How powerful is the owner of a company?
This Article was first published in Practice Management Magazine in June 2018.
Justin Cumberlege concludes his series on having an incorporated practice by looking at the members’ powers.
The owners of the company are the members, and where they own shares, they are the shareholders. While the directors take responsibility for the day to day management of the company, the members retain a certain degree of control.
So how much influence do the members have over the business?
The Companies Act 2006 (CA 2006) reserves certain rights to the members recognising that they are the owners of the company, with the financial interest. These include:
- calling a general meeting of the shareholders;
- allotting of shares where there is more than one class of shares;
- changing the company name;
- removing a director;
- amending the articles; and
- changing the rights of shares.
If a decision needs to be taken by the members, the directors will either call a general meeting or circulate a written resolution. While members can also be directors, they are not necessarily the same. When a director-member votes at a general meeting they only need to have regard for their own self interests because members do not owe duties to the company.
If a member has more than one share, they may vote with some shares for a resolution, and with other shares against a resolution. This may reflect an element of indecision.
Articles of Association
The articles of association (usually just referred to as the ‘articles’) are the internal rules governing how the company is to be run. Every company must have a set of articles from incorporation. The CA 2006 provides model articles, however a company should have a bespoke set of articles that are tailor-made to reflect the requirements of the members.
For example the members may want the power to:
- appoint directors;
- approve dividends;
- admit new members;
- expel members;
- enter into high value contracts; and
- acquire other businesses.
It is advised not to have articles that are too restrictive as the time taken to obtain consent from the members can hinder the company, for example in contract negotiations.
If a decision needs to be made by members it takes some organisation; a meeting usually requires at least 14 days’ notice, or a written resolution which requires 28 days.
A GP surgery that is a company and has bespoke articles sets a clear vision for the directors and members, and engagement of members, by reserving for them the power to make certain decisions. Members can include other clinicians and employees in your practice, so they have a direct benefit through receipt of dividends when the company has performed well. There are also tax benefits to owning shares; the first £2,000 of dividends is not taxable and the income is not subject to National Insurance. The members can be as powerful as the articles make them.
The benefits of Incorporation
The division of roles between directors and the owners, the flexibility of a company structure, and the limited liability are attractions to many businesses which are looking at new ways of working. Is this the right time for your practice to consider incorporation?
This article does not constitute legal advice, and no liability for reliance on its content is accepted by Hempsons, its partners or the author. Legal advice should be sought before you act on any matters outlined in this article.