Companies Act Section 106

Companies Act, Section 106: Restriction on Voting Rights

Section 106 of the Companies Act addresses the restrictions on voting rights for members of a company. This section is designed to regulate when a member’s right to vote in a company meeting may be limited or restricted, based on specific conditions outlined in the company’s governing documents, known as the articles of association. The voting rights of members are a key aspect of their participation in the decision-making process within the company, and this section provides clarity on when those rights can be restricted, ensuring that only those who fulfill certain financial obligations can exercise voting power.

Subsection (1): Conditions for Restricting Voting Rights

1. Non-payment of Calls or Other Sums:

The first condition for restricting voting rights is that a member must have paid all sums that are currently payable to the company. These sums could include amounts due on shares, known as calls. If a member has not paid these amounts, the articles of the company may allow the company to restrict that member’s voting rights.

In other words, if a member has any outstanding financial obligations to the company, such as unpaid calls for shares or other sums due, they will not be allowed to vote in respect of the shares on which these amounts are due.

2. Lien on Shares:

The second condition involves the situation where the company has exercised its right of lien on the member’s shares. A lien is a legal claim the company may hold over a member’s shares, typically due to unpaid amounts. If the company has exercised this lien, meaning it has claimed rights over the shares due to the non-payment of money owed, the member may be restricted from exercising their voting rights on those shares until the outstanding sums are paid.

3. Scope of Restriction:

This restriction applies only to the specific shares on which the calls or liens exist. It does not extend to the other shares held by the member that are free from any financial obligations. The articles of the company have the flexibility to specify this condition, thereby protecting the company’s financial interests by ensuring that members who owe money are restricted from using their voting rights until those debts are settled.

Subsection (2): General Prohibition on Restrictions

1. Non-payment as the Sole Grounds for Restriction:

This subsection ensures that a company cannot prohibit a member from exercising their voting rights on any other grounds, except for those outlined in subsection (1) regarding unpaid calls or the exercise of a lien.

In other words, a company cannot arbitrarily restrict a member’s right to vote for any other reasons that are not related to the financial obligations mentioned earlier. This provision ensures that voting rights cannot be restricted based on factors like personal opinions, conflicts, or other non-financial issues. Only financial non-compliance with calls or liens justifies the restriction of voting rights.

Subsection (3): Use of Votes on a Poll

1. Freedom in Voting on a Poll:

This subsection addresses the situation where a member has more than one vote, particularly in a poll taken at a meeting. A poll is a method of voting where each member's vote is counted in proportion to their shareholding, allowing some members to have more votes than others.

A member who is entitled to more than one vote, or their proxy (if allowed), or any other person who is entitled to vote on their behalf, does not have to use all their votes. This means that if a member holds multiple votes, they are not required to cast all of them, and they are also not compelled to cast their votes in the same way on all issues.

This flexibility allows a member or their proxy to strategically use their votes based on the specific resolutions presented at the meeting. For example, if a member holds 10 votes, they may choose to cast only 5 votes on a particular issue and withhold the remaining votes. Similarly, they can decide to cast their votes differently on different issues during the poll.