Jersey Company Law Series: Who Makes Decisions?

KEY TAKEAWAYS

• Who makes decisions and how the affairs of a Jersey company are managed is dictated by a combination of the Jersey Company Law and the company's memorandum and articles

• Under the Law, certain corporate actions must be approved by shareholder resolution while the memorandum and articles may also require shareholder approval of specific actions

• Article 74 of the Law sets out the duties of directors when making decisions and should be considered when regarding the benefit of a decision to the company

The requirements regarding who makes decisions and how the affairs of a Jersey company are managed are dictated by a combination of the Companies (Jersey) Law 1991, as amended, (the "Law") and the memorandum and articles of association of the relevant company (the "M&A").

If there is a shareholders' agreement in place in respect of the relevant company (which would typically be the case in a joint venture scenario), the provisions of any such agreement will also need to be taken into account.

The general position

It will almost always be the case that the M&A (replicating the position under the Companies (Standard Table) (Jersey) Order 1992) will state that, generally, the business of a company shall be managed by the directors of such company, subject to any restrictions contained in the M&A and/or the Law.

Which decisions will require shareholder approval?

Under the Law, certain corporate actions must be approved by a special resolution of the shareholders, with the most common actions being:

• altering the M&A;

• changing the company name (unless other means for approving are provided for in the company’s M&A, eg approval by the directors);

• changing the status of the company;

• alterations to the share capital of the company (including a reduction of capital);

• varying the rights attached to a particular class of shares;

• approving a merger agreement; and

• winding up the company.

The M&A may also contain bespoke provisions requiring the directors to seek shareholder approval in respect of specific actions, such as issuing or transferring shares on a non pre-emptive basis, for example. Such bespoke provisions are typically more extensive in companies with multiple shareholders.

What is the threshold for a special resolution?

A special resolution must be passed by a majority of not less than two-thirds of shareholders at general meeting, although the M&A may increase this threshold.

Special resolutions can also be passed by a written resolution signed by such majority of shareholders as may be stipulated in the M&A (which cannot be less than two-thirds), save for a resolution to remove an auditor

A (very brief) note on the duties of directors when making decisions

Although directors' duties are not the subject of this guide, it is worth noting that Article 74 of the Law requires each director, when exercising their powers and discharging their duties, to act honestly and in good faith with a view to the best interests of the company and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

What if there are concerns regarding the benefit of a decision to the company?

An act or omission of a director will not be treated as being a breach of Article 74 of the Law if:

• the relevant act or omission is authorised or ratified by the shareholders of the company (either unanimously or by such relevant majority as may be stipulated by the M&A); and

• after the act or omission, the company will in a position to discharge is liabilities as they fall due thereafter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.