If there is a shareholders' agreement in place in respect of the relevant company (which would typically be the case in a joint venture scenario), the provisions of any such agreement will also need to be considered, especially in relation to the shareholders' agreement's interaction with the M&A of the company and/or potential precedence over the M&A.
General
It will generally be the case that the M&A (replicating the position under the Law) will state that the business of a company shall be managed by the board of directors of such company, subject to any restrictions contained in the M&A and/or the Law. The Law requires that the board of a company manage or supervise the management of the company.
Which decisions will require shareholder approval?
Under the Law, certain corporate actions must be approved by ordinary resolution (simply majority) or special resolution (75%) of the shareholders. Such matters include, but are not limited to, amendments to the articles of incorporation, migration, amalgamation and changes to share capital.
The Law also provides that certain actions require unanimous approval by the shareholders by way of a unanimous resolution agreed to by every shareholder in the company. Such actions include:
- altering the memorandum of the Company (although the memorandum itself may allow for a lower threshold for the resolution);
- providing for entrenched provision(s) in a company's articles (which place more restrictive conditions on the amendment or repeal of certain provisions in a company's articles); and
- converting a company into an unlimited liability company.
In addition, certain actions (including waiver of the requirement for audit or to hold an annual general meeting) must be passed as waiver resolutions with a majority of 90% of the shareholders.
References in the foregoing to resolutions being passed by the requisite majority of shareholders are to those resolutions being passed by shareholders present at the relevant shareholder meeting and voting in person or by proxy. In the case of shareholder approvals given by way of written resolution, written approval of shareholders holding the requisite percentage of votes will be required to pass a written resolution.
All special, waiver and unanimous resolutions passed by the shareholders must be filed with the Guernsey Registry (the "Registry") within 30 days of being passed, as must an ordinary resolution amending a company's share capital.
The M&A may also contain bespoke provisions requiring the directors to seek shareholder approval in respect of specific actions. Such bespoke provisions are typically more extensive in companies with multiple shareholders.
A (very brief) note on the duties of directors when making decisions
Although directors' duties are not the subject of this guide, it is worth noting that directors of Guernsey companies are subject to a number of common law and statutory duties. Under Guernsey law, a director of a company owes fiduciary duties to the company. The core fiduciary duty is one of loyalty, and a director must act in what they honestly consider to be in the best interests of the company, in good faith and promote the success of the company. The central reason for an action taken by a director must be the best interests of the company and to promote the success of the company for the benefit of the members as a whole. A director must act within their powers and for the "proper purposes" of the company, exercise independent judgement and avoid actual or possible conflicts of interest. Directors are also required to exercise reasonable care, skill and diligence.
The Law requires directors to disclose potential or actual conflicts of interest in any transaction or proposed transaction.
What if there are concerns regarding the benefit of a decision to the company?
The shareholders of a company may ratify the conduct of a director which exceeds their powers or amounts to negligence, default, breach of duty or breach of trust in relation to the company by ordinary resolution (or by a resolution achieving such threshold as specified in the company's M&A).
Director decisions - Do we need a board meeting?
Having established that the directors have authority to make a particular decision (see our previous note here for more on this), the M&A will be the starting point when seeking to determine whether the directors can pass resolutions in writing, or if a physical board meeting is required.
Whilst it is common for the M&A to permit the directors to take decisions by way of written resolution, economic substance requirements in Guernsey have resulted in board meetings being the preferred method of director decision making wherever practicable (for those companies subject to the economic substance legislation in Guernsey) and it is important that any activities which amount to "core income generating activities" under such requirements are carried out in Guernsey in accordance with the relevant rules. Following an amendment to the Law (section 153(2)) introduced in 2021, board meetings are deemed to be held in the place in which the chair of the meeting is present, subject to the company's M&A or a board resolution providing otherwise. Although there are no restrictions under the Law as to where meetings must be held, it is typically the case that, for both tax residency and (where relevant) economic substance reasons, board meetings are held in Guernsey.
Director decisions - Who needs to be told about the meeting?
Notice of a board meeting should be given to all the directors. Generally, the M&A will either require reasonable notice of meetings or will prescribe the relevant notice period, and potentially the form of notice required.
Director decisions - Who needs to attend the meeting?
The minimum number of directors required for a board meeting to be "quorate" should be clearly set out in the M&A. Typically, it is set at two directors, but quorum requirements will vary depending on the nature of the company.
Director decisions - Can the board pass a resolution in writing?
The M&A will typically allow for the directors to pass resolutions in writing, although it is common (and advisable from a corporate governance perspective) for such resolutions to require unanimous consent (rather than the consent of a majority of directors only).
As mentioned above, economic substance requirements should be considered when passing resolutions in writing.
Shareholder decisions - Do we need an annual general meeting?
Every company is required to hold an annual general meeting ("
AGM") (with the exception of an incorporated cell of an incorporated cell company, unless its M&A or a special resolution require otherwise). A company's first AGM must be held within 18 months of its incorporation, and thereafter at least once per calendar year but no more than 15 months after the previous AGM.
However, it is possible for the shareholders of a company to pass a waiver resolution to waive the requirement to hold an AGM. A waiver resolution requires the approval of members holding 90% of the total voting rights. Such a waiver resolution, if passed, can apply for a particular year or years or an indefinite period of time.
Shareholder decisions - Do we need a general meeting?
If a particular decision requires shareholder approval (or can only be actioned by a resolution of the shareholders), unless the M&A provide otherwise, all shareholders entitled to vote on the resolution may do so by way of a written resolution (other than a resolution to remove an auditor, which the Law expressly prescribes may not be made by way of written resolution).
A written resolution is passed when the shareholders holding the requisite percentage of votes (as specified in the written resolution) have signified their agreement to it.
Shareholder decisions - Who needs to be told about the meeting?
If a general meeting is to be held, all such meetings (other than an adjourned meeting) must be called on a least 10 days' written notice, unless all of the members entitled to attend and vote at a general meeting agree to a shorter notice. The M&A can require a longer notice period than 10 days, but not a shorter notice period.
Notice must be sent to every shareholder and every director, and must state the time and date of the meeting, the place of the meeting (or details of how to attend electronically), details pertaining to the resolutions to be tabled at the meeting, and, subject to the company's M&A, the general nature of the business to be dealt with at the meeting.
Shareholder decisions - Who needs to attend the meeting?
The default position under the Law (which is subject to anything to the contrary in the M&A), is for two shareholders or their proxies to be present at a meeting holding in aggregate between them 5% of the total voting rights of the company (excluding treasury shares) in order for the meeting to be quorate. Where a company has a sole shareholder, or where the M&A allow, one shareholder may form the quorum for a meeting. Furthermore, unless the M&A specify otherwise, shareholders may participate in meetings by way of telephone or video conference.
The Law provides shareholders of a company with the right to appoint a proxy to attend and vote at a shareholders' meeting in a shareholder's absence. The notice of a general meeting must contain a statement informing shareholders of their right to appoint a proxy, provide details as to how the shareholders should appoint proxies if they wish to do so, and include any requirements and/or the deadline for the return of proxy forms.
The information contained in this guide is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter.
