Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

SQE 1 > Chapter 4 - SQE - LTD Company Part 2 > Flashcards

Chapter 4 - SQE - LTD Company Part 2 Flashcards

1
Q

What is a shadow director?

A

A person who is not properly appointed as a director but exercises a major influence on directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a de facto director?

A

Either a director who has not been properly appointed as a director by the CA, but performs as a director, or a person who continues in the role of director after their term of office has expired

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What do the de facto director and a shadow director have in common?

A

Many provisions of the CA and the Insolvency Act 1986 apply to shadow and de facto directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How many directors does a limited company must have?

A

It must have at least 1 director

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the age which you can become a director?

A

At least 16 years of age

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the other conditions that allows ppl to become directors?

A

Cannot be disqualified from being a director
Cannot be bankrupt
Must be physically and mentally capable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

When are the first directors appointed?

A

On Incorporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Where are the first director’s names named?

A

On the Part 2 of the form IN01

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Can the company articles specify the maximum number permitted of directors?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What does MA stand for?

A

Model Articles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Can sole directors act on their own?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is a directorship?

A

Is an office (non-executive position) but it can also be an executive position in addition to an office.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is a non-executive director?

A

A person who holds the office of director. They have rights
duties
restrictions and
obligations under the CA but they do not work for the company in a paid position

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Does a non-executive director have a contract?

A

No, they don’t but they they are entitled to fees for their duties.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Who is an executive director?

A

A person who holds the office of director, also works for the company in paid position, they usually have an employment services contract and are entitled to a salary. They will have a particular role and job title linked to their duties or specialism

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is important to consider appointing directors?

A

It is important to distinguish between appointment to the office (MA17) and the separate requirement to appoint in an executive capacity (MA19)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How is appointed a non-executive director?

A

Is dealt with under the MA17 and may be done by OR (ordinary resolution) of the shareholders or a BR (board resolution) of the directors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Describe the BR boar resolution process

A

A Board resolution BR is more straightforward

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What happens is not all directors are shareholders? How are they going to reach a decision to appoint a non-executive director?

A

It is better to obtain a OR (ordinary resolution) to gain the sanction of the shareholders in a general meeting (GM)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How is an executive director appointed?

A

May be done by BR (board resolution) under the MA19

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What needs to be done after the appointed has been done?

A

Update the register of directors and the register of directors residential addresses and file Form AP01(individual directors) or AP02 (corporate directors) as appropiate with Companies house within 14 days

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the director’s duties?

A

They owe fiduciary duties to their company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What means fiduciary duties?

A

It means that directors cannot make a secret profit out of their position and must act in the best interest of the company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

How about shareholders, do they have to act in the best interest of the company?

A

No, shareholders may act in their own interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What does section 170-180 of the CA states for directors?

A

That directors have statutory general duties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What does section 171 of CA stand for?

A

Directors must adhere to the provisions of the company articles and exercise their powers in the best interest of the company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What does section 172 of CA stand for?

A

Directors must act in a way they consider, in good faith, would be most likely to promote the success of the company, for the benefit of teh members as a whole

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What are the 6 factors that the directors must regard?

A

The likely long term consequences
Employees interest
The need to foster good business relationships
Impact on the community and the environment
The desirability of maintaining a reputation for a high standard of business conduct
The need to act fairly between members
Directors only need to have regard to the factors and the need to promote the success of the company will take precedence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What does section 173 of the CA stand for?

A

A director must not do anything to fetter (compromise or undermine) their right to exercise independent judgment. They may take legal and financial advice without being in breach of this section.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What means to exercise independent judgment?

A

Agree to vote in a particular way, unless it is done in good faith and in the best interest of the company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What does section 174 of the CS stand for?

A

There is a minimum objective standard which may be raised, based on the actual knowledge, skill and experience that the director has.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What does it mean objective standard?

A

The standard knowledge, skill and experience that may reasonably be expected by expected of a director.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What does section 175 of the CA stand for?

A

This involves taking advantage of the property, information or opportunities, that belong to the company. The directors of a private company may authorise a breach of this duty by BR (board resolution) although the interested directors vote will not count.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Who is the claimant in breach of contract?

A

The Company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

If the directors fail to act in a breach who is supposed to take action?

A

Shareholders may consider taking derivative action

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What do remedies include?

A

An account for profits (Payment to the company)
Damages
Injuction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Talk through the personal liability of directors

A

A director will be personally liable to third parties dealing with the company where the director has given a personal gurantee or is guilty of wrongful trading, fradulent trading or misfeasance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

When do lenders insist upon personal gurantees from director-shareholders?

A

When a company is newly formed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

What does it mean when lenders insist upon personal guarantees from director-shareholders?

A

It makes the director-shareholders personally liable for their liabilities of the company and takes away the real benefit of limited liability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What means wrongful trading?

A

A director of an insolvent company may be liable to contribute to the assets of a company, where the company continued to trade and they knew and concluded that there was no reasonable prospect of the company avoiding insovency proceedings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

What is the type of test conducted under the section 174 CA ?

A

A combined subjective/objective tes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Explain the defence under section 174 CA

A

If the director took every step to minimise potential loss to creditors as ought to have been taken

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Explain fraudulent trading

A

A director of an insolvent company may be liable to contribute to the assets of a company when the company carried on business with intent to defraud creditors or for any fraudulent purposes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What means misfeasance?

A

It is a breach of directors duties discovered on winding-up and personal liability can be imposed in these circumstances

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What are the power of directors subject to?

A

The directors wide power of management (MA3) are subject to any instruction given to the board by special resolution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Which one is harder to prove? Fraudulent trading or wrongful trading? And why?

A

Fraudulent trading due to the need to show intention to defraud

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Where are set out the power of directors?

A

In the company’s articles.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

How are directors power exercised?

A

Either by making decisions at board meetings or by unanimous agreeement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

What does MA5 contain?

A

Contains wide powers of delegation to a managing director

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Who can appoint for an alternate director?

A

The companies articles can make provisions for the appointment of an alternate director

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

What happens if there are a number of provisions?

A

If there are a number of provisions, the CA requires the sanction of the members

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

What happens if directors’ particulars change, where do they need to report that?

A

To Companies House using form CH01 (individual directors) or CH02 for corporate directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Do companies need to maintain a register of directors and their residential addresses? When is this an exemption?

A

Yes. It is an exception when they applied for an exemption.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

What does CA stand for?

A

Companies Act 2006

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Do the directors need to be named in the business letters?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Where does the company registered name need to appear?

A

The company registered name must be displayed at its registered office and appear in certain communications (registered number and registered office in business letters)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

For how long do they need to keep the copies of directors service contracts or memorandum?

A

Up to 1 year after expiry/determination

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Do members have a right to inspect director service contracts?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

Does the CA contain restrictions on directors?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Explain the approval of contracts for directors and why?

A

Shareholders approval is required for ordinary resolution for directors contract of a guaranteed fixed term of more than two years duration because such contracts could lead to significant liability for the company if wrongfully terminated . Only the guranteed term element requires shareholder approval

53
Q

What happens if the guaranteed term is not approved by OR (ordinary resoultion)

A

The service contract will be terminated on resoanble notice

54
Q

Explain the substantial property transaction, who can approve it and under what powers?

A

The directors under their general manager powers (MA3) may approve most property transactions involving the company, however substantial property transaction require shareholders approval by OR (ordinary resolutin).

55
Q

Explain when is the substantial property transaction (SPT) substantial and when is not?

A

If the value of the transaction is 5K or less, it will never be substantial
If the value of the transaction is over 100K , it is always substantial
If the value of the transaction is more than 5K, but equal to or less than 100K, it will only be substantial if the value exeeds 10% of the company net asset vlaue

56
Q

Who can be involved in the substantial property transaction?

A

The company and the director, or a person connected to a director

57
Q

Who does it include when mentioning a person connected to the director and who doesn’t quality ?

A

Includes spouse, civil partner, romantic partner in an enduring relationship, children, stepchildren, parents and children of romantic partners (but not brother, sisters, grandparents, grandchildren, uncle,aunts, newphews and nieces).
And director and persons connected with the director who own at least 20% of the company’s voting shares

58
Q

What does SPT stands for?

A

Substantial Property Transaction

58
Q

Can a SPT be made between a company and a shareholder?

A

No, only between a company and a director or someone connected to a director.

58
Q

What happens if there is a breach of 190 CA (Companies Act)?

A

The transaction is voidable

59
Q

When is a SPT (Substantial Property Transaction) void?

A

If there is a breach of 190 CA (Company Act)

60
Q

Are loans to directors require approval?

A

Yes, loans more than 10K require the approval of the members by OR (ordinary resolution)

61
Q

What happens of the loan is not approved?

A

Then is voidable, unless ratified by the shareholderes within a reasonable time

62
Q

What happens to the memorandum when approving loan for directors?

A

A memorandum of the proposed terms must be available for inspection for 15 days prior to the meeting and at the meeting itself

63
Q

Explain the restrictions on directors: payments for loss of office

A

Certain payments to directors for loss of office (on termination of their role) require approal of the members by OR (ordinary resolution) if they exceed £200.

64
Q

How long can the directors hold office once appointed ?

A

Until death,
voluntary requirement,
removal or
disqualification

65
Q

Explain the voluntary retirement/resignation of directors

A

A director may resign by serving notification of resignation on the company. An executive director will also have to adhere to the terms of any service/contract or general employment law.

66
Q

When does removal due to bankrupcy order, entering into a composition with creditors, physical or mental incapacity

A

The director office ceases in the circumstances MA(18) b,c,d

67
Q

Do the shareholder have the right to remove a director by OR (ordinary resolution)

A

Yes, they do, it’s an inherent right

68
Q

What is required of the shareholders to remove the directors under the OR?

A

Special notice of the OR (ordinary resolution) is required to be given to the company of the proposed resolution

69
Q

How many days notice do the shareholders need to give for the proposed resolution to the company?

A

At least 28 days notice of the proposed resolution must be given to the company, otherwise the resolution will be innefective

70
Q

Do the directors need to be informed about their potential removal?

A

Yes, the director has the right to be informed and to make representations to argue against their removal (both through written representation and meeting itself).

71
Q

Can the written resolution be used in the directors removal?

A

No

72
Q

What happens after the director gets informed that he might be removed?

A

The company must serve notice to the GM (general meeting)

73
Q

When do members need to requisition a GM?

A

If the board is uncooperative

74
Q

Explain the removal of director compensation

A

Removal of the director is without prejudice to any right to compensation, which the director may have

75
Q

What is important to check when removing a director?

A

Check the director service of contract
Check the company’s articles for Bhusell v Faith clause

76
Q

What does the Bhusell v Faith clause say?

A

It’s giving shareholder directors weighted voting rights ( two votes for every one they would have) on a resolution to remove them as a director

77
Q

How are the voting powers exercised for shareholders and how to find out?

A

By checking the shareholders agrement

78
Q

After the removal of a director what does the company must do?

A

Update the register of directors, and their residential address
File form TM01 (individual directors) ot TM02 (corporate directors) with Companies house within 14 days

79
Q

Can directors be diqualified by the Court and under what Act?

A

Under the Company Directors Disqualification Act 1986, directos may be disqualified by the court form acting as directors from any period betweeen 2-15 years

80
Q

What are the potential grounds to disqualify a director by the court?

A

Conviction of an indictable offence
Persistent breach of companies legislation
Fraud in winding -up
Summary conviction for failure to comply with companies legislation
Wrongful or fradulent trading
Being an unfit director of an insolvent company

81
Q

What happens if the company is in financial difficulty, what does the director should do?

A

Directors should exercise extra diligence to avoid disqualification

82
Q

What happens if you breach a disqualification order?

A

It is a criminal offence and the director will be personally liable

83
Q

What is the company secretary responsible for?

A

Keeping the various records of the company
Filing documents at Companies House
The general administration of the company

84
Q

Does a public company require to have a company secretary?

A

Yes

85
Q

Does a private company require to have a company secretary?

A

No

86
Q

When is appointed the secretary, if appointed one?

A

At the day of incorporation

87
Q

On what form and part is the company secretary named ?

A

On the IN01 form, in part 2

88
Q

Who needs to consent on the Form IN01 the appointed of the secretary?

A

The company must consent on behalf of the secretary

89
Q

Can another company act as a company secretary?

A

Yes

90
Q

Can the directors remove the company secretary? And how?

A

Yes, by appointing a replacement by BR (board resolution) under MA3

91
Q

What are the administrative formalities to change a company secretary?

A

Update register fo secretaries
File form AP03 (individual) AP04 (corporate) or TM02 (termination) as appropiate with Companies House within 14 days

92
Q

What does form CH03 and CH04 are required for?

A

Are required for change the particulars of the Company Secretary

93
Q

How many members does a company need to have ?

A

Every company must have at least 1 member

94
Q

Is there a legal maximum number of members a company can have?

A

No, there is no legal maximum

95
Q

Can a company be a shareholder in another company?

A

Yes, it can

96
Q

How can be identified the first members of the company?

A

Are those subscribes that signed the memorandum prior to incorporation and have agreed to become members of the company

97
Q

How can be identified the subsequent members of the company?

A

Are those who acquire shares in the company and who are registered as such in its register of members

98
Q

Can the subsequent members of the company have existing shares that are transferred? (purchased, gifted or transmitted)

A

Yes

99
Q

Does a company need to keep a register of its members? What is the exception?

A

Yes, unless an election is made to keep the records centrally

100
Q

Can the shareholders inspect the register?

A

Yes

101
Q

What happens if shareholders are refused to inspect the register?

A

Then it is a criminal offence.

102
Q

How are the shares classified? How are they diferent?

A

Different shares have different rights relating to voting right and dividents

103
Q

What are the rights of ordinary holders?

A

Have the right to vote and receive dividents

104
Q

What are the rights of holders of preference?

A

Usually have preferential rights, the rights to receive dividents first

105
Q

Who decides on the rights that will attach to different classes of share?

A

The Company

106
Q

What is the role of the shareholder’s agreement?

A

These may be entered between shareholders to govern their relationship in a private way (of how voting rights will be exercised)

107
Q

Is a Company liable for its own debts, why?

A

Yes, because it is a legal person in its own right

108
Q

What happens to the liblity of members in the absence of a personal guarantee?

A

The liability of a member to contribute to depts of the company is usually limited to the extent of their investment in that company

109
Q

Where are the powers of the members laid down?

A

Are laid down by statute and in companies articles

110
Q

How are the members exercising their power?

A

By passing resolutions to Gm (general meetings) or by written resoultions.

111
Q

Do members have powers even if they are not shareholders?

A

Yes

112
Q

Is there a difference between minority and majority shareholders?

A

Yes

113
Q

Who are the majority shareholders?

A

Majority shareholders are those who individually hold MORE than 50% of the company voting shares

114
Q

Who are the minority shareholders?

A

Minority shareholders are those who hold 50% or less of the company voting shares

115
Q

What is the most significant power of majority shareholders?

A

Is the right to remove a director under s168 CA

116
Q

How can directors be removed by office?

A

Bu OR (ordinary resolution)

117
Q

What is your power if you hold 75% of the shareholding?

A

You can pass a SR special resolution

118
Q

What is your power if you hold 50% of the shareholding?

A

You can block an OR ordinary resolution

119
Q

What is your power if you hold more then 50% of the shareholding?

A

Can pass an ordinary resolution

120
Q

What is your power if you hold more than 23% shareholding?

A

Can block a special resolution (negative control)

121
Q

What happens if the majority in numbers are holding 90% of the voting shares?

A

Can consent to short notice of GM (general meeting)

122
Q

What is their power if any two voting members hold at least 10% of the voting shares?

A

Can demand a poll vote

123
Q

What is their power if any two voting members hold MORE than 10% of the voting shares?

A

May refuse to consent to short notice GM

124
Q

What is their power if any two voting members hold 5% or more with voting rights?

A

May circulate written resolutions
May circulate a written statement as to proposed resolutions

125
Q

What is their power if any two voting members hold 5%?

A

May requisition a GM (general meeting)

126
Q

Explain petition for unfairly prejudicial conduct

A

A member may petition the court for an order that the company’s affairs have been or are proposed to be conducted in a way that is both prejudicial and unfair to them. Here the shareholder is the proper claimant

127
Q

What type of conduct does petition for unfairly prejudicial conduct cover?

A

Refusing to pay dividents when they are properly payable, exclusion from management, or excessive pay being awarder to directors.

128
Q

Which is the most popular order of the court?

A

Prejudiced shareholder be bought out

129
Q

Explain derivative action

A

A derivative action is a claim bought by a shareholder for an act or omission of a director (usually in breach of directors duties). It is a claim brought for a wrong done to the company where the company is the proper claimant. It is a complex legal process designed to enable non directors shareholders to take action.

130
Q

What court action can non directors shareholders take?

A

derivative action

131
Q

In what court action is the company the proper claimant?

A

Derivative action

132
Q

What type of claim is a derivative action?

A

It is a claim brought for a wrong done to the company

133
Q

What means winding up the just and equitable ground?

A

This is the most drastic remedy of all and enables a member to apply to wind up the company on the basis that is just and equitable to do so.

134
Q

Give an example of winding up the just and equitable ground.

A

It could be on the basis of a total breakdown of communication or a total deadlock/inability to make decisions

135
Q

What is the most drastic remedy of all?

A

Winding-up on the just and equitable ground

136
Q

How can a company n be removed?

A

By Board Resolutio

137
Q

How do you determine if is needed a board resolution or not?

A

Looking at the value if its less than 5k or not

138
Q

What do freehold premises require, what type of decision?

A

An ordinary resolution is required

139
Q

What type of decision is needed for an investment property?

A

Board resolution

SQE 1 (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions