From set up to shareholders- understand your legal obligations to ensure success.
Part 5 of 5: getting the most out of your directors
In this, fifth, and final, article of the series, McCullough Robertson’s start-up expert, Partner Ben Wood shares his insights into building a board of directors and facilitating director and shareholder meetings.
Director appointments
Initially, a company should decide a minimum and maximum number of directors that can be appointed (crowd-sourced funding (CSF) companies are required to have at least two directors). The company can choose how the board of directors is made up and who may make appointments. For a CSF company, typically in the earlier stages, the founders of the company would likely wish to retain the ability to appoint at least one director so they have indirect input into decisions made by the company board. The company may also like to give shareholders who hold a particular percentage of the share capital the right to appoint a director (or certain investors may require it).
Where provisions are made for appointing a director, there should be correlating provisions for their removal. Common examples are: where a shareholder’s holding drops below the percentage that allowed them to initially appoint a director; where an appointing shareholder is forced to transfer their shares due to a default notice; or where there is change in the control of a company that holds shares in the CSF company.
Another important consideration is the requirement of the CSF laws that a majority of a company’s directors ordinarily reside in Australia.
Quorums
A quorum is a designated number of directors or shareholders required to hold a valid meeting.
In the case of a shareholder’s meeting, a company may want to designate that not only a certain number of shareholders are required to be present, but also those shareholders that hold a particular percentage of votes able to be cast at a meeting. For example, it may be that your quorum is two shareholders that hold 10% of the voting shares in the company.
In the case of a director’s meeting, a company may require that at least two directors are present at the meeting, one of whom is appointed by the founders. Directors are required to act in the best interest of the company. If that interest aligns with the best interest of the shareholders that appointed them, those shareholders effectively have someone representing their interests in all board decisions.
Interested in undertaking a CSF capital raise?
While there are certainly some practical hurdles to overcome, we believe that the new CSF laws are supporting emerging companies and start-ups, by providing a further avenue for raising capital.
We have worked on several bespoke constitutions that have balanced the interests of founders, existing investors, and new CSF shareholders.
If you are considering raising capital for your business and think that equity crowd funding is for you, please contact Ben Wood, Partner, who would be happy to assist further.