Business law Flashcards
What are non-equity shares
Shares with a meaningful restriction on them, such as entitlement to profits on winding up
What are the differences between a partnership and a LLP
- separate entity
- liability limited as per written agreement
- similar to partnership in that no directors
- partner liability for insolvency offences
- taxed as partnership, liable for own share of profits
- unlimited capacity, informal management structure and meetings, agreement is not public document, member is agent, no capital rules
- debts are treated as its own
- personal assets not at risk
- normally no third party liability
- accounts available for inspection
- must follow rules on membership and filing of accounts
- time consuming to form
- name subject to registrar approval
- insolvency risk
- property belongs to LLP
- formation registration
- minimum 2 people
- accounts and annual return
- register of charges must be kept
- must have registered office
- everyone participate
- not as easy to get capital
Problems with director
Breach of fiduciary duty Duty to promote success of company Duty to avoid conflicts of interest Duty to avoid 3rd party benefits Service contract
Removal of director
Statutory procedure if not in AoA Ordinary resolution of shareholders Special notice and general meeting - 28 days Members approval Right to be heard at meeting to remove May have compensation rights
Board.Members - To enter into a lease who makes resolution?
Board Meeting/Written resolution
Authorise someone to execute the lease
What resolution to change articles of association?
Special resolution of members - 75%
General Meeting
What is Short notice
Dispenses with 14 days normal notice
Remember form of consent for short notice
Board Meeting Minutes Structure - new articles
Company number
Date
In attendance - everyone else
Present - taking part in meeting
Location
Commencement - chair declared quorate and open
Business of the meeting - resolutions to be voted on, and documents tabled
The Board considered the proposed resolution
After discussion, it was resolved that
The directors confirmed compliance with s171-177 CAA 2006 (prior resolution ideal esp if issue)
Adjournment to General Meeting
Reconvened - Board noted new articles
Secretary instructed to send to CH - special resolution, new articles, update minute book, record of resolutions, send resolutions to all shareholders
Board Meeting Minutes structure
Company Number Name 'The Company' Minutes of a meeting of the Board of Directors of the Company held at on Present In attendance
- Preliminary
The chair noted that a quorum of two was present in accordance with the AoA and declared the meeting open. - Change in accounting reference date
After due and careful consideration it was resolved that the accoutning reference date of the company be changed to X and that the registrar of companies be notified of this chance
Closing
Signed - chairman
Model articles - change of accounting date - shareholders?
No - directors ordinary resolution
Model articles - change of directors
No - directors ordinary resolution
What is the compliance section for minutes
The directors confirmed compliance with s171-177 CAA 2006 (prior resolution ideal esp if issue)
How should the attending solicitor be on the minutes?
IN ATTENDANCE
Minutes for signing lease
Purpose is to approve and sign a contract for the purchase of X for £X
Provision in minutes for resolutions
Resolve in the interests of the company
Approve the contract
‘Any two directors be authorised to sign on behalf of the company’
Do members have to approve substantial asset
Yes - if greater 100k or >10% of company asset value IF connected person - not brother, yes spouse or child
Does the company number have to be in minutes?
Not board minutes
Yes shareholder resolutions
Example wording to purchase lease
approve and sign a contract for the purchase of
How to declare a nature and extent of iterest
The following director declared the nature and extent of her interest int he proposed transaction
Direct or indirect interest with company transaction
must be declared.
Exception: aware of interest, not reasonably give rise to conflict
When to shareholders have to declare
Share allotment
Minutes for if there is a directors conflict
It was noted that the director interested would not vote or count as part of a quorum on any matters in which she was interested and that nevertheless there would be a quorum for all items
Do conflicts of interest affect shareholder votes
No
Wording for members resolution to purchase lease
That the proposed contract between X for the purchase of X be and is hereby approved. Identify the contract precisely. APPROVE the contract as it is the directors who enter into it
What conflicts arise with shareholder agreements?
Directors have fiduciary duty to company which may conflict with shareholders
What issues arise with a service contract?
Members approval of length if over 2 years
If not granted contract term is void and terminable on notice
Can a director vote on their service contract
No - must declare interest and not vote
Conflicts ppointing director
Cannot advise director and ccmpany as conflict of interest
Can a company agree to fetter its statutory powers
No
Can shareholders agree to act in a particular way
Yes
Essentials for board minutes (7)
- Present/attendance/capacity (inc. Chair)
- Quorum
- Compliance with directors duties
- Conflicts of interest
- Identify documents
- Signature of chair
- Actions (CH and minute book)
Directors compliance
Directors declared compliance with s171-177 CA
What is required for a Board Meeting for share allotment
Directors statement of approval of the disapplication of pre-emption rights
The Approval of Members is required
Agree a general meeting for the purpose of proposing ordinary/special resolutions
Declaration of interest ‘there was placed before the meeting and duly noted’ a statement given declaring an interest’
Resolve to approve the allotment of shares and disapplication of statutory preemption rights
Authorisation of GM notice and immediate instruction to sent
Ordinary resolution: for Directors to exercise powers of the company to allot up to X shares at a par value of X and X shares, such authority to expire on. This replaces previous authority.
Special resolution: powers be given power to allot equity securities as if the pre-emption provisions do not apply
Amendment AoA
Meeting notice periods
Private: 14 days; consent to short notice can be given by majority of members 90% of shares
Partnership name
Not restricted but disclosure if not in names of all partners
Partnership remuneration
Partners are entitled to share of profits. No partner is entitled to a salary. Salary is also a share of the profits. Can be drawn at any time of year but need a mechanism if mid year
Under PA, share equally
Partnership capital is the amount contributed to business. Capital profits is the value of assets above the capital contributed by the partners. Capital profits are shared equally, even if contributed unequally, but there is an implied agreement can withdraw as per contribution
What if a partner is made bankrupt
Automatic dissolution - better to have expulsion clause
What about partners with competing businesses
Duty not to work in competing business
If uses partnership property/business connection - account for profits
What do you include in a deed of variation
DEED OF VARIATION
This DoV is dated and made between [parties]
Background
NOW IT IS AGREED THAT the supply agreement shall be amended
Company restructuring key issues
- conflicts - directors - family
- Directors must declare conflicts BEFORE enters into transactions - Board meeting or in writing.
- Can argue others aware/inconsequential
- Effect: not voting/quorate
What is the process to issue new shares
Create any new shares eg. preference shares (fixed dividend)
Directors will require authority to allot new shares (normally from shareholders
Resolution must give date authority will expire
Pre-emption rights - CA/MoA, can be dispensed with
Once authority, Board should resolve to allow the shares
Secretary - issue share certificates, complete CH registration, and file ordinary resolution / special resolution re: authority/pre-emption
Amend company register of shareholders
Buy back of shares
Reduces the net assets for the increased value of the shares
Paid up capital is reduced by the original value of the shares
Distributable profits are reduced by the increased value - must buy from profits
The original value must be transferred to the capital redemption reserve
Partnership Act position
- Profits and losses shared equally
- Not entitled to interest on capital
- All partners entitled to manage
- Not entitled to remuneration
- No new partners without consent of all
- Ordinary matters - majority, change in business requires all
Names of partnerships
If not in name of all partners, must state name of all partners and service address on business letter, written order for goods/services, invoice and receipt, written demand payment debt, prominent position place of business
What if partners give unequal capital
In absence of agreement, capital is shared equally, but courts will readily imply agreement if unequal contribution
Remember in partnerships to distinguish between income and capital profits
Income - trading
Capital - eg. land
What does the PA say about competing business
Not allowed. Cannot use partnership property - duty to account for profits
Companies Act re names
Need permission if connected to public authority.
Sensitive names eg. offensive
How to expel a partner
Meeting to expel if breach of contract; give chance to remedy, notice in writing
Partners are to be given reasonable notice of breach and chance to respond
Leaving partner - entitled to capital contribution plus interest
Partnership - without agreement
Equal shares/profits Voting by majority on issues All can bind the firm Each liable for torts Right to interest on loan 5% Right to salary No new partners without consent of all Right to see books Right to management Right to expel partners
Interview
Include costs and timeframe
Empathy
Active listening
Balance sheet vs P&N
Balance sheet is at a specific point in time
P&N is over a year, or quarter. P&N shows if company is profitable; Balance sheet shows what it owns/owes at any one time ie. solvency
Whats in balance sheet
A balance sheet reports a company’s assets, liabilities, and shareholders’ equity at a specific point in time
FORMULA FOR RETURN ON CAPITAL
Net operating profit/Employed capital ‘balance on capital account’ or ‘capital’. Express as 100 for percentage. %%%
Ie. is the profit satisfactory compared to amount of capital invested, compare to bank interest. How much profit given how much put in?
NET PROFIT PERCENTAGE FORMULA
Profit/Sales*100
Amount of profit on each item sold, ie. profit as a proportion of sales. Should be %
CURRENT RATIO FORMULA
Assets/liabilities:1
Should be at least 1.5:1
ACID TEST FORMULA
Cash + cash equivalent + marketable securities + current accounts receivables Ie. liquid assets/ liabilities:1.
Must be 1:1 or more - more liquid assets than liabilities.
NO stock, not or (normally)prepayments. YES debtors, not cash
What is in PNL
Payment may not be received - so could be misleading if profits, assumes will receive
Presentation skills
Have a good structure
Balance sheet - PNL - what not shown
Reputation, labour relations, declining market
Board minutes to appoint a director
After discussion IT WAS RESOLVED: to approve the appointment of X as a director
Board minutes to issue new shares
After discussion IT WAS RESOLVED to issue Z new shares to ZZ subject to shareholder approval
Board minutes to get written resolution of shareholders
After discussion IT WAS RESOLVED that the Resolution be circulated immediately to the shareholders
Board minutes to authorise contract
After discussion IT WAS RESOLVED to authorise X and X to sign the service contract on behalf of the Company
Members approval to issue shares?
Yes
Members approval to appoint director
No
Minutes to provide shareholders with written resolution
The Chair tabled a form of shareholders written resolution containing the following resolution to be passed as an ordinary resolution: that the directors of the Company be hereby authorised to issue X new shares to Z.
After consideration, IT WAS RESOLVED to approve the Resolution an the Secretary was instructed to issue the Resolution immediately to the shareholders
Minutes for adjournment
The Board meeting was adjourned for the Resolution to be circulated to the shareholders for singing. The board meeting was reconvened immediately thereafter
OUTCOME OF CIRCULATION OF RESOLUTION
The Chair reported that the Resolution had been signed by all the shareholders and therefore had been duly passed.
