Rights and equitable treatment of shareholders

Shareholder powers

What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?

Generally, the by-laws of a company deal with the appointment and removal of directors.

The directors of a company are appointed at the first general meeting of a company, subject to the by-laws of the company, and thereafter directors are elected or appointed at each annual general meeting (section 90 of the Companies Act).

The by-laws of a company will normally set out the circumstances in which a director may be removed, although the Companies Act also provides certain protections and procedural requirements for the removal of directors. Shareholders of a company may remove a director by requesting a special general meeting be convened and holding a vote to remove any such director.

Shareholder decisions

What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?

The Companies Act provides that shareholders retain control over any change in the name of a company, appointment of directors (subject to any restrictions in the company’s by-laws), a change to the memorandum of association or by-laws, and any increase or decrease in the authorised share capital of the company.

The shareholders also retain the right to waive the requirement to have an annual audit or annual general meeting either for a fixed period of time or until such time as the shareholders request one (indefinitely), and approve any amalgamation or merger. Shareholders are also required to approve any loan by the company to any director of the company.

Disproportionate voting rights

To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?

Subject to question 4 above, shareholder voting rights may be restricted by way of a shareholders’ agreement.

Shareholders’ meetings and voting

Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?

Generally, only those shareholders who have voting rights attached to their shares are given notice of a general meeting and allowed to attend; however, this is subject to the by-laws of the company or any shareholders’ agreement that may exist. Any shareholder may appoint a proxy to vote on their behalf at a general meeting.

No physical presence by a shareholder, or (in the case of a corporate shareholder) their representative, is required at a general meeting to be considered present and participating. Section 75A of the Companies Act provides that unless the by-laws of a company otherwise provide, a meeting of members may be held by means of telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting will constitute presence in person at the meeting.

In the absence of a meeting of the shareholders, the shareholders may resolve to approve actions of the company by way of a unanimous written resolution, which requires approval by all shareholders of the company.

Shareholders and the board

Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?

The Companies Act provides that any shareholders may request that the directors of a company convene a special general meeting, provided that the shareholders requesting the special general meeting at the time of the deposit of the request hold not less than one-tenth of the paid-up capital of the company and carry the right to vote at a general meeting of the company (Requisition). Any such Requisition by a shareholder must state the purpose of the meeting, be signed by the requisitionists and deposited at the registered office of the company.

The Companies Act also includes the power for shareholders to requisition a company to give to members of the company notice of any resolution that may properly be moved and is intended to be moved at a general meeting and to circulate to members any statement of not more than 1,000 words with respect to the matter referred to in any proposed resolution or the business to be dealt with at that meeting.

Controlling shareholders’ duties

Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?

In Bermuda there is no express code of conduct for shareholders. In practice, a company’s by-laws, together with the Companies Act and any shareholders’ agreement (as applicable), provide restrictions and directions as to the powers and discretion of any shareholder. However, there are generally not any fiduciary duties owed by controlling shareholders beyond voting in good faith.

Shareholder responsibility

Can shareholders ever be held responsible for the acts or omissions of the company?

A company limited by shares has separate legal personality from that of its shareholders. The liability of a shareholder for the company’s liabilities is generally limited to the amount, if any, that remains unpaid on that shareholder’s shares.