What is the significance of meeting a shareholder quorum?
When companies hold members’ meetings, they must meet the shareholder quorum in each of their meetings. The quorum sets out the minimum number of present shareholders required to hold the meeting. The requirement for a quorum helps protect the rights of shareholders. The shareholder quorum is just one of many requirements for a valid members’ meeting.
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Members’ meetings include general meetings (also known as extraordinary general meetings) and annual general meetings.
These meetings are an important part of the running of a company since they are one of the main settings within which companies can make decisions. A company can make decisions through its members. Companies make decisions through their members when they vote to pass resolutions at meetings.
Many of a company’s actions require the passing of a members’ resolution. For example:
- removing a director
- replacing all directors at spill meetings
- approving transactions that give financial benefits to related parties
- approving retirement benefits for directors and executives
- carrying out certain share buy backs
Beyond the situations set out in the Corporations Act 2001 (Cth), the company constitution may specify actions that require shareholder approval through resolutions.
Beyond company decision making, members’ meetings also provide a setting for the directors to pass on information to the shareholders. Moreover, members’ meetings give shareholders an opportunity to hold the management of the company accountable.
Given these points, the significance of meeting a shareholder quorum lies in the fact that, without a quorum, the company cannot hold members’ meetings, which are important to the operation of the company.
What requirements do companies have?
Section 249T of the Corporations Act 2001 (Cth) has a replaceable rule that sets the quorum for members’ meetings at 2 members. However, section 249B provides that companies with only 1 member can pass resolutions with that member alone.
According to the replaceable rule, meetings must comply with the quorum requirement “at all times during the meeting.” In essence, meetings must have two members present at all times. Calculations of a quorum include members who participate via a proxy. Companies must adjourn meetings that do not meet the quorum within 30 minutes of the scheduled starting time. Furthermore, if the resumed meeting does not meet the quorum within 30 minutes, the company must dissolve the meeting.
It is important to note that this quorum requirement is a replaceable rule. Since it is a replaceable rule, companies may displace it by their constitution. However, this does not allow companies to bypass quorum requirements spontaneously. Modifying the constitution requires a members’ meeting where the members pass a special resolution of 75% of the present voting members. Companies that do not want to use the replaceable rule should replace the rule from the beginning.
Companies seeking to set a different quorum for themselves should consult a corporate lawyer. Setting a quorum involves different considerations depending on the context of the company. For example, a smaller company may find a certain quorum to be so high that it becomes difficult for them to properly convene a meeting. When setting the quorum, it is important to remember that members should not be expected to attend every meeting. Typically, members decide whether they want to attend a meeting after receiving notice of the details of the meeting.
What are the consequences of breaching quorum requirements?
To conclude, since any company’s quorum requirements are either part of the replaceable rules or the constitution, a breach of the requirements do not constitute a breach of the Corporations Act 2001 (Cth). However, companies are not able to pass valid resolutions at meetings that do not meet quorum.
