Chapter 10: Corporate administration

Chapter learning objectives

Upon completion of this chapter you will be able to:

• discuss the procedure relating to, and the duties and powers of, a company secretary
• discuss the procedure relating to, and the duties and powers of, the company auditors
• distinguish between types of meetings: ordinary general meetings and annual general meetings
• explain the procedure for calling such meetings
• detail the procedure for conducting company meetings
• distinguish between types of resolutions: ordinary, special, and written.

1 Company secretary

Introduction

Every public company must have a qualified company secretary.Private companies may choose to appoint a secretary, but are not obligedto do so.

The secretary is usually appointed and removed by the directors.

Qualifications

The secretary of a public company must be qualified under one of the following conditions:

• must have held the office of company secretary in a public limited company (plc) for at least three out of the preceding five years.
• They must be a solicitor, barrister or member of ICAEW, ACCA, CIMA, ICSA, CIPFA.
• They must appear to be capable of discharging the functions by virtue of another position or qualification.

Duties

There are no statutory duties, therefore the duties will bewhatever the board decides. The company secretary will typicallyundertake the following:

• check that documentation is in order
• make returns to the Registrar
• keep registers
• give notice and keep minutes of meetings
• countersign documents to which the company seal is affixed.

Powers

The company secretary has the authority to bind the company in contract. There are two types of authority:

• actual authority – this is the authority delegated by the board
• apparent authority regarding contracts of an administrative nature.

Panorama Developments (Guildford) v Fidelis Furnishing Fabrics (1971)

The company secretary ordered services for his own, not thecompany's, use. It was held that the contract was binding on the companyas the contract was of the sort that a company secretary should be ableto carry out.

'He is no longer a mere clerk…He is entitled to sign contractsconnected with the administrative side of a company's affairs, such asemploying staff, and ordering cars, and so forth.'

However, two other cases indicate that there is a limit to the company secretary's authority:

• It does not extend to making commercial as opposed to administrative contracts: Re Maidstone Building Provisions (1971).
• It does not usually carry the authority to borrow money: Re Cleadon Trust Ltd (1938).

Test your understanding 1

In relation to the company secretary, which one of the following statements is correct?

ABoth a public and a private company must have a company secretary

BThe company secretary is appointed by the members.

CIn a public company the company secretary must be qualified

DCompany secretaries can bind companies in a contract if acting outside their actual or apparent authority

2 The auditor

Qualifications

The auditor must be either:

• a member of recognised supervisory body (ICAEW, ICAS or ACCA) and eligible under their rules, or
• qualified by a similar overseas body and authorised by the Department for Business, Innovation and Skills.

The auditor must not be:

• an officer or employee of the company
• the partner of an officer or employee of the company.

Appointment – private companies

The auditors should generally be appointed by the shareholders byordinary resolution. However, the directors can appoint the company'sfirst auditor and fill casual vacancies.

An auditor will automatically be deemed to be re-appointed at the end of his term unless:

• he was appointed by the directors
• the company's articles require actual re-appointment
• members with at least 5% of the voting rights have given notice to the company by the end of the company's financial year
• there has been a resolution that the auditor should not be reappointed or
• the directors decide that they do not need auditors for the following year.

A company must inform the Secretary of State if it has failed toappoint an auditor within 28 days of circulating its accounts. TheSecretary of State has power to appoint an auditor in thosecircumstances.

Appointment – public companies

Auditors are generally appointed by the shareholders by ordinaryresolution in the general meeting at which the company's accounts arelaid. However, the directors can appoint the company's first auditor andfill casual vacancies.

An auditor of a public company holds office until the end of themeeting at which the accounts are laid, unless re-appointed. Where thereis a change of auditor, the term of office of the incoming auditor doesnot begin before the end of the previous auditor's term. This meansthat a new auditor's term will usually begin immediately after the endof the meeting at which the accounts are laid.

A company must inform the Secretary of State if it fails to appointan auditor at the general meeting considering the accounts. TheSecretary of State has power to appoint an auditor in thosecircumstances.

Audit exemptions for small companies

For financial years starting on or after 6 April 2008, to qualify for total audit exemption a company must:

• have a turnover not more than £6.5m
• have gross assets not more than £3.26m.

However, these exemptions do not apply to public companies, bankingor insurance companies or those subject to a statute-based regulatoryregime.

Resignation

An auditor can resign at any time by giving written notice to the company: s516 CA06.

The resignation is effective from the date it is delivered to thecompany's registered office, or from a specified later date. To beeffective it must be accompanied by the statement required by s519 (seebelow).

A company whose auditor resigns is required to inform the registrar: s517 CA06. Failure to do so is an offence.

Under s518 CA06, an auditor who resigns can require the directorsto convene a general meeting to consider his explanation of thecircumstances that led to his resignation. The directors have 21 days tosend out a notice convening a meeting and it must be held within 28days of the notice.

Removal

An auditor can be removed by ordinary resolution: s510 CA06. Theresolution must be passed at a general meeting; a written resolutioncannot be used to remove an auditor.

Special notice of the resolution is needed (i.e. 28 days). Thecompany must send a copy of the resolution to the auditor and he has theright to make a statement of his case. The company then has tocirculate his statement to the shareholders. However, if time does notallow for circulation, the statement can be read out at the meeting.

Notice of the resolution removing the auditor must be sent to the Registrar within 14 days.

Statement by departing auditor

Under s519 CA06, a departing auditor is required to make a statement and to deposit it with the company:

• For quoted companies, this statement must explain the circumstances surrounding his departure.
• For other public companies and all private companies, it should explain the circumstances surrounding his departure, unless the auditor thinks that there is no need for them to be brought to the attention of the shareholders or creditors. In that case, the statement should state that there are no such circumstances.

Unless there are no circumstances to be brought to the attention ofshareholders and creditors, the company is obliged to circulate thestatement to everyone to whom it needs to send the annual accounts. Itmust do this within 14 days of receiving it.

If the company does not want to circulate the statement, it canapply to the court for an order that it need not circulate thestatement.

Duties

The auditor has a statutory duty to report to the members on whether the accounts:

• give a true and fair view and
• have been properly prepared in accordance with the Companies Act and the relevant financial reporting framework.

The auditor must investigate and form an opinion as to whether:

• proper books of accounting records have been kept
• proper returns adequate for their audit have been received from branches not visited by them
• the accounts are in agreement with the books of account and returns
• the information given in the directors' report is consistent with the accounts.

If the auditor is dissatisfied with the findings of his investigation he must qualify the audit report.

The report (whether qualified or unqualified) must state the nameof the audit firm, or if an individual has been appointed as auditor,his name. Where the auditor is a firm, the senior statutory auditor mustsign the report in his own name on behalf of the firm.

Under s507 CA06 it is a criminal offence to knowingly or recklesslycause an audit report to include anything that is misleading, false ordeceptive, or to omit a required statement of a problem with theaccounts or audit. The offence carries an unlimited fine.

Companies Act liability for auditor's report and audited accounts

S507 of the Companies Act 2006 (CA06) makes it an offence for anauditor to recklessly cause an auditor's report to contain any matterthat is misleading or false to a material extent. The offence ispunishable by a fine.

s532 CA06 makes any provision exempting auditors from orindemnifying them against liability for negligence void in relation toproviding audited accounts.

s534 CA06 provides that a company may enter into a liabilitylimitation agreement with an auditor, limiting his liability fornegligence (among other things) in the course of auditing accounts.

Powers

The auditor has the right to:

• receive notice of, attend and speak at general meetings
• access the books at all times
• require such information and explanations from the company's officers and employees as the auditor thinks fit for the performance of his duties (it is a criminal offence to fail to provide the information requested, unless it was not reasonably practicable to do so)

Test your understanding 2

If a company's auditor is to be removed before his term ofoffice expires, what type of resolution is required and what period ofnotice must be given?

3 Meetings

Annual general meeting (AGM)

General meetings (GM)

Class meetings

4 Calling a meeting

Who can call a meeting?

Notice

5 Resolutions

Resolutions are the way in which companies take decisions. They arevoted on by the members in person or by proxy. There are three types ofresolution:

Test your understanding 3

Fill in the gaps:

(1)An annual general meeting requires ……..days’ notice.

(2)Members may require the directors to call a GM if they hold at least ….% of the paid up voting capital

(3)Special notice requires …. days’ notice.

(4)A special resolution must be filed with the Registrar within …. days.

6 Procedure at meetings

A quorumis the minimum number of members that needs to be present at a meetingin order to validate business. It is generally two persons; members orproxies: s318 CA06.

Voting is by a show of hands initially, unless a poll is demanded. A show of hands means one member one vote, irrespective of the number of shares held.

A poll may be demanded by members holding at least 10% ofthe total voting rights (or by not fewer than 5 members having the rightto vote on the resolution).A poll means one vote per share. The resultof a poll replaces the result of the previous show of hands. Quotedcompanies must publish the results of polls on their website: s341 CA06.

Members have a statutory right under s 324 CA06 to appoint one or more persons as their 'proxy'. A proxy can attend meetings, vote and speak on behalf of the member for whom he is acting.

Chapter summary

Test your understanding answers

Test your understanding 1

Test your understanding 2

Removal of an auditor before his term of office expires requires anordinary resolution of which 28 days' special notice has been given.

Test your understanding 3

(1)An annual general meeting requires 21 days’ notice.

(2)Members may require the directors to call a GM if they hold at least 5% of the paid up voting capital

(3)Special notice requires 28 days’ notice.

(4)A special resolution must be filed with the Registrar within 15 days.

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