BLP Random Flashcards
What resolution should a company with unamended model articles pass to change the name of the company?
Special resolution - 75% of the votes.
When is a company incorporated?
When the certificate of incorporation is issued.
Who is liable for contracts entered into on behalf of the company before the certificate of incorporation is issued?
The person purporting to sign a contract on behalf of a company which has not yet been incorporated will be personally liable for the performance of the contract.
Solely & personally liable if purported to sign on behalf of the company not yet incorporated.
Liability for partnerships
1) contract - jointly liable
2) tort - jointly & severally liable
Subject to P° Agreement
What is the list of documentation to send to Companies House for incorporation of a new company?
- The application for registration (Form IN01);
- the Memorandum;
- the incorporation fee;
- (and if amended or tailored articles) Articles of Association
for Companies House.
Loan to directors require
Ordinary Resolution of SHs
Fastest way to obtain SH approval (OR) in a private ltd company
WRITTEN RESOLUTION
bcs
If approval is sought at a GM, a written memorandum needs to be displayed at the registered office for 15 days ending with the date of the GM.
A short notice GM is therefore not beneficial since it would only save one day.
The quickest way to obtain the shareholder approval is therefore to use a written resolution, since the memorandum may be attached to the written resolution and the 15-day display requirement is not applicable.
The written resolution will be passed once shareholders representing over 50% of the total voting rights sign it.
What is the best claim for a shareholder removed as a director and employee in a quasi-partnership company?
A quasi-partnership exists where a private company operates as a small, closely held entity based on mutual trust and confidence among shareholders (e.g., a company with equal shareholder-directors).
The individual should pursue a claim for unfair prejudice under section, as the company is likely to qualify as a quasi-partnership. The removal may violate their legitimate expectation to participate in the company’s management.
What is wholly-owned subsidiary exception regarding loans to directors?
if the subsidiary (Company A) is wholly owned by the holding company (Company B), the subsidiary itself does not require separate shareholder approval.
Instead, the holding company’s shareholders must pass an ordinary resolution to approve the loan.
When will the requirement to disapply pre-emption rights by special resolution be required in allotting new shares?
Where (new) class of shares to issue are EQUITY SECURITIES
If the shares both capped as to the dividend and capped as to the capital, they are NOT equity securities, and do not require disapplication.
If shares capped as to one or not capped at all they ARE equity securities and pre-emption rights must be disapplied.
What are the approvals to seek when issuing new class of shares in a private company?
- An ordinary resolution to give directors authority to allot the shares,
- a special resolution to
disapply pre-emption rights and - a special resolution to amend the articles.
How can pre-emption rights be disapplied?
Special Resolution ALWAYS
1- general disapplication by SR in the articles
2- Private companies with 1 class of shares can disapply by SR to imply a provision permanently in the Articles.
3- specific disapplication: in relation to a specific allotment issued for a particular person or as consideration for specific purpose by SR
4- Subsidiary private companies by way of provision in the Articles permanently by SR
Who resolves to allot the shares and when?
Directors by board resolution
(after obtaining authority, disapplying PE if necessary, and after SR amending AoA)
When will a GM be NOT needed in advance of Board Meeting to allot new shares?
- has no limit in its Articles on the number of shares which can be issued by the company; and
- does not require directors’ authorisation because the company is a private company with only one class of shares and there is no restriction in the company’s Articles OR has already given the DS authority to allot shares; and
- is issuing the shares to existing shareholders in proportion to their existing shareholdings and follows the procedure
or
* has the relevant class rights in its Articles. & 2,3
After internal matters (approvals, resolutions, BM) are completed for the allotment of shares;
What documents need to be sent to Companies House and When?
1- copies of resolutions and amended articles within 15 days
2- company forms to be sent
- return of allotment (Form SH01) and statement of capital within 1 month
- if PSC changed as a result of the allotment relevant forms PSC01, 02, 04, 07 within 1 month
After internal matters (approvals, resolutions, BM) are completed for the allotment of shares;
What are the administrative matters to attend to?
1- Copies of resolutions and amended articles to be sent to Companies House within 15 days
2- Company forms to be sent to Companies House within 1 month
o Return of allotment (Form SH01) and statement of capital within one month
o If the persons with significant control have changed as a result of allotment, the relevant forms (PSC01, PSC02, PSC04, PSC07)
3- Updating company registers
o Update register of members within 2 months of the allotment.
o Update PSC register if necessary
4- Share certificates
o must be prepared and sent to new shareholders within 2 months of allotment
Legal and equitable ownership of allotted shares
1) beneficial title passes on the execution of the stock transfer form
2) legal title passes on the registration of member in the register of members by the company
=> Co must send share certificates in the name of new SHs within 2 months
How to disapply the cap on the amount of shares that could be allotted for a company incorporated under CA 1985?
Ordinary Resolution
Form for allotment of shares sent to Companies House
Form SH01
Can the director of a private company with only 1 class of shares allot new shares without obtaining authority?
YES - ONLY where new shares will be issued of that same class.
For all other companies and classes of shares, D is required to obtain approval by OR by the SHs.
When does transmission of shares occur?
- death of SH
- bankruptcy of SH
Who can recommend dividends to be paid?
(final dividends)
ONLY the directors, if Co has sufficient distributable profits.
Declared by OR of SHs.
What is the most appropriate form of security interest for a bank to take over vehicles, which are the most valuable assets of the company, held for sale by a company?
A floating charge is the most appropriate form of security for the vehicles,
- as they are part of the company’s stock-in-trade (fluctuating assets over time)
- as they are most valuable assets
Pledge =/= Lien
Pledge - lender takes possession of the asset until the debt is paid
Lien - lender takes possession of the asset until the debt is paid in relation to carrying out a service (eg. mechanic, garages for cars)
Capital Loss rule
(Corporate tax)
Capital losses can only be set off against chargeable/capital gains.
- Can be set off against capital gains in the current year;
- They cannot be carried back to a previous year.
- They can be carried forward if they haven’t been already used for setting off carried forward trading losses.
—> max 50% of the unrelieved gains can be set off if the capital gains is in excess of the available ‘deductions allowance’ (£5 m - for trading losses carried forward)
- Capital losses can be carried forward indefinitely - if HMRC notified of losses within 4 years
Trading Losses rules
(Corporate Tax)
1) Can be set off against all other profits (both income and capital gains) in the same accounting year (claim made within 2 years).
2) If trading losses cannot be used in whole or part against current profits, they can be carried back against taxable profits (again, both income and capital).
Condition = Co must have been carrying on the same trade in both years
3) if there are still trading losses unused, they are automatically carried forward and set off against TTP.
The Co can use carried forward losses against taxable profits up to £5 million in each accounting period (=DEDUCTIONS ALLOWANCE)
—–> if Co have unrelieved profits in excess of deductions allowance for that period (over £5m), carried forward losses may be used to relieve a max 50% of the unrelieved profits = LOSS RESTRICTION
Deductible expenditure can reduce income profits if :
If
- it is incurred wholly and exclusively for the purposes of trade; and
- is not prohibited by statute; and
- is of an income nature
Capital allowance can reduce
Income receipts
=> on qualifying expenditure P&M
Main rate:
Main rate 18% on P&M can be deducted on a reducing balance basis for each year.
=> the value of P&M is reduced by 18% for that year
=> that value referred as ‘tax written down value’
Annual investment allowance:
Deducts 100% of expenditure on new/used/refurbished P&M up tp £1m
==> the excess over £1m will be subject to 18% allowance
(includes P&M, R&D, long life assets, cost of construction of commercial buildings)
A private limited company made a trading profit and a capital loss in its CURRENT accounting period.
In the PREVIOUS accounting period, the company made a chargeable gain.
What best describes how the capital loss can be used to reduce the company’s corporation tax liability in the current accounting period?
The capital loss cannot be set off against the trading profits in the current accounting period and it cannot be set off against the chargeable gain in the previous accounting period.
It can only be set off against chargeable gains in subsequent accounting periods
(- or current AP but it doesn’t exist in the Q).
What are qualifying loans to reduce income tax for individuals?
When are they deducted?
Interest paid on qualifying loans are deducted from total income to calculate NET INCOME.
(pension contributions also deducted)
qualifying loans:
- loans to buy an interest in a partnership
- loans to contribute capital or make loans to a partnership
- loans to buy shares in/or make a loan to a ‘close’ company
- loans to buy shares in an employee-controlled company or invest in a co-operative
Close companies taxation effect for transactions in securities
LOAN TO A DIRECTOR-SH
(debt finance - close companies - tax)
When the loan is written off, the tax paid by the company to HMRC wil be refunded to the company. AND
The shareholder will be deemed to have received a dividend equal to the amount of the loan written off.
SPECIAL TAX AVOIDANCE RULES.
HMRC advance clearance is advised;
Loans to participators in a close company - tax effect
Company must pay corporation tax to HMRC on the amount of the loan, calculated at the rate of income tax payable on dividends by higher-rate taxpayers.
Tax must be paid within 9 months and 1 day after the end of the accounting period (that the loan is made).
When the loan is repaid, written off, satisfied or waived, the close company will claim a refund of the tax paid.
If the loan is written off/waived, participator is deemed to receive a dividend equal to the amount of the loan written off/waived.
If paid in full, no tax need to be paid by P.
Can annual exemption for individuals be carried forward?
NO - only for the current year
Business asset disposal relief
Individuals CGT
Lifetime allowance for each individual up to £1 mil charged at 10% (reduce rate).
Gains beyond £1m will be charged depending on the rate at which the individual pays CGT.
Applies to qualifying disposal of:
1- all/part of a trading business
* a trading business
* owned for min 2 years prior to disposal
2- assets in a business that used to trade
* owned for min 2 years before ceasing to trade.
* assets used in business when it ceased to trade
* be disposed of within 3 years of the business ceasing to trade
3- shares in a trading company
* shares owned for min 2 years before disposal
* Co must be a trading company for at least 2 years before disposal
* officer or employee of the Co, holds 5% of ordinary voting shares & entitled to at least 5% of profits available for distribution & 5% of the net assets on a winding up, at least for 2 years before disposal
4- shares in a company that used to trade
* shares owned for min 2 years before Co ceased to trade
* shares must be disposed of within 3 years of the company ceasing to trade
* officer or employee of the Co, holds 5% of ordinary voting shares & entitled to at least 5% of profits available for distribution & 5% of the net assets on a winding up, at least for 2 years before it ceased to trade
Not automatic, must apply on or before 31 jan following year of disposal.
Effect of CVA
If CVA proposal is approved by the requisite majority of unsecured creditors, it will bind all UNSECURED creditors.
CVA cannot bind secured creditors unless they consent.
CVA does NOT give rise to an automatic moratorium.
DESIRE TO PREFER
Rule
Voidable preference action
- Desire to prefer is presumed if the creditor is a connected person or associate of the Director.
- Defence to the voidable preference claim is the absence of a desire to prefer. Or, genuine commercial pressure may negate desire to prefer.
Best advice to directors as to what they should do to protect themselves from any personal liability if the company goes into insolvent liquidation.
(To ensure that the director does not incur liability for wrongful trading)
The director should ensure that they take every step to minimise losses to creditors.
This would include:
- raising concerns at board meetings,
- putting in place cost cutting measures,
- ensuring adequate up to date financial information is available, and
- seeking financial and legal advice.
Investor’s Relief - effect & conditions
Individual CGT
IR reduces the higher rate of CGT from 20% to 10% for gains arising on disposals of qualifying shares, subject to a lifetime limit of £10 mil.
Shares will be qualifying shares if the conditions are met:
1- shares are fully paid ordinary shares issued for cash consideration (issued after March 2016)
2- Company is (and has been since the issue of shares) a trading company or a holding company of a trading group.
3- At the time of issue, none of the company’s shares were listed on a recognised stock exchange.
4- shares held by the individual for at least 3 years continuously since issue (from April 2016)
5- the individual is not and have never been an officer or an employee of the company
What are the rights every SH have irrespective to their shareholding %?
1- receive a notice of GM
2- appoint a proxy to attend a GL in their place
3- vote at a GM
4- receive a dividend (if declared)
5- receive a copy of company’s accounts
6- inspect minutes and company registers
7- ask the court to prevent breach of D’s duties
8- commence a derivative claim
9- bring a petition for unfair prejudice
10- bring a petition for just and equitable winding up
5% or more
SH’s rights
1) require directors to call a GM (s303)
2) require the circulation of written statements of proposed resolutions to be considered at a GM
3) circulate written resolutions
Demand a poll vote -
shareholding
10% or more
SH’s rights
Over 25% shareholding gives right to
Block a special resolution
BUT note that s SR is passed by 75% or more of the votes.
By demanding a poll vote, they can block the SR.
Over 50% of shareholding gives right to
Block or Pass an OR
If SH has exactly 50%, they can block the OR but cannot pass OR alone.
However, if they have over 50% they can block and/or pass OR alone.
Impact of s303 notice given at the same time with the special notice by the SH for director’s removal
QUICKEST WAY - at the same time with giving special notice, SH will also serve s303 to the board and the board will have from then on 21 days to decide, if decided favourably GM must be held in 28 days from the date of calling the GM; if not, SH can call themselves within 3 months of the s303 request.
Special notice for removal of directors
For a removal resolution to be passed, ‘special notice’ must be given at least 28 clear days before the GM.
WR cannot be used to remove a director (or an auditor).
Directors’ obligation on receipt of a s303 request.
What will be the timeline in case of cooperation with notice convening GM?
On receipt of the s303 notice, Ds must:
- within 21 days decide whether to call a GM
- to be held on a date not more than 28 days after the notice convening the GM
TIMELINE
DAY 1 - unhappy SH serve notice (and already served special notice)
°
°
°
DAY 22 - Board had 21 days to decide whether or not to call GM
°
°
°
DAY 50 (latest!): GM takes place - if the Board decides to call a GM, it must be held within 28 days from date of calling the meeting
If the directors fail to call a GM, all of the shareholders who can call the GM?
SHs who submitted the request or any of them representing over 1/2 of the voting rights of those submitting s303 notice.
IF they call themselves the GM, it must be called no fewer than 14 clear days’ notice AND held within 3 months of the date the directors received a s303 request.
Timeline where the Board does NOT co-operate with s303 notice
(assuming special notice have already be served)
TIMELINE
DAY 1 - unhappy SH serve notice (and already served special notice)
°
°
°
DAY 22 (Latest) - Board had 21 days to decide whether or not to call GM
°
DAY 23 - Board loses control of the process
(Loses control BCS decided to not to co-operate or didn’t decide)
°
°
°
DAY 38 - (earliest) SHs will call GM on normal notice (14 clear days’).
GM must be held within 3 months of s303 request.
——————————————————if the SHs are forced to call the GM themselves, they can recover their reasonable expenses for doing so from the company, and the Co in return then recoups the expenses from Ds (or their remuneration).
Changes to a Shareholders’ Agreement will require
the unanimous approval of all parties to the agreement.
If the LLP’s situation resulted in an insolvent state and unpaid debts.
And during a member’s meeting, it has been decided that the future of LLP is not financially viable and it is necessary to wind up its affairs.
What is the method by which LLP brings its business activities to an end?
CREDITORS VOLUNTARY LIQUIDATION
Bcs the company is insolvent.
How can a Company vary the rights of a class of shares?
If AoA of a company alters/amends the existing class rights, rights are varied, and the resolution to alter will not be effective unless:
1- varied accordingly to provisions in Articles for variation of those rights
OR
2- if articles do not contain such provisions by consent in writing of holders at least %75 of the issued shares of that class
OR
3- by means of a special resolution passed at a GM of holders of that class.
PROCESS FOR LLP’S CVL
(CREDITORS’ VOLUNTARY LIQUIDATION)
GM will pass a SR to place company in CVL and an OR to appoint a liquidator.
Within 14 days of passing the SR, creditors will be asked to approve the appointed liquidator or put forward their own. Creditors’ nomination prevails.
Director will draw up a statement of company’s affairs and send it to creditors.
FOR LLP
To initiate this process,
2- the LLP must publish a notice announcing the resolution to wind up the LLP in the London Gazette,
3- submit a copy to Companies House, and
4- then hold a creditors’ meeting
5- The appointment of a liquidator is made either by the LLP’s members or by the creditors during the creditors’ meeting.
6- The liquidator assumes control over the LLP and its assets to facilitate the winding up of the LLP’s affairs. Proceeds are used to satisfy creditors’ claims and the remaining funds are distributed amongst the members of LLP.
What should the solicitor representing the buyer do after receiving executed stock transfer form from the seller?
The solicitor then must:
1- send the form, along with cheque for due stamp duty tax to HMRC within 30 days of the effective date of transfer.
2- after the form returns stamped, the buyer’s solicitor must send the stick transfer form to the company.
This is BCS buyer of shares by returning the form will ask for registration of the shares.
When a transfer of shares has been lodged with the company, it must either:
(assume that stock transfer form is duly completed, executed and stamped)
- register the transfer
or - give the transferee notice of refusal to register the transfer, together with its reasons for the refusal, as soon as practicable and in any event within 2 months after the date on which the transfer is lodged with it.
The company must complete and have ready for delivery the new share certificate within the same period (2 months).
The transfer of shares (or where a new shareholder joins the company) must also be reported on the next annual confirmation statement to Companies House.
BUT no need to send a copy of the share certificate to CH or HMRC.
If there is a change in the PSC, then update the PSC register and send the form to the CH. (for the change 25% or more of shares must be transferred)
The directors of a private company cannot exercise the power to allot shares, UNLESS:
- the company only has one class of shares (s. 550, CA 2006);
or - where a company has multiple classes of share or an allotment would create multiple classes, the directors are authorised to do so by the articles of association or a members’ resolution
A private ltd company -with multiple classes of shares- will allot a new class of shares and this will result in prejudice of a minority SH and dilute the existing shareholding.
Can Directors allot shares in this case?
What can minority SH do?
The directors can allot the shares if authorised by an ordinary resolution.
Minority SH cannot stop D from alloting new shares.
But later if there is a prejudice, might bring a claim against the company after.
Again this doesn’t change the fact that D can issue the shares provided that D is authorised by OR.
Bushell v Faith clauses - weighted voting rights
to exercise their right:
To Trigger Weighted Voting Rights: A poll vote must be demanded.
SH would demand a poll vote to exercise the weighted voting rights provided under the clause.
It does not apply in a vote by show of hands.
An individual, owning 4% of the shares in a private limited company, approaches the company requesting a copy of its register of members. The managing director is hesitant to disclose this information.
Is the shareholder entitled to a copy of the register of members?
The person has the right to receive a copy of the register of members.
To refuse the request, the company must show that the request is not made for a proper purpose (ss. 115–117 CA 2006.
Rollover Relief for Replacement of Business Assets
Chargeable gain - corporate
Defers tax on gains from the sale of qualifying assets by reducing the acquisition cost of replacement assets.
* Replacement Asset Purchase Period: Must be within 12 months before or after 3 years of the sale of the original asset.
-* qualifying assets: land, buildings, fixed plant, machinery, ships and hovercraft, aircraft, Lloyd’s syndicate capacity and goodwill.
Tax is postponed until the replacement asset is sold and no new qualifying replacement asset is purchased.
CGT liability for individuals
What & how CGT rate applies if taxable income is lower than basic rate band but with the chargeable gains it exceeds basic rate?
Subtract the taxable income from the upper limit of the basic rate band.
Remaining basic rate band = Basic rate band upper limit - Taxable income.
This remaining basic rate charged at 10%
Above the basic rate band: Any remaining gains are taxed at the higher CGT rate (20%).
EFFECT OF ROLLOVER RELIEF IN COMPANIES
operates in practical terms by treating the purchase price of the replacement asset as having been reduced by the amount of the deferred gain so as to increase any gain made on the sale of the replacement asset.
Investors suffered financial loss after they bought a company that subsequently proved to be worth less than they had expected.
They sued the company’s accountants for negligently preparing the annual financial reports upon which they relied when acquiring the company’s shares.
In such circumstances, did the accountants owe a duty of care to the investors?
NO - because in preparing the financial statements the defendants owed a duty to the company and not to the general public.
Investors suffered financial loss after they bought a company that subsequently proved to be worth less than they had expected.
They sued the company’s accountants for negligently preparing the annual financial reports upon which they relied when acquiring the company’s shares.
WHAT WOULD MAKE ACCOUNTANTS LIABLE TO INVESTORS?
NEGLIGENT MISSTATEMENT - Hedley Byrne must be satisfied.
Either
- special relationship
- voluntary assumption of responsability
- reasonable relience
In this scenario, reasonable reliance would be more appropriate.
1. Communication: Advice must be communicated to an identifiable claimant or class. [investors here]
2. Purpose: Defendant must know the purpose of the advice. [ie. knew the nature of the transaction contemplated]
3. Reliance: Defendant must know or reasonably believe that the claimant will rely on the advice without independent inquiry for that purpose.
4. Detriment: Claimant must act upon the advice to their detriment.
When should the stock transfer form be sent to HMRC?
After the execution, together with the payment of the stamp duty within 30 days of effective date of transfer.
This is normally the date on which the form is signed.
Stamp duty typically paid by the purchaser.
When & who can refuse to register the transfer of shares?
Directors, when a transfer of shares has been lodged with the company.
They must give notice of refusal to register the transfer, together with its reasons for refusal; as soon as practicable and in any event within 2 months afte rthe date on which the transfer is lodged with it.
What conditions should be met for member to be classified as a ‘salaried member’ of a LLP?
The individual’s contribution to the LLP is less than 25% of the expected disguised salary payable by the LLP.
LLP taxation
Its members are individually liable for taxation purposes based on their respective shares of the LLP’s income or gains, similar to a general partnership.
An LLP is not subject to corporation tax.
BUT Corporate members, on the other hand, are subject to corporation tax.
taxation of a ‘salaried member’ of a LLP
A salaried member is an individual who is a member of an LLP and treated as an employee for income tax purposes if the conditions are met:
- capacity as member is to perform services to LLP
- disguised salary
- mutual rights and duties of the members and the LLP and its members do not give the individual significant influence over the affairs
- individual’s contribution to the LLP is less than 25% of the disguised salary which it is reasonable to expect will be payable by the LLP for the performance
On what ground an alteration/amendment to an article can be challenged by a minority shareholder?
(eg. to introduce new class of shares, or to dilute SH rights due to deterioration of relations, or minority SH’s shares to be forcibly purchased at their discretion)
The alteration can be challenged because it is not in the best interests of the company.
Alteration of articles must be in the best interests of the company as a whole, which will be proven if the reasonable person would believe the amendment to be in the best interests of the company as a whole.
The actions restricted by the moratorium include:
- no creditor can enforce its security against the company’s assets;
- there is a stay of legal proceedings;
- no winding up procedures can be commenced in respect of the company (unless commenced by D) and
- no shareholder resolution can be passed to wind up the company (unless approved by the directors); and
- no administration procedure can be commenced in respect of the company (other than by the directors).
