1a. Business Flashcards
1
Q
General partnerships
What are the three requirements for a general partnership under the Partnerships Act 1890?
A
- Two or more persons
- Carrying on a business in common
- With the intention to make a profit
Persons includes corporate bodies as well as people
2
Q
General partnerships
Is it material if a business never actually realises a profit?
A
No, as long as they intend to
3
Q
General partnerships
What is a party receiving a share of the profits of a business prima facie evidence of?
A
That a partnership exists
Agreement to or sharing of losses is some evidence of a partnership, but not prima facie evidence
4
Q
General partnerships
Does a party need to contribute capital to be considered a partner?
A
No
5
Q
General partnerships
What is the limit on the number of partners that can be in a general partnership?
A
There is no limit
6
Q
General partnerships
Can the partners use a partnership agreement to override most rules in the Partnership Act?
What is the effect of this?
A
Yes
Most of the rules in this deck will not apply if the question provides that the partnership agreement overrides them
7
Q
General partnerships
What is the general rule for a partner’s ability to bind the partnership and other partners?
A
A partner in a partnership is an agent of the partnership and the other partners, and can bind both as long as he has authority
8
Q
General partnerships
What are the two ways a party can be bestowed with actual authority?
A
- Expressly authorised by the partners, either in the partneship agreement or through a vote
- Impliedly authorised by the partners’ failure to object to past conduct of this nature
9
Q
General partnerships
What type of act must a partner make to bind the firm through apparent/ostensible authority?
A
An act carrying on the business of the firm in the usual way
Would a reasonable person think a business of this kind would usually do this act? What authority would a reasonable person expect a partner in such a business to have?
10
Q
General partnerships
What two things must be true for apparent authority to not bind the firm?
A
- Partner had no authority to act, and
- The person with whom the partner was dealing either knew the partner had no authority to act, or did not think the person with whom they were dealing was a partner
11
Q
General partnerships
If it turns out that there was neither actual nor apparent authority, who is bound?
A
Only the partner who entered into the dealing, in their personal capacity
12
Q
General partnerships
What four things have case law shown partners will have the authority to do?
A
- Buy and sell firm goods
- Receive debt payments due to the firm
- Hire employees
- Employ a solicitor to act for the firm
13
Q
General partnerships
What is a general partner’s liability for debts of the partnership?
What does it mean that partnership liability is joint and several?
A
Unlimited
A creditor can pursue one or all of the partners
14
Q
General partnerships
When will the partners be jointly and severally liable for torts committed by another partner?
A
When the tort is committed in the course of business, or with authority of the partners
15
Q
General partnerships
Is an incoming partner liable to the creditors of a partnership for anything done before becoming a partner?
What is needed to add a new partner?
A
Not unless they agree
The consent of all partners
16
Q
General partnerships
Is a retiring partner liable for debts incurred before they leave?
What is a hold harmless agreement and against whom is it not effective?
A
Yes
Agreement between a retiring partner and the firm that the retiring partner will not be liable for debts incurred before leaving. Does not apply to a retiring partner’s direct liabilities to a third party unless the third party agrees
17
Q
General partnerships
What is the general rule regarding a person dealing with a partnership after a change in its partners?
A
The person is entitled to treat all apparent partners of the old firm as still being partners until they receive notice of the change
18
Q
General partnerships
In the case of (1) existing creditors and (2) world at large, what must a retiring partner do to give notice of their retirement and therefore not be liable for obligations arising after they leave?
When will a third party not be able to enforce an obligation on a retiring partner which arose after they left, even in the absence of notice?
A
- Existing creditors: Provide actual notice to creditors
- World at large: Place advertisement in London Gazette
Where the third party did not know the person was a partner
19
Q
General partnerships
What is the holding out rule?
A
If a person holds themselves out to be a partner even if they are not, they may be held liable as a partner if any third party extends credit on the strength of the holding out.
The same is true if a person knowingly allows another to hold them out as a partner.
20
Q
General partnerships
How can holding out apply to retiring partners?
A
If they fail to give proper notice, or do not ensure their name is removed from partnership notices, websites, or stationery, they may inadvertently hold themselves out to still be a partner
21
Q
General partnerships
What is the statutory definition of partnership property?
Unless agreed, how must partnership property be held and applied?
A
Property acquired or brought into the partnership for partnership purposes and in the course of partnership business, as well as money earned or property purchased with money earned
Exclusively for the purposes of the partnership
22
Q
General partnerships
How is property:
(1) belonging to an individual partner and used in the business and:
(2) given by a partner to the business
treated?
A
- Property belonging to an individual partner remains their property
- Property given by a partner to the firm becomes partnership property and is treated as a capital contribution
23
Q
General partnerships
Unless a contrary intention is shown, how is property bought with money belonging to the partnership and property titled in the firm name treated?
Can creditors of an individual partner seek to satisfy their debt from partnership property?
A
As partnership property
No
24
Q
General partnerships
What is the determining factor in determining whether property brought into the partnership becomes the partnership’s or remains property of the individual?
A
The intention of the individual
25
# General partnerships
What is required for individual property to become partnership property?
Express or implied agreement between the partners
26
# General partnerships
In the absence of a profit-sharing agreement, and irrespective of capital contributions or **any other** factor, how are partnership profits split?
## Footnote
What about losses in the same situation?
Equally
## Footnote
Same
27
# General partnerships
Are partners entitled to a distribution of the firm's profits and capital as of right?
No, not without agreement of the partners
28
# General partnerships
What is a partner's tax liability if they are an individual?
Each partner must include in their income their share of the profit **made** by the partnership **whether or not it was distributed**
29
# General partnerships
Where there is a profit-sharing agreement leading to an unequal split of profits, how are losses shared upon **dissolution**?
In the proportion of the profit-share
30
# General partnerships
Is a partner entitled to interest on:
(1) their capital contributions and
(2) a loan made to the partnership?
- **Capital**: No
- **Loan**: Yes, at **5%** per year
31
# General partnerships
How is the right to manage the partnership business shared?
## Footnote
Is a partner generally entitled to remuneration for acting in the partnership business?
Equally. One partner, one vote
| Irrespective of capital contributions, etc., unless agreed
## Footnote
Not unless the partnership agreement provides for such
32
# General partnerships
Whilst most decisions require a simple majority vote, what three decisions require **unanimity**?
1. Admission of a **new partner**
2. Change in the nature of the partnership business
3. Alteration to the partnership agreement
33
# General partnerships
What is the duty to account for secret profits?
Each partner must account to the partnership for any profit/benefit obtained *without the consent* of the other partners from:
1. A transaction concerning the partnership, or
2. Any use by the partner of partnership name/property
34
# General partnerships
What is the duty to account for profits of a competing business?
If a partner carries on a business in competition with the partnership, without the consent of the partners, they must account for all profits
35
# General partnerships
What is a partnership at will, how is it dissolved by notice?
## Footnote
When does this take place?
A partnership not set up for a fixed term. Dissolved by any partner giving notice to the others of their intention to dissolve
## Footnote
It will be dissolved on the date provided in the notice, and if none is provided, upon communication of the notice.
36
# General partnerships
How is a partnership dissolved by death, bankruptcy or charge?
A partnership is dissolved if:
1. Any partner dies *(automatically)*
2. Any partner becomes bankrupt *(automatically)*, or
3. Any partner charges their share of profits to pay off a personal debt *(at the option of the other partners)*
37
# General partnerships
What are the fives reasons a partnership may be dissolved by court order?
1. Permanent incapacity of a partner
2. Prejudicial conduct
3. Willful or persistent breach of partnership agreement
4. Business can only be carried on at a loss
5. Just and equitable
38
# General partnerships
What is the effect of dissolution on partner authority?
The authority of each partner to bind the firm will continue:
1. In order to wind up the partnership, and
2. To complete transactions which were started but unfinished at the time of dissolution
## Footnote
Partnership will be bound for other contracts entered into unless notice of the dissolution was given to the other party
39
# General partnerships
When a partnership is dissolved, what is the order of entitlement to assets?
1. Debts owed to outside creditors
2. Loans made by partners
3. Partners' capital contributions
## Footnote
If partnership assets are insufficient to repay creditors, partners are personally liable
40
# General partnerships
Under the Partnership Act, what is the order by which losses should be paid?
Losses should be paid from:
1. Profits, *then*
2. Capital, *then if necessary*
3. Further contributions by partners
41
# LLPs
*For a general partnership to be a LLP, it must be registered:*
What four things must be included in the incorporation documents for a LLP that are submitted to Companies Houses?
## Footnote
How is a LLP taxed and run?
1. Name of the LLP
2. Registered office address
3. Names/addresses of partners
4. Details of people with significant control
## Footnote
Taxed and **run** like a general partnership (members taxed individually on share of profit, whether distributed or not)
42
# LLPs
If an LLP is not properly set up, what is the result?
A general partnership forms and the partners have unlimited liability
## Footnote
If properly set up, partners in a LLP are not personally liable
43
# LLPs
What is the minimum number of members?
## Footnote
For how long can an LLP operate with one member, and what happens after that period?
Two
## Footnote
Six months, after which the single member is jointly and severally liable with the LLP for debts accrued after the six month period
44
# LLPs
Unless the agreement provides otherwise, what is required to add a new member?
Consent of all members
45
# LLPs
What is the role of the designated member?
## Footnote
How many designated members must the LLP have, and what is the position if the LLP does not designate any?
Perform administrative and filing duties of the LLP, including:
- Appoint and remove auditors
- Submit annual statements
- Sign and file accounts
- Comply with statutory filing requirements
## Footnote
Two. If none designated, all members are treated as designated members
46
# LLPs
Within what time period of a change to the members or designated members must the Registrar be notified?
14 days
47
# LLPs
What is the position regarding agency and authority in an LLP?
The same as a general partnership.
Every member is an agent of the LLP.
LLP not bound by anything done if a member has no authority **and** the person with whom they are dealing **knows** they have no authority or doesn't think they do
48
# LLPs
Until when is a former member deemed to still be a member for the purposes of dealings with third parties?
Until notice is given to the person or sent to the Registrar
49
# LLPs
What four possible ways could someone's stake in an LLP make them a **person with significant control**?
1. **Directly or indirectly** holding *more than* **25%** of the *surplus assets* upon *winding up*
2. **Directly or indirectly** holding *more than* **25%** of the **voting rights**
3. **Directly or indirectly** holding the right to **appoint or remove** the **majority** of management
4. *Otherwise* having the right to exercise or actually exercising significant control or influence
50
# LLPs
Are **members** in an LLP liable for wrongful acts or omissions of other members in the course of business or with the LLP's authority?
No, but the LLP is liable with the offending member
51
# LLPs
In order to benefit from limited liability, what five things is an LLP obligated to make available to the public?
1. Annual accounts
2. Annual confirmation statement
Details of:
3. Appointment/removal of members
4. Changes to members' details
5. Changes to LLP name or address
52
# Nature and formation of companies
In addition to the general requirements for a private limited company, what two additional things are required to register as a public limited company?
1. Nominal share capital of at least £50,000
2. Trading certificate
## Footnote
Public companies also require:
* Minimum 2 Directors
* A CoSec
* 1 AGM per year
53
# Nature and formation of companies
Within what time period from the end of the accounting period must annual accounts be filed for a private company and a public company, and need they be audited?
**Private**: Nine months. Need not be audited.
**Public**: Six months. Must be audited.
54
# Nature and formation of companies
Who is a **promotor**?
## Footnote
What duties are owed between **promotors**?
A person who takes the necessary steps to form a company
## Footnote
Promoters owe fiduciary duty and duty of good faith, and to not profit at the company's expense
55
# Nature and formation of companies
Who is liable on pre-incorporation contracts entered into in the company name, and what is a way to avoid this?
The promotor. Can be avoided by novating the contract after incorporation.
56
# Nature and formation of companies
What is a Memorandum of Association?
A statement signed by people wishing to become shareholders, indicating this intent and agreement
## Footnote
It is filed with the application for registration at Companies House
57
# Nature and formation of companies
What **ten** things must be included in the application for a company to the Registrar?
1. Name
2. Address
3. Details about company's business
4. Whether public or private
5. Whether limited by shares or guarantee
6. Statement of capital and initial shareholdings
7. Proposed officers/directors, and their residential address
8. Details of people with significant control
9. Statement of compliance with Companies Act 2006
10. Payment of the relevant fee
58
# Nature and formation of companies
What are the five limitations on a company name?
1. Cannot be the same or essentially the same as an existing company
2. Must end in *Limited* or *Ltd* or *Public Limited Company* or *Plc*
3. Cannot be offensive
4. Approval required if name suggests connection to government
5. Approval required if name suggests a protected profession
59
# Nature and formation of companies
What is required for a company to change its name and the articles?
A special resolution of the shareholders
60
# Nature and formation of companies
What documents make up a company's *constitution*?
- Articles of Association
- Any resolutions/agreements adopted to amend the articles
## Footnote
The **Model Articles** automatically apply unless the company opts for its own. Therefore articles need not be filed with the application.
61
# Nature and formation of companies
What five things are dealt with in the articles?
## Footnote
What is the legal effect of the articles?
1. Directors' meetings and decision making
2. Appointment/removal of directors
3. Share capital
4. Rights attached to shares
5. Shareholder meetings
## Footnote
They are a contract between the company and *each* of the shareholders, as well as the shareholders with *each other*
62
# Nature and formation of companies
Whilst a company need not restrict its objects, what must the directors do if it does restrict them, and what is the consequence of failing to do so?
## Footnote
Even though a director would be in breach, what is the status of an act done beyond the scope of the objects?
Directors must adhere to the restriction, and they breach their duty if they do not, and may be subject to an injunction if the act is not yet carried out, otherwise equitable action for damage caused
## Footnote
It is still valid
63
# Nature and formation of companies
What is the extent of a shareholder's right to enforce provisions of the articles, and when is a shareholder not able to enforce?
Only insofar as it relates to **membership rights**, and a shareholder cannot enforce the articles in any other capacity, e.g. a personal right, or if they are also a director
64
# Nature and formation of companies
Can the **articles** contain a provision requiring unanimous consent to amend them?
No, this is prohibited by the Companies Act
65
# Nature and formation of companies
Can the shareholders agree among themselves in a **shareholders agreement** to not amend the articles unless they all agree?
## Footnote
Why is this different?
Yes, because they are merely agreeing among themselves to a course of action they will take
## Footnote
It is not enshrined in the company's constitution itself, which is what the prohibition in the Companies Act is concerned with
66
# Nature and formation of companies
What does an entrenched provision of the articles require?
## Footnote
In what two ways can provision for entrenchment be made?
A more onerous approval process than even a special resolution, e.g. 100% of shareholders
## Footnote
In the articles on formation (with notice of this given to Companies House), or by special resolution
67
# Nature and formation of companies
What is the fate of a provision in the articles which attempts to prevent amendment of the articles, and what will always be the rule?
Such a provision will be ineffective, and the articles can **always** be changed by special resolution
68
# Nature and formation of companies
What must be true of an amendment to the articles before a shareholder who did not vote for it can apply for the court to set it aside?
## Footnote
What alone is not grounds for challenging an amendment to the articles?
No reasonable person would consider it to be for the benefit of the company
## Footnote
That it adversely affects minority shareholders, as long the amendment is made in good faith
69
# Companies: directors and officers
What is the minimum number of directors in a private company and a public company?
**Private**: One
**Public**: Two
70
# Companies: directors and officers
What are the two ways a director can be appointed in a company limited by shares under the model articles?
## Footnote
Within what time period of a director appointment or a change to a director's details must Companies House be notified?
1. Board resolution, or
2. Ordinary shareholder resolution
## Footnote
14 days
71
# Companies: directors and officers
What is a de jure director?
Director who has been formally and properly appointed, and registered with the Registrar
72
# Companies: directors and officers
What is a de facto director?
Someone who is not a de jure director, but who carries out all of the duties of and behaves like one
73
# Companies: directors and officers
What is a shadow director?
A non-director in accordance with whose instructions the actual directors are accustomed to act, and they are treated the same as de jure or de facto
74
# Companies: directors and officers
What is an alternate director?
Someone appointed *by* a director to attend and vote at board meetings when the director is unable to
## Footnote
Also known as a proxy
75
# Companies: directors and officers
What is:
(1) an executive director, and
(2) a non-executive director?
* **Executive**: responsible for the day-to-day running of the company and are considered employees
* **Non-executive**: consultants with a more supervisory role
76
# Companies: directors and officers
What is a director's status from an agency perspective?
Directors are agents of the company, and can bind **the company** in contract and in tort (if acting with authority)
77
# Companies: directors and officers
How is actual authority granted expressly?
In the articles or by resolution
78
# Companies: directors and officers
Why does apparent authority not arise frequently in a company?
## Footnote
What is one situation where it might?
Because a director will generally not have the power to bind the company, except when the directors act as a board
## Footnote
Apparent authority could arise through past dealings
79
# Companies: directors and officers
What are the two ways a company can execute a document?
1. Affixing their seal
2. Signature of:
* two directors
* director and secretary
* single director if signed by attesting witness
80
# Companies: directors and officers
Although the articles generally require the board to act collectively, may the board delegate authority over specific matters to a particular director or group of directors?
Yes
81
# Companies: directors and officers
What is required for shareholders to ratify a director's conduct which was in breach of their duty, and whose vote would be disregarded?
Ordinary shareholders resolution, disregarding the vote of the director in question if he is also a shareholder
82
# Companies: directors and officers
What is the fate of any provision in the articles or contract that purports to exempt a director from liability that would otherwise attach through breach of duty, negligence, or breach of trust?
## Footnote
What are the limits on a company's ability to indemnify directors against claims brought by third parties concerning the director's actions for the company?
Void
## Footnote
Cannot be used for criminal or regulatory fines
83
# Companies: directors and officers
Can a director still be subject to a statutory and fiduciary duty for the period they were a director, even after they cease to be one?
Yes, e.g. cannot act on an opportunity after you cease to be a director that you learned about whilst you were one
84
# Companies: directors and officers
What is the limit on a director's powers?
They must exercise powers only for the purpose for which they were conferred
85
# Companies: directors and officers
What is the duty to promote success?
A director must act in the way the *director considers*, in good faith, would be most likely to promote the success of the company for the benefit of the members as a whole
86
# Companies: directors and officers
What is the concept of **enlightened shareholder value**?
In *promoting the success* of the company, the directors need not focus solely on maximizing profit, and can consider other things like:
1. Long term consequences of a decision
2. Interests of company *employees*
3. Need to foster business relationships
87
# Companies: directors and officers
If a company is insolvent or on the brink of such, to whom is the director's duty to *company* displaced?
To the **creditors**
88
# Companies: directors and officers
What are the objective and subjective limbs of a director's duty to exercise care, skill, and diligence?
## Footnote
What standard will a director be judged by?
A director must exercise the care, skill, and diligence that would be exercised by a reasonably diligent person with:
1. The general knowledge, skill and experience that may be expected of a director *(objective)*, ***or***
2. The general knowledge, skill and experience the director in question actually has *(subjective)*
## Footnote
Whichever imposes the higher obligation
89
# Companies: directors and officers
What is the duty to exercise independent judgment?
Director must exercise independent judgment, without subordinating their powers to the will of others
## Footnote
A director will not be deemed to have *subordinated their powers to the will of others* if they **seek advice** from experts, as long as the director makes the final decision as does not delegate this to the expert
90
# Companies: directors and officers
In determining whether a conflict exists between a director and the company, is it relevant that the company was not able to take advantage of a particular opportunity themselves?
No, it is still a conflict
91
# Companies: directors and officers
In what three situations will a conflict not arise?
1. Transaction is with the company itself, and the board knows of the director's interest
2. Situation cannot reasonably be regarded as likely to give rise to a conflict
3. Matter has been authorised by the directors
92
# Companies: directors and officers
What is the duty to declare interest in a transaction?
## Footnote
Is a director interested in a transaction counted toward the quorum *on that decision*?
If a director is directly or indirectly interested in a proposed transaction with the company, or becomes such, they must **give notice to the other directors** before entering into or continuing
## Footnote
No
93
# Companies: directors and officers
Even though a director need not declare an interest in a transaction of which the shareholders are already aware, what is good practice?
## Footnote
Why?
Declare it at the board meeting anyway
## Footnote
So that it forms part of the minutes and nobody can challenge whether they were aware later
94
# Companies: directors and officers
What is required for a company to make a loan to a director, or to guarantee or give security for a loan to a director by a third party?
Shareholder approval via ordinary resolution
## Footnote
£10k directly to director or £50k if it is to fund company business does not require approval
95
# Companies: directors and officers
What is the maximum length a director's employment contract can be before it needs shareholder approval?
## Footnote
Who is able to determine what fair compensation in a director's service contract should be?
Two years
## Footnote
The board
96
# Companies: directors and officers
Under the model articles, what is required for any director to call a board meeting?
Giving reasonable notice*, which need not be in writing,* with the date time and location, to each director
## Footnote
Reasonable notice is determined based on the situation
97
# Companies: directors and officers
What is the minimum amount of directors needed for a quorum at a board meeting?
Two
98
# Companies: directors and officers
What is the usual threshold for votes on an issue at a board meeting?
## Footnote
Who has the casting vote in the event of a deadlock, and what is the effect of this?
Simple majority
## Footnote
The chairman, effectively giving them a second vote on the issue
99
# Companies: directors and officers
When is a director excluded from the quorum on a particular issue?
When they have an interest in the transaction being voted on
100
# Companies: directors and officers
Who has the power to remove directors, and what is the vote threshold?
## Footnote
Can a director be removed by written resolution?
Shareholders, by simple majority
## Footnote
No
101
# Companies: directors and officers
Although the shareholders' statutory right to remove a director overrides most provisions to the contrary in the articles, what does a **Bushell v Faith** clause provide?
It gives weighted voting rights to a *director* who is also a shareholder in the event of a resolution to remove them as a director
102
# Companies: directors and officers
If the shareholders remove a director in violation of their contract, what is the consequence?
The **company** will be liable for breach of contract
103
# Companies: directors and officers
How much notice before a general shareholder meeting must a shareholder give of their intention to propose a resolution to remove a director?
28 days
104
# Companies: directors and officers
What rights does the director have at the shareholder meeting to remove them?
1. Make a written representation
2. Speak at the **shareholder** meetings, even if not a shareholder
105
# Companies: directors and officers
How can a director be disqualified for wrongful trading?
If the company was insolvent when they traded and they knew
106
# Companies: shareholders
What are the two requirements for a dividends to be declared?
1. Must be paid from *profits available for the purpose*
2. Must not render a company insolvent
## Footnote
Profits available for the purpose is essentially net profits
107
# Companies: shareholders
What is a *preference* share?
## Footnote
What are preference shareholders' voting rights typically limited to?
A share paid a dividend based on a fixed % ahead of ordinary shareholders, which rolls over and accumulates if unpaid, but usually lacking voting rights
## Footnote
Decisions that affect their class rights
108
# Companies: shareholders
Even if profits are available, who must still recommend a dividend?
The board
109
# Companies: shareholders
After the board resolve to recommend a dividend, how is it declared?
The recommendation is approved by the shareholders, who declare the dividend by ordinary resolution
110
# Companies: shareholders
Can the shareholders decline a dividend, or change the amount?
The shareholders can decline to approve the dividend, and they can lower its amount. They cannot increase the amount.
111
# Companies: shareholders
When may a shareholder bring a derivative claim, and against whom is it brought?
## Footnote
Only who can bring a derivative action?
When the shareholder believes a director has or is about to breach a duty owed to the company and it appears the board are not acting to prevent this, the shareholder can bring a claim against the offending director
## Footnote
Shareholders, and those to whom shares were transferred through operation of law, e.g. inheritance
112
# Companies: shareholders
Can a shareholder assert a claim which arose before they became a shareholder?
Yes
113
# Companies: shareholders
What must the court do if the shareholder does not show a prima facie case?
Dismiss the claim
114
# Companies: shareholders
If the shareholder does show a prima facie case, the court must be satisfied of one of what two things at the *second stage* for them to dismiss the claim?
1. Continuance of the claim does not promote the best interests of the company, **or**
2. The action was authorised by the company or authorisation would be likely
115
# Companies: shareholders
Who receives any damages awarded in a derivative claim?
The **company**
116
# Companies: shareholders
What can a shareholder, even a minority, do if they feel they are being unfairly prejudiced?
## Footnote
If a minority shareholder is successful, what is the most likely remedy?
Petition the court for a remedy
## Footnote
The minority shareholder is bought out at fair value
117
# Companies: shareholders
What must any shareholder be able to show to apply to have a company wound up?
1. The company is solvent, and
2. It is just and equitable to wind it up
118
# Companies: shareholders
How long after a director leaves must their service contract be retained for inspection by the shareholders?
At least one year
119
# Companies: joint decision making
Who usually calls meetings?
Directors
120
# Companies: joint decision making
A shareholder holding at least what % of the paid-up voting capital can require the directors to call a meeting, within what time must the directors (1) call the meeting and (2) hold the meeting?
## Footnote
What happens if the directors fail to call the meeting?
**5%**. *Called* within **21** days; *held* within **28** days.
## Footnote
The shareholder who requested the meeting, or *any* shareholder(s) holding **50%** of the voting rights can call the meeting themselves
121
# Companies: joint decision making
To whom must notice of a general shareholders meeting be given?
## Footnote
In what four forms can notice of a meeting be?
1. All shareholders and directors
2. Personal representatives of deceased shareholders
3. Trustee in bankruptcy of any bankrupt shareholders
4. Auditor, if there is one
## Footnote
Writing, electronic, email, via website
122
# Companies: joint decision making
What five things must the notice of the meeting contain?
1. Company name
2. Time, date and place of the meeting
3. General nature of business to be carried on at the meeting
4. Right to appoint a proxy to attend
5. Full text of any special resolution
123
# Companies: joint decision making
How much notice must be given for a meeting?
14 **clear** days, unless articles provide for longer
124
# Companies: joint decision making
What additional time period is added where notice is communicated by a method other than hand delivery?
48 hours
125
# Companies: joint decision making
How can you work out notice periods quickly on the exam?
**Last date notice can be given:**
- Meeting date minus 15 days if hand delivered
- Meeting date minus 17 days if other method
**Earliest date a meeting can be held:**
- Notice date plus 15 days *if hand delivered*
- Notice date plus 17 days *if other method*
126
# Companies: joint decision making
What proportion of shareholders must agree to hold a meeting on shorter notice?
Majority of shareholders (in number), holding 90% of the shares
127
# Companies: joint decision making
In what situation can the short notice procedure not be used?
## Footnote
What is a workaround?
For matters requiring documents to be left at the registered office for 15 days prior to the meeting
## Footnote
If the relevant majority of the shareholders is also on the board (and in attendance at the meeting), the board can adjourn a board meeting and have the shareholders pass whatever is to be passed as a written resolution, which can include the documents, getting around the 15 day requirement. Should only be used when you are sure the shareholders in attendance are on side and will approve
128
# Companies: joint decision making
If a company has more than one shareholder, can a single shareholder who is present in his own capacity but also as proxy for another shareholder form a quorum of two?
No
129
# Companies: joint decision making
What proportion of shareholders at a meeting are required to approve (1) an ordinary resolution and (2) a special resolution?
Ordinary resolution: **Simple majority** of shareholders **at the meeting**
Special resolution: **75% or more** of the shareholders **at the meeting**
## Footnote
Compare with written resolutions which require those percentages of **all** shareholders.
130
# Companies: joint decision making
What six things are among those for which a special resolution is required?
1. Amend the articles
2. Reduce share capital / buy back shares
3. Wind up the company
4. Change company name
5. Disapply pre-emption rights
6. Change company status, i.e. private to public
131
# Companies: joint decision making
Within what time period must a special resolution be filed at Companies House?
15 days
132
# Companies: joint decision making
What is the normal method of voting at meetings?
Show of hands
133
# Companies: joint decision making
What is a poll vote and what two groups can demand one?
Instead of one vote per shareholder in the show of hands method, it becomes **one vote per *share***, and can be demanded by:
1. The chairperson of the meeting
2. The directors
3. Two or more persons having the right to vote on the resolution
4. Person(s) representing at least 10% of the total voting rights of all the shareholders entitled to vote on the resolution
134
# Companies: joint decision making
Can a written resolution be used for both types of shareholder resolutions?
## Footnote
What action can a written resolution not be used for?
Yes
## Footnote
Dismissing a director or auditor
135
# Companies: joint decision making
In addition to the board deciding to circulate a written resolution, who can require them to do so?
Shareholders who hold at least 5% of the voting rights
*(same % as for a shareholder demanding a general meeting)*
136
# Companies: joint decision making
To whom must a written resolution be circulated?
All shareholders eligible to vote
137
# Companies: joint decision making
What two things must a written resolution contain?
1. Statement informing the shareholder how to signify agreement
2. When the resolution will **lapse** if not approved, typically 28 days from and including the circulation date (unless the articles provide differently)
138
# Companies: joint decision making
Whilst the % thresholds for ordinary and special resolutions are the same >50% and 75%+ as when voted in person, what is the crucial difference with a written resolution with regard to the pool from which those % are taken?
For a written resolution, it is >50% and 75%+ of **all shareholders**, compared to just those present at a meeting
139
# Companies: joint decision making
What is the four step process when a decision requires approval of both the directors and shareholders?
1. Approval starts with board meeting and board resolution approving the matter
2. Board then resolves to call shareholders general meeting or circulate written resolution for shareholders to approve
3. Shareholders vote whether to pass the resolution, and it is passed if they do
4. Board then enters into the approved transaction*, resolving this if relevant*
140
# Companies: joint decision making
Whilst no further action is usually required, what is one situation where directors will need to take further action, and what is that action?
If the resolutions have approved entering a contract to purchase property, the directors would need to resolve to appoint two directors to execute the contract
141
# Companies: joint decision making
Unless otherwise provided, what *nine* things require an ordinary *shareholder* resolution only?
1. Appoint/remove director/auditor
2. Adopt annual accounts
3. Declare a dividend
4. Approve director's decision to allot shares
5. Approve substantial property transaction with an interested director
6. Ratify of director's breach of duty
7. Enter service contract with director of more than two years
8. Make loan to director
9. Give payment to director for loss of office
142
# Companies: joint decision making
What is a substantial property transaction and what is the de minimis threshold?
## Footnote
At what threshold is a transaction automatically an SPT and what is the test for figures between £5,000 and it?
Where a director buys or sells property from or to the company.
Less than **£5,000** is de minimis
## Footnote
£100,000. If between 5k and 100k, it will be an SPT if its value exceeds **10%** of the company's net assets
143
# Companies: joint decision making
Within what time period of a resolution being adopted by the board, shareholders, or both must it be filed at Companies House?
15 days for special resolution
144
# Companies: raising finance
What are the two ways a company can raise finance?
1. Equity (selling shares for money)
2. Debt (borrowing money)
145
# Companies: raising finance
What is a company's share capital?
Money received on account of the nominal or par value of shares, which is not returned to the shareholders and is theoretically always available to pay creditors
146
# Companies: raising finance
What is the amount paid for new shares that exceeds the nominal or par value, and where does this go?
Share premium, into the share premium account, and forms part of the same share capital which is not returned to the shareholders and is theoretically always available to pay creditors
147
# Companies: raising finance
For company incorporated after 2009, when will there not be any restrictions on a director if they wish to allot more shares?
If the company only has **one class** of shares, and there is no restriction removing the director's power
148
# Companies: raising finance
In other situations, e.g. where there are multiple classes of shares, what is required to allot new shares?
Shareholder's ordinary resolution
149
# Companies: raising finance
What must shares be offered *for* in order for existing shareholders to have a preemption right?
**Cash**
## Footnote
Shares issued for anything else, e.g. property, will not give rise to the preemption right
150
# Companies: raising finance
Where a preemption right does arise, how long must the existing shareholders be given to decide whether to accept?
14 days
151
# Companies: raising finance
Does preemption apply to **preference** shares?
No
152
# Companies: raising finance
How is a preemption right disapplied?
Through shareholder special resolution *(on a case by case basis)*, or by amending the articles *(to make it permanent)*
153
# Companies: raising finance
Under the model articles, what is the director's right regarding a transfer of shares?
They have the absolute power to refuse to allow a transfer
154
# Companies: raising finance
Do the directors have the power to borrow money on behalf of the company?
Yes, unless excluded by the articles
155
# Companies: raising finance
What is a:
(1) fixed charge and
(2) floating charge
granted over?
1. Assets the company will own for a substantial period of time
2. A group of assets that change regularly, and does not crystallise until default
156
# Companies: raising finance
Within what time limit of the creation of a charge by a company must it be registered at Companies House?
## Footnote
What is the impact of failing to register a charge at Companies House?
21 days beginning with the day after the day on which the charge is created
## Footnote
The charge is **void** against a liquidator or administrator of the company, and the company's creditors *(still valid against the company itself)*
157
# Companies: raising finance
How is the priority of:
(1) fixed charges over the same asset
(2) floating charges over the same asset
determined?
**Both** based on the date of their creation, as long as they were validly registered at Companies House
158
# Companies: raising finance
What is the priority of a fixed charge and a floating charge in the same asset?
As long as it is properly registered, **a fixed charge will take priority over a floating in the same asset**, even if the floating charge was created and registered first
159
# Companies: recordkeeping, filing, disclosure
A private company is required to keep a register of what four groups and what one thing?
## Footnote
Where are the registers required to be kept, to be inspected by whom?
1. Members
2. Directors
3. Secretaries
4. People with significant control
5. Charges against the company's assets
## Footnote
At the **company's registered address**, to be inspected by members for free and the public for a fee
160
# Companies: recordkeeping, filing, disclosure
Which registers can the company elect to keep at Companies House?
Registers of directors and members
161
# Companies: recordkeeping, filing, disclosure
What is the minimum time minutes of shareholders' meetings must be kept and made available for inspection?
10 years
162
# Companies: recordkeeping, filing, disclosure
What is a confirmation statement and is it always required?
An annual update from the company confirming that the information held by Companies House is up to date, and must be filed even if there have not been any changes
## Footnote
It is a criminal offence to not file the confirmation statement within 14 days of the end of the company's accounting period
163
# Companies: recordkeeping, filing, disclosure
What two things must be included in the accounts?
## Footnote
What **view** of the company must the accounts give?
1. Balance sheets on the last day of the accounting period
2. Statement of profit and losses
## Footnote
Must give a **true and fair view** of the company.
164
# Companies: recordkeeping, filing, disclosure
Who must approve that the accounts reach this standard?
The board
165
# Companies: recordkeeping, filing, disclosure
Within what time period must special resolutions, as well as ordinary resolutions to allot new shares or buy back shares be filed with Companies House?
## Footnote
Where a special resolution to reduce share capital is filed with Companies House, what must accompany it?
15 days
## Footnote
A **statement of solvency**
166
# Companies: recordkeeping, filing, disclosure
What four things must a company disclose on its letterhead?
## Footnote
What must a company do if it displays the name of one director on its letterhead?
1. Registered name
2. Part of the UK it is registered
3. Company number
4. Registered office address
## Footnote
Display the name of all of them
167
# Companies: recordkeeping, filing, disclosure
What **three** things must a *partnership* display on its letterhead?
1. Name of the partnership
2. Name of each member
3. Business address
168
# Insolvency
What is an individual voluntary arrangement?
Agreement between individual debtor and all creditors where each agrees to accept less than is owed
169
# Insolvency
What is the advantage of an IVA to a (1) debtor and (2) creditor?
## Footnote
What **must** a debtor do before agreeing to an IVA?
1. They can avoid the restrictions and qualifications they would be subject to if made bankrupt
2. They may receive more money than in a bankruptcy proceeding, and more quickly
## Footnote
Take professional advice
170
# Insolvency
What is the protection offered by the court order received by an insolvency practitioner preparing and filing a statement of affairs on behalf of the debtor?
No bankruptcy proceedings can be brought when the order is in force
171
# Insolvency
What percentage of unsecured creditors must agree to the agreement before it is binding on **all** ordinary unsecured creditors, whether they voted for it or not?
## Footnote
Who are not bound?
Majority in number and 75% in value
## Footnote
Preferential and secured creditors
172
# Insolvency
Who are two examples of a preferential creditor?
1. Employees owed waged in the last four months
2. HMRC in respect of VAT, PAYE, and National Insurance
173
# Insolvency
What may the insolvency practitioner *(now a supervisor)* or a creditor do if a debtor does not adhere to the IVA, or if the debtor provided false or misleading information?
Petition for the debtor's bankruptcy
174
# Insolvency
What is bankruptcy?
## Footnote
What period after a bankruptcy application is a debtor deemed discharged from the debts?
A judicial process in which assets of a bankrupt debtor are **automatically** passed to a third party, the *trustee in bankruptcy*, who liquidates the assets and uses the proceeds to pay off as many debts as possible, in a strict order set out by legislation
## Footnote
One year
175
# Insolvency
What are the three ways a debtor can be placed into bankruptcy?
1. Debtor applies online to declare themselves bankrupt
2. One or more unsecured creditors owed at least £5,000 can apply
3. Supervisor or creditor can apply if debtor has breached IVA
176
# Insolvency
Put simply, what are the two ways a creditor who applies to put a debtor in bankruptcy can prove that they are insolvent?
1. Debt immediately payable and debtor does not have the funds
2. Debt payable in future, and debtor has no reasonable prospect of being able to pay
177
# Insolvency
What are the three specific ways in which insolvency can be demonstrated?
**Insolvent if** debtor owes **£5,000** or more and:
1. Creditor makes a **statutory demand for payment**; debt **not paid within 3 weeks** or debtor does not apply to set aside demand within 3 weeks
2. Creditor seeks to execute on the judgment; **attempt to execute judgment fails**
3. Debt owed in future, and creditor serves a statutory demand of proof of ability to pay; **debtor does not show reasonable prospect of being able to pay**
178
# Insolvency
What assets is a bankrupt able to retain?
* Assets needed for day-to-day living, including furniture
* Salary, and
* Any tools required for their job
179
# Insolvency
Although the bankrupt's interest in their home passes to the trustee, what are the four interests, which if they exist in the home, mean that it cannot be sold within the first year without a court order?
## Footnote
What happens after one year?
1. Held in joint names
2. Equitable interest of spouse
3. Right to occupy
4. Children under 18 in occupation
## Footnote
The interests of creditor override those interests in the home
180
# Insolvency
What three things is a debtor in a bankruptcy restricted from doing, until discharged?
1. Apply for credit over £500 without disclosing the bankruptcy to the lender
2. Act as company director or be a partner
3. Trade under another name without disclosing the bankruptcy
181
# Insolvency
What is the order of priority in a bankruptcy distribution?
1. Costs of the bankruptcy
2. Secured creditors with a fixed charge
3. Preferential creditors
4. Secured creditors with a floating charge
4. Unsecured creditors
5. Connected unsecured creditors
## Footnote
Debts abate equally within a class
182
# Insolvency
What conduct will prevent the bankruptcy from being discharged after the usual one year?
## Footnote
What is the label given to the debtor, and how long does this bankruptcy last?
If the bankruptcy was caused by **dishonesty, negligence, and recklessness**
## Footnote
Debtor is **culpable**, and a culpabe bankruptcy lasts 15 years.
183
# Insolvency
What occurs if a partner is made bankrupt in a:
(1) partnership at will
(2) partnership for specified term/undertaking?
1. Partnership is dissolved and the trustee receives any money due to the insolvent partner
2. Partnership will continue if the remaining partners purchase the bankrupt partner's interest from the trustee
184
# Insolvency
What occurs if a partner in an LLP is made bankrupt?
The partnership does not terminate, but the trustee will usually sell the interest to the remaining partners
## Footnote
The bankrupt partner cannot participate in the management of the LLP
185
# Insolvency
Are the insolvency procedures for limited companies and LLPs broadly the same?
Yes, and reference to company will probably apply to LLP
186
# Insolvency
What are the six insolvency options available to companies?
1. Receivership
2. Restructuring plan
3. Moratorium
4. Administration
5. Company voluntary arrangement
6. Liquidation
187
# Insolvency
What is fixed asset receivership?
## Footnote
Is proof of insolvency needed? What are the most common breaches giving rise to fixed asset receivership?
Where a secured creditor exercises their right to appoint an administrative receiver because a company has breached a term, through which the receiver takes possession of the charged asset and usually disposes of it to use the proceeds to pay back the creditor
**Receiver owes the duty to the particular creditor**
## Footnote
No need to show insolvency. Common breaches are failure to pay interest or capital of a loan
188
# Insolvency
Why does fixed asset receivership usually place a company into insolvency anyway?
Because charges are usually granted against assets which are crucial to the functioning of the business, e.g. buildings and machinery
189
# Insolvency
What percentage of creditors must agree to a restructuring plan, and does it bind those who do not vote for it?
75% in value of the unsecured debt, and binds all if this threshold is reached
190
# Insolvency
What three things are prohibited when a company seeks a **moratorium**?
1. Creditors cannot take action to enforce their rights or launch proceedings
2. Landlord may not forfeit lease of company premises
3. Floating charge holder may not crystallise charge
191
# Insolvency
What is the exception to the payment holiday a company enjoys during a moratorium?
## Footnote
What companies cannot avail of a moratorium?
Wages and other payments to employees, including holiday pay
## Footnote
Companies subject to insolvency proceedings currently or within the last 12 months
192
# Insolvency
What is administration?
## Footnote
What is the difference between an administrator and a receiver?
Procedure whereby an administrator *(independent insolvency practitioner)* can run, reorganise, or sell the company as a going concern
## Footnote
An administrator acts in the interests of creditors as a whole
193
# Insolvency
What are the three aims of an administrator, in order of importance?
1. Rescue the company
2. Achieve a better result for creditors than if it was wound up
3. Realise property to distribute to creditors
194
# Insolvency
What are the two ways an administrator can be appointed to a company?
1. Court appointment
2. Company, directors, or holder of a qualifying floating charge file certain documents in court
195
# Insolvency
If the court appointment is used, what two things must the court be satisfied of?
1. Company unable to pay debts
2. Administrator likely to achieve better result for the creditors than liquidation
196
# Insolvency
If the company or directors appoint the administrator, who must they notify and what can *they* do?
They must notify any qualifying charge holders, who can agree or appoint an alternative administrator
197
# Insolvency
What is a **qualifying** floating charge?
Charge over the **whole** or **substantially whole** of the company's assets, containing a provision enabling to holder to appoint an administrator if a breach allowing the creditor to terminate their agreement occurs
198
# Insolvency
What are four powers of an administrator?
## Footnote
Generally, what proportion of the value of the creditors must agree to an administrator's proposals?
1. Take control of and sell company assets
2. Bring and defend legal proceedings on behalf of the company
3. Carry out the company's business
4. Remove and replace directors
## Footnote
Majority
199
# Insolvency
What are the effects of the moratorium which gets imposed during administration?
1. Restricts ability of third parties to enforce their rights
2. Prevents commencement of insolvency proceedings
200
# Insolvency
What is a Company Voluntary Arrangement?
## Footnote
Only who is bound by a CVA?
Formal arrangement agreed by the company’s creditors & members to achieve an agreement re its debts
Basically an IVA for companies, subject to the same 75% approval threshold and binding on dissenters if passed
## Footnote
Unsecured creditors
201
# Insolvency
What two groups can **start** a voluntary liquidation, and what are the two types?
Voluntary liquidation can be **started** by the **members** or **directors**, and the two types are:
1. Members' voluntary liquidation
2. Creditors' voluntary liquidation
202
# Insolvency
In a Members' Voluntary Liquidation, who controls the process from start to finish, and what are the two requirements for it to be available?
The **members and directors** control it and to be available:
1. The company must be **solvent**, and
2. The individuals involved in running the company must wish to wind it up
203
# Insolvency
What are the steps in a MVL?
## Footnote
Within what time period after the final step of a MVL is the company dissolved?
1. Directors make statutory declaration of solvency
2. Shareholders pass a special resolution to start the liquidation and an ordinary resolution to appoint the liquidator
3. Appointment of liquidator is advertised in London Gazette and Companies House is notified
4. Liquidator investigates, and asks creditors for full details of debts
5. Liquidator collects company assets, liquidates them, and distributes funds to creditors in the statutory order
6. Final accounts are sent to creditors and members, and final return is filed at Companies House
## Footnote
Three months
204
# Insolvency
In a Creditors' Voluntary Liquidation, who starts the process and who takes it over?
Started by the directors and then taken over by the creditors
205
# Insolvency
What is the main reason the directors would commence a CVL?
The directors are advised the company is insolvent, and do not wish to be personally liable for the debts of the company through fraudulent or wrongful trading if they continue to trade
206
# Insolvency
What are the steps required within the company to begin a CVL?
## Footnote
Within what time period after the final step of a CVL is the company dissolved?
1. Directors resolve that the company is insolvent and should be placed into liquidation
2. Shareholder pass special resolution to start the liquidation
3. Resolution is advertised in the London Gazette
4. Directors take certain steps outlined in next card
5. Rest of the process is the same as MVL: appointment advertised, liquidator investgiates, liquidates, and pays creditors
## Footnote
Three months
207
# Insolvency
What must the directors do within 7 days of the shareholder's resolution to liquidate being placed in the London Gazette?
Prepare a statement of company affairs and send it to the company's creditors
208
# Insolvency
What must any creditor be able to show to petition the court to wind up a company?
## Footnote
What will cause the court to dismiss the petition if shown by the company?
Creditor must show company is unable to pay debts
## Footnote
Court will dismiss if company can show it may **recover financially** or that the **debt** upon which the petition is based is **disputed**
209
# Insolvency
What is the order of priority in a liquidation of a company?
1. Costs of the liquidation
2. Secured creditors with a fixed charge
3. Preferential creditors
4. Secured creditors with a floating charge
5. Unsecured creditors
6. Connected unsecured creditors
7. Shareholders
## Footnote
Debts abate equally within a class
210
# Insolvency
What is a **preference**?
When a debtor **intentionally** does something that puts a creditor or other similar party in a **better position** on liquidation/administration than they otherwise would be
211
# Insolvency
When is intent to prefer *presumed*?
If the preference is to a **connected person**, e.g. director, their spouse, other close family member or associate
212
# Insolvency
To constitute a preference which can be clawed back, within what time limit of the onset of insolvency must it have occured for:
1. Non-insiders, and
2. Insiders?
## Footnote
Is it required that the preference **cause** the insolvency?
1. Six months
2. Two years
## Footnote
No
213
# Insolvency
What is a **transaction at an undervalue**?
## Footnote
What is the insolvency requirement for a transaction at an undervalue by a **company**?
When property that would otherwise have formed part of the bankruptcy estate is gifted or sold for significantly less than market value within **two years** of a **company's insolvency** or **five years** of an **individual's bankruptcy**
## Footnote
A company must have been insolvent at the time of the transaction, or became insolvent as a result
214
# Insolvency
In the context of a transaction at an undervalue by a company, when is insolvency presumed?
When the transaction is made to a connected person
215
# Insolvency
Regarding a transaction at an undervalue made by an insolvent **individual**, there is no requirement to prove insolvency if a transaction is made within what time limit before insolvency?
## Footnote
In the context of a transaction at an undervalue by an individual when is insolvency always presumed?
Two years
## Footnote
If a transaction is made to a close relative or business associate at any time
216
# Insolvency
What are the three defences available to a company for a transaction at an undervalue claim?
Transaction entered into:
1. In **good faith**
2. For the purpose of carrying on the business
3. With reasonable grounds to believe it would benefit the company
217
# Insolvency
What is one thing which will not amount to a transaction at an undervalue, and why?
Granting a security interest in a company asset, because this does not change the value of the company's assets
218
# Insolvency
When does the criminal offence of **fraudulent** trading arise?
When a director (or any other person who knowingly participates) carries on business of the company, knowing it is insolvent, with the **intent to defraud creditors**
## Footnote
'Any person' is a wide definition and includes banks, which may also be liable for fraudulent trading by virtue of their employees' knowledge.
219
# Insolvency
When does **wrongful** trading arise?
When, at some time before a company became insolvent, the directors **knew or ought reasonably to have known that was no prospect the company would avoid insolvency**, and **failed to take adequate steps to minimise losses for creditors**
220
In a wrongful trading situation, when does a director's duty shift and to whom does it shift?
## Footnote
What can a director show in defence to a wrongful trading claim?
The duty shifts from what is best for the *shareholders* to what is best for the **creditors**, once the director knows or ought reasonably to know insolvency is unavoidable
## Footnote
That they took every step with a view to minimising potential loss to creditors
221
In what situation is a floating charge **void** if given to (1) an unconnected person and (2) a connected person?
**Unconnected**:
1. If it was created for **no consideration** within **12 months** ending with insolvency ***and***
2. At the time it was created, the company was insolvent or became insolvent as a result
**Connected**:
If it was created for **no consideration** within **two years** ending with insolvency *(no insolvency step 2)*
