25-03-2008
Casting Vote for Chairman re-instated
Simon Morris, of BPE's Corporate team, has advised businesses to consider the implications of new requirements brought in by the Companies Act 2006.
On 1 October 2007, the Companies Act 2006 introduced a new provision that effectively abolished the ability of a chairman to exercise a casting vote at a meeting of shareholders.
The change, which was originally intended to create smoother and more transparent company administration, was not well received by many small joint venture companies.
As a result, the BERR has reconsidered the position and issued a saving order that now allows companies incorporated before 1 October 2007 to maintain the Chairman’s casting vote. Companies incorporated before this date will also have the ability to reinstate the chairman’s casting vote at any time in the event that a subsequent alteration has removed it.
For public and private companies incorporated after 1 October 2007, there is no ability to override this principle. However, certain alternative remedies can achieve the same result.
Similar rights can be granted to a shareholding chairman by attaching weighted voting rights to their shares. Alternatively, and of perhaps more use in the case of a non-shareholding chairman, is to deal with the matter outside of the articles, via a shareholders’ agreement. Shareholder’s agreements create binding contracts between members of a company and provide an invaluable reference tool. Such agreements can also be used to control the day-to-day management of a company, create binding minority protection and deal with doomsday scenarios when members fall out.
Many existing companies will be comforted in the knowledge that the chairman’s casting vote will continue to exist. Joint venture companies specifically designed to allow one member to exercise the casting vote can carry on as usual.
However, for new companies, the importance of having a shareholders’ agreement has increased. For this, and any advice on how best to protect your membership rights, BPE is always willing to lend a hand.
On 1 October 2007, the Companies Act 2006 introduced a new provision that effectively abolished the ability of a chairman to exercise a casting vote at a meeting of shareholders.
The change, which was originally intended to create smoother and more transparent company administration, was not well received by many small joint venture companies.
As a result, the BERR has reconsidered the position and issued a saving order that now allows companies incorporated before 1 October 2007 to maintain the Chairman’s casting vote. Companies incorporated before this date will also have the ability to reinstate the chairman’s casting vote at any time in the event that a subsequent alteration has removed it.
For public and private companies incorporated after 1 October 2007, there is no ability to override this principle. However, certain alternative remedies can achieve the same result.
Similar rights can be granted to a shareholding chairman by attaching weighted voting rights to their shares. Alternatively, and of perhaps more use in the case of a non-shareholding chairman, is to deal with the matter outside of the articles, via a shareholders’ agreement. Shareholder’s agreements create binding contracts between members of a company and provide an invaluable reference tool. Such agreements can also be used to control the day-to-day management of a company, create binding minority protection and deal with doomsday scenarios when members fall out.
Many existing companies will be comforted in the knowledge that the chairman’s casting vote will continue to exist. Joint venture companies specifically designed to allow one member to exercise the casting vote can carry on as usual.
However, for new companies, the importance of having a shareholders’ agreement has increased. For this, and any advice on how best to protect your membership rights, BPE is always willing to lend a hand.
