For a company’s in the UAE, holding general meetings of shareholders is a legal requirement, necessary for the company to ensure compliance within the relevant regulatory framework and its corporate policies.
For an individual shareholder, attendance at the general meeting is, particularly for shareholders representing a minority interest, often their only chance to question and hold the management to account and to inform themselves about the company’s policies and prospects.
Whilst certain listed companies occasionally make the news about hostile shareholder meetings, the vast majority of shareholder meetings are dull and not at all controversial. However, even in private companies with a disparate shareholder base, the potential for difficulties at meetings is always present. This is the case when management is confronted with shareholders prepared to act in a concerted manner to attempt to frustrate management or the majority shareholders from pursuing a direction with which the minority disagrees.
More often than not, a shareholder looking to disrupt the process of shareholder meetings will question the legality of the process of calling and convening a meeting, and the conduct of the meeting itself. In this article we will address certain legal requirements arising from the Commercial Companies Law (Federal Law No. 2 of 2015) (“CCL”) in relation to Limited Liability Companies (not Joint Stock Companies), along with practical things for management to consider when convening and conducting shareholder meetings.
Article 92 of the CCL provides that at least once a year the general assembly shall convene at such time and place as set out in an invitation letter from the general manager. This invitation has to be sent within four months after the end of the fiscal year of the company. The letter should stipulate where the meeting will be convened and at what time. This letter is in effect the notice of meeting, an integral part of any properly convened meeting under the CCL and other statutory regimes.
The CCL does allow for flexibility by providing for any alternative means of invitation that are provided for in the Memorandum of Association. This makes it possible for the notice to be delivered by electronic means. But given the often used tactic by disgruntled shareholders of claiming that no notice of meeting was received, a notice delivered in hard copy by the relevant form of registered delivery or courier should be used by the management in order obtain evidence that a notice was sent.
The CCL provides that notice must be given at least 15 days prior to the date of the meeting. Whilst specific references in other provisions in the law refer to ‘working’ days, in respect of notice of meetings for limited liability companies and joint stock companies under the CCL the term working day is not utilized. As such, this provision should be read to mean that 15 calendar days, (i.e. not the day of the meeting itself) should be allowed for due delivery of any notice. As the relevant article of the CCL refers to notice being given 15 days prior to the meeting this indicates that the 15 day period does not begin with the date of the notice but rather the date of delivery to the recipient. In our view, given the lack of commentary or precedent to rely upon, the prudent course of action would be to ensure that there are at least 15 days between the date of the delivery of the notice to the recipient and the date of the meeting itself.
The Contents of the Notice
The CCL provides that a shareholder meeting may only discuss matters included in the agenda unless the meeting decides by majority vote to add it to the agenda. For this reason it is advisable for the agenda of the meeting to be included with the notice.
Role of the Chairman
In any shareholder meeting the role of chairman is critical. As the Chairman’s appointment is made by the shareholders themselves and the appointee will be one of them the Chairman has an implicit authority to bind the shareholders in matters relating to the conduct of the meeting. This may not necessarily be obvious from the provisions of the law or available precedent.
In any well-run meeting, the Chairman will ensure that the meeting proceeds smoothly. He will have to ensure that it has been properly constituted, that a quorum is present, that shareholders are able to exercise their legal right to voice opinions and discuss any matters set out in the agenda prior to any formal vote in a reasonable manner. The Chairman is also responsible for permitting non-shareholders, such as proxies, auditors and other professional advisors to the company to attend and speak at a meeting. Finally the Chairman should be cognisant of the time allotted for the meeting and ensure that proceedings proceed in an orderly fashion. With this in mind the ultimate aim of the meeting is to move forward to a formal vote on the issues to be debated. The Chairman has to ensure that this happens with the consent of the meeting.
In all matters, including points of order as well as more general questions, the Chairman’s decision is considered final. In order to ensure that his decision is properly informed, and therefore more likely to be accepted, shareholders and others present should have had the opportunity to have expressed their opinion on any matter. The Chairman should take these opinions into account when making any final determination.
The Chairman’s Script
The best way for management to assist the Chairman in this complicated task, especially if the Chairman is inexperienced, is to ensure that the Chairman is fully briefed on the agenda and the procedure for conducting the meeting is in line with the Company’s constitutional documents. It is common practice for the company secretary (or the general manager or in-house lawyer) to prepare a chairman’s script. This includes opening and closing statements, a statement of the resolutions to be proposed and a summary of the voting process.
Votes of Shareholders
The CCL provides that for an LLC votes on resolutions are valid if passed by the majority of shareholders present in person and those represented at the meeting (subject to the memorandum of association providing for a higher majority). Consequentially, for a chairman of the meeting resolutions should be taken by way of a show of hands. The Chairman’s declaration as to whether a resolution has been passed is conclusive evidence that it has been passed. The record of the shareholders’ vote has to be the subject of a clear record in the minutes of the meeting. This record has to set out the shareholders present and represented and those that voted in favour of the resolution, as well as shareholders who voted against or abstained.
Adjournment of a Meeting
The CCL provides that an adjournment of a meeting may only take place if the originally convened meeting does not meet the quorum. The quorum for an LLC is 75% or more of the share capital to be present or represented. At the adjourned meeting this requirement drops to 50% or more of the share capital and at any further reconvened meeting following a second adjournment, the quorum will be whatever members are present.
Crucially, at any meeting, the votes of those members present will be valid. Consequentially, shareholders with a significant interest in a company, represented by a relatively large proportion of the share capital, should ensure that their interests are at least represented at any meetings of shareholders. This is important because then they can ensure that those interests are not compromised by resolutions being passed in their absence.
Formalization of Process in the Memorandum of Association
The processes set out above expand on, and are informed by, the provisions of the CCL which are relatively brief when it comes to this important topic.
In our view the best and most effective way of ensuring good corporate governance at shareholder level, as well as ensuring shareholder meetings are conducted efficiently, is to embed more comprehensive and suitable provisions into the memorandum of association of the company. A well drafted and comprehensive set of provisions detailing how meetings should be held and run will ensure that an accurate point of reference is available. This will assist the Chairman in ensuring that meetings can be conducted in such a way that questions as to the validity of a decision or point of order can be avoided.
The level of detail will depend on the number, and interests, of stakeholders in the business, but in every case those interests are best served by clarity.