ITO Articles of Association review 2008

The following text is a verbatim copy of legal advice sought by ITO World in late 2008 which was a time of some legal ambiguity for the project and should be read with in the context of that time. ITO published this review in March 2011 to provide guidance to the group reviewing the articles of association in order to help update these article to protect the project against hostile activity of various kinds, including a desire to de-rail the project to protect other commerical interests or to 'carpet bag' the project for direct gain.

Legal advice

Please do not change this section as it should remain a verbatim copy of the advice received by ITO in 2008 (the only changes have been to add section headings and to remove one sentence which mentioned someone by name as an example). Comments can be made in the section below or on the talk page.

Introduction

To: Peter Miller

22nd December 2008

Peter,

I have completed my review of the Articles of Association of OpenStreetMap Foundation (“the Foundation”).

The Articles of Association (“the Articles”) govern (subject to legislation, in particular the Companies Act 2006 “the Act”) the relationship between the members of the Foundation and Directors, setting out the requirements for meetings of the Foundation, members voting rights, notice requirements, the removal and election of directors; and also governs the proceedings of the directors. In addition, the Articles set out what will happen to the assets of the Foundation in the event of its winding up or dissolution.

In broad summary the members have the right to remove directors and appoint other members to act as a director in their stead. By virtue of the Act members also have the right to call a general meeting of the Foundation and to put forward business or specific resolutions for consideration at such meeting.

However, the ability of the members to call the directors to account is to some degree limited by the Articles and in any event made more difficult than need be the case. In many instances the meaning of the Articles are unclear, even contradictory. This leads to uncertainty and may well lead to disputes arising in the future, particularly in the context of those provisions recently introduced by the Act.

I set out below my comments in relation to those elements of the Articles which are particularly pertinent for your current purpose. Unfortunately (and unusually) the Articles are not numbered and so I have had to refer to general page numbers. I have taken page 1 as the first page after the title page. If required, at a later date, I can number the document and create cross references, to enable you to more easily find these references.

Meetings of the Foundation

Page 2: Unless the Foundation has elected to dispense with the need for an AGM, the board of directors of the Foundation (“the Board”) are required to hold an AGM once every calendar year and no more than 15 months apart. The directors are also empowered to call an Extraordinary Meeting.

In this context it is important to know whether the Foundation has held any AGM’s or has made an election (which would be by way of a resolution of the members) to dispense with the need for these.

By virtue of Section 303 of the Act members have the right to call for a meeting of the Foundation. In order to do so members holding at least 5% of the total voting rights in the Foundation need to submit a written request to the Board, stating the general nature of the business (or the wording of a resolution) to be considered at such a meeting. In the event that the Foundation has held a general meeting at the request of members within the last 12 months this requirement rises to 10% of the total voting rights.

The Board would then be required to give notice to the members of the meeting within 21 days of receiving the request, with the meeting to be held within 28 days from the date of the notice. Such notice must include the description of the general business (or wording of the resolution) to be considered at the meeting.

The members requesting the meeting are also entitled to require the directors to include with the notice of the meeting a written statement by them (up to 1,000 words in length) concerning the business of the meeting. The directors have the right to include a reply to such a statement.

In the event that the directors fail to call a meeting upon receipt of a valid members request, the requesting members have the power to call such a meeting themselves (the Act, Section 305).

In addition to the above, members representing 5% plus of the total voting rights in the Foundation are entitled to require the directors to circulate a written resolution to all members. In these circumstances the directors are obliged to circulate the resolution, together with any written statement by the requesting members, within 21 days of receiving the valid request.

In the event that the directors fail to circulate the written resolution, the members are entitled to do so themselves, subject to those members paying any expenses which may be incurred (The Act, Sections 292, 293 & 294).

In the current circumstances the above provisions of the Act could prove to be valuable to you, as they may enable you to bring the current state of affairs before the other members of the Foundation. Please note that there are a number of procedural requirements which have to be complied with if this route is taken.

Proceedings & Voting at General Meetings

Pages 3 & 4

The Articles provide that general meetings will be called on at least 14 days notice (21 days if a special resolution is to be put before the meeting).

Notices must be sent out to all members, but the Articles provide that an accidental omission of giving notice to some members will not invalidate the proceedings. This is permitted under the Act and is intended to allow clerical errors by companies with large member lists.

The problem for the members of the Foundation is that it would be no easy matter to prove that the directors failed to give notice of a meeting to a couple of troublesome members as a point of intent rather than accidently. This is a provision which could be used against members who do not support the approach of the Board.

Please note that the above does not apply to notices for meetings which have been requested by the members (the Act, Section 313).

The Quorum of a general meeting is 3 members.

The Chairman of the Board is elected chairman of the general meeting and has a casting vote.

In the event that the Chairman of the Board does not attend the meeting, another director will be appointed. If there is no Chairman of the Board the members will elect one of the directors as chairman of the meeting.

The chairman also has the right to adjourn any meeting. Whilst this in itself is not unusual, it is unusual in that the Articles do not provide any time limits or other constraints as to when the meeting must be reconvened, save that if the meeting is adjourned for over 30 days notice of the new date must be given as if for a new meeting.

This is obviously unsatisfactory as it allows the Chairman to simply indefinitely adjourn meetings where contentious issues have been raised, thereby preventing the members from having any input or vote.

Page 4

The Articles provide that voting will normally take place by a show of hands, with the chairman’s determination of the outcome of the vote as final. Each member has one vote.

In addition, the Articles provide that proxies are not permitted to vote on a show of hands.

This is a serious limitation in those circumstances where members are likely to be based around the world (which I understand is the case with the Foundation). Arguably this provision is invalid as a consequence of Section 324 of the Act.

Either the chairman or the members can demand a poll, the limitation is that a single member can not do so unless they hold 10% or more of the total voting rights in the Foundation. Proxies may vote on a poll. Both the Articles and the Act set out requirements for the appointment of proxies. The directors also have s duty to inform members of their right to appoint proxies in any notice of a meeting of the Foundation.

The Chairman of the meeting has the final determination as to whether a member is entitled to vote. In theory all members are entitled to vote provided that all liabilities relating to membership of the Foundation are fully paid and they are registered as members. The Chairman’s determination of entitlement to vote is not linked to these factual matters, and in any event if a member also has a commercial contract with the Foundation (arising from his membership) which is not completed (and so not fully paid) is it right that this should prevent that member from exercising their voting rights?

The above leaves the right of members to vote too open to doubt and is unusual.

The Board

Page 5 – The number of directors must be between 2 and 8, with a quorum of 2.

Voting is by majority with the chairman having a casting vote.

The Articles provide that members have no right to see any records of the Foundation, other than the annual accounts.

Removal & Appointment of Directors

Page 7 – The Articles provide that one third of the directors will resign at each AGM, however, they may put themselves forward for re-election.

Notice of any other member seeking election as a director is required to sent to the directors by the proposing member at least 4 days (but no longer than 28 days) prior to the meeting, such notice to include a statement of willingness to act by the proposed director.

Members do have the right to remove a director. This is achieved by Extraordinary Resolution (50.1% vote) on special notice, which is 28 days.

It is therefore open to members to require the directors to either call a general meeting to consider a resolution to remove a director, or to require the directors to circulate a written resolution to remove a director. (page 7 and the Act, Section 168).

Dissolution of the Foundation

Page 10 – upon the dissolution or winding up of the Foundation the remaining assets will not be distributed to members, but will be transferred to another institution with similar objects as determined by the members.

This requirement at dissolution is required by the Section 30 of the Companies Act 1985 (from 1st October 2009 by the Act, Section 62) of any company limited by guarantee that does not include the word “Limited” in its company name.

The danger here is that the receiving institution can be owned by a member of the Foundation. The risk is that the assets of the Foundation could be transferred to a rival company as a matter of strategy.

The provisions in the Act are a little tighter than those in the Articles, and there is a clear intention that the receiving company should be a charitable institution. Unfortunately, this intention is not explicitly followed through in the Act and it would be open for the assets of the Foundation to be transferred to a rival company.

Conclusions

The Articles clearly favour the existing directors, in particular the chairman of the Board.

Throughout the Articles very considerable power is placed in the hands of the chairman of the meeting/Board, with no objective criteria set out as to the exercise of that power. The Chairman can effectively determine the right of members to vote, the result of a vote upon a show of hands and can adjourn meetings with no time limits set for reconvening.

This is obviously a considerable weakness as far as the members are concerned. For example, any lawyer acting for the Foundation would see ample scope to exclude troublesome members from participating in meetings.

However, largely due to the rights conferred on members by the Act, the members of the Foundation do have the ability to call meetings and put forward business and/or resolutions for consideration by the members as a whole.

This also enables the members to remove and elect directors.

You should also be aware that the director’s and chairman’s actions will be subject to appeal to the courts in the event that they exercise their powers in contravention of the Articles, the Act or common law duties.

Discussion of the above

Please add any discussion points on the above in this section