Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

1 > Business 1 > Flashcards

Business 1 Flashcards

1
Q

Sole Traders

A

No set-up costs
Unlimited personal liability
No formal structure
No Companies House filing/procedural reqs for running
Complete privacy - no publicly filed accts.
Self-financed- personal loans/capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Partnerships

A

No set up costs/formalities (formal agreement/intention unnecessary)
Unlimited joint liability - contract and joint and several liability- tort for debts/obligations (personal assets at risk)
Not a separate legal entity
No Companies House filing/procedural reqs for running
Complete privacy- no publicly filed accts
Contracts formed between 3rd parties and partners as individuals- personal loans/own cash for finance
In absence of verbal/written agreement - PA 1890 provides equal profits, jointly and severally liable for debts, and all can manage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Limited Liability Partnership LLP

A

Costs of incorporation incl. legal fees
All partners have limited liability, to the amount they agreed under the terms of their Part. Agreement
Separate Legal Personality- hybrid between partnership and company
Flexible structure- should be decided in formal written Members Agreement
Registered at Companies House
Required to file annual accts.
Can borrow in its own name + create floating charges

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

LLPs - Tax

A

Treated like partnership for tax purposes- partners taxed as individuals and taxed on their share of the LLP’s profits and gains (income tax)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Companies

A

Costs of incorporation (incl legal fees)
Liability of shareholders limited to any amount unpaid on their shares
Separate Legal Entity
Registered at Companies House
Must make filings + disclosures at CH (can be onerous for small companies)
More favourable for lenders- subject to regulation+disclosure. Can give more forms of security and issue shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Sole Traders - Tax

A

Profits taxed as income - income tax
gains on one-off transactions- capital gains tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Partnerships - Tax

A

Tax transparent- partners taxed on their individual shares of the profits (income tax) and chargeable gains (capital gains tax)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Listed companies

A

after converting to a plc, companies may seek listing of its shares on a recognised stock exchange
allows commercial investors to deal freely in their investments- attractive
must be a public company (but not all public list their shares)
listed companies often operate through private company subsidiaries which although unlisted, are subject to regulations for listed companies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Public companies

A

can convert from private to public to issue shares to the public (public limited company- plc)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Companies- Tax

A

Corporation Tax on Taxable Total Profits (Income profits + Capital Gains)
taxed at flat rate for current tax year, company is liable to pay
Double taxation- corporation tax on profits, then shareholders pay income tax on dividends received

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Private Companies

A

Majority of companies are private
majority are limited by shares
PC limited by guarantee- no share capital, non transferable, liability limited to agreed upon in the event of winding up - rare
Unlimited companies- unlimited liability for members- rare

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

same legislation CA 2006 applies to the smallest private company and the largest public listed company- exceptions

A

Private companies are banned from offering shares/bonds to the public at large- must convert to plc (public) to do so
Private companies can pass shareholder resolutions as written resolutions (s288 CA) except for removing a director/auditor), public companies cannot (GM needed)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Difference between private and public companies

A

Private- name ends with Ltd, minimum no. shareholders and directors is 1, no company secretary required, no AGM required, must have at least 1 share, requires Certificate of Incorporation to trade, cannot issue shares to public

Public- must end with plc, minimum no. shareholders 1 and directors is 2. Company secretary and AGM required
Min. £50k share capital issued, requires Cert of Incorporation and trading cert from Registrar showing min £50k/euro share capital unless re-registering private as plc, can issue shares to public

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Separate personality of a company

A

Salomon v Salomon - company responsible for its own debts
Company is a separate legal person from the date of its corporation. Shareholders have limited liability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Consequences of separate legal personality

A
  • company owns its own property
  • company enters into its own contracts
  • company sues and is sued on its own liabilities
  • company can separate out different elements of a business (by region/specialty/product)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Limited liability - companies

A

if a company becomes insolvent, shareholders are liable to lose the money they’ve invested but that’s the full extent - s74 Insolvency Act
- allows passive investment (no active role in management/risk to personal assets)
- reason entrepreneurs use llcs
- reason for groups of companies exist (separate riskier businesses out to prevent creditors coming after all of it)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Commercially strong counterparty can negate lots of the advantages of limited liability

A

contractually- banks may require guarantees from shareholder
creditors should assess financial viability from CH docs
courts can pierce the corporate veil

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Formation of a contract

A

Agreement
Intention and Capacity
Consideration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Terms of a contract

A

Each term is a condition (important term going to root of contract- breach can allow for damages and/or contract repudiation ) or warranty (less important- breach only allows for damages).
Terms can be express (oral/written) or implied (in fact - course of deal/ in law- courts/statute)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How does a contract come to an end?

A

Performance
Agreement
Breach
Frustration
Discharge by Expiry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Remedies for Breach of Contract

A

Successful claimant will be granted only one remedy.
Unliquidated damages - subject to remoteness/duty to mitigate loss, puts C in position of if no breach
Liquidated damages - predetermined sum in contract payable on breach (penalty clauses invalid)
Equitable remedies- specific performance, injunctions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Principal/agent relationship (company and its directors)

A

agent can form contracts on behalf of the principal
if agent acts within their actual authority (express/implied), principal is bound
outside actual authority but within apparent authority, principal is bound
outside both of these, principal is not bound but can ratify the agents acts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Commercial contract issues

A

Heads of Terms (memoranda of understanding- unbinding outline of intentions but carry moral force)
Letters of Comfort - loan finance deals, parent issues to bank for subsidiaries - debate over parent being liable for default
Battle of the Forms- each company tries to contract on their own standard terms
Conditions Precedent- stipulated conditions to be met before agreement comes into force
Assignment (benefits transferred to 3rd parties- assignor and assignee consent) + novation (benefit and burden passed to 3rd parties- all 3 must consent)
Contracts Rights of 3rd Parties Act 1999- exception to doctrine of privity of contract (need then to exclude 3rd party rights in contract)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

2 types of contract: agreement under hand and deed (deed less common)

A

advantages of deed- land deal necessitates a deed, 12 year limitation period (6 for agreement under hand), deed binding even if valuable consideration not given

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Execution of simple contract/agreement under hand

A

company - director authorised by board resolution (unless amended by that company’s articles)
if party is Individual - can sign without witness
partnership - 1 or more partners can sign

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Execution of deed
must be clear on its face that it is a deed and must be delivered

A

Company - signed by 2 authorised signatories (directors or company secretary), or use common seal, or single director in presence of witness
Individual - witnessed signature
Partnership - individual partner doesn’t have authority unless authority conferred by deed. must be executed by all partners (unless power of attorney has been transferred) and witnessed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

People in a company

A

Shareholders/members- owners, invest for shares/dividends, no management but voting rights for key decisions
Subscribers- first shareholders when company incorporated
Directors- officers/managers known as the board (in small private companies often shareholders too)
PSC (significant control)- details provided to CH, over 25% shares, can remove majority of board members

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Company’s constitution

A

main doc- Articles - bind company and its members
standard MA or amended
Articles must be viewed with CA 2006
any amendment must be made with the interests of the company as a whole (done through special resolution)
under CA 2006- companies have unrestricted objects (older companies have their objects clauses carried over unless amended)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Formation of company

A
  • from scratch
    send memorandum, articles (unless MA) , fee, form IN01 to CH
    company becomes legal entity from date of cert of incorporation.
  • shelf company conversion
    changes may have to be made (name + articles changed by SR, registered office, transferring members directors secretary)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Shareholders

A

become shareholders when member’s name entered in the company’s register of members
doesn’t need to be human being

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Shares

A

bundle of rights
most common is ordinary share (voting rights and share of profits when wound up if any)
shares in limited company must have fixed nominal value (min price for share- unit of ownership not value)
excess over nominal (market value)= premium
Issued share capital - total amount in value of all shares at any time (company’s accts.)
Shareholders don’t need to pay full amount due on their shares immediately (paid up share capital- amount outstanding can be called at any time- liability limited to this on winding up)
different classes of shares can hold different rights

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Allotment v Issuing

A

allotment- unconditional right to be included in company’s register of members
issued - one shareholder in company’s register of members and title complete

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Directors

A

agents of company, reponsible for day to day
cannot change company’s articles
private - min 1 , public min 2 (at least 1 must be natural person)
age limit of 16
executive (employee- require service contract determined by directors/shareholders if longer than 2 years- if this not approved by shareholders can be terminated at any time), non-executive (advisory), shadow, alternate, de facto director (not legal as not validly appointed)- all owe fiduciary duty
MA- appointed by OR of shareholders or decision of directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Directors decisions are Board Resolutions and passed in Board Meetings

A

Any director can call a BM
Reasonable notice necessary
Made by majority vote on show of hands at a meeting of directors
Deadlock- chairman of BM has deciding vote ( MA, even in company with 2 directors, chosen by the directors)
MA Quorum - never less than 2/is 2
Unanimous decision can be made without BM- share common view by any means
Matters outside directors powers (amending Articles) /that require shareholder approval (loan to director) need GM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Shareholder resolutions (where CA doesn’t specify then ordinary suffices)- General Meeting

A

14 days clear notice required (short notice if 90% nominal value of shares shareholders agree)
Ordinary resolution - more than 50% (min 51)
Special resolution- majority of 75% or more
show of hands- one vote per shareholder
poll vote- one vote per share owned
every SH has right to a proxy
Quorum is 2 SH/proxies (unless company only has 1 member)
OR and SR can be passed without GM using written resolution- method unless removing director/auditor (they has right to address GM)
2nd BM needed after convening GM to implement decision then Post Meeting Matters updating records
BM -> GM -> BM -> PMM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Written Resolution - private companies

A

BR - directors written resolution
only private companies can pass a ShareholdersR by WR
written OR- simple majority
written SR- majority with 75% of total voting rights
share capital- every member has 1 vote in respect of each share held by him when voting by WR
removal of director/auditor can’t be done by WR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Post meeting documentation + Procedure

A

all resolutions affecting constitution must be sent to Registrar of Companies within 15 days of passing
all SRs must be filed and some OR
Directors/secretary must update statutory books (minutes etc.- if not every officer liable for fine)
if correct procedure not followed throughout resolution, they may be invalid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Partnership existence

A

No intention necessary - s1(1)PA 1890- business in common with a profit making view
s2 : determining existence
- evidence of profit sharing (not conclusive- sharing losses also is)
- shared decision making
- loan does not create partnership - not being held out as partner makes P less likely
determined on facts
benefit- high degree of confidentiality

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Fiduciary relationship between partners

A

Overriding duty of good faith
Honest and full disclosure (s28 PA)
Unauthorised personal profit (s29.1)
Conflict of duty and interest (s30)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Personal liability - partnerships

A

No separate legal personality.
Contractual liability- joint liability for debts + obligations incurred whilst they are a partner s9
Tortious liability- joint and several - ss 10,12
if creditor obtains judgement against 1/no. partners, doesn’t discharge others Civil Liability Act 1978

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Liability of non- partners - new partners s17

A

s17(1) PA - new partner not automatically liable for debts incurred before they joined
s17 (2) partner still liable after they retire for debts incurred whilst partner (relief- partnership novates this w/ creditor’s consent s17(3))

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Liability of non-partners: former partners s36

A

Former partner can become liable for debts incurred after they left- 3rd party can treat all as jointly liable for new debt unless notified of change in partnership by :
Actual notice (s36.1)- 3rd parties who had actual dealings w/ former partner
Constructive notice s36.2- publish departure in London Gazette- for those who haven’t actually dealt with partner before
Former partner not liable for 3rd party debts who didn’t know them to be a partner before they left - no notice at all needed for them.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Liability of non-partners- holding out s14 PA 1890

A

Not a partner generally so no personal liability for partnership debts.
But s14 - non- partner may be personally liable on a partnership debt if they have held themselves out as a partner/knowingly allowed themselves to be held out
Require:
1. Representation to a third party that the person is a partner
2. 3rd Party’s action in response (giving credit/goods/services)
3. 3rd Party’s state of mind (believing the representation)
relates to liability incurred by non-partner not the liability of the firm

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Is a partnership bound by a contract which an individual purports to make on its behalf?

A

Partners- s5 PA- special statutory rule of agency applies only to partners (if not common law agency)
Non- partners- common law of agency (not s5)
If partners content with agent (partner or not) act (given actual/express/implied authority to bind the firm) then the firm will be bound

If not content- s5 - Partner has power to bind the firm if
- carrying on the kind of business done by the firm/in the usual way
Firm not bound- if 3rd party knew the partner was unauthorised or 3rd party didn’t know/believe the partner was a partner
Partner w/o actual authority may then be liable for breach of contract
Non-partner binding firm against partners wishes- must have apparent authority at common law (manager) or someone held out as partner - 3rd party believes and relies upon this representation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Taxation: Partnerships

A

Tax transparency:
taxed as individuals on share of income - income tax
partnership gains- capital gains tax on disposal of asset (each own fractional share dependent on Profit Sharing Ratio or equally if none s24.1 PA)
HMRC requires partnership to make a single tax return of its profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Partnership Agreement 1890

A

Fall back agreement
Most will be overridden by a custom express written agreement
Partners mutual rights and obligations can be varied by express/inferred unanimous consent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Common provisions in PA

A

Commencement + Duration
Name and place of business
Property
Capital, profits, losses
Drawings/Salary
Accounts
Dissolution
Duties/powers/restrictions on partners (Work input/roles/decision making/retirement/expulsion/appointment/non-compete)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Commencement and duration PA

A

Once s1(1) PA 1890 satisfied.
Modern agreements set out date for when rights/obligations commence
If continuing after fixed term w/o new agreement, old applies (s27 PA)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Partnership name and place of business

A

Must not include limited/LLP/plc, suggest connection w/ government
Place and nature of business should be set out

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Partnership Property

A

Each partner owns a share in the partnership’s property (no individual right to a particular asset)
Partnership property - question of fact depending on intentions of partners when acquiring it - partners should agree on this to prevent disputes
s20 PA - all property brought into partnership (by purchase or not) on account of the firm/for the purposes/in the course of business is partnership property
s21- all property bought with partnership’s £ is bought on account of partnership unless contrary intention shown

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Share in income, capital, profits and losses- partnerships

A

s24.1 - partners equally share capital and profits and contribute equally to losses
even if they have been unequal capital contributions (though potentially implied agreement )
Partners should therefore have an express provision in the agreement setting out a profit sharing ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Drawings/Salary- Partnership

A

Partners own the business and can take drawings of income profit (agreement should set out £ in any given period- w/o this partners entitled to share equally.
s24.6- without an agreement a partner is not entitled to a salary
Salary in addition to income profit should be set out in agreement then.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Work/role/authority- partnership

A

s24- every partner may take part in management
Agreement should set out requirements, whole time + attention to business and roles.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

Decision making - partnership

A

s24- decisions arising during the ordinary course of business decided by the majority (except change to nature of business / new partner/varying rights and duties of partners- unanimity)
Agreement should deal with this expressly.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

New partners/expulsion

A

New partners- s24- need consent of all existing partners
Expulsion- s25 cannot be expelled by majority unless all partners have previously expressly agreed that a majority can do this
without prior agreement, impossible to expel unless that partner agrees to it too (unlikely), agree on expulsion provisions in advance otherwise impossible to expel without dissolving partnership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

Partner leaving

A

If relying on PA 1890, partner leaving means partnership is dissolved (s26) -> technical dissolution (others can continue) but any partner can apply to court for old partnership to be wound up
To prevent dissolution: agreement should state explicitly that they will continue if partner leaves between remaining partners + details on how partner can leave without winding up (buying their share)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q
A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

Dissolution of partnership

A

subject to contrary agreement
Automatic-
- expiry of fixed term (s32a)
- completion of specific venture (s32b)
- death/bankruptcy of partner (s33)
By notice from any partner (where no fixed duration)- s26, s32c
Partnership business becomes unlawful - s34
Dissolution by court as last resort s35
Partners then can demand that assets of the business are realised
Subject to written partnership agreement, on winding up, after debts + liabilities paid, money/assets left will be distributed so that each partner is paid back to their original capital first (s44b3)
usually added asset surplus ratio (if not according to PSR, if none then equally)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

LLP Corporate charateristics:

A

Separate legal personality s1(2) LLPA 2000
Limited liability for members (subject to restrictions)
Accounts filed at CH like companies- no financial privacy
Can create floating charge over its assets
Some of CA 2006/ Insolvency Act 1986/ Company Directors Disqualification 1986) apply in modified way to LLPs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

LLP Partnership characteristics

A

No share capital/capital maintenance requirements
No distinction between members/management
Members can agree amongst themselves on profit sharing/management/decision-making/new members/retirement
Members Agreement (if one) like private partnership agreement
Tax Transparent
Corporate insolvency regime disadvantage- clawback rule- money taken out of LLP up to 2 years before winding up starts can be clawed back into pool of assets used to repay LLP’s creditors s214 IA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

LLP applicable legislation

A

LLP Regulations 2001 (insolvency/internal governance)
LLP Regulations 2009 (corporate law- CA 2006 w/ amendments)
Insolvency Act
Company directors disqualification Act 1986
(fradulent/wrongful trading )
Economic Crime and Corporate Transparency Act 2023

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

Formation of LLP

A

s2(1) LLPA- 2 or more persons/companies associated for carrying on business with a view to profit can incorporate LLP (commercial activity)
Form LL IN01 + fee -> CH, name (ECCTA compliant), appropriate registered address, registered email, designated members (CH can challenge any of this) -> Cert of Incorporation.
Disqualified directors cannot be members, LLP personnel identification verification req.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

LLP - filed information

A

CH- changes in name/office/email/membership, creation of charge, annual confirmation statement and accounts
In house- register of members, PSCs (over 25%/signif influence or control)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

LLP members

A

people/corporate bodies
must have at least 2 formally appointed members at any time (no max)
at least 2 must be designated members (signing accts on behalf of members, filing at CH, acting on behalf of LLP on winding up)
s4(3) LLPA- membership ceases on death/agreement with other LLP members/ notice to other members/ dissolution (if member is body corporate)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

LLP Agreement

A

no memorandum, articles
complete flexibility in management
LLP agreement is a private doc setting out formal procedures+ arrangements which the members have agreed to be the basis of the operation of their business
Members agreement unnecessary
w/o agreement, 2001 Regulations 11 default (PA 1890 does not apply to LLPs)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

Regs 7 and 8 of 2001 Regulations- default provisions

A

7.1 Members share equally in capital/profits
7.2 LLP indemnifies members for payments + personal liabilities incurred by them in ordinary + proper conduct of LLP business
7.3 every member can be in management
7.4 no member entitled to £ for management
7.5 consent of all members to become member/assign membership
7.6 ordinary decision making made by member majority, change to nature of business requires all consent
7.7 books and records at registered office - members can inspect
7.8 member must give true accounts/full info of LLP to any member/legal rep
7.9 member w/o consent carries on business of same nature competing w/ LLP- all profits owed to LLP
7.10 members have duty to account for benefits from transactions w/ LLP /its business/property
8 no implied power of expulsion of member by majority unless expressly in Members Agreement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

LLP taxation

A

Treated as partnership- LLP taxed but partners are
relief same as for partners- relief on interest/set off losses against other income
LLP assets- capital gains tax on disposal
LLPA gives relief from stamp duty on incorporation of partnership to LLP (transferring assets to LLP) mostly (strict tax avoidance conditions)
LLP can register for VAT, members can’t

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

Company’s constitution- memorandum

A

CA 1985- used to contain objects clause (limitation on capacity continues unless Articles amended)
CA 2006- unrestricted objects automatically, memorandum just a formality- must be filed on incorporation declaring wish to form company + that they are members

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

Articles- main constitutional document for company

A

Binds the company and its members as if covenants - all must observe, contract between company and members (enforced through company unlike Shareholders Agreement) s33
Standard CA 2006 Model Articles or amended by special resolution s21.1 CA 2006 (in the interests of whole company) or tailor made
Entrenched articles can be amended by agreement of all members or by court order
Articles always interpreted alongside CA 2006 (legality test - align with minimum provisions of CA 2006 (overriding right to demand poll vote s321)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

Incorporating company from scratch

A

Requires
1. Company memorandum
2. Articles (only if not MA)
3. fee (higher for same-day)
4. application for registration- Form IN01 (name, registered office, private/public, email, capital/initial shareholdings/ guarantee, officers, PSCs, statement of compliance and lawful purpose)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

Certificate of Incorporation

A

Name, company’s registered number, date of incorporation (when the company becomes a legal entity)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

Incorporating by converting a shelf company

A

Solicitor buys shelf company for client - set up in advance by agent
Change:
name (special resolution of shareholders -> Form NM01 + fee)
Registered office- Form AD01
Articles- special resolution and new articles filed at CH
Transfer subscribers (stock transfer form-> change register of members), directors form AP01 and secretary form AP03 at CH then first director resigns TM01 and secretary TM02 (after as 1 director always needed)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

Company name

A

Must not be offensive/same as another
Must end in limited/ltd (private limited company)
Approval if connection to government/public authority or sensitive words
Name must be displayed, Valid from date of new certificate of incorporation on change of name
(must not be misleading/foreign gov connection/computer code/deceive/criminal)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

Post- incorporation steps

A

Elect chairperson (if casting vote when tied- amend MA by SR -> file both at CH)
Accounting reference date- automatically last day of month of incorporation. Change at CH.
Auditor- appoint by board resolution - must file annual accounts
Tax registration - corporation tax, VAT ( PAYE +NI for employees)
Shareholder agreement- not required but useful

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
72
Q

Pre-incorporation contracts not valid, liable as personal contract against person signing as company (promoter) s51 CA

A

Company has no rights + obligations under contract unless novated (can’t be ratified as didn’t exist)
Contracts (rights of third parties) 1999 doesn’t apply (burden on 3rd party not just benefit)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
73
Q

Board resolutions

A

Directors in board meeting/writing (only private)
Day to day decision making
Simple Majority needed (over half)(MA) or unanimity for written
1 vote per director

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
74
Q

Ordinary resolutions

A

Shareholders
In GM/writing (only private)
Decisions that Articles/CA06 require OR
Simple majority needed (over half)
Show of hands: 1 vote per SH there/proxy (GM only)
Poll: 1 vote per share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
75
Q

Special resolutions

A

Shareholders
In GM/writing
Decisions that Articles/CA06 say require SR
At least 75% needed to pass
Show of hands: 1 vote per SH there/proxy (GM only)
Poll: 1 vote/share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
76
Q

Who can demand a poll vote?

A

Chairperson of meeting
Directors
2 or more with right to vote
Person with 10% of total voting rights or more
Can demand before GM/ before/ immediately after show of hands

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
77
Q

Written Resolution

A

Only private companies.
Proposed by directors/members- majority agree
1 vote per share
abstaining- voting against
Written OR- simple majority
Written SR- state it needs SR, 75% more of voting rights
Lapse date for receiving votes is 28 days beginning with circulation date
Cannot remove a director or auditor by written resolution
Record in minute book

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
78
Q

Board Meeting

A

Can be called by any director
Reasonable notice needed (what’s customary)
Quorum is 2 (MA)
Passed by majority on show of hands (1 vote per director)
Chair has casting vote in deadlock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
79
Q

General Meetings

A

Board convenes GM- gives notice
Private companies - 14 clear days notice required from Board convening (excluding day of meeting and day of notice)
Notice sent by email- served after 48 hours (count 14 from then)
Quorum is 2 shareholders (1 for single member companies)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
80
Q

Full notice GM process

A

BM 1 - held on reasonable notice to convene GM
14 clear days after- GM
BM2- reasonable notice- inform directors of SH decisions
PMMs - company secretary/director- file at CH + update internal records

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
81
Q

GM notice can be shortened if majority of members + holding 90% nominal value of shares agree

A

BM 1 to convene GM (majority + 90% agree on short notice)
GM immediately after BM 1
BM reconvened
(can all take place in 1 hour)
PMMs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
82
Q

Written Resolution procedure

A

BM -> WR (if shareholders present immediately after BM)-> reconvene BM 1
PMMs

or
BM1 -> WR (circulated until required % reply- 28 days lapse time)-> BM2
PMMs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
83
Q

Post Meeting Matters

A

Internal
- meeting minutes kept for 10 years
- update statutory books (register of members/directors/PSCs)
CH filing
- all SRs (OR to allot shares)
- Amended articles, forms
Record Keeping
- service contracts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
84
Q

Director’s authority

A

Usually free to make decisions on behalf of the company on all matters themselves (except a few reserved for shareholders- amending articles/ removing director)
The board of directors can delegate a particular decision to one of the directors

85
Q

Director’s accountability

A

general duties - part 10 CA
breach CA -> civil/criminal action
Fraud Act/ Theft Act/insider dealing- Criminal Justice Act, money laundering - proceeds of crime act

86
Q

Categories of director (occupying director’s position, regardless of their name)- all duties, obligations, restrictions apply

A
  1. At law:
    de jure
    de facto
    shadow
  2. In practice:
    executive
    non-executive
  3. Articles may provide for alternate directors
87
Q

De jure director

A

Validly appointed at law
Private limited company- minimum 1
Public limited company- minimum 2
At least 1 must be natural person (accountability)
No max number (unless in company’s articles)
Min. 16 years old
Cannot be director if prev. disqualified director unless they have Court’s permission

88
Q

De facto director

A

Assumes to act as director without being validly appointed. Fiduciary duties and liabilities apply to de facto directors just as they do to de jure.

89
Q

Shadow director

A

Director at law.
The directors are accustomed to act according to their instructions.
Doesn’t include professional advisors (accountants /insolvency practitioners etc.)
Ensures that person acting as a director is subject to same duties/restrictions as those named as directors.

90
Q

Executive director

A

Director appointed to an executive office.
Majority/all of working time on business - both an officer and an employee
Finance/Managing/Marketing

91
Q

Non-executive director

A

Officer of the company but not an employee
Don’t take part in day to day running of the company
Provide independent guidance, advice to the board, protect interests of shareholders

92
Q

Alternate directors

A

Director is personal responsibility but some companies provide for alternate directors to take the place of absent directors
Usually fellow director/ someone approved by board resolution
Has voting powers of absent director
Rare as can have board meetings on telephone, board resolutions by written resolutions
Duties apply equally

93
Q

Company secretary

A

Duties- keep the company books up to date, keep minutes of the board and general meetings, make filings at CH
Private company not required to have one (unless articles say), if none directors/person authorised by directors must do the job
Public company : must have company secretary - must have requisite knowledge/experience + qualification (solicitor/accountant)- directors appoint them and ensure this

94
Q

Appointment of directors

A
  • Ordinary resolution of shareholders
  • Decision of directors
    or alternative in articles
    inform CH (AP01)
95
Q

Service contracts for executive directors

A

Employee and officer - written contract of employment needed (must be kept at registered office for members to inspect)
No automatic entitlement to be paid- board + articles determine
Usually only board resolution but for long-term, shareholder approval required
1 individual can be 3 separate roles- director, shareholder, employee

96
Q

Disclosure of director/secretary’s identity

A

Every company must have register of members (registered office for members to inspect for free , public for fee)
Every company must notify CH of director changes
Public can inspect CH files
Residential address only on private CH file, otherwise service address (registered office)
Name/country/nationality/date of birth/ job

97
Q

Disclosure of annual accounts

A

Must include current/former director’s salaries, bonus payments, pension entitlements and compensation paid to directors/former directors for loss of office
Details of payments made to person/company connected to director
Advances/credits given to directors/guarantees on behalf of directors (any during financial year)

98
Q

Shareholder removal of director

A

Ordinary resolution
Special notice (28 days) needed before removal resolution
Director shareholders can vote in this
Board cannot remove director unless articles say

99
Q

Cease to be a director

A
  1. Resignation by notice
    Usually board resolution accepts letter of resignation
  2. Automatic termination
    - disqualified
    - subject of individual voluntary agreement/bankruptcy
    - registered medical practitioner writes to company that director physically/mentally incapable and will remain so for over 3 months
100
Q

Company Directors Disqualification Act 1986

A

Court makes disqualification order preventing person being director/liquidator/receiver or in any way involved with forming/running/promoting a company
Fraudulent/wrongful trading or consistent breaches of company law
Max period of 15 years
criminal offence to continue acting without leave of court

101
Q

Retirement by rotation - public companies only

A

MA requires retirement + reappointment ever 3 years
All directors of listed companies subject to annual re-election

102
Q

Whenever a director leaves office

A

update register of directors and give notice to CH (TM01)

103
Q

General duties of all directors

A

Directors owe duties to company not SHs (creditors in insolvency)
- act within powers
- promote success of company for benefit of the members as a whole
- exercise independent judgment
- exercise reasonable care, skill, diligence
- avoid conflicts of interest
- not to accept benefits from 3rd parties
- declare any interest in proposed transaction

104
Q

s 171- duty to act within powers

A
  1. Duty to act within company’s constitution
    - articles + decisions taken in accordance with articles
  2. Duty to exercise powers for the purposes for which they are conferred
    - not for improper/personal gain
105
Q

s 172 - duty to promote success of the company

A
  • benefit members as a whole
  • long term increase in value
    Consider:
  • long term consequences of decisions
  • employees interests
  • fostering relationships with suppliers/customers
  • impact on community/environment
  • maintained reputation
  • act fairly
    Enlightened shareholder value = balance between maximising profit and considering wider stake holder interests
    Ensure board minutes note that consideration given to s172 + requisite research, discussion to prevent litigation
106
Q

s 173 - duty to exercise independent judgment

A

Don’t fetter discretion
Can rely on advice but must make their own decision- individual duty
consider interests of company

107
Q

s 174 - duty to exercise reasonable care, skill, diligence

A

Assessed objectively and subjectively
general knowledge/skill/experience reasonable expected of someone in their role and then of that director
minimum is objective, raised by subjective - special skills

108
Q

Common law and equitable fiduciary duties

A

apply to the extent not covered by CA 2006 and in interpretation of CA 2006

109
Q

s 175 : duty to avoid conflicts of interest

A

Avoid direct/indirect interest conflicting/possibly conflicting with company’s interest
- esp exploitation of property, information, opportunity
Not infringed if not reasonable likely to give rise to conflict or if transactions/arrangements between director and company itself (subject to duty of disclosure, e.g. director of 2 companies and selling assets to each other) or authorised by directors

110
Q

s176 : duty to not accept benefits from third parties

A

Benefit conferred for reason of them being director/doing or not doing something as director
Not breached if not reasonably conflict of interest
Directors can’t authorise like 175 but shareholders can approve/ratify

111
Q

s 177: Duty to declare an interest in a proposed transaction

A

Must declare nature and extent of their interest (indirect (relative, as shareholder) and direct)
Proposed and existing transactions
Must declare before (at BM or in writing sent to all , one off general notice for specified party interest )
e.g. shareholder in another company (allowed by s175) must tell all other directors if dealing with other company

112
Q

s 177 exceptions- don’t have to declare

A

when
- director unaware of interest (unless reasonable they would be aware-> breach)
- interest can’t be reasonably regarded as likely to cause conflict of interest or other directors know/ought to have known about conflict
- board voting on term’s of directors service contract
In practice- continue to declare (document in board minutes) just in case

113
Q

s177 (duty to declare) and MA 14

A

Director with interest cannot vote/count in quorum for board resolutions for that transaction/arrangement unless
- company misapplies MA each time conflict arises by ordinary resolution
- interest not likely to give rise to conflict
- conflict arises from a permitted cause
or remove MA 14 from articles and replace with express article allowing them to vote/count in quorum

114
Q

Remedies for breach of directors’ duties

A

Company has claim against them personally in law
s 174 (care, skill, diligence) remedy- damages
Others (Consequences same as breach of common law/equitable principles)- 171, 173, 175, 176, 177- injunction/setting aside/restitution + account of profits/ restoration of company property/damages

115
Q

Shareholder approval in advance of potential breaches

A

Not for unlawful acts but for other breaches of s171-177
-Only effective with full disclosure of directors so shareholders can make an informed decision

116
Q

Shareholder ratification of breach of duty

A

Ordinary resolution (unless modified in articles) ratify
- negligence
- default
- breach of duty
- breach of trust
If director/connected person shareholder, votes connected to that breach disregarded
Unlawful acts/breaches in insolvency (owed to creditors) can never be ratified

117
Q

Decisions requiring shareholder approval

A
  • director’s long term service contracts
  • substantial property transactions
  • loans, quasi-loans, credit transactions
    If directors proceed without obtaining shareholder approval, they are in breach of general 171-177 duties and specific duty of each situation
118
Q

s 188 Directors long term service contracts (over 2 years) require shareholder approval

A

Ordinary resolution
Guaranteed period over 2 years
Guaranteed term where director decides length and company cannot terminate/can only terminate rarely or the period of notice is to be given by the company
Or an aggregate of these periods (if unable to terminate for first 18 months, then 9 months notice to terminate- aggregate over 2 years)
If director also director of holding company, holding company’s shareholders also need to give approval

119
Q

Non compliance with s188 (approval for long term service)

A

provision void, and contract can be terminated by company at any time with reasonable notice

120
Q

s 188 exception

A

Approval not required by shareholders of company which is a wholly owned subsidiary of another company

121
Q

s 188 and disclosures

A

s177 - Director not required to disclose their interest in service contract
not permitted to vote/count for quorum on board resolution relating to the contract
s 228- member can inspect all directors service contracts at registered officer for 1 year after termination/expiry (regardless of length of contract)
free right to inspect, get copy with fee

122
Q

s 188 Procedure

A

Ordinary resolution at General meeting- memorandum of contract available to inspect by shareholders at office for at least 15 days before meeting and at meeting itself - min 15 days notice of GM to approve even if short notice procedure used
Ordinary resolution with written resolution method- memorandum of contract sent to every eligible member with/before proposed resolution sent (can be done quicker this way)

123
Q

s190-196 Substantial property transactions

A

Acquisition/disposal by director of company holding company /connected person of substantial non-cash asset to or from company
Requires ordinary resolution of shareholders (before or after if transaction conditional on obtaining approval)

124
Q

s190 Substantial non-cash asset

A

Any property other than cash
£5k or less- not substantial
Over £100k- always substantial
More than £5k but less than £100k - substantial if worth more than 10% of company’s net asset value (if recently incorporated, net asset value = called up share capital)

125
Q

s 252-254 Persons connected with a director

A
  1. Members of their family (not siblings, grandparents, grandchildren, uncles/aunts)
  2. Companies where director holds 20%+ of shares
  3. Business partner of director or those connected to them
  4. Trustees of a trust where director/connected to director is beneficiary
126
Q

Substantial property transactions : holding company

A

Between company and director of its holding company/ connected person of director - holding company’s shareholders must approve by ordinary resolution as well UNLESS
wholly-owned subsidiary of another company like long -term service contracts
other limited exceptions- director selling shares back to company - no approval as acting as shareholder

127
Q

Breach of substantial property transaction (no approval) - Remedies s195

A

Voidable by company unless
- restitution no longer possible
- company has been indemnified for loss/damage suffered
- rights acquired by 3rd parties in good faith affected by avoidance
Directors/connected persons liable to account for profits to company/ indemnify company for losses incurred
UNLESS affirmed by shareholders after by ordinary resolution in reasonable time -> can’t be voided

128
Q

Defences (s195)

A

If SPT between company and director’s connected person, and director shows they took all reasonable steps to ensure compliance, director won’t be liable
Any connected person/director who authorised not liable if they can prove they had no knowledge of circumstances of contravention

129
Q

SPT and duty to disclose (s177)

A

Director needs to disclose nature + extent of interest
(unless other directors already aware but best practice to declare for board minutes)
Interested directors not permitted to vote/approve signatory on board resolutions to approve the contravention or count in quorum for votes on relevant contracts

130
Q

Loans to directors/holding company directors/connected persons s197- 214

A

May be subject to shareholder approval
Loans- lending money
Quasi loan- company paying off director’s outstanding debt (director reimburses)
Credit transactions- company provides goods/services on credit, paid for at later date (only 2 parties)
Guarantees/ provision of security for all above- company guarantor for repayment

131
Q

All companies: loans, guarantees, security for directors

A

No company may do so without ordinary resolution.
If private company not associated with public company- these are the only transactions requiring OR (directly to director)
Don’t need OR for quasi, credit transactions, connected persons

132
Q

Public companies/ private companies associated with public- quasi loans, credit transactions, connected persons

A

OR for
Loans to person connected to director/ director of its holding company
Any quasi loans/credit transactions
Any guarantees/security for loans/quasi loans/credit transactions

133
Q

Loans- exceptions to requirement for shareholder approval s204-209

A

s204 Expenditure on company business (up to a maximum of £50,000)
s 205: Loans for defending proceedings brought against a director
s 206: Loans for defending regulatory actions or investigations
s 207: Minor business transactions - loans or quasi-loans of up to £10,000 and credit transactions up to £15,000
s 208: Intra group transactions,
s 209: Money lending companies (loan is made in the ordinary
course of the business of the company)

134
Q

s 213 Remedies (shareholder approval not obtained and no exceptions apply) (similar to SPT remedies)

A

Voidable by company unless
- restitution no longer possible
- company has been indemnified for loss/damage suffered
- rights acquired by 3rd parties in good faith affected by avoidance
Directors/connected persons liable to account for profits to company/ indemnify company for losses incurred
UNLESS affirmed by shareholders after by ordinary resolution in reasonable time -> can’t be voided

135
Q

Defences to breach of loan requiring shareholder approval

A

-If between company and director’s connected person, and director shows they took all reasonable steps to ensure compliance, director won’t be liable
- Any connected person/director who authorised not liable if they can prove they had no knowledge of circumstances of contravention
- Holding company- if between company and director of company’s holding company (or person connected) - holding company needs to approve by OR
- Approval not needed by wholly owned subsidiary of another company (needed by parent)

136
Q

Loans and s177 disclosures

A

Nature and extent of interest
Arguable that if other directors already know of interest then no need to disclose- but best to do for board minutes/ if indirect interest
Not permitted to vote in board meetings relating to their interest/count in quorum

137
Q

Loans and Procedure of OR

A

Ordinary resolution at General meeting- memorandum of contract available to inspect by shareholders at office for at least 15 days before meeting and at meeting itself - min 15 days notice of GM to approve even if short notice procedure used
Ordinary resolution with written resolution method- memorandum of contract sent to every eligible member with/before proposed resolution sent (can be done quicker this way)

138
Q

Shareholder decisions are made by majority rule disadvantaging minority shareholders.

A

Remedies can be £/uncertain -> shareholders may choose to enter into a shareholder’s agreement to set out how shareholders will vote on certain matters

139
Q

Shareholder remedies

A

Membership rights - s33 CA06
Shareholders’ agreement
Shareholders’ rights under CA06
Removal of directors - s106 CA06
Derivative actions- s260 CA06
Unfair prejudice actions- s994 CA06
Just and equitable winding up- s122 Insolvency Act 1986

140
Q

Shareholder membership rights under the Articles s33 CA06

A

Articles regulate the relationship between the members and each other and the company- binding on members.
Members can sue under s33 if their membership rights are infringed- remedy for breach is damages
- right to dividend once lawfully declared
- right to share in surplus capital on winding up
- right to vote at meetings
- right to receive notice of GMs + AGMs
non-membership rights should be set out in shareholders agreement separate to articles (not enforceable under s33)

141
Q

Shareholder Agreements

A

extension to the Articles- certain provisions not allowed by law in the Articles, terms depend on reason for entering into venture
- unanimous voting for certain matters (removal of director)
- Quorum for GMs
- Dividend policy
- Allotment of new shares
- New and departing shareholders

142
Q

Shareholder Agreements vs Articles

A

Shareholders
agreement between members- personal rights + duties- more freedom (e.g. not to exercise right to remove director without unanimity), can be kept private unless referred to in Articles, company not party only to the terms which restrict its statutory powers
Articles- contract between company and shareholders per s33

143
Q

How shareholders agreements protect minorities

A

1 member can enforce the provisions of the SA directly against each other
SA breach -> same contract law principles - breach of contract/injunction, can prevent need for unfair prejudice petitions (but still can be brought)
Matters that can be reserved in SA to require unanimity - but company bound to accept votes in breach of SA- resolution still valid if passes but e.g. removed director has claim for breach of SA - minority shareholder can influence decision
Amending shareholders agreement - unanimous approval of all parties vs amending articles (SR)

144
Q

Shareholders rights under CA 2006 - all shareholders

A
  • receive notice of GM
  • appoint proxy to attend GM
  • vote at GM (if voting shares held)
  • receive declared dividends
  • receive copy of company’s accounts
  • inspect minutes/registers
  • ask court to prevent breach of directors duties
  • start derivative claim
  • bring unfair prejudice petition
  • bring petition for just and equitable winding up
145
Q

Shareholders rights under CA 2006- depending on % shareholding

A

5%+
- require directors to call GM (serve request)
- required circulation of written statements of proposed resolutions of GM
- circulate written resolution
10%+
- demand poll vote
over 25%
- block a special resolution
over 50%
- pass/block ordinary resolutions
75%
- pass special resolutions

146
Q

Removal of director - removal resolution

A

can be done at any point before their office expires
Special notice- 28 clear days required before GM
Shareholders ordinary resolution (cannot use written resolution)
Directors who are also shareholders allowed to vote

147
Q

Board receives special notice of removal resolution

A
  1. Put removal resolution of GM’s agenda
    Give notice of both RR + GM to shareholders - 14 days clear notice or advert/other mode of RR 14 clear days before GM (incl. in 28 days notice)
    Must give notice to all SHs as some may be unaware
  2. Don’t removal resolution of GM’s agenda
    Directors not bound to place RR on next GM’s agenda -> SHs can force directors to call GM (5%+ shareholding- s303 request- can include text of RR)
148
Q

s303 request to call GM

A

Directors must call GM on receipt
- within 21 days of becoming subject to it + held not more than 28 days after notice calling GM
If directors still don’t - SHs can call GM themselves (+ recover reasonable expenses from company who recoups from director) - on at least 14 clear days notice + within 3 months of directors’ receipt of s303
SH can send s303 request at same time as special notice of RR

149
Q

Timeline of board co-operation with s303 request to call GM

A

Day 1 - notice + special notice of RR if so
Day 22- Board has 21 days to decide to call GM
Day 50 (latest) - GM must be held within 28 days of calling it

150
Q

Timeline of NO board cooperation with s303 notice to call GM

A

Day 1 - s303 notice served + special notice
Day 22- Board has had 21 days to decide on calling GM
Day 23- Board loses control of process, SH can call GM on normal notice (14 clear days) (must hold GM within 3 months of s303 request)

151
Q

Directors rights to protest removal

A
  • if company receives special notice of RR- must immediately send copy of notice to director concerned even if not going on agenda
  • director has right to make written representations (of reasonable length), circulated to members of the company or read out at GM
  • directors has a right to speak in their defence at GM (regardless of whether or not they are SH)
152
Q

Bushell v Faith clause (director is also SH)

A
  • in the articles (unamended articles don’t have this clause)
  • allows director who is also shareholder to have weighted voting rights (more votes per share) at GM where removal is proposed -> SHs unable to pass ordinary resolution to remove director
    Art/SA of smaller companies where directors are key to setting up company
    Transfer provisions in articles- governing outgoing director’s shares - required to transfer to other SHs on removal
    Courts won’t intervene- internal management/private contractual agreement
153
Q

Shareholders agreements (removed director is also SH)

A

SA might need unanimity to remove director- though statutory right of OR to remove still applies -> OR valid, director removed but director has claim against SHs who passed OR for breach of SA/apply to court for injunction

154
Q

Compensation for loss of director’s office (s217)

A

Must be approved by OR (OR of holding company not wholly owned subsidiary) unless
- payments together don’t exceed £200
- payment is made in good faith (discharging existing legal obligation, damages for obligation, settlement/compromise for loss of office/employ, pension for past services)
Can be cash or non-cash
Can’t be avoided by paying to 3rd party- connected person- needs SH approval
Memorandum setting out particulars of payment must be made to SH for 15 days before OR passed (ending w/day of GM)

155
Q

Payment for director’s service contract v compensation for removal

A

different- if employment contract breached by removal - director entitled to damages for breach

156
Q

Payment for loss of office in connection to transfer of company property (share/business sale) + payment for loss of office in connection to transfer of shares from takeover bid

A

both need shareholder approval

157
Q

Derivative claim ( statutory exception to Foss v Harbottle)- rare in practice

A

Statutory right of any member to bring a derivative claim where directors breach statutory duties
- shareholder’s right of action not personal but derived from company but the company hasn’t exercised- Company is the proper Claimant
Foss v Harbottle : minority shareholder is not allowed to sue
Initiated by member of company for cause of action vested in company + relief on behalf of company -> company gets the remedy not the SH

158
Q

When can a derivative claim be brought?

A

actual/proposed act or omission of negligence, default, breach of duty/trust by a director
Common law + CA06 duties (170-177)
No requirement for director to have benefited personally from breach
Includes shadow/former directors

159
Q

Against whom is the derivative claim brought?

A

cause of action caused by breach of shadow/current/former director but 3rd parties can be defendants (in lieu of director or in addition)
narrow circs for 3rd party Ds- 3rd party entering into contract knowing about the breach (common law- knowing assistance)

160
Q

Who can bring a derivative claim?

A

Must be brought by a current member but can be in respect of cause of action which occurred before they joined

161
Q

Court process of derivative claim summary

A

Stage 1 : Prima Facie case
no prima facie case- dismiss claim on absolute ground (s172- member not acting with duty to promote the success of the company) or particular factors (member acting in good faith/likely ratification of director’s act/omission) -> member considers other options
Stage 2- prima facie case exists
-> detailed consideration of criteria + evidence from other members with no indirect/direct personal interest - safeguard -harder for single disgruntled SH to bring proceedings against general view of all SHs- counterbalance to making exceptions to Foss easier to use - but court has restrictive approach to denying derivative claims
-> trial

162
Q

Unfair prejudice petition s994 CA06

A

Member brings action on the grounds that the company is being run in such a way that they have suffered unfair prejudice/ would in future - reasonable bystander objective test
- directors excessive remuneration
- directors dealings w/ associated persons
- non-payment of dividends
Remedy is for that SH bringing action (not company like derivative claims)

163
Q

Principles of unfairly prejudicial conduct

A
  • negligent/inept management - not unfairly prejudicial unless serious/repeated mismanagement risking value of SH’s interest
  • disagreements of company policy (change in business direction)- not cause for UP
  • bad faith/conscious intent doesn’t need to be shown for unfair conduct
  • breaches of articles - likely to be unfair
  • no requirement that Claimant has clean hands
  • excessive director remuneration - courts have wide view of suffering caused to SH
  • small private companies (quasi partnerships)- legitimate expectation of SH involvement in management- prevention of this may be UP
164
Q

Unfair prejudice remedies

A

Any which the court sees fit
- orders regulating future conduct of company
- requiring company to act/not act
Most common: provide for purchase of petitioner’s shares by wrong doer (usually buying minority SH’s shares) -
value of shares debatable- consider valuation mechanism in articles or court valuation (no discount as selling due to UP + if quasi-partnership (run by all SHs) but discount where shareholding is investment/commercial)
Valuation date is court order to sell shares date
Behaviour of petitioner relevant (rejecting reasonable offers)

165
Q

Unfair prejudice - commercial considerations

A

Where 1 side willing to buy out petitioner’s shares and dispute is about valuation of shares -> settle out of court with binding third-party valuation of shares
If petitioner rejects this, must give court reasons
Avoid UP petition where minority shareholder wants to keep their shares
s994 petitions - £, lots of time, complicated with uncertain remedies -> negotiated settlement is the preferred option

166
Q

Just and equitable winding up - s122 Insolvency Act 1986

A

Most drastic remedy
Available to all shareholders
Court has discretion now there to liquidate
s122 petition often brought with s994 UP petition at the same time

167
Q

Capital

A

funds available to run the business of a company
share capital: raised by the issue of shares, contributed to by investors in the company in exchange for shares
funds for setting up business
working capital- funds needed to keep the business working
funds for expansion growth

168
Q

How does a company fund its business?

A

Equity finance- issuing shares
Debt finance- borrowing
Retaining profits for use in the business (instead of giving SHs dividends)

169
Q

Share

A

Bundle of rights
Shareholder becomes part owner of company + often has voting rights
Private company - often long-term investments, only get full investment back on sale of their stake/company/flotation/winding up
Dividends- income from shares
Capital gain - growth in value of company
Rights of shares set out in articles

170
Q

Share value

A

Nominal- ltd shares must have fixed nominal value (if not- void)
nominal/par value is minimum subscription price for that share
unit of value rather than actual value
cannot be alloted/issued at a discount to its nominal value
Premium- allotted/issued for more than the nominal value- excess is the premium - market value much higher than nominal value

171
Q

Issued shares

A

Issued share capital: amount of shares in issue at any time- shown on company’s balance sheet
ISC =
- shares purchased by subscribers (first members)
- further shares after incorporation - can be issued at any time w/ correct procedure

172
Q

Allotted shares

A

Allotted when person acquires the unconditional right to be included in the company’s register of members for those shares - contract between the company and new/existing SH - company agrees to issue new shares in return for subscription price
Issued when actually been entered into register of members - full legal title acquired then

173
Q

Called up/paid up shares

A

SHs don’t have to pay full amount due on shares immediately
Paid up share capital = amount of nominal capital paid - amount outstanding can be demanded at any time (called up) -
Called up share capital- amount of calls + existing paid up share capital
Rare (shares are usually paid up)

174
Q

Treasury shares

A

Shares bought by the company itself, held by the company ‘in treasury’ in its own name - company can transfer those after
Sale of treasury shares is a transfer not issue - pre-emption rights or disapplication apply
Company call cancel treasury shares at any time or transfer to an employee share scheme

175
Q

Classes of shares

A

Rights attached to each class determined by company’s Articles - no universal definitions
Ordinary shares
Redeemable shares
Preference shares
Non- voting shares
Employees’ shares
Cumulative shares
Convertible shares
Deferred shares

176
Q

Ordinary shares

A

Most common form of share (default position if unvaried by company)
- right to vote in GMs
- right to dividend if declares - unrestricted
- right to portion of surplus assets on winding up (dividend + capital in accordance with shareholding)
Can be more than 1 type of ordinary share with differing rights/nominal values

177
Q

Preference shares

A

Preference as to dividend or capital on winding up or both - payment ranks higher than ordinary shareholders
dividend - paid before SHs - amount is % of nominal share value each year dividend declared
If issued at premium - fixed dividend based on amount subscribed for share (par plus premium) - rights must expressly state % total subscription price per preference share
Normally non voting (check articles)
Presumed cumulative

178
Q

Cumulative preference shares

A

Default preference share
If dividend not declared that year, right to preferred amount of share carried forward + paid with other dividends due when profits available
Must state other intention if not

179
Q

Participating preference shares

A

Participate with ordinary SH in
- surplus profits after they’ve received fixed preferred dividend
- surplus assets of company on winding up
Usually fixed dividend + can be cumulative -> fixed rate participating cumulative preference share

180
Q

Deferred shares

A

No voting rights
No ordinary dividend
Sometimes entitled to any surplus profits after all other dividends
Usually no rights at all- used where worthless rights required

181
Q

Redeemable shares

A

Shares issued with the intention that company may buy them back + cancel them in the future

181
Q

Convertible shares

A

Option to convert into a different class of share

182
Q

Variation of class rights

A

Must be varied in accordance with company’s Articles or if none:
- written consent of at least 75% of issued shares of that class
- special resolution at separate GM of holders of that class
SHs with 15% of relevant shares (not voting in favour of variation) can apply to court within 21 days of the resolution to have a variation cancelled - variation doesn’t take effect until court decides (does variation unfairly prejudice SHs of class)

183
Q

Dividends

A

Dividends only payable if it has sufficient distributable profits (realised profits - realised costs)
1. Final dividends - directors recommend, declared by company through OR at end of financial year
2. Interim dividends - articles normally give directors power to pay if company has enough distributable profits (MA30), no need for OR, usually where investment realised

184
Q

Transfer of shares

A

Contract to sell existing shares in the company between an existing shareholder and purchaser (company is not a party to the contract unless treasury shares)

185
Q

Private company prohibited from offering shares to the public - s755 CA06

A

Offer to public excludes
- offers intended for specific person receiving them
- offers which are private concern of those making/receiving - existing SHs, employees, family members, employee’s share scheme
Usually no prospectus required

186
Q

Allotment considerations

A

Requirement for prospectus- allows informed investment, financial status of company, rights of shares - £ + time consuming to make
Financial promotions to invest prohibited for all companies (FSMA)- s21 FSMA exemption or approved by FCA authorised person

187
Q

Transmission of shares

A

Automatic process after death/bankruptcy
- SH dies -> shares pass to their PRs
- SH bankrupt -> shares vest in their bankruptcy trustee

188
Q

Transfer of shares

A

Sale/gift
SHs free to transfer subject to restrictions in Articles:
1. MA- Directors’ power to refuse to register
notice of refusal + reasons given (return instrument of transfer doc unless fraud suspected)
2. Pre-emption clauses (right of first refusal) on transfer
Not in MA/CA06- articles must include
SH wishing to sell must first offer them to existing SHs before outsiders

189
Q

Method of transferring shares

A
  • Instrument of transfer
    Stock transfer form signed by transferor + submitted with share certificate to new SH
    Beneficial title passes then , legal title passes on registration of member as owner of those shares in Company register of members
    Company sends new SH, share cert in their name within 2 months
    Stamp duty- stamp stock transfer form before new owner can be registered- payable by buyer at 0.5% of consideration (rounded to nearest £5)
    No stamp duty- consideration £1000 or less
    more than £1000- minimum fee of £5 required
190
Q

Process of share allotment (not all necessary for every issue but double check)

A
  1. Check if cap on amount of shares that can be issued by company
  2. Check whether directors need authority to allot shares
  3. Are the shares equity securities
  4. Is company created a new class of share?
  5. Board resolution to allot shares
  6. Administrative requirements
191
Q

Allotment: 1. Cap on number of shares issued?

A

Check Articles - if exceeded, cap must be removed or limit increased
CA85 - ceiling with authorised share capital, continue to have unless articles amended (OR not SR) or adopt new articles
CA06 - SHs wishing to restrict number of shares must amend articles by SR (if not, no ceiling)
Every time a company issues shares, share capital increases automatically
- check register of members/ recent confirmation statement at CH + forms allotting shares SH01 to see sufficient unissued shares if limit
- check resolutions to remove/impose/limit cap or increase share capital + articles

192
Q

Allotment 2: Do company’s directors need authority to allot?

A

Directors cannot allot without prior authority unless
- private companies with 1 class of share -> directors have automatic authority to allot new shares of same class (BR) unless prohibited by articles
if diff class need OR
- all other companies - directors need SH authority to allot new shares (OR) (unless articles require higher majority)
authority is subject to time limits/no. shares -> check if new resolution needed

193
Q

Allotment 3: Must pre-emption rights be disapplied on allotment?

A

Ownership of existing SHs diluted on offering new shares -> pre-emption rights allowing them to buy first (CA06 s562)
Request existing SHs to disapply these rights by SR
Any new equity securities have pre-emption rights
Equity securities =
- ordinary shares
- rights to subscribe for/convert securities into ordinary shares
Wider meaning of ordinary shares here: shares other than those with both dividend and capital payments capped (no pre-emption rights)
Just dividend capped / just capital capped -> equity securities
pari passu shares- uncapped right - equity securities
Company disapplies pre-emption rights:
1. where directors authorised to allot by OR -> by SR or disapplying in articles (not permanent ) - most common
2. private companies with 1 class of share- disapply by SR (lasts for as long as company only has 1 share class)
3.
- Specific disapplication for a specific allotment - SR, directors provide written reasons for requirement and amount paid for allotment
- Private - exclude pre-emption rights permanently in articles (subsidiaries often do) - no dilution protection - 567
- Private w/ 1 class of share - disapply in articles - unusual as no dilution protection

194
Q

Equity securities

A

All have pre-emption rights
- ordinary shares
- rights to subscribe for/convert securities into ordinary shares
Wider meaning of ordinary shares here:
- shares other than those with both dividend and capital payments capped (no pre-emption rights as not equity securities)
Just dividend capped / just capital capped/ neither capped -> ordinary shares -> equity securities
pari passu shares- uncapped right - equity securities

195
Q

Allotment 4: Must new class rights be created for the shares?

A

Company must insert new provisions in Articles with rights of new shares -> amending articles needs SR (except removing authorised share capital cap)

196
Q

Allotment 5: Directors must pass board resolution to allot shares (always)

A

GM unnecessary before BM if :
- no limit in constitution on no. shares issued by the company AND
- no authorisation as private company with 1 class of shares + no restriction in Articles or already given authority AND
- issuing shares to existing SHs following 562 procedure or is private company s567 AND
- relevant class rights in its Articles

197
Q

Allotment 6: Administrative requirements

A

Resolutions sent to CH within 15 days -
OR granting authority, SR disapplying pre-emption/amending articles- creating new class (send new articles too)
Company forms- SH01 + statement of capital after 1 month
if PSCs changed then PSC forms
Update company registers- register of members within 2 months of allotment, PSC register
Share certificate- new sent to new SHs within 2 months of allotment

198
Q

Financial assistance prohibition

A

Prohibitions on company providing financial assistance for the purchase of its own shares apply to target public companies (if so, any subsidiaries) 678 + any public company subsidiary of target private company (plc parent private siblings not caught) 679
If target is ltd wholly owned by plc -> no prohibition applies
-> protects public companies assets representing share capital
applies to:
- acquisition or sale of shares
- issue of shares
of target company

199
Q

Types of financial assistance + conditions

A
  • gift
  • guarantee, security, indemnity, release, waiver
  • loan (or similar)
  • any other £ given by company where net assets of company reduced to material extent by giving £ or company has no net assets (catch all)
    Must be given + be financial: payment of due diligence fees by subsidiary counts
    Direct/ indirect
    Can be given before/same time/after acquisition
    Must be given for the purpose of the acquisition
200
Q

Exceptions to prohibition on financial assistance

A

Giving financial assistance not unlawful if principal purpose is not the acquisition or if the acquisition is only an incidental part of larger purposes
- not usually used
Unconditional exception - dividend payments
Conditional exceptions -
- money lending in ordinary course of business +
- assistance for employee share scheme +
+ net assets of the company giving assistance aren’t reduces or extent to which they are reduced is out of distributable profits

201
Q

Consequences of doing prohibited financial assistance - criminal offence

A
  • company - fine
  • officers of company - fine/imprisonment
    Case law - transaction of financial assistance is void and wider transaction of share acquisition may be void too
202
Q

Maintenance of share capital

A

Company not usually permitted to return capital to shareholders (just distributable profits)
Companies generally must not buy their own shares
Cannot release the sums in equity account and share premium account to return value -> used as working capital (whilst company is a going concern)
This benefits company’s creditor - share capital is a permanent fund available to creditors
(little relevance to LTDs w/ small share capital)

203
Q

Exception to maintenance of share capital

A

-> Company may buyback its own shares or redeem redeemable shares following CA 2006
- SH wishes to leave but can’t find buyer (private companies can’t offer shares to public)
-> Company may purchase its own shares where court order made for this following successful shareholder petition for unfair prejudice

204
Q

Buyback of shares

A

Company purchases its own shares from an existing shareholder using
1. Distributable profits
2. Proceeds of fresh issue of shares made for purpose of financing buyback
3. Capital - strictly regulated
- only private companies can use capital
- must comply with s709-723 restrictions
- must first used any money available from 1 or 2

205
Q

Buyback of shares from profits/proceeds of fresh issue

A

if
- purchase of own shares not restricted/prohibited by Articles
- shares being purchased by company are fully paid up
- company continues to have issued shares other than redeemable/treasury shares after purchase

Requires contract to purchase own shares + OR approving terms of the contract
- contract inspectable at registered office for 15 days before GM + at GM or if WR then contract sent with WR

206
Q

Procedure for Buyback of shares from profits/proceeds of fresh issue

A
  • check for limit in Articles on 690 power to buyback shares
  • check accounts for sufficient profit
  • ensure shares are fully paid
    1. BM1 :
    BR approving draft contract
    BR to call GM + form of notice/WR
    Contract available to SHs (GM 15 days at registered office, or with WR)
    2. GM/WR - pass or approval contract, holder of shares being bought can’t vote
    3. BM2:
    BR to enter contract
    BR to appoint director to sign
    PMMs :
  • file return, notice of cancellation, statement of capital within 28 days
  • keep contract for 10 years
  • cancel shares, update register of members (+PSC register)
207
Q

Buyback of shares out of capital (private companies only)

A
  • purchase of own shares not restricted/prohibited by Articles
  • shares being purchased by company are fully paid up
  • company continues to have issued shares other than redeemable/treasury shares after purchase
  • Terms in contract (15 day display/WR)
    ALSO
  • buyback using capital not restricted by Articles
  • check if able to use profits/proceeds from fresh issue
  • Director’s statement of solvency (no earlier than 1 week before GM- remain solvent for 1 year after buyback - if insolvent/wound up - criminal sanctions if unreasonably signed statement of solvency + personally liable) (accounts this based on done in 3 months prior) + auditors report (annexed to confirm directors are reasonable)- both available at office/with WR
  • SR to approve payment out of capital within a week after directors sign statement of solvency
  • within a week of SR - notice to creditors
208
Q

Buyback out of capital - notice to creditors after SR (within a week)

A
  1. Gazette notice
    - that company approved capital payment to buy its own shares
    - where directors statement + auditors report available to inspect
    - that any creditor may within 5 weeks of date of resolution, apply to court for an order preventing capital payment
  2. Same notice in national newspaper/ written to each creditor
  3. File copies of directors’ statement + auditors report at CH (for inspection by creditors)
209
Q

Buyback out of capital - share purchase timing

A

Shares must be purchased no earlier than 5 weeks and not later than 7 weeks after date of SR
Cannot be reduced by unanimity - enable court order by SH/creditors for cancellation
7 week long stop- solvency statement still accurate
Within 28 days of bought back share delivery, send return to CH + notice of cancellation + statement of capital

210
Q

Procedure: Buyback of shares out of capital

A
  • check limit in articles for buyback or using capital for buyback
  • within 3 months before, directors statement of solvency , prepare accounts
  • confirm shares fully paid
    1. BM1 :
    BR to approve DSS + Auditors Report
    BR to approve draft control
    BR to call GM + approve GM notice/WR
    Contract available to shareholder - 15 day display + at GM/ with WR
    DSS + AR signed within the week before GM/WR
    2. GM - contract/DSS/AR available
    OR to approve contract
    SR to approve payment out of capital
    Holders of shares bought can’t vote
    After GM :
  • within 7 days, notice in Gazette/news + file DSS + AR at CH
  • within 15 days: file SR at CH
    5 weeks after SR: creditors/SH have right to object (view DSS + AR at office)
    3. BM2:
    BR to enter contract
    BR to appoint director to sign contract
    Payment out of capital between 5-7 weeks after SR passed
    4. PMMs:
  • file return, notice of cancellation, statement of capital within 28 days
  • keep contract for 10 years
  • cancel shares, update register of members/PSCs
211
Q

Redemption of redeemable shares

A

Redeemable shares give holder temporary membership - redeemed on certain circs (fixed term, fixed price) or at option of company or SH
Redemption details (incl. date + price) in Articles or directors determine
Contract not required to redeem shares regardless of funding - as details/terms decided before allotment
Capital redemption similar to capital buyback

212
Q

Financial services regulation - FSMA - s19 general prohibition

A

General prohibition on regulated activity unless authorised/ exempt - breach is criminal offence
Regulated activity = specified investment + specified activity

213
Q

FSMA regulated activity tree

A
  1. Is investment specified? Yes
    - shares/ debt instruments/mortgage contracts
  2. Is activity specified? Yes
    dealing/arranging/managing/advising on (opining on) merits of investments
  3. Is activity excluded? No
    Excluded- necessary part of service/business (unless paid separately for service), sale of body corporate - 50%+ shares or day-to -day control
  4. Does activity fulfil s327 FSMA and Scope Rule 2? Yes = exempt, no= authorisation (PRA/FCA/Law Society/SRA)
    s327 - member of profession, no 3rd party commission unless given to client, incidental to main service, complies with Scope Rules
    Scope rule 2 - activity arises out of/is complementary to a particular service done for particular client

1 (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions