Business Law & Practice

Question 1

What is the director’s duty?

Answer 1

• to promote the success of the business
• having regard to factors including:
  
  • long term consequences of their decisions
  • the interests of the company’s employees
  • relationships with its suppliers and customers

Question 2

What are Articles of Association?

Answer 2

• All limited companies must have Articles of Association (Articles), which are the rulebook for the company.

-!The Model Articles are the default Articles applicable to UK companies and they are automatically incorporated into a company’s rulebook to the extent that they are not excluded or modified.

Question 3

What is the Chairman’s power?

Answer 3

Model Articles 13 states that if the numbers of votes for and against a proposal are equal, the chairman of the directors has a casting vote.

Question 4

How can a company amend the articles to
deal with the removal of directors?

Answer 4

Model Articles: the Model Articles fall back on the Companies Act to set out the provisions to remove a director, which requires a shareholders’ resolution to be passed at a meeting and special notice of 28 clear days must be given for the meeting.

Implications: this process can be time consuming, especially at a time when you want to quickly remove a director who is perhaps causing issues.

Suggestion: an additional removal process is inserted into the Articles to allow for more flexibility, i.e. one that doesn’t require such a long notice period to be given.

Question 5

Amendment to MAs compulsory transfer of shares

Answer 5

Model Articles: under the Model Articles, a shareholder is not compelled to transfer shares either to a third party or back to the company.

Implications: you may wish to include provisions to compel a transfer if the shareholder is made bankrupt, does something which breaches the Articles, is no longer an employee of the company, is mentally or physically unable to continue as a shareholder or due to their death.

Suggestions: draft bespoke provisions into your Articles to cover this. It can also cover how the shares are valued, i.e. if the shareholder is a good leaver (leaves by mutual consent or due to an event outside their control, such as death or retirement) then perhaps market value can be used. However, if they are a “bad leaver” (leave for any other reason) then nominal or a lower value could be used.

Question 6

What takes precedence, a shareholders’ agreement or company articles of association?

Answer 6

If the shareholders’ agreement is silent on the issue, the standard articles of association will take precedence.
However, in the event that the shareholders’ agreement has a
‘supremacy clause’, it would supersede the articles.

The supremacy clause would come into effect in the event of conflict between the shareholders’ agreement and the articles of association, specifying that the provisions in the shareholders’ agreement should take precedence. This is commonly the case.

Question 7

What are some key forms?

Answer 7

TM01 Termination of director’s appointment
AP01 Appointment of director
PSC07 Notice of ceasing to be a person with significant control
PSCO1 notice of person with signITIcant control
NM01 Notice of change of name and copy of the Special Resolution

Question 8

What must shareholders do re voluntary liquidation?

Answer 8

Pass a special resolution approving of the dissolution within 5 weeks of the directors making a statutory declaration starting the liquidation.