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Control of the company 305

preference shareholders is usually expressed as a certain rate per annum. For example, the
articles might state that the preference shares are to receive interest at 8 per cent per annum.
A shareholder with 1,000 £1 preference shares would therefore receive a yearly dividend of
£80, if a dividend is declared. Preference shareholders, like ordinary shareholders, have no
right to a dividend. However, if a dividend is not paid to preference shareholders in any
particular year then all dividends not paid must be paid before ordinary shareholders can
receive any dividend. Unless it is agreed otherwise, preference shares will carry the same
right to vote as ordinary shares. However, it is often agreed in the articles that preference
shares carry no right to vote. When a company is wound up the nominal value of the prefer-
ence shares is usually repaid in full before that of the ordinary shares is repaid at all. This
is an advantage where the company is insolvent, as preference shareholders are more likely
to get their capital returned. However, it is a disadvantage where a company is wound up
with large surplus assets. As the preference shares are repaid at face value, the preference
shareholders will have no right to share in these assets.

Example

X Co Ltd has two classes of shares: 1,000 preference shares and 1,000 ordinary shares.

Both types of shares have a nominal value of £1. X Co Ltd is wound up. After all costs of

winding up and outside creditors have been paid, the realised assets amount to £800. Each

preference share will be repaid at 80p in the pound. The ordinary shareholders will not be

repaid any of their capital. If the surplus assets had amounted to £101,000, the preference

shareholders would have had their capital repaid and would therefore have received £1 per

share. The ordinary shareholders would have shared in the surplus assets, each ordinary

shareholder receiving £1,000 per share.

Some companies issue non-voting shares. These shares carry no right to vote at company
meetings, but do allow the shareholders to receive a dividend, if one is declared, and to
share in surplus assets when the company is wound up.

Company meetings

Company resolutions are passed by the company members either at company meetings or,
in the case of private companies only, by means of a written resolution.
A public company must hold an Annual General Meeting(AGM) within six months of
the end of its financial year. A private company is not required to hold an AGM but may
nevertheless choose to do so.
The AGM of a public company gives the company members the chance to question the
way in which the company is being run. The directors would set the agenda for the AGM
and typically this would include laying the accounts before the members, the appointment
of the auditors and the presentation of the directors’ report. The directors’ report is signi-
ficant because it reports upon the general position of the company and because it sets out
what dividend, if any, the directors are recommending. Shareholders invest money in a
commercial company because they expect a dividend to be paid. This dividend can be paid
only out of company profits. It can also be paid only if the directors recommend that
it should be paid. The directors might instead recommend that profits be retained in the
company. Generally, the articles of most companies provide that the members would have
no power to increase the dividend which the directors recommend. They can approve the