Study Text
CORPORATE ADMINISTRATION
- Lesson 10 -
Applied Skills
- ACCA -
Prepared by : Janith Jayasinghe
Corporate and Business Law | Types Of Business Organization
COMPANY SECRETARY
Introduction
The company secretary acts as the chief administrative officer of the company and shares various
responsibilities with the directors under the Companies Act. Private companies are no longer
obliged to appoint a company secretary, although most companies continue to do so.
Appointing a company secretary
The company secretary is normally appointed by the directors. Unlike public companies, private
companies are not required to appoint a company secretary. If choose to appoint a company
sectretary, such appointment must inform Companies House.
In a new company, the company secretary is automatically appointed by being named in the
application to register the company. No need of formal qualifications to act as company secretary
to a private company. The requirements are more stringent for public companies.
Some people cannot be appointed as the company secretary. These include:
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the company’s auditor
undischarged bankrupts
Duties of Company Secretary
The Companies Act has not codified the duties of a company secretary as it has for directors. A
company secretary is best described as the chief administrative officer of a company. This indicates
the relative importance of the role in differing sizes of company. The larger the company, the more
an administrative officer is needed. Whether or not a company has an appointed secretary, there
are still some tasks which need to be done, most probably by a director or accountant if there is no
secretary.
Powers and Authority of Company Secretary
The Companies Act is also silent on the authority of a company secretary. Therefore, case law has
to be relied on to indicate the extent of a secretaryʼs authority to make contracts on behalf of a
company.
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The company secretary is usually recognised as having the authority to make contracts on behalf
of the company in respect of its administrative operations. Thus, they may bind the company by
their actions on the basis of implied actual authority. However, a company secretaryʼs implied
authority is limited and does not extend to buying land, for example, nor to borrowing money, nor
to doing other acts usually undertaken by the directors.
It is important to note that, whatever authority a company secretary may have to make contracts
on behalf of the company, the directors have ultimate responsibility for all acts carried out in the
companyʼs name
Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711
In Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd, the secretary of
Fidelis, Mr Bayne, hired cars from Panorama. Bayne used the Fidelis notepaper and represented
that he wished to hire a number of Rolls-Royces and Jaguars for the business while his managing
director was away. He in fact used them for his own private purposes.
Bayne was prosecuted and imprisoned, but Panorama sued Fidelis for the cost of the hire of the
cars. Fidelis claimed that it was not bound by the hire contracts, because Bayne never had the
authority to enter them.
It was held by Lord Denning that Fidelis was nevertheless bound on the contract to Panorama.
Bayne, as company secretary, had ostensible, or apparent, authority to enter such agreements.
Times had changed since 1887 when in Barnett Hoares & Co v South London Tramways Co
(1887) 18 QBD 815, it was held that company secretaries could not be assumed to have authority
for anything. Secretaries are ‘certainly entitled to sign contracts connected with the
administrative side of a companyʼs affairs, such as employing staff and ordering hire cars, and so
forth’.
AUDITOR
Introduction
An auditor is a person who makes an independent report to a company's shareholders ('members')
to show whether the company has prepared its financial statements according to company law and
other financial reporting rules. The report must also state whether a company's accounts give a true
and fair view of its financial affairs at the end of the year.
The auditor must be told of all general meetings of the company and can attend and speak.
However, the auditor isn't entitled to vote.
An auditor must be independent of the company. Therefore, you can't choose an auditor who is:
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an officer or employee of the company or an associated company; or
a partner or employee of such a person, or a partnership of which such a person is a partner.
Appointment of Auditor to Private companies
The directors appoint the first auditor of the company. The members can then appoint or reappoint
an auditor each year at a meeting of the company's members. This should be done within 28 days
after the directors send or should have sent the accounts to the members. This can also be done by
written resolution.
If the members don't do so for a particular year, however, the auditor is deemed to be reappointed
and remains in office. This won't be the case if that auditor had been appointed by the directors.
Similarly, this won't be the case if the company's articles of association (the company's set of rules)
state that a new auditor is needed every year, or if the members give notice to the company to
prevent the auditor from being reappointed, or if the members pass an ordinary resolution to
remove the auditor.
Auditor's Duties
The auditor will check the accounts of the company and prepare a report for the members. The
auditor acts according to International Standards on Auditing (UK and Ireland) issued by the
Auditing Practices Board.
The auditor's report must include:
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A statement as to whether the auditor believes the accounts have been prepared according
to the Companies Act 2006 and International Accounting Standards;
A statement as to whether the accounts give a true and fair view of the company's or (in
the case of group accounts) group's financial affairs; and
A statement as to whether the directors' report is consistent with the accounts.
If the auditor is satisfied that they've seen all the necessary accounts and they're satisfied with
them, the auditor will normally give an 'unqualified' report. A 'qualified' report will alert
shareholders and others reading the accounts that the auditor didn't receive all the necessary
material, or disagreed with the company over some material issue, or that they suspect fraud.
Removing an auditor during their term of office
The members of a company can remove an auditor at any time during their term of office by
passing an 'ordinary resolution' at a general meeting, i.e. voting in the meeting. They can't do so
by written resolution. The member proposing the resolution to remove the auditor must give the
company 28 days' notice of their intention to do so.
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The company must send a copy of the notice to the auditor, who then has the right to make a
written response. The company must then send the auditor's response to the members before the
meeting. If the auditor's response arrives too late, it must be read at the meeting if the auditor asks
for this to be done. The auditor can also ask to speak at the meeting where the resolution will be
considered.
The members can then pass an ordinary resolution to remove the auditor at the general meeting.
The Company must notify the Companies House within 14 days of a resolution being passed to
remove an auditor.
Statement by Departing Auditor
If the auditor leaves a private company for any reason and in any manner, including resignation,
the auditor must give the company a statement. This statement should either:
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set out the circumstances surrounding their leaving if they think there are any
circumstances that the members or creditors of the company should know about; or
state that there are no such circumstances if there are none.
If the auditor's statements set out circumstances they think the members need to know about, the
company must within 14 days send a copy of the auditor's statement to all the members and anyone
entitled to the accounts of the company. This won't be necessary if the company makes a successful
application to the court not to do so. The auditor must send a copy of their statement to Companies
House.
ANNUAL GENERAL MEETING
Introduction
As the term suggests, an Annual General Meeting (AGM) is a mandatory once-a-year shareholders'
meeting of a company to pass decisions that require shareholder approval by law or a shareholders'
meeting that is desired by the shareholders, the company or its board.
Purpose of AGM
The AGM is a platform for your company to present your financial statements (accounts) to your
shareholders (members). Shareholders can then raise questions about your company's health and
make use of this meeting to air their concerns and ideas.
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The key objective is to give shareholders a chance to analyse the business's performance and its
future strategy. AGMs are also where crucial votes can be held; these are usually in areas that need
shareholder presence, such as filling vacant positions on the board of directors.
The Procedures for AGM
A public company in the UK must hold AGMs annually; the first one should be within 6 months
of its accounting reference date. On the other hand, a private company is not required by law to
hold an AGM each year.
The business conducted at an AGM usually includes the declaration of a dividend, discussions
on the company's accounts and reports, the appointment of new directors or company auditors.
The procedures of conducting an AGM vary from company to company. However, as per the
minimum statutory period, the office-bearers need to give notice of at least 14 days (a meeting
can be organised more quickly if a majority, such as 90-95%), give written consent.
For public companies, annual general meeting guidelines state that the first one must be held
within 6 months from the day following its accounting reference date.
For private companies which are traded companies, an annual general meeting must be held
within 9 months from the day following its accounting reference date.
For private companies which are not traded companies, AGM procedures do not require them to
hold an annual general meeting unless required by its articles of association. Nonetheless,
meetings should still be held to review matters to be dealt with every financial year and ensure
legal compliance.
Notice of AGM
Unless your company's articles of association are in need of more time to put a notice in place
for the AGM, the required notice period under the Companies Act 2006 is as of the following:
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Private companies: at least 14 clear days
Public companies which are traded companies: at least 21 clear days. In the event the
company has owns a premium listing of equity shares on the London Stock Exchange, at
least 20 working days
Public companies which are non-traded companies: at least 21 clear days
AGMs requested by company's members: within 21 days from request date and should be
convened no later than 28 days from the issuance of meeting notice
RESOLUTIONS
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Corporate and Business Law | Types Of Business Organization
Introduction
Company resolutions are legally binding decisions made by the members (shareholders or
guarantors) or directors of a limited company. They are required when formal decisions need to
be made on matters beyond the scope of day-to-day business operations, such as appointing or
removing a director or altering the articles of association.
Typically, company resolutions are passed (approved) by a majority vote of members at a general
meeting or directors at a board meeting, but it is often possible to pass resolutions in writing
instead.
The different types of company resolutions are:
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Ordinary resolution of the members
Special resolution of the members
Written resolution (can be ordinary or special) of the members
Ordinary Resolution of the members
Used for routine matters that require approval from company members, an ordinary resolution is
a formal decision requiring approval by a simple majority (i.e., above 50%). Ordinary resolutions
are normally proposed and voted on at general meetings, with eligible members casting their votes
by a show of hands (or by proxy) or on a poll. In certain cases, it is possible to pass an ordinary
resolution in writing.
An ordinary resolution is passed when more than 50% of all votes are cast in favour of the motion
(i.e., the proposed resolution). Some shareholders may have more than one vote, e.g., if they hold
multiple shares, or their shares carry more than one vote each. This is why the outcome of a
resolution is based on the number of votes cast for or against a motion, rather than simply the
number of members.
Special Resolution of the members
Used for more critical business matters that extend beyond the powers of directors and cannot be
passed by an ordinary resolution of the members, special resolutions require approval of at least
75% of members’ votes. They can be proposed and voted on at general meetings, or by written
resolution if provided for in the articles of association.
The Companies Act 2006 specifies several important decisions that require a special resolution of
the members, including:
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Amending the articles of association
Making changes to the shareholders’ agreement
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Changing the company name
Disapplying shareholders’ pre-emption rights
Altering the objectives of the business
Allotting new shares
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“There are no secrets to success. It is the result of preparation, hard work, and learning from
failure.”- General Colin Powell, former US Secretary of State
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© Prepared by: Janith Jayasinghe LLB (Hons)
Attorney-at-Law, Commissioner for Oaths, Company Secretary, Professional Qualifications in HRM (IPM)
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