Business Writing Topics Business Flashcards
Differences Between different registered companies?
- Unlimited Companies
- still registered
- members personally liable - Limited by Shares
- not personally liable beyond amount paid/promised for shares
- can be public companies - Limited by Guarantee
- members to paid fixed guaranteed amount in event of winding up
- must have one member/guarantor - Public vs Private Limited by Share
- private and only sell shares by private agreement
- public can sell shares to public
- if listed can trade on exchange
- public company needs min. nominal value of £50k
- requires trading certificate to trade
Options for Setting up Company
- From Scratch
- promotor to enter pre-incorporation contracts
- put together memorandum of association
- must apply to CH for registration - Shelf Company (pre-incorporated and never traded)
- uses model articles so may have to change (special resolution)
- notify CH of articles, members, names etc.
- are there hidden liabilities in shelf company (conduct DD)
What does a promotor do and what are they liable for?
- Enteres pre-incorporation contracts
- Personally liable so either:
- enter novation agreement with all parties; or
- assign benefit to company in return for indemnity - Fiduciary Duty to Company
- not to make secret profits
- disclose interest in transactions entered into
Requirements of application to register company
Company Details
- Proposed Name
- not same as existing company
- end in Ltd or Plc (Welsh Equivalent)
- not offensive
- approval if connected to public or regulated sector - Statement of Capital and Initial Shareholding
- total number of shares
- amount for which all shares are to sold
- classes shares (description of rights)
- amount that will be paid up vs left unpaid - Location of Registered office
- Details of business activity
- Limited by share of guarantee
- Public or private
People
- Subscribers
- Proposed officers
- residential adresses
- secretary if public
9 People with Significant Control
Other
10 Statement of compliance with Companies Act
- Relevant fees
What if someone wants to entrench a provision for decision making in a company?
- Can entrench in Articles
- decision requires more than 75% vote
- must be done by special resolution
- must give registrar notice
- cannot prevent amendment of Articles by special resolution - Shareholder Agreement
- private so no need to disclose
- can require over 75% to amend articles
- only binding on shareholders who signed
- cannot require shareholders to subscribe for more shares
What can shareholder do if they want to remove alteration to articles?
- Claim no in best interest of company
- if no reasonable person would consider it in best interest of company
- shareholder did NOT vote in favour can apply to court
- court can set aside if not bona fide in best interest of company (can any shareholder benefit from it) - Have dismissed if insufficient notice of meeting
- keep in mind permission for short notice meeting - Claim prejudicial to minority shareholder
- if they are minority shareholder
When can veil of incorporation be lifted?
Makes directors or shareholders directly liable
Example:
- company formed to carry out fraud or avoid existing legal obligations
- fraudulent or wrongful trading
- PLC trades without trading certificate
Examples:
- to avoid non-compete
- investor fraud
- to avoid contractual liability (promise to sell then incorporate)
How can new directors be appointed?
Check Articles
Model Articles
- ordinary resolution; or
- by board
Notice:
- CH in 14 days
- update register of Directors
How many directors do companies need
Private
- 1 director
Public
- 2 directors
At least 1 director of a company has to be natural person over age of 16
Types of Directors
De Jure Directors
- formally known, properly appointed and registered
De Facto Director
- not formally appointed/registered
- but carries out all the duties and behave like director
- held out by company as director
Shadow Director
- regularly influences acts of company directors
- company directors are accustomed to acting in accordance with their advice
Exec vs Non-Exec
- Exec responsible for day to day running
- Non-Exec more supervisory/consultig role
Alternate Director
- appointed by director to attend and vote at board meetings when director is unable to attend
Nominee Director
- appointed to represent interest of particular stakeholder
- must still act in best interest of the company
Power of Directors: how is it exercised and is it limited?
Check Articles
- can delegate some powers
Board meeting
- MA quorum is 2
- majority vote
- chairman has casting vote
- director with interest does not court to quorum
Written Resolution
- must be unanimous
Shareholders
- can compile board by special resolution
When does directs service contract require approval?
If over 2 years then ordinary resolution
When can a director bind a company? How should contracts be executed?
- Actual Authority
- express
- implied (title or past dealing) - Deemed
- appears to have authority because of representation by company (holding out etc.); and
- 3rd party acting in good faith
- director may be sued for breach by company
Execution of Contracts
- company seal
- signature of 2 directors / secretary
- 1 director if witnessed
Liability of director breaching duty?
- Can continue even after they are no longer director
- Damages
- Account for profit or benefit made
- Breach can be ratified by ordinary resolution
How can director protected against liability for breach of duty?
1.Breach can be ratified by ordinary resolution
- Purchase insurance
- CAN NOT be excluded in articles or service contract
- Shareholder wants to remove director.
- Is this limited?
- What might happen once removed
- Ordinary resolution
- NOT written - Process
- 28 days notice
- director has right to speak - Limited
- only by Bushel vs Faith clause
- gives director/shareholder weighted voting rights - Effect
- if breaches service contract may be liable for damages
- ordinary resolution can allow additional paymnet (basically gift)
How can dividends be given?
- directors to recommend
- must have profits available for purpose - Shareholders to approve by ordinary resolution
- can approve less but not more - If unlawful (no profits available for purpose)
- if shareholder knew or had reasonable grounds for believing is liable to repay
- directors may be personally liable
What should you do if director is breaching duty? (full process)
Can bring Derivative Claim
- Believe directors has or is about to breach duty
- Company will not prevent or remedy action
- You are shareholder or have shares through operation of law (inheritance)
- even if not shareholder at time of breach - Damages go to company
- can be indemnified in common law
Court Process: must dismiss claim if:
- 1st Stage
- if no prima facie case - 2nd Stage
- satisfied person promoting best interest of company would not seek to continue; OR
- action was authorise or is likely to be authorised (ordinary resolution)
When might a minority shareholder have claim for unfair prejudice? What can they do?
Shareholders have right not be be unfairly prejudiced
Examples of unfair prejudice:
- exclusion from management in quasi partnership
- directors excessive renumeration (and not paying dividends)
- directors exercising powers for improper purpose
Can:
- Negotiation with Directors to sell your share
- bring unfair prejudice claim
- typically order for shareholder to be bought out - Apply to wind up company if can show:
- is solvent
- just and equitable to do so
- typically get less money than selling shareholding
Shareholder wants to call general meeting
Can require director to hold meeting if:
- Hold either:
- 10% voting rights; OR
- 5% if private company and no meeting for 12 months - Directors to:
- give notice of meeting in 21 days
- hold meeting in 28 days of notice - If directors do not then applicant or shareholders with over 50% voting right can
- claim reasonable expenses
What is the notice requirement for general meetings? What if insufficient notice?
- Private companies
- 14 clear days (count 15 days)
- 2 days if not personal service (count 17 days) - Public Companies
- 21 clear days notice (count 22 days)
- 2 days service (count 24 days) - Short Notice
- if majority of shareholders with 90% of shares agree; AND
- no documents must be laid out for 15 days - Insufficient notice
- member can seek to have it declared invalid
How to demand poll vote
- Must be
- 5 shareholders; or
- shareholders with 10% voting rights or paid up capital
Who can demand written resolution?
Board or shareholders with 5% voting rights
Always as poll vote and based on all shareholders eligible to vote (compared to those that show up at a in-person meeting)
Process of Issuing new shares
- Dis-apply preemption rights
- if ordinary shares issued for cash
- special resolution
- if private company may already be misapplied in articles
Pre-Emption Rights not misapplied
- if ordinary shares issued for cash
- then existing shareholders to be given 14 days to accept
- Issue new shares
- board decision if post 2009 and one class of share
- otherwise ordinary resolution
What if someone wants to sell/transfer their shares?
- seller to give stock transfer form and share certificate to buyer
- Buyer sends these to company
- Board can refuse transfer (subject to articles)
- Board resolves to register or refuse
- Board issues new share certificate
- Register of members updated
What are records and files that must be kept and updated by companies?
- Registers (members for free and public for fee)
- register of members
- register of directors
- register of directors residential addresses
- register of charges over company assets
- register of secretaries
- register of PSC - Minutes of General Shareholders Meeting
- for 10 years - Directors Service Contracts
- 1 year after end of contract
Accounts and statements that must be filled with CH?
- Annual Confirmation Statement
- 14 days of end of review period/anniversary of incorporation
- failure to file in time is an offence - Charges
- 21 days - Accounts:
- 9 months private,
- 6 months public (after end of accounting period)
Only Med and Large Companies (if over 50 employees or £10.2m turnover)
- Directors Report
- states names of directors and recommended dividends - Strategic Report
- inform on development and performance
Contents of Accounts for Companies
- company number, nature and location
- balance sheet for last day of finical period
- statement of profit and loss
- directors must approve accounts, stating that they are true and fair
- unless small company must be audited
What requires special resolution?
All registered with CH in 15 days
- Share buy back
- registered 15 days with statement of solvency - Change in Articles
- registered including new articles - Change Company Name
- after new certificate of incorporation update website etc. - Require Directors to take/refrain from specified actions
- Winding up the company
- Dis-applying Pre-emption Rights
- Start liquidation
Matters Requiring Ordinary Resolution
- Approve Dividends
- Remove Director/Auditor
- notify CH within 14 days
- update register of directors - Appoint Director/Auditor
- notify CH within 14 days
- update register of directors - Authorise Allotment of Shares
- notify CH of resolution in 15 days
- notify CH within 1month of issue
- update register of members
- issue share certificate (2 months) - Approve Substantial Property Transactions
- Ratify Breach of Duty
- Approve Service Contract over 2 years
- Loan to Directors
- Compensation to Director for Loss of Office
- When is company insolvent “cash flow” vs “balance sheet” tests?
- When to use each test?
Balance Sheet: liabities > assets
Cashflow: cannot pay debts as they fall due
Deciding if dividends can be paid
- use balance sheet test
Deciding if company is insolvent (duty shifts to creditors)
- either cashflow or balance sheet test
What are the cashflow vs balance sheet tests?
Cash Flow: Can you pay debts as they fall due
Balance Sheet: Do debts/liabilities exceed assets
