of increase or reduction of share capital enables shareholders to enlarge or reduce the size of the company as circumstances may demand. Finally, only members can authorise the voluntary winding-up of their company. Directors cannot do so ( Re Emmadart Ltd. [ 1979 ] Ch. 540 ). Therefore, the long-term fate of the company is in the hands of the members. Download free eBooks at bookboon.com Click on the ad to read more AXA Global Graduate Program Find out more and apply
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BUSINESS ORGANISATIONS AND AGENCY 415 MEMBERS’ POWERS AND THE PROTECTION OF MINORITIES 23.3.4 CONTROL THROUGH RESIDUAL POWER OF MANAGEMENT Company members may exercise the powers of the board of directors if there is no competent board or if the board is not able to act. This situation may arise if existing directors are incapacitated; there is an intractable deadlock in the board of directors; or the board could not form a quorum. In Barron v. Porter [1914] 1 Ch 895 , a company had two directors. Owing to enmity and deadlock between the directors, no board meetings were held. The plaintiff called a general meeting at which additional directors were appointed. One of the directors objected on the ground that the power to appoint the additional directors was vested in the board by the articles. It was held that, due to the deadlock in the board, the powers of the board reverted to the members in general meetings. In the exercise of their residual powers, members may call general meetings where directors fail or are unable to call one – s. 305 CA 2006. 23.4 PROTECTION OF MINORITY SHAREHOLDERS There are different mechanisms by which the protection of minority shareholders might be accomplished. These are the common law derivative action, derivative claims and continuing derivative claims for directors’ breach of duty under the CA 2006, the unfair prejudice remedy under the CA 2006, and the just and equitable winding-up under the Insolvency Act 1986 . 23.4.1 DERIVATIVE ACTION UNDER THE COMMON LAW Derivative actions under the common law are an exception to the “Rule in Foss v Harbottle”. This rule, as we saw earlier (see chapter 20) states that if a company suffers a wrongdoing in the hands of anybody, whether from outside or inside the company, the proper person to bring an action for redress is the company itself. Individual shareholders have no right to take action on their own behalf or on behalf of the company. In Foss v. Harbottle (1843) [1843] 2 Hare 461 , Foss and another shareholder of their company brought an action against three directors, a shareholder, the solicitor and architect of the company for themselves and on behalf of other shareholders of the company, in respect of losses suffered by the company due to the defendants’ misconduct and fraud.
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