Companies Act 2006 – Section 254
OVERSEAS BRANCH REGISTERS
254. This Chapter restates the 1985 Act’s provisions (section 362 and Parts I and II of
Schedule 14) regarding overseas branch registers. It enables companies in specified
circumstances to keep in a specified country or territory a register of those members resident
in that country or territory. An overseas branch register is deemed to be part of the company’s
register of members. It differs from the provisions of the 1985 Act in two respects.
• First, rather than providing for an Order in Council, section 129(3) provides the
Secretary of State with power to make regulations as to the circumstances in which a
company is to be regarded as keeping an overseas branch register.
• Second, section 131 provides power to modify the provisions of Chapter 2 of this Part
(relating to the company’s register of members) in their application to overseas branch
registers.
CHAPTER 4: PROHIBITION ON SUBSIDIARY BEING MEMBER OF ITS HOLDING COMPANY
255. This Chapter is a restatement of the provisions of section 23 of the 1985 Act and
Schedule 2 to that Act as it applies for the purposes of that section. Unless in circumstances
covered by an exception, a company cannot be a member of its own holding company. There
is no change of substance to the provision in the 1985 Act.
PART 9: EXERCISE OF MEMBERS’ RIGHTS
256. The CLR considered the rights of persons other than the registered shareholders,
presenting their recommendations in Chapter 7 of the ‘Final Report’. The new provisions in
Part 9 have been developed with these recommendations in mind and are designed to make it
easier for investors to exercise their governance rights fully and responsibly. Nowadays when
investors, whether major institutional investors or retail investors, buy shares in a listed
company they are increasingly likely to hold their shares through an intermediary or a chain
of intermediaries. This means that it is an intermediary’s name that appears on the company’s
register of members. As a result investors typically have to rely on contractual arrangements
with the intermediaries both to obtain information from the company and also to give any
instructions they wish about how shares should be voted.
257. This Part of the Act introduces new provisions dealing with the ability of indirect
investors to exercise governance rights. The first section in the Part removes any doubts as to
the ability of companies to make provision in their articles for others to enjoy and exercise
membership rights and enables indirect investors to enjoy information rights via the
registered member. The next group of sections provides that indirect investors in traded
companies can be nominated by the registered member to receive company documents and
information. It is up to the registered member, typically a broker, to decide whether to
nominate or not. The last two sections in the Part make it easier for registered members to
exercise rights in different ways to reflect the underlying holdings and allow indirect
investors to participate in, for example, requests for resolutions at the AGM. The provisions
of this Part should be looked at together with sections 324 to 331 on proxies in Part 13, which
enable the registered member to appoint indirect investors as proxies to exercise voting
rights.
258. An important principle to note is that the information rights and exercise of other
rights where shares are held on behalf of others can be initiated and enforced with the
company only by the registered member. This Part does not compel the registered member to
confer such rights on third parties. It will be for indirect investors, such as shareholders
holding through a nominee, to choose a nominee operator who offers such rights as part of
their service.
Effect of provisions in company’s articles
259. Section 145 protects arrangements through company articles to enfranchise indirect
investors and provides that where a company makes provision, through its articles, to extend
rights to those holding shares through intermediaries, the provision is legally effective in
relation to various statutory requirements.
Section 145: Effect of provisions of articles as to enjoyment of exercise of members’
rights
260. This section (subsection (1)) allows a company’s articles to enable a member to
identify another person or persons as entitled to enjoy or exercise all or any specified rights of
a member. The articles may specify that this entitlement can apply only to certain rights or to
all rights, except the right to transfer the shares. As subsection (4)(b) makes clear, the right to
transfer shares must remain, as under the 1985 Act, with the member whose name is on the
register.
261. Subsection (2) provides that where a company makes relevant provision in its articles,
all the relevant references in the Companies Acts to ‘member’ should be read as if the
reference to member was a reference to the person or persons nominated by the member.
Subsection (3) provides a non-exhaustive list of the provisions in question.
262. Subsection (4)(a) makes clear that non-members do not have direct enforceable rights
against the company. They should enforce their rights through the member whose name is on
the register and who has the right to enforce the articles.
Information rights
263. Sections 146 to 150 introduce new provisions enabling indirect investors to be
appointed by the registered member to receive information that is sent to members by the
company. These provisions apply only to companies traded on a regulated market. The
Secretary of State may extend or limit the classes of companies to which these provisions
apply through the power provided under section 151.
Section 146: Traded companies: nomination of persons to enjoy information rights
264. Subsections (1) and (2) provide new rights for members of companies whose shares
are traded on regulated markets to nominate those on whose behalf they hold shares to
receive information that is sent to members direct from the company and to exercise certain
rights.
265. Subsection (3) sets out what is meant by ‘information rights’, namely the right to
receive all communications that the company sends to members, the right to require copies of
accounts and reports (as in section 431 or 432), and the right to require hard copy versions of
documents (section 1145).
266. Subsection (4) refers to section 426, which allows under certain circumstances for
summary financial statements rather than full accounts to be sent out as part of the general
information. These must also be sent to nominated persons.
267. Subsection (5) provides that the company does not need to respond to a nomination
that specifies only certain information rights.
Section 147: Information rights: form in which copies to be provided
268. This section deals with the way in which information is to be provided to a nominated
person. Subsection (2) explains that if a nominated person wants communications to be in
hard copy, they must ask the member, providing a postal address, before the nomination is
made. If the member then passes this on to the company, under subsection (3) the nominated
person will have the right to receive hard copy communications.
Section 148: Termination or suspension of nomination
269. This section provides that a nomination will stop having effect on the request of the
nominated person or the member (subsection (2)), or on the death, bankruptcy or winding up
of the nominated person or the member (subsection (3)).
270. Subsection (5) explains that all nominations made by member will be suspended if
there are more nominations that the total number of shares, and subsection (6) makes similar
provision where there are different classes of shares.
Section 149: Information as to possible rights in relation to voting
271. This section requires the company, when sending a meeting notice to nominated
persons, to include a statement that the nominated person may have voting rights that he can
exercise through the person who nominated him.
Section 150: Information rights: status of rights
272. This section deals with the rights arising from a nomination under section 146, and in
particular provides that it is the member, rather than the nominated person, who can enforce
the rights against the company.
Section 151: Information rights: power to amend
273. This section gives a power for the Secretary of State to amend the provisions of
sections 146 to 150. The power allows for changes in the companies covered, the
circumstances in which nominations can be made and the rights conferred by nomination.
Effect of rights where shares held on behalf of others
274. Sections 152 and 153 enable indirect investors, via the registered member, to exercise
voting and requisition rights by making it easier for registered members to exercise rights in
different ways to reflect underlying holdings and by allowing those on whose behalf they
hold shares to participate in requisitions. These two sections apply to all companies.
Section 152: Exercise of rights where shares held on behalf of others: exercise in
different ways
275. This section provides that a member can choose to split his holding and exercise
rights attached to shares in different ways. This is to accommodate members who hold shares
on behalf of more than one person, each of whom may want to exercise rights attaching to
their shares in different ways. So, for example, it enables votes to be cast in different ways.
Subsection (4) provides that if the member does not make it clear to the company in what
way he is exercising his rights the company can assume that all rights are being dealt with in
the same way.
Section 153: Exercise of rights where shares held on behalf of others: members’
requests
276. This section deals with four situations where the shareholder threshold required to
trigger a right is 100 shareholders holding £100 each on average of paid-up capital. Indirect
investors are able to count towards the total subject to certain conditions, intended to ensure
that only genuine indirect investors are allowed to count towards the total, that the same
shares cannot be used twice and that the indirect investor’s contractual arrangements with the
member allow the former to give voting instructions.