Chapter 19-25

Question 1

Partnership Agreement

Answer 1

share equally in the capital and profits of the business; indemnified by the firm for any liabilities; take part in management of business; have access to firm’s books; prevent admission of new partner or change in structure

Question 2

Dissolving a Partnership

Answer 2

expiry of fixed period; completion of express purpose; activity becomes illegal; partner gives notice to leave; death or bankruptcy of partner

Question 3

Duties of partners

Answer 3

Fiduciary duty; duty to disclose, account, and not to compete

Question 4

Limited Partnership

Answer 4

Limit liability in event of liquidation. Must be - registered with companies registry; one or more partners must retain full, unlimited liability; parners with limited liability may not take part in management of business and cannot bind contracts; limited partners cannot withdraw capital

Question 5

Limited Liability Partnership

Answer 5

must be registered with registar of companies with formation docs signed by at least 2 members; name must end with llp; partners known as members; must file annual returns and accounts; seperate legal entity; members are agents and liability limited; not subject to corporation tax

Question 6

Veil of Incorporation

Answer 6

Members separate legal persons to the company itself. As a result, member liability is limited, prepetual succession possible, company can own its own property, company can sue and be sued

Question 7

Lifting the Veil

Answer 7

Company is being used to evade legal duties; recognise alien enemy character; identify controlling mind of company; recognise breakdown in quasi-partnership relationship; group of companies operating as single economic entity

Question 8

Formation of a company

Answer 8

memorandum of association (historical record of initial subscribers); application for reg (name, address, members liability and company type); section 9 docs (share capital and initial shareholders); statement of compliance; £20

Question 9

Trading Certificate

Answer 9

required to form PLC. Submission of following evidence - allotted share capital is at least £50k; at least one quarter of the nominal value of the allotted share capital has been paid up min £12.5k; details of promoters expenses; statement of compliance in respect of payment of nominal values and share premium

Question 10

Certificate of Incorporation

Answer 10

final and conclusive proof of effective birth date of a company before which it may not trade. Done through registration, though can be formed by royal charter (BBC) or statute (rail and coal in industrial age)

Question 11

Off the shelf companies advantages

Answer 11

speed; cost; admin

Question 12

Promoter defined

Answer 12

anyone who has involvement in facilitation of the formation of a company. Fiduaciary duty to account, disclose, avoid conflict of interest, and not to make secret profit

Question 13

Problematic areas for Promoters

Answer 13

Pre-incorp expenses; pre-incorp contracts (attempt to novate contract, form such contracts in draft, purchase off the shelf)

Question 14

Memorandum of Assocation

Answer 14

Not alterable - records initial shareholders upon formation

Question 15

Article of Association governing areas

Answer 15

directors powers and responsibilities; decision making by directors; appointment of directors; organization and conduct of general meetings; issie and transferance of shares; payment of dividends; exercise of member rights; payment of dividends; exercise of members rights

Question 16

Binder power of AoA

Answer 16

Members to company; company to members; members to members

Question 17

Altering AoA

Answer 17

passing a special resolution; providing alteration has been made bona fide in the interest of the company as a whole

Question 18

AoA Objects

Answer 18

all companies have unresticted objects unless AoA expressly altered to restrict them. Restriction would be binding to company and directors only, not third parties.

Question 19

Changing name of a company

Answer 19

Special resolution

Question 20

Annual General Meeting

Answer 20

public co’s must hold within 6 mo of year end. private not required. 21 days notice, annual, called by directors, routine business discussed

Question 21

General Meetings

Answer 21

called as and when required, and may be called by directors or members owning 5% of share capital. 14 days notice, to discuss exceptional business e.g. insolvency

Question 22

Class Meetings

Answer 22

called at 14 days notice and held for the benefit of the members of a particular class of shares, often in response to a change in class rights. Only matters related to that class are discussed

Question 23

Members rights for General Meetings

Answer 23

call a GM if they have 5% share capital. directors must call meeting within 21 days of receiving request and within 28 days of directors calling (so within 7 weeks of members calling meeting); place item on agenda; to vote

Question 24

Conduct of Meetings

Answer 24

Voting (show of hands or poll); proxies may be appointed to speak and vote; chairman may be any member; quorum (minimum number of people); minutes kept; special notice (removing a director or auditor shareholders must give 28 days notice to company)

Question 25

Passing Ordinary Resolutions

Answer 25

Notice 14 days; 50%+ votes cast at meeting; file changes with registar only in changes to directors and auditors; uses include authority to allot shares, approve auditors liability, and appoint/remove directors

Question 26

Passing Special Resolutions

Answer 26

Notice per meeting notice; 75% votes cast; must be filed with register; used for liquidations, changes to AoA, and changes in company name

Question 27

Executive director

Answer 27

employed to be member of companys board involving themselves in the management of the business

Question 28

non exec director

Answer 28

part time board member with no management responsibility. only attend board meetings

Question 29

managing director

Answer 29

company may optionally appoint one or more managing directors who have implied actual authority to enter into any commercial contracts on behalf of the company

Question 30

Shadow director

Answer 30

person’s who instructions the board are accustomed to follow

Question 31

Alternate director

Answer 31

person who acts in place of another director

Question 32

de facto director

Answer 32

anyone who holds themselves out to be a director

Question 33

Removal of directors

Answer 33

removal by ordinary resolution; resignation; retirement; termination per the articles (failure to comply); disqualification (misconduct, unfitness, fraudulent behaviour)

Question 34

Directors General Duties

Answer 34

uphold company consitution; promote success of company; use independent judgement; act with reasonable skill and care; avoid conflicts of interest; do not benefit from third parties; disclose interest in transactions

Question 35

Company Secretary Requirements

Answer 35

Qualified accountant; solicitor or barrister; qualified chartered company secretary; someone who was a company secretary on 22nd Dec 1980; someone who has been a company secretary for a plc for 3 of the past 5 yrs; anyone else deemed fit to hold post by vitue of experience

Question 36

Rule of the Majority

Answer 36

minorities unable to sue on behalf of the company.

Question 37

Common Law Exceptions to Rule of the Majority

Answer 37

company is acting illegally; majority shareholders are comitting fraud against the company; where individual rights are being infringed; where directors benefit from their own negligence

Question 38

Unfairly Prejudicial Conduct for Members

Answer 38

exclusion and removal from board; improper allotment of shares; failure to call a meeting; making inaccurate statements to shareholders; managing director using assets for his own personal benefit; diversion of company’s business to a director controlled company; making a rights issue which minority shareholders could not take up; payment of excessive bonuses

Question 39

Conduct not considered unfairly prejudicial

Answer 39

late presentation of accounts; failure of parent company to pay debts of subsidiary; non-compliance with stock exchange rules

Question 40

Court Action for Unfairly Prejudicial Conduct

Answer 40

order regulating future conduct; authorization to any person to bring legal proceedings on behalf of company; order to refrain; purchase of share of the minority at a fair value determined in court

Question 41

Derivative Claim for unfairly prejudicial conduct

Answer 41

one brought by a member of a company in respective of a cause of action vested in the company and seeking relief on behalf of the company. Distinction between this and other claims is that there is no requirement to prove that the directors benefited from their negligence. Remedies result in damages being awared to the company, not the member, and director likely to be dismissed.

Question 42

Procedure for Derivative Claim

Answer 42

Prima facie case must be presented to court, who may strike out an action at this stage; member needs to prove that such action is merited at a later adjourned hearing.

Question 43

Issued/allotted capital

Answer 43

nominal value of share currently in issue

Question 44

called up capital

Answer 44

amount of money requested by the company in payment for shares issued

Question 45

Paid up capital

Answer 45

amount of money recieved by the company for shares issued

Question 46

reserve capital

Answer 46

capital only to be called up upon liquidation

Question 47

Share Allotment Rules

Answer 47

requires authority from passing ordinary resolution. allotments must - where ahres are issued wholly for cash pre exemption rights are granted (offering those ahres to existing company shareholders pro rata to their existing holding; shareholders notified in writing; offer must be open for 21 days); any company may exclude pre emption rights by special resolution and with court approval; directors must issue shares for proper purpose

Question 48

Payment for Shares

Answer 48

May to be issued at a discount (below nominal value); premium issue means amount equal to premium must be transferred to share premium account

Question 49

Restrictions to use of share premium account

Answer 49

issue of fully paid bonus shares; writing off preliminary expenses of company formation; writing off discount on the issue of debentures; allowing the repurchase of debentures at a premium; facilitating permissable capital payments in private companies

Question 50

Alteration of Class Rights

Answer 50

Requires 75% majority of the affected class and permission of the AoA. Minorities with less 15% have 21 days to object

Question 51

Capital Maintenance

Answer 51

Prevent members withdrawing capital

Question 52

Creditors buffer

Answer 52

Collection of undistributable reserves that must be maintained by the company, thereby resticting the ability of a company to return capital to its members via dividends and share repurchases. Ensures that some of the value of the company is locked in, providing asset insurance for creditors

Question 53

Capital Reduction

Answer 53

Remove liability for unpaid calls on issued share capital; paying back excess capital to shareholders on fully paid shares; cancelling paid up share capital that has been lost

Question 54

Capital Reduction in Private Companies

Answer 54

may reduce without court approval by special resolution, statement of solvency within 15 days of resolution, and copy of solvency statement and statement of capital sent to registrar within 15 days of resolution

Question 55

Capital Reduction in Public Companies

Answer 55

must seek court approval for any reduction of capital and allows any member or creditor to object

Question 56

Acquisition of own shares

Answer 56

common method of returning funds to shareholders. May be done through market purchase (ordinary resolution) or off market purchase (special resolution)

Question 57

Permissible Capital Payments (PCP)

Answer 57

repurchase of shares out of capital by private companies, forbidden in public companies. Unlawful unless - directors produce statutory declaration of solvency; declaration is audited; company passes special resolution within a week of declaration; within one week of declaration company advertises in the Gazette

Question 58

Dividend maximum private companies

Answer 58

accumulated realised profits less accumulated realised losses (retained earnings)

Question 59

Dividend maximum public companies

Answer 59

accumulated realised profits less accumulated realised losses less accumulated unrealised losses (retained earnings less things like revaluation reserves)

Question 60

Financial Assistance to Third Parties

Answer 60

forbidden to loan money, act as guarantor for loan, or purchase assets at over value for purchase of shares in a public company

Question 61

Debentures

Answer 61

written acknowledgement of indebtedness

Question 62

Debenture issuing

Answer 62

single debentures; debentures issued in series (each rank equally); debenture stock (finance is raised from the public, each owning a proportion of the debt)

Question 63

Debenture Fixed Charges

Answer 63

attach to specific assets upon creation; changed asset may not be disposed of; default on the loan enables charge holder to sell asset and recover monies; upon liquidation fixed charge holders rank first

Question 64

Debenture Floating Charges

Answer 64

Do not attach to specific assets; upon crystallising event the charge attaches itself to the remaining assets in the charged class (events can be inability to pay debts, recieved is appoined, or company ceases business and goes into liquidation); company is free to deal in charged assets up to the point of crystallisation; upon liquidation, floating charge holders rank behind fixed charge holders, the liquidator, and other secured debtors