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SQE2 > Business > Flashcards

Business Flashcards

1
Q

4.1 NATURE & FORMATION OF COMPANIES

  1. A company doesn’t exist until it registers at Companies House until then…
A

o The people preparing to bring the company into existence are promoters
o promoters are personally liable for contracts they enter on behalf of the company = ‘pre-incorporation’ contracts
o Promoters remain liable after the company is formed unless the ‘pre-incorporation’ contracts’ are novated in the name of the company.

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2
Q

4.2 NATURE & FORMATION OF COMPANIES

  1. Shelf Company
A

o A company registered, usually by solicitors, which has never traded.
o Enables a promoter to set up a company quickly.

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3
Q

4.3 NATURE & FORMATION OF COMPANIES

  1. To incorporate a company =
    A Promoter must submit what filings with Registrar of Companies at Companies House.
A

i. Memorandum of association
ii. Application for registration
iii. Relevant fee
iv. Bespoke articles (only if model articles don’t apply)

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4
Q

4.4 NATURE & FORMATION OF COMPANIES

  1. Application for registration includes:
A

i. Proposed name of the company
o can’t be same as an existing company
o must end in Limited / Ltd
o can’t suggest a connection to Government or local authority.
ii. Location of Registered Office
iii. Details of company business
iv. Limited by shares or guarantee
v. Capital and initial shareholdings
vi. Proposed officers / directors
vii. PSC’s
viii. Compliance with CA 2006

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5
Q

4.5 NATURE & FORMATION OF COMPANIES

  1. If the registrar finds the documents are in order
A

o = they will issue a Certificate of Incorporation.

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6
Q

4.6 NATURE & FORMATION OF COMPANIES

  1. A company comes into existence on what date?
A

o the date specified on the Certificate of Incorporation.

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7
Q

4.7 NATURE & FORMATION OF COMPANIES

  1. Articles of association
A

Every company is required to have articles of association
o = company’s constitution
o = serve as a contract between the company and shareholders, and shareholders with each other.

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8
Q

4.8 NATURE & FORMATION OF COMPANIES

  1. If directors don’t adhere to articles…
A

o = they breach their duty to the company
o An injunction can be obtained to prohibit prospective breaches
o Damages can be sought from directors

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9
Q

4.9 NATURE & FORMATION OF COMPANIES

  1. Shareholders only have the right to enforce article provisions relating to:
A

o their membership rights.

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10
Q

4.10 NATURE & FORMATION OF COMPANIES

  1. A company can amend its articles by…
A

o special resolution
= not less than 75%

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11
Q

4.11 NATURE & FORMATION OF COMPANIES

  1. how can shareholders make certain articles more permanent?
A

Shareholders may vote to entrench certain articles…
o = to amend requires additional conditions beyond the 75%.
o Entrenched provisions can be included in original (bespoke) articles but Registrar must be notified on filing.

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12
Q

4.12 NATURE & FORMATION OF COMPANIES

  1. A provision purporting to prevent amendment of a company’s articles
A

o Will be ineffective.

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13
Q

4.13 NATURE & FORMATION OF COMPANIES

  1. If the shareholders make an alteration that no reasonable person would consider to be for the benefit of the company:
A

o a shareholder who did not vote in favour of the alteration can challenge it in court.
o That an amendment adversely affects minority shareholders is not sufficient grounds for objection if the alteration is made in good faith in the interests of the company.

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14
Q

4.14 NATURE & FORMATION OF COMPANIES

  1. Corporate Veil
A

General rule
= members will not be personally liable for obligations of the company

o once the company is incorporated, it must be treated like any other independent person with rights and liabilities appropriate to itself.
o The limited liability of the shareholders is the consequence of incorporation

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15
Q

4.15 NATURE & FORMATION OF COMPANIES

  1. Piercing the corporate veil
A

o Very limited circumstances to pierce the corporate veil.
o looking beyond the separate personality of a company to fix liability on the shareholders.
o Applies when the company form is being used to:
carry out a fraud
avoid existing obligations
o e.g. a business owner transfers all their assets to a company to keep them out of the hands of a creditor.

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16
Q

Week 4 - Video 1

Introduction to Company Procedure

JOINT DECISION MAKING

Types of joint decisions

A

Companies are separate legal entities that cannot directly take decisions
= must act through resolutions of the directors and shareholders

  1. DIRECTOR ONLY DECISIONS:
    o day-to-day operations
  2. “HYBRID” DECISIONS REQUIRING SHAREHOLDER APPROVAL BY ORDINARY RESOLUTION:
    o when the directors have a financial interest in the decision
  3. DECISIONS REQUIRING SHAREHOLDER APPROVAL BY SPECIAL RESOLUTION:
    o significant / extraordinary decisions
  4. FILING REQUIREMENTS
    o Registered Office TBC
    o Companies House within 14 days of decision/resolution
17
Q

Week 4 - Video 1

Introduction to Company Procedure

JOINT DECISION MAKING PROCEDURE

Board meeting sandwich

A

Board Meeting 1 = 2 resolutions
i. resolution to approve decision
+
ii. resolution to call shareholder meeting, or,
iii. circulate written resolution for shareholder approval

2. Shareholder Vote
o if they vote to pass
= the resolution is passed.

3. Director follow-ups
i. EITHER Filing Requirements
at Registered Office or Companies House within 14 days or,
ii. Board Meeting 2.
to deal with admin e.g. adopt a resolution to appoint 2 directors to execute a contract / lease.

18
Q

Week 4 - Video 2

Company Board Meetings
5 things to consider

A

consider:
1. Notice
2. Quorum
3. Interest
whether any directors have an interest in a transaction
4. Resolutions
what resolutions are actually going to be passed
5. Filing requirements
At registered office or Co’s Hse within 14 days.

19
Q

Week 4 - Video 3

Director Voting

A
  • Directors have one vote each on board resolutions, which require a majority to pass
  • Directors must declare any personal interests:
    1. Declared interests must be minuted including DIRECTOR NAME + NATURE + EXTENT of their interest
  • If a director is personally interested, they may not be able to vote or count towards the quorum.
  • The company can get shareholder approval to SUSPEND THE PERSONAL INTEREST PROVISIONS if needed to pass a resolution.
20
Q

Week 4 - Video 4

Shareholder Voting

A
  1. Provisions that deal with declaring interests and not being able to vote and count towards the quorum DO NOT APPLY to shareholder voting.
    o except in specific situations like ratifying a director’s breach or approving a share buyback.
  2. The standard way of voting is on a show of hands
    = fine if it’s a non contentious matter
  3. However, if it’s a contentious matter
    = somebody might call for a poll vote
    = weighted on the number of shares
  4. only applies to shareholders present and voting:
    = PR’s / Trustees in bankruptcy cannot vote until they are registered as members.
21
Q

Week 4 - Video 5

Shareholder Meetings
1. Objective
2. Determine
3. Confirm process

A
  1. Identify OBJECTIVE e.g.
    - change the articles
    - issue shares
    - appoint a director, etc.
  2. Determine whether board resolution OR members resolution.
  3. Confirm process:
    Board Meeting 1
    - Resolve to do everything you can e.g. - change registered office
    - enter into a contract
    (1. approve contract)
    (2. resolve to enter into contract + authorize directors to sign).
    (3.1 If shareholder approval is needed, the board will first resolve to approve the contract, then
    3.2 the shareholders will approve it, and then
    3.3 the board will resolve to enter into the contract.
  4. If doing a written resolution, the board will resolve to circulate the written resolution, then the shareholders will pass the resolution, and then the board will reconvene to resolve to do the final things.
22
Q

Week 4 - Video 6

How to call Shareholder Meetings

  1. Who calls?
  2. Notice requirement
  3. Who can vote
  4. Ordinary / Special Resolutions
A
  1. Shareholder meetings are called by the board who resolve to call a general meeting

2. Notice Requirements
1. company name,
2. date/time/place of the meeting, and
3. the wording of any resolutions to be voted on

3. Who can vote
* Shareholders can appoint proxies to attend / vote on their behalf
* Only the shareholders who actually attend and vote at the meeting are counted.

4. Ordinary / Special Resolutions
* Ordinary = more than 50%
* Special = 75% or more

23
Q

Week 4 - Video 7

Short Notice of General Meetings

2 requirements to hold a shareholders meeting on short notice:

A
  1. The majority of shareholders in number must agree to the short notice.
  2. The shareholders agreeing to the short notice must hold at least 90% of the ordinary voting shares.

If these two requirements are met, the shareholders can sign a consent form agreeing to the short notice period

24
Q

Week 4 - Video 8

Transfer of shares

A
  • Shares can be transferred from one shareholder to another, but the company does not receive any money from the transfer.
  • The directors must resolve to register a new shareholder as a member.
  • Company articles may give the directors discretion to refuse to register the transfer of shares.
  • Some companies have restrictive transfer articles that place conditions on who shares can be transferred to.
  • = check the company’s articles and get the directors’ view before transferring shares to avoid the transfer being refused.
25
Q

Week 5 – 01/07/2024 - Video 1
Company – Shareholder’s written resolutions

2 options to pass shareholders’ resolutions:

A

1. Written resolutions
o FASTER as don’t require the 14-day notice period for a general meeting
o Passed as soon as threshold met:
- More than 50% of shares for ordinary resolution
- 75% of shares or more for special resolution
o cannot be used to dismiss a director

2. Or general meeting
o Advantages at least you know you’re going to pass that day.

26
Q

Week 5 – 01/07/2024 - Video 1
Company – Shareholder’s written resolutions

A Shareholders written resolution must contain:

A
  1. the resolution wording
  2. voting instructions = how they approve a resolution (sign and return etc.)
  3. return address, and
  4. lapse date (28 days unless the articles say anything different)
27
Q

Week 7 – 15/07/2024 - 07.10
Company – Partnership Liability

When is a partnership bound?

A

o If a partnership is bound
= all the partners are individually bound and the creditor can pursue any partner for the full debt = jointly and severally liable
o A partner can bind the partnership if they have:
- actual authority (stated in the partnership agreement) or
- apparent authority (what a reasonable person would expect).
* If a partner binds the partnership without authority, they may be in breach of the partnership agreement = have to indemnify the other partners for any losses.
* The creditor’s knowledge of the partner’s authority and status as a partner are also relevant in determining if the partnership is bound.

28
Q

Week 7 – 15/07/2024 - 07.11.1
Company – Considerations when starting a partnership

The Partnership Act is the default position that governs the relationship between partners…

A

unless they agree to something different.

NB. Partners can change most provisions in the Partnership Act, except for the definition of whether they are in a partnership.

29
Q

Week 7 – 15/07/2024 - 07.11.2
Company – Considerations when starting a partnership

6 Key things to consider in a partnership agreement…

A
  1. Contributions
  2. Payment / Profit Share
  3. Termination
  4. Amend provision to terminate on death.
  5. Obligations
  6. Restrictions - competing businesses

1. How long is the partnership going to continue?
2. Can people resign from it / be expelled from it?
o under Partnership Act partnership dissolved if one partner leaves / dies / insolvent
o = ALWAYS CHANGE as you want the choice not for it to automatically dissolve.
3. What are the provisions if somebody leaves?
o Provisions for remaining partners to buy out a departing partner + continue
4. Obligations
o e.g. working hours
5. Restrictions
o Competing businesses
6. Profit sharing arrangements
o Under Partnership Act = equal shares regardless of contributions
o = Do you want to share profits according to contributions?

30
Q

Week 7 – 15/07/2024 - 07.12
Company – Partnership Disputes

How to deal with a partnership dispute

e.g. where a partner has breached the agreement or has a different view on how the partnership should continue:

A

1. Check is there a partnership agreement that governs the situation?
o E.g. grounds for expulsion or decision-making processes?
2. Does the decision require unanimous agreement or just a majority decision?
o Change in the nature of the business,
o Change in the terms of the agreement,
o Bringing in a new partner,
3. How many partners have you got?
4. Consider options for an aggrieved partner:
o E.g. leaving the partnership (notice period, getting paid back, etc.)
* Exiting Partner
o = Can you negotiate a better settlement for exiting partner?
* Remaining Partner
o = can remaining partners buy out departing partner?
o Can they actually replace their time?

31
Q

Week 7 – 15/07/2024 - 07.13
Company – Leaving a Partnership

What do you do if someone wants to leave a partnership?

A

1. Check partnership agreement
o What does it say about leaving the partnership??
o When can you leave?
o Who do you have to serve notice on?
o What’s the time limits to serve notice?
o When would you get your capital?
2. If no provisions about retirement
o = negotiate a retirement clause / exit?
3. If no agreement, the only option under the Partnership Act is for all partners to agree to the departure,
o = unlikely if a partner is being expelled.
4. NUCLEAR OPTION
o Dissolving the partnership entirely is an option if no agreement can be reached
Conclusion
Important to have clear provisions in the partnership agreement to avoid difficult negotiations when somebody want to leave

32
Q

Week 7 – 15/07/2024 - 07.14.1
Company – Liability for debts after leaving a Partnership

If somebody leaves a partnership…

3 points to consider

A
  1. they remain liable for debts incurred when they were a partner.
  2. They will not liable for future debts if a) served notice to existing creditors, and b) placed advert in London Gazette.
  3. Departing partner can get an indemnity from the remaining partners, but only worth anything if the partners have the money to pay you back.
33
Q

Week 7 – 15/07/2024 - 07.14.2
Company – Liability for debts after leaving a Partnership

  1. To avoid liability for future debts partners must….
A

i. GIVE ACTUAL NOTICE notice to existing clients / creditors
ii. PUBLISH A NOTICE in the London Gazette for future creditors
iii. REMOVE NAME from website, letterhead, and list of partners at the premises.

33
Q

Week 7 – 15/07/2024 - 07.14.3
Company – Liability for debts after leaving a Partnership

  1. When advising a client on liability for a particular debt you need to:
A

Determine:
i. when the debt was incurred and
ii. whether proper notice was given to avoid liability.

SQE2 (6 decks)

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