05. STUDY MANUAL questions on Companies: incorporation.

Question 1

The case the is generally regarded as establishing definitively the principle of corporate personality.

Answer 1

Saloman v Saloman

Question 2

T/F: a limited company has limited liability.

Answer 2

FALSE

only the liability of its members is limited.

Question 3

T/F: every company must have a company secretary.

Answer 3

FALSE

a public company need not have a company secretary.

Question 4

The minimum share capital for a public company.

Answer 4

£50,000

Question 5

T/F: the minimum share capital requirement for a private company is £1.

Answer 5

FALSE

it need not have a share capital at all, for example if it is limited by guarantee.

Question 6

T/F: if a public company commences trading (including borrowing) without a trading certificate then its officers are liable to a fine.

Answer 6

TRUE

Question 7

The three assertions forming the memorandum of association of a company limited by shares.

Answer 7

We the undersigned:

-wish to form a company
-agree to become members of the company
-agree to take at least one share.

Question 8

The significance of an off-the-shelf company is …

Answer 8

that it already exists as a legal person and can therefore enter into contracts.

Question 9

T/F: a company can ratify a pre-incorporation contract.

Answer 9

FALSE

since it did not exist at the time the contract was made, the company can not be a princpal.

Question 10

T/F: a promoter utilising the Contracts (Rights of Third Parties) Act 1999 transfers their rights and obligations under a pre-incorporation contract to the company.

Answer 10

FALSE

the rights and obligations of the promoter are unchanged unless the contract dictates otherwise.

Question 11

T/F: a company can not be registered unless it submits a copy of its articles of association.

Answer 11

FALSE

if no ‘bespoke’ articles are submitted then the ‘model articles’ will apply.

Question 12

Unless ‘entrenchment’ applies, a company may usually change its articles of association via …

Answer 12

special resolution.

Question 13

The one optional register that a company must keep is …

Answer 13

a register of debenture holders.

Question 14

T/F: the veil of incorporation is routinely lifted in the case of companies that are part of the same group.

Answer 14

FALSE

The general rule is that the veil will not be lifted.

Question 15

Can a director who is also a shareholder ever be held liable for the debts of a private limited company?

Answer 15

YES

various statutory provisions exist, for example those relating to wrongful and fraudulent trading.

Question 16

Does a private limited company need to obtain a trading certificate before it commences trading under the company’s registered name?

Answer 16

NO

this requirement only applies to public limited companies.

Question 17

Is a private limited company required to hold an annual general meeting (AGM) within the first 18 months following incorporation?

Answer 17

NO

Question 18

T/F: if a public limited company commences trading without a trading certificate, the transaction is not invalid as a result.

Answer 18

TRUE

the third party is entitled to assume that a certificate exists and therefore enforce a contract with the company.

Question 19

Failure to obtain a trading certificate within six months of incorporation may result in a compulsory winding up for a public limited company.

Answer 19

FALSE

the specified period is 12 months (s. 122 Insolvency Act 1986)

Question 20

Failure to obtain a trading certificate within twelve months of incorporation may result in a compulsory winding up for a public limited company.

Answer 20

TRUE

Question 21

T/F: if a public limited company commences trading without a trading certificate, any company officer responsible for the default may be liable to a fine.

Answer 21

TRUE

Question 22

An application for a trading certificate should state that the nominal value of the company’s allotted share capital is or exceeds the authorised minimum of …

Answer 22

£50,000

at least 1/4 paid up

plus the whole of any share premium

Question 23

T/F: A company is required by law to keep a record of its written resolutions and minutes of general meetings at its registered office.

Answer 23

FALSE

The record may be kept at any other place specified in regulations prescribed by the Secretary of State (and notified to the Registrar).

It must however be available for inspection.

Question 24

A company is required by law to keep a record of its written resolutions and minutes of general meetings for a period of …

Answer 24

10 years.

Question 25

T/F: ‘Adequate accounting records’ need to show entries of income and expenditure on a daily basis.

Answer 25

TRUE

Question 26

‘Adequate accounting records’ need to show entries of income and expenditure on a … basis.

Answer 26

daily

Question 27

T/F: all limited companies must provide a directors’ remuneration report to members.

Answer 27

FALSE

only quoted companies must provide a directors’ remuneration report.

Question 28

A directors’ remuneration report is required of all … companies.

Answer 28

quoted

Question 29

T/F: the directors’ report need only contain the names of directors who were in office as at the date of the financial statements.

Answer 29

FALSE

the directors’ report must name all the persons who were directors at any time during the financial year.

Question 30

T/F: the directors’ report need only contain a recommended dividend if the company is not entitled to the small copmanies exemption.

Answer 30

TRUE

Question 31

The removal of a director or auditor before the expiry of their term of office requires.

Answer 31

an ordinary resolution with special notice (of 28 days).

Question 32

Written resolutions are only available for … companies.

Answer 32

private

Question 33

T/F: a private limited company may pass a written resolution whenever it sees fit.

Answer 33

FALSE

certain resolutions, such as those to remove a director or auditor, may not be passed as written resolutions.

Question 34

T/F: all types of company must have 2 directors.

Answer 34

FALSE

a private company needs only 1 director