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Business and Employment Law > 8: Running a Private Company Limited by Shares > Flashcards

8: Running a Private Company Limited by Shares Flashcards

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2
Q

What does separate legal personality mean for a company?

A

The company is an independent entity, distinct from its shareholders.

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3
Q

What is a group of companies made up of?

A

A parent company and its subsidiaries.

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5
Q

What is the significance of the concept of separate legal personality?

A

It limits shareholders’ liability to their investment in the company.

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6
Q

What does piercing the corporate veil refer to?

A

Holding shareholders liable for the company’s actions.

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7
Q

Under what conditions might courts pierce the corporate veil?

A

When the company is a sham/façade hiding true facts or committing fraud.

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9
Q

What was the court’s decision in Adams v Cape Industries plc?

A

The court refused to pierce the veil and upheld separate legal entities.

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11
Q

How have claimants tried to impose liability without piercing the corporate veil?

A

By targeting directors personally for their actions under a tort.

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13
Q

What are the conditions where a parent company might owe a duty of care?

A

The parent has taken over management of the subsidiary’s activity, given relevant advice, or issued group-wide policies expecting compliance.

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15
Q

Under the Insolvency Act 1986, what constitutes fraudulent trading?

A

Any person who has run a company that becomes insolvent with intent to defraud its creditors may be held liable to contribute to its assets.

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16
Q

What is wrongful trading under the Insolvency Act 1986?

A

Directors can be liable to contribute towards the assets of the insolvent company if they should have realised that the company will become insolvent without minimising loss to creditors.

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17
Q

What does s33 Companies Act set out as the relationship between the members, company and the company’s constitution?

A

The constitution binds the company and its members as a contract.

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18
Q

If an outsider makes a good faith deal with the board of directors, which ends up being outside of the company’s constitutional abilities, do I have protection?

A

S40 CA 2006

Directors can bind the company in good faith dealings without outsiders, or authorise others to do so, without being limited by the company’s consitution. That means they will still be able to make deals with outsiders even if the constitution says they can’t.

It prevents the company from avoiding its obligations to people dealing with it by arguing that the directors were acting beyond their powers when entering into the transaction.

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19
Q

What is the usual role of shareholders and directors?

A

Shareholders own, directors manage the company.

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20
Q

What does MA3 state about directors’ power of management?

A

Directors have general authority to manage the company.

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21
Q

Under what circumstances can shareholders exercise power?

A

Consitutional decisions (changing name or articles)

Decisions where directors require shareholder approval/authority (deals with directors)

Decisions that can/must be taken by shareholders (removing directors/declaring dividends)

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22
Q

What is the key to shareholders’ power over directors?

A

The power to remove directors.

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23
Q

What does MA7 state about directors’ decision-making?

A

Directors’ decisions are made by majority vote.

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24
Q

How can a board meeting be called according to MA9?

A

Any director can call a meeting by giving reasonable notice or by authorising a company secretary to do so.

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25
Q

What does MA11 state about voting at board meetings?

A

Decisions cannot be made unless a minimum number of directors is present.

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26
Q

What are the exceptions to MA14 regarding conflicts of interest?

A

They will be counted as part of the quorum and have a vote if:

  • they are giving a guarantee to the company
  • they are investing in new shares being issued by the company
  • the company is making arrangements for benefits that help all employees and directors.
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27
Q

What is required under MA15 and s248 for board meeting records?

A

A written record of the meeting’s minutes must be kept for at least 10 years.

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28
Q

What does MA8 state about unanimous decisions of directors?

A

Decisions can be made without a meeting if all directors agree. They should be in writing either signed or agreed to in writing. They must be kept for 10 years.

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29
Q

How can shareholder resolutions be passed?

A

Either at a general meeting (GM) or as written resolutions (WRs).

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30
Q

What are the two types of shareholder resolutions?

A

Ordinary resolutions (ORs) and special resolutions (SRs).

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31
Q

In which format may notice be given for a general meeting (GM)?

A

In hard copy (by hand or post), electronic form, or via a website.

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32
Q

What is the minimum notice period for calling a GM?

A

14 clear days (not including day of notice or day of meeting, e.g. 1 March - 16 March.

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33
Q

What content must the notice of a GM include according to s311?

A

Time, date, place, and the business to be discussed, including the exact wording of any SR to be proposed and the rules around appointing proxies for shareholders.

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34
Q

What are the rules for attendance at general meetings (GM)?

A

All shareholders can attend in person or by proxy. Directors or auditors can attend and speak, but cannot vote unless they are also a shareholder.

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35
Q

What is the minimum quorum for a GM according to MA38?

A

Two members (or proxies).

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36
Q

How are votes taken at GMs?

A

By a show of hands (default) or a poll.

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37
Q

Who can call for a poll?

A

A poll can be requested by the chairman, directors, or 2 shareholders, or one shareholder with more than 10% of the shares.

This can be changed in articles, but not that it needs over 5 shareholders or more than 10%.

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38
Q

What happens in the case of a deadlock during a vote at a GM?

A

The resolution fails (chair does not have a casting vote like board meetings).

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39
Q

Are private companies required to hold an annual general meeting?

A

No, private companies are not required to hold AGMs unless their articles require it.

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40
Q

What is required under s355 for minutes of GMs?

A

Minutes of GM proceedings must be recorded and kept for 10 years.

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41
Q

How are votes on a WR calculated?

A

As on a poll at a GM, based on the number of shares held.

42
Q

What must the company do with copies of WRs according to s355?

A

Keep copies for ten years.

43
Q

What is the three-stage process for decision-making in a company?

A

Directors propose and resolve in board meeting,
Shareholders approve,
and the company implements (i.e. directors meet again to implement administration.)

44
Q

What options do shareholders have if they want to propose a resolution?

A

Shareholders with at least 5% of shares can propose resolutions (i.e. requisition a GM or require the circulation of a WR).

45
Q

Who can enter into a contract on behalf of a company?

A

An authorised persons. It doesn’t have to be a director and the authorisation could have come from their employment contract.

46
Q

What is the key point about authority in acting for a company?

A

The person must have proper authority.

47
Q

What does s44 set out regarding the execution of documents?

A

Documents must be signed by two authorised signatories (I.e. 2 directors or a director and the secretary) or the single director in the presence of a witness. Or the seal!

48
Q

What are the rules for using a company seal according to the Companies Act?

A

Use must be authorized by the directors, and the seal must be witnessed.

49
Q

Which resolution is needed to change a company name?

A

A company can change its name by special resolution.

50
Q

How can a company change its articles of association?

A

By passing a special resolution.

51
Q

What must be done to transfer shares according to the Companies Act?

A

Complete and register a stock transfer form (STF).

52
Q

When does a transferee become a shareholder?

A

Once the transfer is registered in the company’s books.

53
Q

When must directors register the transfer or provide a refusal with reasons?

A

Within two months of the transfer date.

54
Q

What happens to shares upon the death or bankruptcy of a shareholder?

A

Shares transfer to the shareholder’s personal representative or their trustee in bankruptcy - called transmission.

55
Q

What might the company’s articles allow regarding share transfers?

A

Allow automatic transfer upon death or bankruptcy.

56
Q

Can a company act as an agent for another person?

A

Yes, they can, only if the agent has authorised it to. That means the company avoids liability and doesn’t involve lifting the veil.

57
Q

What happens to objects clauses nowadays?

A

The objects clause (an old style of determining a company’s specific purpose) are now treated as part of a company’s articles of association.

58
Q

What are decisions where directors require shareholder approval/authority?

A

When the company enters large contracts with director or connected to director (substantial property transactions)

Loans by the company to a director or connected to a director

Issuing new shares in certain situations.

(Ultimate decision is the directors’, but shareholder decision is needed before going ahead)

59
Q

What does MA7 allow a single director of a company to do?

A

Make decisions without regard to the usual rules on decision-making by the directors.

60
Q

Can directors take part in a board meeting remotely?

A

Yes, MA10 allows directors to take part in a board meeting remotely, e.g. telephone or video conference.

61
Q

What is the minimum number of directors present in a board meeting called and how many is it?

A

A quorum - MA11 says 2 is the minimum.

62
Q

What is the usual way that votes are counted for directors?

A

Each director has one vote and it is a majority vote, i.e. if there are more votes in favour than against.

63
Q

What happens if the directors’ votes are equal?

A

The resolution will fail, so for 2 directors, the vote will fail if the vote is split.

64
Q

Who may get an additional vote?

A

The chair, by MA13, has an additional casting vote if the vote is equal. Many companies exclude MA13 for this reason, or avoid it by not appointing a chair.

65
Q

Can a director who has a personal interest in a proposed decision be counted in the quorum related to this decision?

A

No, they won’t count as one of the quorum and cannot vote on it (MA14).

66
Q

How can MA14 (conflict of interest) temporarily be suspended?

A

It can be temporarily suspended by an ordinary resolution of the shareholders.

67
Q

How many votes are required to pass an ordinary resolution?

A

A simple majority, i.e. more than 50% of votes. So 50% will not pass, it must be more.

68
Q

How many votes are required to pass a special resolution?

A

At least 75% of the votes must be case in favour for a special resolution to pass. So 75% of votes will pass.

69
Q

Which resolutions must have copies sent to Companies House?

A

Special resolutions

70
Q

Who calls the general meeting?

A

Directors, who require a board meeting before to resolve to call the meeting.

71
Q

Who requires notice of a general meeting?

A

Every shareholder
Every director
Company’s auditor

72
Q

If notice is given by post or email, when is it deemed to have been received?

A

48 hours after posting, so add 2 days to notice period if sending via post/email. (N.B. none in handing to person).

73
Q

When can a general meeting be called on shorter notice?

A

When it is agreed to by a majority in number of the shareholders holding at least 90% of the voting rights in the company.

74
Q

In a show of hands vote, when will a vote be passed?

A

1 shareholder = 1 vote. So over 50% for an OR, or 75% or more for a SR of the votes counted. Abstains are not counted.

75
Q

In a poll vote, when will a vote be passed?

A

1 shareholder = 1 vote for each share they hold. So over 50% of shares pass an OR, or 75% or more of shares pass a SR.

76
Q

When can you not do a written resolution?

A

To remove a director or the auditor. They need an opportunity to make their case to the members.

77
Q

Who circulates the WR?

A

Directors, for agreement by the shareholders.

78
Q

Is a board meeting needed for a WR?

A

Yes, directors must resolve to circulate the WR.

79
Q

Who must the WR be sent to and include?

A

-Sent to every member in hard copy/electronically.
- Include how to agree and the date by which it will lapse if enough votes in favour haven’t been given.

80
Q

When is the default lapse time of a WR?

A

28 days from the circulation date.

81
Q

Is the WR majority based on the total votes of eligible members or the majority of the total votes cast?

A

The total votes of eligible members - so not voting on the WR has the same effect as voting against it.

82
Q

What if the shareholders request a members’ WR but the directors do not circulate it?

A

The directors failure would be a criminal offence. Shareholders cannot do this themselves.

83
Q

How long do directors have to send out a notice of GM after being requisitioned to do so by shareholders?

A

Within 21 days of being notified of the requisition, then the GM must be within 28 days of that notice. (i.e. 7 weeks from req to meeting).

84
Q

When must a document be executed?

A

For deeds, stock transfer forms and transfers of land.

85
Q

What is the name of the form to notify the Registrar of Companies for a name change?

A

Form NM01 (this is in addition to a copy of the SR going to Companies House)

86
Q

What does the Registrar send back after a name change and when does it start from?

A

A certificate of incorporation on change of name. On the date the certificate is issued.

87
Q

After a SR passing a name change, do the directors have to have another board meeting?

A

No, as the name is actually changed by the GR, but they may do it to resolve sending the documentation to Companies House etc.

88
Q

How many days after passing an SR to change articles must the copy be sent to the Registrar?

A

No more than 15 days after amendment.

89
Q

What must be sent with the STF to HMRC?

A

Payment of any stamp duty tax, unless there is none, then there is a certificate on the back of the STF. HMRC will stamp and send back.

90
Q

Can directors refuse a share transfer?

A

Yes, they can.

91
Q

What is the right of pre-emption?

A

The right to offer the shares to the existing shareholders first, before giving them to outsiders.

92
Q

Until the transfer of shares is registered, what happens to the shares?

A

They are held by the transferor on trust for the transferee, incl. dividends and exercise the votes in accordance with transferee’s instructions.

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