Chapter 5: Company's governance
IN THIS LESSON
The buyer likely wants to know what the voting thresholds are for company decisions because the voting thresholds can significantly impact the acquirer’s ability to make changes to the company.
Overview
If the acquirer obtains a majority of the shares in the company, they may be able to control decisions made by the company, including decisions on the appointment of directors, and major acquisitions or disposals of assets. However, if the acquirer does not obtain a majority of the shares, they may not have enough voting power to influence such decisions.
Source of truth
To understand who makes various Company decisions and by what method as well as the voting thresholds, you may need to review:
constitution of company
shareholders deed (or shareholders agreement)
Corporations Law (if applicable) — not discussed in this lesson
Board decisions
The starting position is that the directors (or board of directors) are generally responsible for the overall direction and management of the company (other than those matters requiring shareholder approval — see below).
The shareholders deed should say:
the maximum number of directors the board consists of and whether this includes a chairperson;
how many votes each director has and whether the chairperson or another director has a “casting” vote.
Decisions of the board may require “ordinary” resolution (a majority of directors vote in favour) or “special” resolution (e.g. more than 75% of the directors vote in favour).
Examples of decisions that require “special” resolution are:
The company entering into a transaction with a shareholder or with a related party or affiliate of a shareholder
forming a board committee
approving an increase to the director’s fees
appointing an auditor
Appointment or removal of a director
The right to appoint or remove a director is a key way shareholders maintain control over the company. Consider whether:
there are specific shareholders named that can appoint 1 or more directors;
the ability to appoint a director depends on the number of shares a shareholder holds, either as an outright number or in percentage terms.
Shareholders decisions
Giving decision-making power to shareholders creates a risk that the shareholders will be acting as a “shadow director” and potentially liable as a director.
3 types of decision-making structures:
Approval of a key shareholder (veto power of key shareholder)
Does a key shareholder have a “veto power” of key decisions of the company?
For example, a company cannot make certain decisions (usually listed somewhere in the document) unless it is approved by a particular shareholder.
Decisions by shareholder resolution
Types of voting thresholds for a shareholder resolution (not necessary to have all of them):
Ordinary: must be passed by a majority
Special: must be passed by at least a certain percentage e.g. 75%
Unanimous: must be passed by 100%
Shareholders can make decisions about the company by passing a resolution, usually at a meeting. A “special resolution” usually involves more important questions such as:
Changing the company’s constitution
Changing the rights of shares
Changing the company name
Appointing an auditor
Selling the company
Appointing a liquidator to the company or proposing a winding up of the company
Approval by shareholding
Approval by shareholders who, in the aggregate, hold not less than a specified percentage of shares (e.g. 75% of shares).
