Business Flashcards
Can company’s director bind the company in contract and tort?
Yes if act with actual or apparent authority.
Actual authority
- can be expressly granted in article or by resolution
Apparent authority
- exists where words or conduct leads reasonable person in 3 party’s position to believe agent authorised to act, even if had no authority. Shouldn’t arise often as directors have no power to bind company unless act as a board or has express authority.
- may arise through past dealings
What powers do directors have?
- Power derived from articles which also say when SH approval needed.
- Directors must act collectively as a board but can delegate powers to a person if think fit.
- Day to day decisions/managment
- Can bind company if act with apparent or actual authority.
What duties do directors have?
- basic fiduciary duty to act in good faith and best interests of company as a whole
- duty to act within powers (articles)
- duty to promote success of company
- duty to exercise reasonable care skill and diligence
- duty to exercise independent judgment (doesn’t prevent seeking independent advice)
- avoid conflicts of interest, direct or indirect or may conflict.
- duty not to accept benefits from 3rd parties. Exception where benefit cannot reasonably be regarded as likely to give rise to a conflict.
- duty to declare interest in proposed or existing transaction or arrangement
What is the standard of care required of a director?
Exercise the care, skill and diligence that would be expected of a director.
Based on:
- the general knowledge, skill and experience that may reasonably expected of a director (objective) and
- the general knowledge, skill and experience the director in question actually has (subjective)
Director judged by whatever standard is higher. If has more knowledge/experience, judged under subjective standard.
Where might a conflict of interest arise?
- Situation which would benefit spouse or close relative of director or a business in which director has significant interest
- may involve, property, information, opportunity.
No breach if conflict of interest relates to
- transaction with company itself and board knows director has an interest or
- situation cannot reasonably be regarded as likely to give rise to a conflict or
- matter has been authorised by directors
What is secret profit?
Unauthorised profit from company or conflict of interest, secret profit can be authorised by directors
When must a director declare interests in proposed or existing transaction or arrangement?
Where directly or indirectly interested in proposed transaction or becomes interested in existing transaction, must give directors notice of interest before entering into or continuing
Form of notice - no particular form needed, written notice, general or oral notice at meeting all fine. Must include nature and extent of interest.
Director who is interested, cannot form the quorum on that decision
Exceptions - no need to declare if
- could not reasonably be regarded as likely to give rise to conflict
- directors already aware
- concerns directors service contract that are or are to be considered by board
How is a board meeting called by a director?
Director may call by giving reasonable notice of meeting to other directors or by authorising company secretary to give notice. Reasonable notice depends on facts, could be few minutes. Meeting can take place electronically as long as can communicate with others.
Contents of notice - no need to be in writing, must include proposed date, time and location, how communicate if not all in person, must be given to each director.
How are directors decisions made?
At board meeting by majority vote, chairman has casting vote in event of deadlock.
If director has an interest in the resolution, prohibited from voting and counting forwards quorum.
What is quorum for board meeting?
Under model articles 2
If director has personal interest, may be prevented from counting in quorum.
Can directors pass resolution without a board meeting?
Yes, via written resolution. Resolution considered approved only if ALL directors approve it rather than majority.
How are directors removed?
Retirement.
Board decision.
Shareholders have the power by ordinary resolution. Cannot remove by written resolution.
Can shareholders rights to remove a director be removed or limited?
Cannot be removed.
May be limited by a Bushell v Faith clause which gives weighted votes to a director who is also a shareholder in the event of a resolution to remove a director
What is a Bushell v Faith clause?
Clause in articles of consent that gives weighted voting rights to a director who is also a shareholder in the event of a resolution to remove them
What notice is required to remove a director?
If a SH wishes to propose resolution to remove director must give company formal notice at least 28 days before general shareholders meeting.
Company must give notice to the director and the director has right to make written representation (which company must send to shareholder) and to speak to meeting (even if not shareholder)
When can a director be disqualified?
Under Company Directors Disqualification Act 1986 can be disqualified for general misconduct or unfitness
Includes:
- conviction of indictable offence in connection with promotion, formation, management etc of company
- persistent breaches of companies legislation requiring returns, accounts and docs to be filed with CH
- fraud
- summary conviction of offence in contravention of any provision of companies leg
Unfitness - can be disqualified for between 2-15 years jf direcotr in insolvent company.
Wrongful trading under insolvency act
What’s the role of company secretary?
Public company need to have one, private companies don’t. Appointed/removed by directors.
Qualifications - public directors have duty to take reasonable steps to ensure has requisite knowledge and experience to discharge functions. Need one or more of:
- been secretary of public company for at least 3 out of 5 years before
- member of specified list of accountancy/secretarial bodies
- barrister or solicitor
- person who, by virtue of holding or having held any other position appears to directors to be capable of discharging functions and duties
Powers/duties - filing, maintaining books, minute taking etc. can bind company
What is classed as a person with significant control?
Person who:
- directly or indirectly holds more than 25% of the shares in a company
- directly or indirectly holds more than 25% of the voting rights of a company
- directly or indirectly holds the right to appoint or remove a majority of the board or
- have the right to exercise or actually exercises significant influence or control over the company.
How is a dividend declared?
Directors decide if profits available for purpose. (Accumulated realised profits less accumulated realised losses)
Board pass BR to approve and recommend dividend, BR to call general SH meeting
SH at general meeting pass OR to declare dividend
Further BR may be required implement it
What is a derivative claim and who may bring one?
Brought by shareholders if believe directly has or is about to breach a duty owed to the company and appears board will not prevent or remedy.
Brought by SH in company name
- Can only be brought by a shareholder or person who has had shares transferred to them by operation of law.
- claim bought against director or another person or both
- SH can asset claim that arose before SH was a SH
How will court approach a derivative claim?
1st stage - permission
- claimant must show prima facie case with evidence and that promotes success of company
- court must dismiss if not
2nd stage
- court must dismiss if:
1) satisfied person acting to promote company’s best interests would not seek to continue the claim or
2) the action was authorised by the company or authorisation would be likely
Court must consider:
Whether SH is acting in good faith, importance of action to success of company, and whether SH could bring remedy in own right rather than on behalf of the company.
Damages awarded to company not SH
How can SH ratify directors breach?
By passing an ordinary resolution
What protections are there for minority shareholders?
Any SH can petition court for remedy due to unfair prejudice. May include exclusion from management, directors exercising power for improper purpose, awarding themselves excessive remuneration, non payment of dividends.
Remedy usually order that minority SH shares are purchased
Any SH - Winding up the company - SH can apply to have it wound up insolvent and can show just and equitable to do so. Remedy of last resort
Who can call a shareholder meeting?
- directors usually under statute
- shareholders who hold at least 5% of paid up voting capital can require directors to call a meeting. On receipt of request, directors must call meeting within 21 days and actually have the meeting within 28 days. If don’t, shareholder who requested it (or any SH holding at least 50% of voting rights) can call the meeting themselves.
- resigning auditor can require directors to call if wishes to give reasons for resignation
- court can call if impractical eg deadlock
How much notice it required for a SH meeting and who gets it?
All shareholder and directors, PRs of deceased SH, trustee in bankruptcy of any bankrupt SHs and auditor if one appointed
Notice can be in writing or electronic, via email or website.
If SH wishes to call meeting to consider removal of director, must give company at least 28 clear days notice prior to meeting
What must notice of a SH meeting contain? And when given?
Must include company name, time, date, place, general nature of business, statement of right to appoint proxy, full text of any special resolutions
Must be given at least 14 clear days before meeting unless articles provide for longer notice. If not hand delivered, need another 48 hours for deemed services
Can a shareholders meeting be held on short notice?
Yes if agreed by majority in number of shareholders who hold 90% of shares.
Cannot be used where documents must be left at registered office 15 days before meeting.
What is quorum for a SH meeting?
2 unless single member company.
What is a special resolution required for?
Alteration of articles
Reduction in share capital
Winding up
Change of name
When must special resolutions be filed at CH?
15 days
How are matters voted on at shareholder meeting?
Show of hands of those present, unless poll vote demanded.
Who can call poll vote and what is effect?
Can be called by
- 5 or more SH
- SH with at least 10% of voting rights or 10% of paid up capital
- chair
Changed vote from one vote per SH to 1 vote per share.
How are SH written resolutions passed?
quicker and more cost effective
- can be used for OR and SR but can’t be used to dismiss director or auditor
- board decide whether to circulate written resolution but SH with 5% of total voting rights can require directors to do so
- written resolution must be circulated to all members who can vote
- must contain statement informing SH how to signify agreement and when will lapse (usually 28 days)
- any document which must be left at office for 15 days before meeting or be available at general SH meeting must be sent with it
- % based on all SH entitled to gore, based on one vote per share.
What decisions require SH approval?
Decisions which affect shareholders
Significant decisions where director has conflicting personal interest
Procedure for where approval of board and SH needed
- board pass resolution approving matter and calling general shareholders meeting or circulate written resolution
- SH then vote and pass resolution
- directors pass further board resolutions if needed and comply with filing requirements.
What requires approval by SH by OR?
- appointment of auditor
- appointment or reappointment of directors
- removal of director or auditor
- adoption of annual accounts and reports of directors and auditors
- declaration of dividends
- approval of decision to allow shares
- approval of substantial property transactions
- ratification of directors breach of duty
- entering into service contract with director for more than 2 years
- loan to director
- loss of office payment to director
What’s a substantial property transaction?
- company selling or buying property where other party is director or person connected to director
- where director buys or sells property to company, if transaction of more than £100,000 -automatically a SPT
- if more than £5,000 but less than £100,000 whether SPT depends on value of company. It exceeds 10% of net assets, is SPT
- if director buys or sells property to company for less than £5000 considered de minis and doesn’t need approval
What are SH preemption rights and when do these apply?
When company proposes to issue additional ordinary shares for cash, must first be offering to existing shareholders so they can maintain their proportional share and voting strength.
- company must offer to current SH at terms of which offered in open market
- must be given 14 days to accept
Doesn’t apply when shares are issued for non cash consideration
May be dis applied by SR and articles may amend
What is the procedure for transfer of shares?
- SH gives completed STF and share certificate to transfee
- if necessary transfee pays stamp duty
- transferee sends share certificate and stamped STF to company
- board check to see if have power to refuse registration
- board resolve to register new member or refuse
- if resolve to register, must also resolve to issue new share certificate
- update register of members, no need to file
Can directors refuse to allow transfer?
Yes under model articles
When must a charge be registered at companies house?
21 days after creation.
Certified copy and fee send.
Failure renders good against liquidator or administrator and other creditors
What registers must be kept by private company?
- register of members
- register of directors
- register of secretaries
- register of charges against company’s assets
- register of PSC
What must be available for inspection by SH at registered office?
- registers
- minutes for 10 years
- directors service contracts must be kept for a year after service ended.
What needs to be filed at companies house?
- annual confirmation statement
- charges against assets
- accounts
- directors and strategic reports (medium and large companies)
What documents are companies obligated to update?
- appointment or termination of director or officer (14 days)
- OR giving directors power to allot new shares (15 days)
- special resolutions (15 days)
- inssuance of new shares (within a month)
- change of address not effective until filed
When is approval of members not needed for a substantial property transaction?
Where company is a wholly owned subsidiary, no member resolutions are required. Only board resolution of subsidiary company.
If not and value exceeds £5,000 and 10% of NAV of company, OR of members needed
What are the options for insolvency of a sole proprietor?
Negotiation with creditors
Individual voluntary arrangement
Bankruptcy
What are the options for insolvency of a sole trader?
Negotiation with creditors
Individual voluntary arrangement
Bankruptcy
What does negotiation with creditors involve?
- Can approach a creditor and ask the debt to be reduced or extra time
- Creditor might agree but not binding as no consideration could demand full amount on the original payment terms
- Doesn’t prevent other creditors starting proceedings
What is an individual voluntary arrangement?
- Negotiated agreement between debtor and all of their creditors, each agree to accept less in payment that is owed
- formal procedure avoids enforceability problem but only suitable if have enough money or there is the prospect to receiving some money to enable the debtor to make reasonable offer of payment to their creditors
- if debtor wants IVA, must take professional advice and find an insolvency practitioner who will draw up proposals and supervise the implementation
- The practitioner will prepare a statement of affairs and will apply to the bankruptcy for an order. When this order is in force. No bankruptcy petition may be presented unless permission is granted by the court, proceedings can be commenced against - gives breathing space
- The insolvency practitioner prepares report and consider whether it’s worth a calling meeting with creditors
- if a meeting is called and at least 75% in value of the unsecured creditors agree the proposals, they become binding on every ordinary unsecured creditor who has notice of the meeting even if they didn’t attend
- Preferential creditors and secured creditors are not bound unless they agree
Practitioner oversee and supervises the proposals, if they failed to comply or provide misleading information the supervisor or any creditor who is party to the IV may petition for the debtors bankruptcy
What is bankruptcy and how is it started?
Judiciary process where the assets are passed to trustee in bankruptcy who liquidates the assets and use the money to pay off as many debts as possible in a strict order
Once app for bankruptcy made, creditors must stop chasing discharged after a year
Application can be made by the debtor by an online application or by one or more unsecured creditors who are owed at least £5000 can present the petition or the supervisor of IVA can apply if terms of IVA breached they have hidden assets or given a preference .
Once order is made official receiver is appointed. They will act as a trustee and bankruptcy unless creditors seek to appoint their own nominee.
