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CMA Intermediate · Business Laws and Ethics · Rights of Shareholders

The articles of Meridian Ltd provide that a member cannot vote on shares on which calls presently payable are unpaid. Mr. Rao owes calls on some shares. The company also wishes to bar a member, Ms. Iyer, from voting because she is a competitor's employee, although she owes nothing. Under Section 106, which statement is correct?

The bar on Mr. Rao is permissible if the articles provide for it, since calls presently payable are unpaid, but the bar on Ms. Iyer is not permitted. Section 106(2) forbids restricting voting on any ground other than unpaid calls or other sums or exercise of lien.

  1. ABoth bars are valid if the articles so provide
  2. BNeither bar is valid because Section 106 prohibits all restrictions
  3. CThe bar on Mr. Rao is permissible if the articles provide it, but the bar on Ms. Iyer is not permitted as it is not on a ground specified in Section 106(1)Correct
  4. DThe bar on Ms. Iyer is valid, but the bar on Mr. Rao is not

Explanation

Section 106(1) allows the articles to bar voting on shares with calls or other sums presently payable unpaid, or where the company has exercised a lien. Section 106(2) prohibits restricting voting on any other ground. Mr. Rao's case fits sub-section (1), but Ms. Iyer's employment is not a permitted ground.

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