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Company Compliance & Administration > Chapter 4 - THE MEMBERS > Flashcards

Chapter 4 - THE MEMBERS Flashcards

1
Q

What two elements are required to become a member of a company?

A

Agreement to become a member

Entering into the register of members (CA 2006 x112)

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2
Q

Who owns and controls a company with share capital?

A

Its members

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3
Q

What powers do members of share capital companies have?

A

Appoint and remove directors

Amend Articles

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4
Q

What makes a limited company?

A

The liability of its members is limited by its constitution

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5
Q

In what ways can a company be limited?

A

By shares or by guarantee

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6
Q

What is an unlimited company?

A

No limit on liability.

If no shares, articles set out rights of members.

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7
Q

In what way does a company with share capital have a formal, transparent structure?

A

Ownership and control is divided between the members according to the proportion of shares they hold.

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8
Q

In what two ways might a person EXPLICITLY become a member?

A

Issue of shares (consent to become a member, agreement to pay amounts due)

Guarantor application (agreement to controbute fixed amount on winding up)

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9
Q

In what two ways might a person IMPLICITLY become a member?

A

Share transfer from existing member (agreement to purchase)

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10
Q

According to CA 2006 (s112), what is the time limit for entering a new member into the register of members?

A

Within 2 months of allotment

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11
Q

What is allotment of shares vs issue of shares?

A

Allotment - date of Board meeting for approval of share allotment

Issue - upon acquirement of legal title to the shares (entered into register)

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12
Q

What is the minimum number of members a company can have?

A

Unless articles state otherwise: minimum ONE member

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13
Q

What is the minimum £ amount of shares required to be issued for PUBLIC companies?

A

£50,000 or Euro equivalent

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14
Q

Can a trust hold shares?

A

No - trustees must be named

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15
Q

What is a legal person?

A

A natural person or an incorporated entity with legal capacity

(no partnerships, sole traders, or associations)

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16
Q

Why is it not good practice to accept minors as members of a company?

A

If the Board obliges for members to pay any calls (partly paid shares), this is voidable for minors (non-payment is unenforceable).

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17
Q

Other than as a shareholder, what other forms can company membership take?

A

Guarantor or, for an unlimited company without a share capital, some other method of dividing ownership

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18
Q

A professional partnership wishes to acquire some shares. How should they be registered?

A

In the name of one or more partners, unless it is a Scottish partnership which can register the shares in the partnership
name

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19
Q

For what companies are the terms member and shareholder used interchangably?

A

Company Limited by Shares

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20
Q

In order to establish the rights of a shareholder, which two documents should be referred to?

A

The Articles and/or any separate terms stipulated at the time of the issue of the shares

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21
Q

Where a member is a guarantor (companies limited by guarantee), they are not true owners - they should instead be viewed as ____________

A

Trustees

22
Q

Are guarantors entitled to participate in profits or the distribution of surplus assets?

A

No - only liable for a nominal amount in the event of winding up the company

23
Q

How long after resigning as a member does a guarantor cease their personal guarantee?

CA2006 s11

A

One year

24
Q

How can a guarantor transfer their membership to someone else?

A

They can’t - they must resign and another can take their place

25
Q

Which type of organisation is best suited to use a guarantee company structure?

A

Not for profit

26
Q

What is an institutional investor?

A

An investor that invests in companies whose strategy they agree with

27
Q

What is investor activism?

A

Investing in a company in order to hold power to increase shareholder value, disrupt the status quo or change the strategic direction

28
Q

WHat is the best way for a company / Co Sec to manage investors?

A

Investor engagement

29
Q

How might a company secretary mitigate investor activism risk?

A

Preparation; work with advisory team; be familiar with corporate processes; identify and vulnerabilities in strategy.

30
Q

Why is aligning the interests of directors and shareholders difficult to achieve in practice?

A

Shareholders have many different reasons for becoming and remaining as shareholders so their interests are not aligned

31
Q

What are the main differences between activist and pressure group shareholders?

A

Activist shareholders use their holding and influence to bring about change. Pressure group shareholders try to bring about change through publicity achieved through campaigns and meeting disruption

32
Q

Although the Companies Act sets out fundamental processes for the issue and transfer of membership, what main document provides for members’ rights?

A

The company’s Articles

33
Q

How many classes of shares should a company have if all members have equal rights?

CA2006 s629

A

One class

34
Q

Are there statutory naming conventions for share classes?

A

No

35
Q

How does the CA2006 s560 define ‘shares other than shares that as respects dividend and capital carry a right to participate only up to a specified amount in a distribution?

Also - must have rights to participate in distributions with no upper limit on that participation?

A

Ordinary shares

36
Q

What term constitutes a result whereby the directors declare a dividend to be paid on the ordinary shares out of the profits of the company? (Also called ‘deferred shares’ or ‘deferred stock’)

A

Risk capital

37
Q

What are classes of ordinary shares that have restricted voting rights called?

A

ordinary non-voting shares

38
Q

What shares carry a preferential right to a fixed rate of dividend and on winding up, a return of capital with or without premium, together with arrears of dividend?

A

Preference shares

In a liquidation, repayment of capital on preference shares would rank ahead of repayment of capital on ordinary shares.

Fixed rate of dividend is usually expressed as a % of the nominal value of the shares; not the issue price.

39
Q

What are deferred shares?

A

No right to dividend either at all; or until a specified level of profit has been made.

40
Q

What is a company’s capital confined to?

A

Its share capital

41
Q

What three common categories relate to the rights attaching to shares?

A

right to vote
right to income (receive dividend)
right to capital (participate in the distribution of surplus capital on winding up or return of capital)

42
Q

What two events are required to pass a variation of class rights in addition to seeking the class consent?

A

Amend the Articles (pass a special resolution of the members)
Notify the Registrar within one month

43
Q

What protection is given to members holding non-voting class shares if the members holding voting shares resolve to amend the Articles in general meeting to increase their dividend rights?

A

Rights attaching to shares of a class cannot be amended without their consent, even if they are non-voting shares

44
Q

Can a company with two classes of shares, ordinary shares and redeemable shares, purchase back all of the ordinary shares?

A

No – this is because a company cannot have only redeemable shares

45
Q

What is required in order to amend a company’s articles via special resolution?

A

Directors resolve to hold a general meeting or circulate a written resolution;

provide all amendments in resolution or the articles for inspection;

send certified copy of resolution to the registrar within 15 days of the meeting along with updated/new articles;

provide new articles to directors and other key stakeholders (and members on request)

NOTE: Listed companies - also send to FCA for publication

46
Q

Given the number of variable attributes that shares have, it is extremely important to check _____________ whenever any change affecting the members is considered

A

The Articles

47
Q

What duty does a director have to act in the interests of the members as a whole?

CA2006 s172

A

Fiduciary duty

48
Q

What concept refers to:

exclusion from management in breach of express or implied agreement of particpation

majority shareholders being granted excessive financial benefits

the diversion of business to another company in which majority shareholders . directors are interested

Denying an existing member from participating in a share issue

abuses of power and breaches of the Articles

A

Unfair prejudice

49
Q

Can anyone bring a derivative action claim against a company?

A

Must be brought by a member

50
Q

What is the difference between beneficial and legal ownership of shares?

A

Legal ownership is where the person is the registered member, the beneficial owner retains the economic benefit of ownership but is not the legal owner as the shares are registered in a nominee name

Company Compliance & Administration (16 decks)

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