Business Formation Flashcards
Describe how decisions are made by directors in a board meeting.
Decisions of the directors are made by passing Board Resolutions at Board Meetings, where each director has one vote.
How are Board Resolutions typically passed?
Board Resolutions are typically passed by a simple majority unless a specific decision requires unanimity.
What is required for a decision to be made unanimously in a board meeting?
For a decision to be made unanimously, the directors must agree that a particular decision requires unanimity.
Describe the two types of shareholder resolutions.
The two types of shareholder resolutions are Ordinary Resolutions, which are passed by a simple majority (over 50% of votes), and Special Resolutions, which require a majority of 75% or more of the votes.
How are shareholder resolutions passed in a company?
Shareholder resolutions are passed either at a meeting of the shareholders, known as a General Meeting (GM), or in writing for private companies under section 288 of the Companies Act 2006.
What stipulates the type of resolution required for shareholder decisions?
The type of resolution required is stipulated by either the Companies Act 2006 or the company’s Articles of Association.
Describe the voting methods available to shareholders at a General Meeting (GM).
Shareholders can vote on a show of hands or on a poll.
How are votes counted during a General Meeting?
Votes are counted from all eligible shareholders who are present and voting at the meeting.
Define the role of a proxy in shareholder voting at a General Meeting.
Shareholders are entitled to appoint another person as their proxy to exercise their rights to attend, speak, and vote at any GM.
How does the voting process differ between a show of hands and a poll?
In a show of hands, each shareholder present has one vote regardless of the number of shares held, while in a poll, each shareholder has one vote for each share they hold.
Define the voting process in a poll for an ordinary resolution.
In a poll, a simple majority is defined as more than 50% of the shares being voted in favor.
Describe the influence of shareholders with larger percentages of votes in a company.
Shareholders with a larger percentage of votes can exert more power in a company by being able to force through resolutions through in a poll
How can shareholders pass a special resolution using a show of hands?
In a show of hands, a special resolution requires at least 3 out of 4 shareholders, which is at least 75%.
Define the voting requirements for a poll regarding a special resolution.
A poll requires at least 75% of the total number of shares to pass a special resolution.
Identify two decisions that cannot be passed as written resolutions under s 288(2) CA 2006.
The removal of a director under s 168 and the removal of an auditor under s 510 cannot be passed as written resolutions.
What companies can pass written resolutions?
Under s 281 CA 2006, only private companies may pass a shareholders’ resolution by way of a written resolution.
How does abstaining affect the outcome of a written resolution vote?
Abstaining counts as voting against in a written resolution vote.
What is the outcome of the resolution based on the voting rights of members?
The resolution is blocked because B and C together hold 50% of the voting rights, which is sufficient to prevent it.
Describe the process of calling a Board Meeting (BM).
Any director may call a BM or require the company secretary to do so at any time, making the process fairly informal.
Identify the responsibilities of the company secretary in the post-meeting process.
The company secretary is responsible for filing relevant documents at Companies House and updating the company’s internal records after the GM.
What is the sequence of meetings mentioned in the content?
The sequence of meetings includes a Board Meeting to prepare for the GM, the General Meeting itself, and a subsequent Board Meeting to discuss the outcomes.
Define the notice requirement for a Board Meeting as established in Browne v La Trinidad.
The court held that reasonable notice of the BM is necessary, which is whatever notice is usual for the directors to give.
How many directors are required to establish a quorum for a Board Meeting?
A minimum of two directors must be present for the meeting to be quorate, unless the articles provide otherwise.
Explain how board resolutions are passed during a Board Meeting.
Board resolutions are passed by majority vote on a show of hands, with each director having one vote.
What role does the chair play in voting during a Board Meeting?
The chair may have a casting vote to prevent deadlock, as provided by MA 13, although the company can amend this provision.
Describe who typically calls a General Meeting (GM).
The Board usually convenes (calls) a General Meeting.
Define the notice period required for private companies to call a GM.
A private company requires 14 clear days’ notice to call a General Meeting, as per s307(1) CA 2006.
When is a notice for a GM deemed served
Section 1147 CA 2006 states that if the notice is posted or emailed, it is deemed to be served 48 hours after sending.
Define the quorum requirement for a GM.
The quorum for a General Meeting is generally two shareholders, but it is one shareholder for single member companies.
Describe the sequence of meetings required when a shareholder vote is necessary for a transaction.
The sequence includes: 1) A Board Meeting (BM) to call the General Meeting (GM); 2) A GM for shareholders to vote on the resolution; 3) A further BM to implement the outcome of the vote; 4) Post Meeting Matters (PMM) such as filings at Companies House.
What are post meeting matters (PMM) that may need to be addressed after a General Meeting?
Post Meeting Matters (PMM) may include necessary filings at Companies House and other administrative tasks following the GM.
How is the notice of the General Meeting (GM) distributed to shareholders?
The notice of the GM is circulated to the shareholders by the company secretary, if there is one, or by the directors.
How can a General Meeting (GM) be called on short notice for a private company?
A GM may be called on short notice if agreed to by a majority in number of the members who hold shares with a nominal value of not less than 90% of the total nominal value of the shares. - 2 requirements
What is the maximum percentage of shares that can be required to call a GM on short notice if specified in the company’s articles of association?
The maximum percentage can be increased to up to 95% by a provision in the company’s articles of association.
Describe the sequence of events that occur when all shareholders are available for a General Meeting (GM) and short notice can be held
A Board Meeting (BM) is held to resolve to convene the GM, approve the notice form, and authorize circulation to shareholders. Shareholders consent to short notice by signing a form. The GM occurs immediately after the BM adjourns, where shareholders vote on resolutions. The BM is reconvened to inform directors of the voting results, and post-meeting matters are addressed.
How do directors respond to the outcomes of the General Meeting (GM)?
After the GM, the Board Meeting (BM) is reconvened, and directors are informed of how shareholders voted. They then authorize one director to take relevant actions and handle post-meeting matters.
Describe the process for passing a written resolution in a company.
A written resolution is passed when the required majority of eligible members signify their agreement. If insufficient responses are received, the resolution lapses, typically after 28 days unless a different period is specified in the Articles.
Define the lapse date for a written resolution in a company with Model Articles (MA).
The lapse date for a written resolution in a company with Model Articles is 28 days beginning with the circulation date.
What must be done with written resolutions in terms of record-keeping?
Written resolutions must be recorded in the minute books in the same manner as minutes of a general meeting.
How long must minutes of all meetings be kept?
Minutes of all meetings need to be kept for 10 years.
Define the purpose of updating statutory books.
Updating statutory books involves maintaining accurate records such as the register of members, directors, and the PSC register.
What documents must be filed at Companies House?
Documents that must be filed at Companies House include all special resolutions, amended Articles, and any required forms such as the Change of Name form.
What is the default accounting reference date for a newly incorporated company?
The default accounting reference date is the last day of the month in which the company was incorporated.
Describe the role of the first members in a company registration process.
The first members, also known as subscribers, are typically representatives of the company registration agent or law firm who become the initial shareholders of the company.
How is share ownership transferred to the client in a company registration?
Share ownership is transferred to the client using a stock transfer form, and the client becomes the shareholder once the transfer is entered on the register of members.
Define the necessary forms for appointing directors and a company secretary during company registration.
Forms AP01 are required for appointing directors, and Form AP03 is needed for appointing a company secretary.
What must happen to the first directors and company secretary after the client is registered?
The first directors and company secretary must resign, and Forms TM01 (for directors) and TM02 (for secretary) must be filed at Companies House.
Explain the importance of the order of appointments and resignations in company registration.
The order of appointments and resignations is crucial because the company must always have at least one director to comply with the Companies Act 2006.
How should a company name be chosen according to legal considerations?
A company name must not be offensive, must end in ‘limited’ or ‘ltd’ for private limited companies, must not be identical to another registered name, and must not suggest a connection with government or contain sensitive words without approval.
How can a company change its accounting reference date after incorporation?
A company can change its accounting reference date to align with its financial year by filing Form AA01 at Companies House.
What tax registrations must a newly formed company complete?
A newly formed company must register for corporation tax, VAT, and PAYE and National Insurance if it has employees.
How can a company amend its Articles of Association?
A company can alter its Articles by passing a special resolution (SR). The amended Articles and the special resolution must then be filed at Companies House.
How does a pre-incorporation contract affect the parties involved?
If a contract is entered into before a company is incorporated, the company cannot have legal rights or duties under the contract because it did not exist as a legal person.
What happens to negotiations for contracts during the formation of a new company?
Negotiations for contracts may commence while the formation of a new company is being considered, such as contracts with suppliers or leases with landlords.
Explain the implications of the Contracts (Rights of Third Parties) Act 1999 on pre-incorporation contracts.
The Contracts (Rights of Third Parties) Act 1999 does not apply to pre-incorporation contracts because these contracts impose obligations on third parties, not just benefits.
How are third parties protected when entering into pre-incorporated contracts
Section 51 CA 2006 seeks to protect third parties who believe they are entering into a contract with a company that is not yet incorporated by making pre-incorporation contracts enforceable as personal contracts against the promoters.
How does Section 51 CA 2006 affect directors entering contracts before incorporation?
If a director enters into a contract on behalf of a company before it is incorporated, the director is personally liable under that contract.
What happens to a company’s rights and obligations under a pre-incorporation contract once it is incorporated?
Once a company is incorporated, it has no rights or obligations under the pre-incorporation contract unless the parties take steps to novate the contract.
Explain the limitation regarding a company’s ability to ratify pre-incorporation contracts.
A company cannot ratify a contract made before it came into existence.
What is the significance of the phrase ‘subject to any agreement to the contrary’ in Section 51 CA 2006?
This phrase indicates that the enforceability of pre-incorporation contracts can be altered if there is a specific agreement stating otherwise.
Describe the ‘appropriate address’ requirement added by ECCTA.
The ‘appropriate address’ requirement is an address where documents delivered to a company, either by hand or post, are expected to reach a person acting on behalf of the company, and where delivery can be acknowledged.
Define what a shelf company is.
A shelf company is an existing company that has been registered but has not conducted any business, allowing a new owner to purchase it and start operations quickly.
How can a client incorporate a new company from scratch?
A client can incorporate a new company from scratch by submitting relevant information to Companies House or online.
Explain the advantages of using a shelf company for starting a business.
Using a shelf company allows for a quicker start to business operations since the company is already registered and can be modified to meet the new owner’s needs.
Describe the documents required for incorporating a new company from scratch in the UK.
A copy of the company’s memorandum, Articles (if not using Model Articles), the fee (with an option for a higher same-day incorporation fee), and an application for registration (Form IN01).
Define the role of the memorandum in company incorporation.
The memorandum is a document that outlines the company’s name, the location of its registered office, and the intention of the subscribers to form a company.
How does one apply for same-day incorporation of a company in the UK?
To apply for same-day incorporation, the applicant must submit the required documents along with a higher fee to Companies House.
Describe the purpose of Form IN01 in company registration.
Form IN01 is an application for registration that includes essential details about the company, such as its proposed name, registered office, type of company (private or public), and other necessary statements for incorporation.
What is the significance of the company’s registered email address in Form IN01?
The registered email address is necessary for communication with Companies House and was added as a requirement by ECCTA in March 2024.
Describe the two methods available to incorporate a new company.
A client can either incorporate a new company from scratch or purchase and convert an existing shelf company to conduct its business.
Explain why a PO Box cannot be used as a registered office according to ECCTA.
A PO Box cannot be used as a registered office because it does not meet the requirement for an address where delivery of documents can be acknowledged and recorded.
How does the ECCTA impact the delivery of documents to companies?
The ECCTA specifies that documents must be delivered to an appropriate address where they can be acknowledged, ensuring that they reach the intended recipients within the company.
What information is included in the certificate of incorporation? (3 things)
The certificate of incorporation includes the company’s name, registered number, and the date of incorporation.
What happens to a company’s legal status upon receiving the certificate of incorporation?
Upon receiving the certificate of incorporation, the company is recognized as a legal entity from that date, allowing it to enter into contracts and conduct business.
What changes might a client need to make to a shelf company?
A client may need to change the company’s name, which typically has no connection to their business, and possibly other details to meet their requirements.
Explain the process for changing a company’s name after purchasing a shelf company.
To change a company’s name, a special resolution must be passed by shareholders or through the company’s Articles, and Form NM01 must be filed at Companies House along with the fee.
Describe the process for changing a registered office address for a company.
The client’s chosen address must be substituted for the first registered office in accordance with s 87(1) CA 2006. The new address must satisfy the requirements of an ‘appropriate address’ and Form AD01 must be filed at Companies House.
Describe the key statute governing company law in the UK.
The key statute is the Companies Act 2006 (CA 2006), which came into force on 1 October 2009.
Define the main constitutional documents required by companies under CA 1985.
Under CA 1985, companies were required to have two constitutional documents: the Articles of Association and the Memorandum.
How did the requirements for constitutional documents change with the introduction of CA 2006?
Under CA 2006, only the Articles of Association are required as constitutional documents; the Memorandum is no longer part of the company’s constitution.
Explain the role of the Memorandum under CA 2006.
The Memorandum under CA 2006 serves as a declaration by the company’s subscribers that they wish to form a company and agree to become its members.
How does the Memorandum function for companies registered under CA 2006?
For companies registered under CA 2006, the Memorandum is only required as part of the registration procedure at Companies House.
Identify the date when the Companies Act 2006 came into force.
The Companies Act 2006 came into force on 1 October 2009.
Describe the role of the memorandum under the Companies Act 1985.
The memorandum formed part of the company’s constitution and included an objects clause that outlined the purposes for which the company was formed.
Define ‘ultra vires’ in the context of company law.
‘Ultra vires’ refers to actions taken by a company that are outside the scope of its stated purposes as defined in its objects clause.
How do the objects of companies formed under the Companies Act 2006 differ from those under the Companies Act 1985?
Companies formed under CA 2006 have unrestricted objects unless specifically restricted in their Articles, while CA 1985 companies had defined objects clauses.
What happens to the objects clause of a company incorporated under the Companies Act 1985 when it transitions to the Companies Act 2006?
The objects clause continues in force as a limitation on the company’s capacity unless the Articles are amended to remove it.
How does section 28 of the Companies Act 2006 affect older companies incorporated under the Companies Act 1985?
Section 28 CA 2006 provides that any provisions in a memorandum of older companies must be treated as provisions of the company’s Articles.
Define the Legality Test in the context of company Articles.
The Legality Test refers to the requirement that a company’s Articles must comply with the minimum provisions set out in the Companies Act 2006.
Explain the significance of section 31 of the Companies Act 200.
Section 31 of CA 2006 states that companies have unrestricted objects unless their Articles specifically restrict them.
Explain the significance of overriding provisions in CA 2006.
Certain provisions in CA 2006, such as the right to demand a poll vote at a general meeting, cannot be removed or varied by a company’s Articles.
Define Model Articles (MA).
Model Articles are prescribed articles for different types of companies, and if a new company does not register Articles, the relevant MA will constitute the company’s Articles in default.
Define the basic rule for valid alterations to a company’s Articles.
Any alteration must be made bona fide in the interests of the company as a whole.
Discuss the implications of a company acting ‘ultra vires’.
If a company acts ‘ultra vires’, it means it is acting outside its capacity, which can lead to legal challenges and invalidation of those actions.
What is an entrenched provision in a company’s Articles?
An entrenched provision is one that can only be amended or repealed if specific conditions are met or if more restrictive procedures than a special resolution are followed.
How can entrenched Articles be amended?
Entrenched Articles can be amended by the agreement of all members or by a court order, as stated in section 22(3) of the CA 2006.
Explain the rarity of entrenchment in company Articles.
Entrenchment of specific provisions within a company’s Articles occurs relatively rarely in practice.
Define what the Articles of Association are according to CA 2006.
The Articles of Association are the main constitutional document of a company as per CA 2006.
Define the legal effect of the Articles in relation to the company and its members.
The legal effect of the Articles is that they serve as a contract between the company and its members, binding both parties to the provisions outlined within.
How can a member enforce rights against other members?
A member should enter into a shareholders’ agreement to enforce rights against other members.
Define a shareholders’ agreement.
A shareholders’ agreement is a private agreement between shareholders that is enforceable as a contract among the members.
What rights are enforceable by members under section 33 of the CA 2006?
Rights such as the right to vote and the right to receive a final dividend once declared are enforceable by members.
What happens if a member wishes to enforce rights not related to their membership?
A member cannot enforce rights contained in the Articles against the company if they are not relevant to their capacity as a member.
Who can demand a poll vote?
Shareholders possessing at least 10% of the shares
