Business

Question 1

Can company’s director bind the company in contract and tort?

Answer 1

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 directories no power to bung company unless act as a board or has express authority.
- may arise through past dealings

Question 2

What powers do directors have?

Answer 2

• 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.

Question 3

What duties do directors have?

Answer 3

• 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

Question 4

What is the standard of care required of a director?

Answer 4

Exercise care, skill and diligence that would be exercised by a reasonably diligent person with:

• the general knowledge, skill and experience that may reasonably expected of a person carried out by director in relation to company (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.

Question 5

Where might a conflict of interest arise?

Answer 5

• 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

Question 6

What is secret profit?

Answer 6

Unauthorised profit from company, conflict of interest and secret profit can be authorised by directors

Question 7

When must a director declare interests in proposed or existing transaction or arrangement?

Answer 7

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 - particulate 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

Question 8

How is a board meeting called?

Answer 8

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.

Question 9

How are directors decisions made?

Answer 9

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.

Question 10

What is quorum for board meeting?

Answer 10

Under model articles 2
If director has personal interest, may be prevented from counting in quorum.

Question 11

Can directors pass resolution without a board meeting?

Answer 11

Yes, via written resolution. Resolution considered approved only if ALL directors approve it rather than majority.

Question 12

How are directors removed?

Answer 12

Shareholders have the power by ordinary resolution. Cannot remove by written resolution.

Question 13

Can shareholders rights to remove a director be removed or limited?

Answer 13

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

Question 14

What is a Bushell v Faith clause?

Answer 14

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

Question 15

What notice is required to remove a director?

Answer 15

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)

Question 16

When can a director be disqualified?

Answer 16

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

Question 17

What’s the role of company secretary?

Answer 17

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

Question 18

What is classed as a person with significant control?

Answer 18

Person who:
- directly or indirectly holds more than 25% of the shares in a company
- directly or indelicately holds more than 25% of the voting rights of a company
- directly or indirectly hold the right to appoint or remove a majority of the board or
- have the right to exercise or actually exercise significant influence or control over the company.

Question 19

How is a dividend declared?

Answer 19

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

Question 20

What is a derivative claim and who may bring one?

Answer 20

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.

• 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

Question 21

How will court approach a derivative claim?

Answer 21

1st stage
- claimant must show prima facie case with evidence
- 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

Question 22

How can SH ratify directors breach?

Answer 22

By passing an ordinary resolution

Question 23

What protections are there for minority shareholders?

Answer 23

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

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

Question 24

Who can call a shareholder meeting?

Answer 24

• directors usually under statute
• shareholders who hold at least 5% of paid up voting capital can require directors to call a meeting. Ok refeipt of request, directors must call meeting within 21 days and actually have the meeting within 28. 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

Question 25

How much notice it required for a SH meeting and who gets it?

Answer 25

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

Question 26

What must notice of a SH meeting contain? And when given?

Answer 26

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

Question 27

Can a shareholders meeting be held on short notice?

Answer 27

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.

Question 28

What is quorum for a SH meeting?

Answer 28

2 unless single member company.

Question 29

What is a special resolution required for?

Answer 29

Alteration of articles
Reduction in share capital
Winding up
Change of name

Question 30

When must special resolutions be filed at CH?

Answer 30

15 days

Question 31

How are matters voted on at shareholder meeting?

Answer 31

Show of hands of those present, unless poll vote demanded.

Question 32

Who can call poll vote and what is effect?

Answer 32

Can be called by
- 5 or more SH
- SH with at least 10% of voting rights or 10% of paid up capital

Changed vote from one vote per SH to 1 vote per share.

Question 33

How are SH written resolutions passed?

Answer 33

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.

Question 34

What decisions require SH approval?

Answer 34

Decisions which affect shareholders
Significant decisions where director has conflicting personal interest

Question 35

Procedure for where approval of board and SH needed

Answer 35

• board pass resolution approving matter and calling general shareholders meeting or circulate written resolution
• SH then vote and pass relation
• directors pass further board resolutions if needed and comply with filing requirements.

Question 36

What requires approval by SH by OR?

Answer 36

• 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

Question 37

What’s a substantial property transaction?

Answer 37

• 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

Question 38

What are SH preemption rights and when do these apply?

Answer 38

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

Question 39

What is the procedure for transfer of shares?

Answer 39

• 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 lower to refused 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

Question 40

Can directors refuse to allow transfer?

Answer 40

Yes under model articles

Question 41

When must a charge be registered at companies house?

Answer 41

21 days after creation.
Certified copy and fee send.
Failure renders good against liquidator or administrator and other creditors

Question 42

What registers must be kept by private company?

Answer 42

• register of members
• register of directors
• register of secretaries
• register of charges against company’s assets
• register of PSC

Question 43

What must be available for inspection by SH at registered office?

Answer 43

• registers
• minutes for 10 years
• directors service contracts must be kept for a year after service ended.

Question 44

What needs to be filed at companies house?

Answer 44

• annual confirmation statement
• charges against assets
• accounts
• directors and strategic reports (medium and large companies)

Question 45

What documents are companies obligated to update?

Answer 45

• 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