21.
Are there restrictions on the purchase or sale by a director of the shares and
other securities of the company he is a director of?
France
Law stated as at 01-Apr-2011
In listed companies, any purchase or sale by directors
of the company's securities using insider information is subject to criminal
penalties.
The
chairman, CEO and board members must register or hold in nominative form all
company shares they own.
A
transaction carried out involving company shares by board members and the CEO
must be declared to the AMF within four days, which discloses it to the public.
More
generally, listed companies usually adopt guidelines stating that managers and
directors must abstain from any trading activities during a certain period
before the publication of interim and annual results (black-out period).
Options
cannot be granted:
· Within ten trading sessions before and following the
date on which the consolidated (or annual) accounts are made public.
· Between the date on which the company's corporate
bodies are informed of a fact which, were it to be made public, could have a
material impact on the price of the company's securities, and a date equivalent
to ten trading sessions following that on which the information was made
public.
Germany
Law stated as at 01-Apr-2011
Everyone, including directors, can be guilty of the
criminal offence of insider dealing if the person (WpHG):
· Deals, or encourages others to deal, in the company's
shares when in possession of insider information.
· Discloses insider information other than in the proper
exercise of his profession.
In
addition, management or supervisory board members and other persons executing
managerial responsibilities and related persons must notify the company of any
transaction by them in the company's shares within five days. The company must
immediately make a public announcement of those transactions. Violations of
these provisions can result in fines up to EUR50,000.
The
DCGK calls for the disclosure of the shareholding of a member of the management
or supervisory board if such member holds more than 1% of the company's issued
shares.
India
Law stated as at 01-Apr-2011
A person cannot deal in securities of a company listed
on a stock exchange if he (SEBI (Prohibition of Insider Trading) Regulations
1992):
· Has received or has access to unpublished price
sensitive information.
· Is connected with the company and is reasonably
expected to have access to such unpublished price sensitive information in
relation to securities of a company.
The Netherlands
Law stated as at 01-Dec-2012
There are certain restrictions on transactions between
a company and its directors when a conflict of interest arises (seeQuestion 22).
If
there is a conflict of interest relating to a transaction between a company and
one of its directors the corporate bodies involved should also act carefully in
the company's decision-making process about the transaction, based on the
principle of reasonableness and fairness. According to case law, it is
essential to separate the different interests with due care and to exercise as
much openness as possible. The advantages and disadvantages of a transaction
should be discussed exhaustively by the corporate bodies concerned.
UK (England and Wales)
Law stated as at 01-Apr-2011
A director of a company whose shares are not publicly
traded may have voluntarily agreed to restrictions on the sale of shares in the
company in an agreement with other shareholders, and the articles may restrict
the ability to transfer shares freely without first offering them to other
shareholders.
Where
the company's shares are traded on the London Stock Exchange's main market or
on AIM, three overlapping regimes may restrict a director (and others) from
dealing in shares:
· Insider dealing. A
person commits the criminal offence of insider dealing if they have inside
information in relation to shares and they deal in those shares on a regulated
market or through a professional intermediary such as a broker. Inside information
is information which:
o is precise;
o is not generally available;
o relates directly or indirectly to investments traded
on a UK regulated market, for example, listed shares on the London Stock
Exchange; and
o is likely to have a significant effect on the price of
the shares if generally available (that is, a hypothetical reasonable investor
would be likely to use the information in making their investment decision).
· Model Code. The
Listing Rules and the rules of AIM require companies to restrict the times at
which directors can deal in their company's shares. Listed companies are
required to adopt a Model Code which prevents "dealing in shares"
(defined widely) during a "close period", that is:
o 60 days before the announcement of annual results or
the publication of the annual report (or, if shorter, the period from the end
of the financial year to the announcement or publication);
o the period between the end of a half year and date of
publication of the half-year results.
o If the company reports quarterly, 30 days before each
announcement or, if shorter, the period between the end of the quarter and
publication.
Outside these periods, dealing in shares by a director
is still prohibited if there is undisclosed inside information, even if the
director concerned is unaware of it. Directors should also not deal in their
company's shares on considerations of a short-term nature, such as an
investment of less than one year's duration.
· The civil market abuse rules. The market abuse regime sits alongside the
criminal insider dealing rules but requires cases to be proved only on the
balance of probabilities, rather than the criminal standard of beyond
reasonable doubt. Market abuse is not a criminal offence but can still be
punished by unlimited fines.
There are seven different types of market abuse,
including insider dealing and other abusive behaviours relating to information,
manipulation and market distortion.
United States
Law stated as at 01-Dec-2012
Section 402 of the Sarbanes-Oxley Act prohibits
directors from receiving personal loans or extensions of credit from the
corporation, with limited exceptions. Also, certain transactions between a
company and its directors could impair director independence.
Disclosure of information
22. Do directors have to disclose information about
the company to shareholders, the public or regulatory bodies?
France
Law stated as at 01-Apr-2011
Information that must be provided by the board of
directors or the management and supervisory board to shareholders before a
general shareholders' meeting includes but is not limited to:
· The agenda.
· The annual accounts (the consolidated accounts, if
applicable) of the last financial year, including details of the allocation of
profits.
· The statutory auditors' reports.
· Reports by the board of directors (or management or
supervisory board).
· Draft resolutions.
Shareholders
can also access certain documents at any time, including:
· The annual accounts (or consolidated accounts, if
applicable) for the last three fiscal years.
· The list of board members (or management or
supervisory board members).
· The global amount, certified by the auditors, of
remuneration paid to the five or ten highest-paid individuals, according to
whether the number of employees is greater than 200 or not.
In
addition, companies must file each year accounts for the previous financial
year with the clerk of the commercial court that has jurisdiction over their
registered office, which are then made available to the public.
Before
a shareholders' meeting, any shareholder can raise any question in writing to
the board of directors or management board.
Several
specific disclosure obligations apply to listed companies. Any initial
disclosure or disclosure of a material change made to any previously disclosed
information must be made as soon as possible.
Germany
Law stated as at 01-Apr-2011
The AktG and the HGB contain various disclosure
obligations of the management board towards shareholders, the public or
regulatory bodies. Major sources of information for shareholders are the
company's annual accounts and the right to raise questions during the annual
general meeting.
Listing
on a stock exchange results in additional requirements to provide certain
information to public bodies (for example, the Federal Financial Supervisory
Agency) and capital markets participants, such as:
· Declaration of conformity with the DCGK.
· Corporate governance declaration.
· Ad hoc announcements regarding price-sensitive
information.
· Obligation to publicly announce details of
shareholders holding 3% or more of the company's shares.
· Subject to certain exceptions, any company offering
shares to the public must produce a prospectus containing specified
information.
India
Law stated as at 01-Apr-2011
Listed companies must comply with the mandatory
provisions set out in Clause 49 of the Listing Agreement (see Question 2). The annual report of a listed company comprises the
company's financial statements, the directors' report and such other
disclosures as are required under Clause 49 of the Listing Agreement.
In
relation to unlisted public companies and private companies, the directors must
disclose in the directors' report (which is provided to the shareholders)
information relating to the following:
· The state of the company's affairs.
· Any material changes and commitments affecting the
financial position of the company which have occurred between the end of the
financial year of the company to which the balance sheet relates and the date
of the report.
· The conservation of energy, technology absorption,
foreign exchange earnings and outgoings and so on.
The
directors' report for all companies must be filed with the MCA.
The Netherlands
Law stated as at 01-Dec-2012
For unlisted companies, there are no general
restrictions on the purchase or sale by a director of a company's shares and
other securities.
For
listed companies, there are restrictions on transactions in shares and
securities by a director, to prevent insider trading and to ensure transparency
of major shareholdings in Euronext Amsterdam listed companies. The restrictions
primarily (section 5, Wft):
· Restrict trading with insider knowledge and trade
sensitive information.
· Impose heavier reporting duties on shareholdings.
Secondary
legislation determines, among other things, temporary trading restrictions.
UK (England and Wales)
Law stated as at 01-Apr-2011
The FSA's Listing Principles state that a listed
company must communicate information to holders and potential holders of its
shares in such a way as to avoid the creation or continuation of a false
market. This general principle is reflected in more detail in the FSA's
Disclosure and Transparency Rules applicable to all listed companies, which
require a company to notify the market as soon as possible of any inside
information concerning the company. AIM companies are under a similar
obligation under the AIM Rules.
If
a director is "knowingly concerned" in a breach by a company, the FSA
can fine the director an unlimited sum. A director who is innocently unaware of
the company's breach of these complicated rules may escape liability, but may
still be knowingly concerned in a breach of the simpler Listing Principles
which require a listed company to take all reasonable steps to both:
· Enable its directors to understand their
responsibilities and obligations.
· Establish and maintain adequate systems, procedures
and controls to enable the company to comply with its obligations.
In
addition to these obligations, there are many requirements for information to
be included in a company's annual report and accounts. A Listing Principle also
requires companies to deal with the FSA in an open and co-operative way.
United States
Law stated as at 01-Dec-2012
Generally, there are no restrictions on the purchase
or sale of securities by a director of a public corporation, other than:
· Restrictions in relation to insider trading. A
director cannot trade in corporation shares if he possesses material non-public
information about the corporation. In addition, corporations usually have
policies that regulate trading by officers and directors.
· Restrictions on trading during certain black-out
periods tied to the corporation’s pension fund.
· Restrictions on public resale of restricted and
control securities in accordance with Rule 144 under the US federal securities
laws. Rule 144 allows public resale of restricted and control securities if
certain conditions are met, which may include a holding period and a limitation
on the volume of securities to be sold.
Directors
must disclose their holdings of shares and share options to the public, along
with any transactions that result in a change in their holdings (§16, 1934
Act). In addition, when a director acquires more than 5% of the
corporation’s shares, certain additional disclosures must be made (§§13(d)
and (g), 1934 Act). As noted above, the related pension disclosure rules
may also require additional disclosure.
Company meetings
23. Does a company have to hold an annual
shareholders' meeting? If so, when? What issues must be discussed and approved?
France
Law stated as at 01-Apr-2011
An ordinary shareholders' meeting must take place at
least once per year, within six months of the end of the financial year, for:
· The approval of the last fiscal year accounts.
· The allocation of profits and calculation of the
dividend.
The
ordinary shareholders' meeting is also in charge of:
· The appointment, replacement and/or dismissal of
directors.
· The approval of any related-party agreement.
· The calculation of the remuneration allocated to the
board.
A
criminal penalty of six months' imprisonment or a EUR9,000 fine may be incurred
by the chairman or board members if no meeting is convened within the six-month
period.
Germany
Law stated as at 01-Apr-2011
AGs. An
AG must hold an annual shareholders' meeting at the latest within the first
eight months of the fiscal year. The annual general meeting has the following
typical agenda items (to be approved by shareholders' resolutions):
· Election of members of the supervisory board and
external auditors.
· Distribution of profits.
· Discharge of the acts of the management and
supervisory board members.
· Changes in the articles of association.
· Capital increases or decreases, statutory mergers or
transformations, the issuance of convertible bonds and the authorisation to
purchase own shares.
GmbH. A GmbH must hold an annual shareholders' meeting.
Depending on the size of the company, a shareholders' meeting must be held
within the first eight to eleven months of the fiscal year. Several
shareholders' resolutions are required, including in relation to:
· Changes in the articles of association.
· Capital increases and decreases.
· Approval of the annual financial statements and
distribution of profits.
· Appointment and removal of the managing directors as
well as formal approval of their conduct of the business.
India
Law stated as at 01-Apr-2011
A company must hold an annual general meeting (AGM)
within six months from the date of close of a company' financial year. At this
meeting the shareholders must:
· Adopt the financial statements, the directors' report
and the auditors' report.
· Appoint the auditors.
If
a director has been appointed between two AGMs, his appointment must be
confirmed by the shareholders at the AGM.
The Netherlands
Law stated as at 01-Dec-2012
The management board and the supervisory board must
provide information about the company at the request of a general meeting,
unless this disclosure conflicts with the company's material interest.
There
are many circumstances in which the management board must disclose information
about the company to shareholders and third parties (including authorities).
For example, the works council, the Trade Registry, regulatory bodies and the
supervisory board. This will mainly be in specific situations, such as the
offer and issue of shares to the public, mergers, takeover bids (listed
companies) and when directors are removed and appointed.
Managing
directors of listed companies must disclose additional information based on,
among other things, the Market Rules. For example, the Market Rules state that
a listed company must publicise a fact or event that may have a significant
influence on the price of its shares. Managing directors are responsible to
publicise on the listed company's website the request made to relevant
institutions to provide the company with information on the identity and
shareholdings of its shareholders (this will apply only after the introduction
of the Amendment Management and Supervision) (Introduction of the Amendment
Corporate Governance). Listed companies already have the obligation to
publish the number of issued shares and voting rights on their website as per
the convocation date (annual general meeting date).
If
the company itself is a shareholder of listed companies, participations
exceeding certain thresholds need to be notified to public registers.
UK (England and Wales)
Law stated as at 01-Apr-2011
A public company must hold an annual general meeting
of its shareholders within six months of the end of its financial year. Listed
companies must publish their annual report and accounts within four months of
the year end and, therefore, usually call an AGM in that period.
The
Companies Act 2006 does not require a private company to hold an AGM, although
it can, and its articles may require it to do so.
The
Companies Act 2006 requires the directors of a public company to lay before the
company in general meeting copies of its annual accounts and reports. There is
no requirement for shareholders to approve the accounts but usually a
resolution is proposed for them to be received.
Other
business at an AGM commonly includes:
· Declaration of any dividend proposed by the board.
· Appointment of the auditors and the authorisation for
the board to agree their fees.
· The election of retiring directors.
· Authority to the directors to allot new shares in the
company.
· The disapplication of pre-emption rights for existing
shareholders on the issue of new shares.
· Authorising the company to buy its own shares.
· Approval of the directors' remuneration report.
· Authority for shareholder meetings, other than an AGM,
to be called on 14 clear days' notice.
Other
business may be added as necessary, and resolutions can be proposed by at least
100 shareholders with a certain amount of share capital or shareholders holding
at least 5% of the votes.
United States
Law stated as at 01-Dec-2012
Directors generally do not disclose information about
the company directly to shareholders, the public or regulatory bodies. These
disclosures are made by the executive officers of the company and are often
reviewed by the directors before the disclosure. The directors are signatories
to certain documents filed with the SEC, including the company’s annual report
on Form 10-K.
24. Can shareholders call a meeting or propose a
specific resolution for a meeting? If so, what level of shareholding is
required to do this?
France
Law stated as at 01-Apr-2011
In principle, the shareholders' meeting is called by
the board. A general meeting can also be convened by a representative appointed
by the court at the request of one or several shareholders representing at
least 5% of the share capital.
In
listed companies, a shareholders' meeting can also be convened by shareholders
owning a majority of the capital or voting rights after a public takeover bid
or the sale of a controlling interest.
The
shareholders can propose specific resolutions to the meeting provided they own
5% of the share capital if the total share capital is less than EUR750,000 or a
lesser percentage if the capital is greater.
Germany
Law stated as at 01-Apr-2011
The management board must call a shareholders' meeting
once they have received a request in writing from shareholders holding at least
5% of the company's issued share capital, stating the purpose and the reasons
of such meeting. The articles of association may provide that shareholders
holding a lower proportion of the company's shares have the right to demand a
shareholders' meeting.
Similarly,
shareholders whose shares amount in the aggregate to not less than 5% of the
company's share capital or the pro rata nominal value of EUR500,000 can demand
that items be put on the agenda for resolution by the shareholders' meeting.
India
Law stated as at 01-Apr-2011
The board must call a shareholders meeting if it is
requested by members whose shareholding is equal to or exceeds 10% of the
company's paid-up share capital. The shareholders can propose the resolutions
they intend to pass at the shareholders meeting provided that if there are two
or more distinct matters, each proposed resolution must be supported by
shareholders whose combined shareholding is equal to or exceeds 10% of the
company's paid-up share capital.
The Netherlands
Law stated as at 01-Dec-2012
At least one general meeting of a public company must
be held within six months from the end of a company's financial year, unless
the articles provide for it to be held within a shorter period after the end of
the financial year.
The
shareholders of a private company must, at least once a year, either meet in a
general meeting or resolve outside the general meeting.
The
general meeting usually adopts the annual accounts in this meeting, but it is
not required.
To
enable the supervisory board to exercise its supervisory role, it is
recommended that the management board and the supervisory board meet on a
regular basis. There is no minimum number of meetings required.
UK (England and Wales)
Law stated as at 01-Apr-2011
Directors can be requested to convene a general
meeting of shareholders if enough of them holding at least one-tenth of the
paid-up voting share capital require it (the number is reduced to one-twentieth
in certain circumstances). The directors then have 21 days to send out notice
of the meeting which must be held within 28 days of the notice being sent.
Failing that, the shareholders can go ahead and convene the meeting themselves.
The shareholders' request must state the general nature of the business they
want to consider at the meeting and may set out a resolution they want to move.
United States
Law stated as at 01-Dec-2012
All public companies must hold an AGM. Under Delaware
law for example, unless directors are elected by written consent an AGM must be
held for the election of directors (§211(b), Delaware General
Corporation Law). Many large US public companies use the calendar year as
their fiscal year and hold their AGMs in the spring. Matters typically
submitted to a vote of shareholders (some of which are mandatory) include:
· The election of directors.
· Approval of stock compensation plans.
· Changes to the certificate of incorporation.
· Ratification of the selection of the company’s
independent accounting firm.
· Company and shareholder sponsored corporate governance
proposals, such as say-on-pay proposals.
In
order to solicit proxies at an AGM, the 1934 Act requires a corporation to
provide information to shareholders before the annual shareholders’ meeting in
the form of a proxy statement.
Minority shareholder action
25. What action, if any, can a minority shareholder
take if it believes the company is being mismanaged and what level of
shareholding is required to do this?
France
Law stated as at 01-Apr-2011
· Submit questions in writing to the board, to be
answered during the next shareholders' meeting.
· At any time, if holding alone or jointly at least 5%
of the shares, submit questions in writing to the chairman of the board or the
management board on the company's management transactions. If no response is
given within one month or if the response is unsatisfactory, the shareholder(s)
can request a summary judgment ordering the appointment of an expert entrusted
with drawing up a report on the relevant management transactions (management
expertise procedure).
· One or more shareholders, or an association of
shareholders (meeting certain requirements), representing at least 5% of the
share capital can submit written questions to the chairman of the board of
directors or the management twice a year on any matter that may threaten the
continuing operations of the company. The reply must be sent to the auditors.
· Bring an action against the managers in the event of
criminal law offences (for example, misuse of corporate assets).
· Seek indemnification from directors on behalf of the
company through derivative legal action. If so, any damages awarded by the
court are paid to the company itself.
· Bring individual legal action against the directors,
when having suffered a loss distinct from that suffered by the company.
· In the event of serious difficulties preventing normal
operations of the company, ask the courts to appoint an interim administrator
to temporarily carry out the management of the company's business.
· Ask the courts to order a preventative pre-trial
expertise procedure (expertise in futurum) to gather or preserve factual
evidence with a view to future legal proceedings. These preventive expertise
measures are available to any shareholder, with no minimum ownership
requirements.
Germany
Law stated as at 01-Apr-2011
Irrespective of the level of shareholding, every
shareholder has the right to ask detailed questions in the shareholders'
meeting and to challenge shareholder resolutions by contestation action in
court on the basis of alleged violations of the law or the articles of
association.
In
addition, the shareholders' meeting can, by simple majority, appoint special
auditors for the examination of matters relating to the management of the
company's business. If the majority rejects the appointment, shareholders
holding at least 1% of the issued share capital or a pro rata nominal value of
at least EUR100,000 may ask the court to appoint a special auditor.
The
shareholders' meeting also can, by simple majority, decide that claims of the
company for compensation of damages against members of the management or
supervisory board will be asserted either by the company itself or a special
representative acting on behalf of the company. Similarly, shareholders holding
at least 10% of the issued share capital or a pro rata nominal value of EUR1
million can request the court to appoint a special representative. Shareholders
holding at least 1% of the issued share capital or a pro rata nominal value of
at least EUR100,000 can ask for leave of court to bring a derivative action on
behalf of the company against directors for damages.
India
Law stated as at 01-Apr-2011
A minority shareholder can file an application before
the Company Law Board in the following circumstances:
· The company's affairs are being conducted in a manner
which is prejudicial to the public interest.
· The company's affairs are oppressive to a member or
members of the company.
· There has been a material change in the management or
control of the company, whether through alteration in its board or in the
ownership of the company's shares, or if it has no share capital, in its
membership, or in any other manner whatsoever, provided that:
o is not a change brought about by, or in the interests
of, any creditors including debenture holders, or any class of shareholders of
the company; and
o by reason of the change, it is likely that the
company's affairs will be conducted in a manner prejudicial to public interest
or to the interests of the company.
· Not less than 100 members.
· Not less than 10% of the total number of members.
· Any member(s) holding less than 10% of the total
paid-up share capital of a company, provided that the shares of such member(s)
are fully paid up.
The Netherlands
Law stated as at 01-Dec-2012
The management board and the supervisory board can
call general meetings, but the articles can also authorise others, such as
individual managing directors or individual shareholders.
One
or more shareholders or holders of depositary receipts together holding at
least 10% of the issued share capital (or a lower percentage if stated by the
articles) of a public company can, on application, be authorised by the interim
provisions judge (voorzieningenrechter) of a court to convene a general
meeting.
One
or more shareholders or holders of attendance rights together representing at
least 1% of the issued capital (or a lower percentage if stated by the
articles) of private companies, can order the management board and supervisory
board to convene a general meeting and to address certain topics. If the boards
do not convene the meeting without due grounds, the shareholders can apply to
the interim provisions judge to convene a meeting.
If
the management board or supervisory board have failed to call a meeting within
six months from the end of the company's financial year (see Question 24), one or more shareholders holding at least 10% of
the issued share capital (or less if the articles state otherwise) can apply to
the interim provisions judge of a court for authorisation to call a general
meeting.
One
or more shareholders together holding at least 1% of the issued share capital
can propose specific resolutions, if the proposal does not conflict with the
company's material interests and due notice is given to the other shareholders.
This threshold will change to 3% for listed companies with the introduction of
the Amendment Corporate Governance. For listed companies, shareholders that
individually or jointly own shares with a market value of at least EUR50
million are also entitled to make proposals for the general meeting's agenda.
The articles may differ and can grant more rights to shareholders on this
matter. The rights of shareholders and exercise of these rights should be
reported in a governance statement in the annual accounts.
UK (England and Wales)
Law stated as at 01-Apr-2011
Any shareholder in a UK company can apply to the court
on the basis that the company's affairs are being conducted in a manner that is
unfairly prejudicial either to shareholders generally or to a number of
shareholders, of whom the applicant is one. There is no minimum shareholding
required to bring this action. The court has wide-ranging powers if it finds in
favour of the shareholder, including requiring the purchase of the applicant's
shares or the sale of other shares to him.
United States
Law stated as at 01-Dec-2012
Generally, state statutes provide that shareholders
can call special meetings if the corporation’s organisational documents allow
them to do so. It is becoming increasingly common for activist shareholders to
call for a reduction in the percentage of shareholder votes required to call a
special meeting. With proper notice, shareholders can generally make proposals
at annual and special shareholders’ meetings, but the corporation is not
required to accept certain proposals.
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