Companies Flashcards
1
Q
What is a company limited by Guarantee?
A
Members must pay a fixed, guaranteed amount (normally £1) in the event of the company being wound up….e.g. a charity
2
Q
What is a company limited by shares?
A
Members do not have any liability beyond the amount they agreed to pay for their shares
3
Q
What distinguishes a public company from a private company?
A
Can issue shares to the public
Required to have a company secretary
Minimum share capital of £50,000 - 1/4 paid up
Minimum of two directors
4
Q
Are pre-incorporation contracts binding on the Company?
A
No, the promoter will be personally liable and remain so unless (i) a novation agreement is signed to substitute the company as a party (ii) the contract is not executed until after incorporation
5
Q
What is required for a Company to be registered at Companies House?
A
The Memorandum of Association must be filed with the application. The application must include:
- The name of the company
- The address of the registered office
- Details of the business activity
- Whether it is limited by shares of guarantee
- Whether private or public
- Names of the subscribers
- Statement of capital and initial shareholdings
- Names of the proposed officers (directors, company secretaries)
- Details of persons with significant control
- Statement of compliance
- Fee
6
Q
Filing Requirements: Do Articles of Association need to be filed with Companies House on incorporation?
A
Not unless they are bespoke
7
Q
Filing Requirements: What are the filing requirements for changing a Company’s name?
A
Filing the special resolution, Change of Company Name Form and fee at Company’s House
8
Q
At what point can the company begin trading?
A
From the date on the certificate of incorporation
9
Q
What is a shareholders agreement?
A
It is a separate contract that binds only those members who sign it. Articles of association are applicable to all shareholders
10
Q
What is entrenchment?
A
Company’s articles can provide that certain provisions are ‘entrenched’ and can only be altered by a special procedure more onerous than ordinary or special resolution
11
Q
What about alterations that adversely affect minority interests?
A
Alterations may adversely affect minority interests as long as they are made in good faith in the interests of the company as a whole i.e. not discriminatory
12
Q
When will the veil of incorporation be lifted?
A
- Fraudulent or Wrongful trading
- Trading without a trading certificate (director can be held liable)
13
Q
How many directors is a private company required to have?
A
1, PLCs must have 2
14
Q
How are new directors appointed?
A
Model articles: By ordinary resolution OR by a decision of the directors alone (resolution if service contract more than 2 years)
15
Q
Which Director decisions require Shareholder approval?
A
Offering a director an employment contract for more than two years
16
Q
What are the types of Directors?
A
- De Jure directors (formally appointed)
- De Facto directors (not formally appointed but carries out all the duties of a director)
- Shadow director - someone who exerts influence on the companies directors (e.g. a disqualified director)
- Executive director (in charge of day-to-day running of the company)
- Non-Executive director (consultants with an advisory role overseeing the exec directors)
- Alternate Director attends board meets when director is unable to attend
- Nominee Director (appointed to represent the interests of a particular shareholder)
17
Q
How do directors execute contracts?
A
- Affixing their seal
- Signature of two directors
- Signature of Director and a Secretary
- Signature of single Director signed in the presence of a witness
18
Q
What are the Director’s duties?
A
- Duty to Act within Powers
- Duty to Promote the Success of the Company
- Duty to Exercise Reasonable Care, Skill and Dilligence
- Duty to Exercise Independent Judgment
- Duty to Avoid conflicts of interest
- Duty not to accept benefits from third parties
- Duty to declare interest in proposed or existing transactions and arrangements
19
Q
Is it permissible for the articles of association to exempt a director for liability for a breach?
A
No - it will be automatically void
20
Q
Can shareholders ratify the breach of a director?
A
Yes, by passing an ordinary resolution
21
Q
What are the considerations in the duty to promote the success of the company?
A
Must consider:
- the company’s employees
- relationships with other stakeholders
- the impact on the community and the environment
- the need to act fairly as between members of the Company
22
Q
What does the duty to exercise reasonable skill and care entail?
A
Objective test: general skill and experience of a reasonable director
Subjective test: if a director also has special skill or knowledge, they are held to that higher subjective standard
23
Q
What is the duty to avoid conflicts of interest?
A
A duty to avoid any situation where their own interests or the interests of a spouse or close relative are in conflict with the company (e.g. a competitor business)
24
Q
What is the duty not to make secret profit?
A
It is the duty not to make an unauthorised profit by virtue of being a director of the company
UNLESS, it is not reasonably likely to give rise to a conflict of interest or if authorised by the directors
25
What is the duty to declare interests?
If a director has an interest in a particular transaction or arrangement, they must declare this to the other directors at the beginning of the meeting
26
Can a director continue to stay on in their role if they have a conflict of interest?
Yes, if the board of directors authorise the conflict of interest
27
Can a director with a particular interest in a transaction form the quorum on that decision?
No - they cannot form the quorum or vote on it
28
Can a company make a loan to a director?
No, not unless it has been approved by members (shareholders) of the company by ordinary resolution
29
How can a board meeting be called?
Any director can call a board meeting by giving reasonable notice (need not be in writing)
Electronic meetings are permissible
30
How are decisions made at board meetings?
Decisions are made by majority vote but the chairman has a casting vote in the event of a deadlock
Quorum at a meeting is 2, but a director with a personal interest in the matter cannot form part of the quorum
31
Can the directors pass written board resolutions?
Yes, without a meeting, but such resolutions need to be passed unanimously
32
How can a director be removed?
By ordinary resolution of the shareholders
28 days notice of the meeting must be given and the Director has a right to be heard
33
In what circumstances can a Director be disqualified?
- Wrongful trading
- Previous Misconduct involving Companies
- For being an unfit director of an insolvent company
For unfitness -- can be disqualified for a period between 2-15 years
34
When are the acts of a Company Secretary binding?
If the secretary enters into contracts of an administrative nature
35
What is a person with significant control in a company?
Same as LLP
- Holds more than 25% of the shares
- Holds more than 25% of the voting rights in a company
- Right to appoint or remove the majority of the board of directors
- Right to exercise significant influence or control in the company
36
When can dividends be made to shareholders?
Only when the Company has profits available for the purpose
Payment of the dividend must NOT render the company insolvent
37
What is the difference between ordinary and preference shares?
Preference shares are a fixed percentage dividend paid in priority to ordinary shareholders.
Cumulative preference shares: If there are no profits available in one year, the dividend rolls over into the next financial year.
If there are no profits available after paying the preference shares, the ordinary shareholders will receive nothing
But preference shareholders have no voting rights
38
What is the process for declaring a dividend?
The board of directors recommends the dividend and it must then be approved by ordinary resolution. They may recommend a smaller amount but they may not increase the size of the dividend.
39
Who is liable for an unlawful dividend?
If a shareholder is aware or has reasonable grounds to believe that distribution has been made unlawfully (i.e. not enough profits) they are personally liable to repay it, as well as the director who recommended it
40
What is a derivative claim?
A claim brought by a shareholder against a director who is or is about to breach a duty and the board will not prevent them.
The claim will only succeed if there is a prima facie case made out and the person bringing the claim is promoting the best interests of the company (and the action was not authorised by the company)
Any damages awarded belong to the company
41
What is unfair prejudice against a minority shareholder?
When a particular shareholders feels they are being prejudiced. If a minority shareholders is being unfairly prejudiced by a director, they may make a petition to the court for a remedy e.g. that their shares be purchased
42
Can any shareholder apply for the company to be wound up?
Yes, if company is solvent and it is 'just and equitable' to do so.
43
What documents do the shareholders have a right to inspect?
The service contract of directors
The register of members
The register of directors
The register of secretaries
The register of charges against the company's assets
The register of people with significant control
The shareholders must request inspection and the company must comply within 5 working days
44
How often must a PUBLIC company hold a shareholders meeting?
Annually. A private company has no such obligation.
45
What is the required notice for an annual general meeting in a public company?
21 clear days
46
Can shareholders require the Directors to call a shareholders meeting?
Yes, shareholders with at least 5% of the paid-up voting capital can require directors to hold a meeting.
47
If the shareholders have required the Directors to call a meeting, when must it be called and held?
The meeting must be called within 21 days and held within 28 days
48
When must notice of a shareholders meeting be given?
Notice must be given 14 clear days before the meeting
If not delivered by hand an extra 2 days is required.
Calculation: Meeting date minus 15 for hand delivery
Meeting date minus 17 for mailed delivery
49
Is there a special notice requirement for a meeting to consider a resolution to remove a director?
Yes, notice must be given 28 clear days prior to the meeting
50
When may a meeting be taken at short notice?
A meeting may be held at shorter notice by a majority in number (over 1/2) who own 90% of the shares
51
What is the quorum for a shareholder meeting?
2
52
What decisions require approval by special resolution?
Changes to the articles of association
Changes to the company's name
A reduction in share capital / decisions to buy back company shares
Disapplying pre-emption rights
53
Which matters require only an ordinary resolution?
Appointment of directors
Removal of directors
A declaration of dividends
Approval of a directors decision to allot shares
Ratification of a director's breach of duty
Entering into a service contract with a director for more than 2 years
Approval of a voluntary winding up of the company
Making a loan to a director
54
What is the method of voting in a shareholder meeting?
1. Show of hands
55
Who can demand a poll vote?
1. Five shareholders or more
2. Shareholders with more than 10% of the voting rights
3. Shareholders with more than 10% of the paid-up capital of the company
56
How is voting changed with a poll vote?
It becomes 1 vote per share rather than 1 vote per person
57
Can written resolutions be used for both ordinary and special resolutions?
Yes
58
Who decides whether a vote should be held by written resolution?
The directors, but shareholders owning more than 5% of the total voting rights can also request this
59
When will a written resolution lapse?
28 days from circulation
60
How are written resolutions decided?
It is always one vote per share, and it is based on every shareholder who is entitled to vote, rather than every shareholder who is present.
61
Procedure for decisions requiring both board and shareholders agreement
The board will resolve to have a general meeting, and the shareholders will then vote on the resolution
62
What is a substantial property transaction and does it need to be approved by the shareholders?
Property sold by the director (or connected person) to the company or by the company to the director (or connected person) for anything over £100,000 OR for over £5,000 and it exceeds 10% of the net value of the company's assets
(Can be approved by ordinary resolution)
63
Can directors automatically allot shares?
Directors automatically have the power to allot additional shares if the company only has one class of shares
If not, this must be approved by ordinary resolution
But there must be a special resolution to disapply pre-emption rights (if applicable)
64
Can dividends be allotted from the company's share capital or premium account?
No!!
65
What are pre-emption rights, and who has them?
If a company is going to issue additional shares in exchange for cash, the shares must be first offered to existing shareholders so that they can maintain their proportional share of ownership
This must be at the price the shares would be offered on the current open market
These do not apply to preference shares
66
How long are the shareholders given to exercise their pre-emption right?
14 days
67
May the pre-emption right be disapplied?
Yes, it may be disapplied by special shareholder resolution
68
Can directors refuse a transfer of shares?
Directors have an absolute power to refuse to allow a transfer of shares
69
Who has the power to decide whether the Company borrows money?
Directors have the power to decide to borrow money on behalf of the Company
70
What is the difference between a fixed charge and a floating charge?
Fixed charge: Charged over a particular asset; the company may not dispose of or lease or do anything to the asset without the lender's consent
Floating charge: Taken over a group of assets that fluctuate regularly, it only attaches to a particular asset when there is a default
71
What is the priority order of fixed / floating charges?
A fixed charge always takes priority over a floating charge, regardless of date made. Otherwise, fixed charges take priority over other fixed charges by order of date, and it is the same with floating charges
A charge which has not been validly registered at Companies House is void against an administrator or liquidator and against other creditors
72
When must charges be registered with Companies House?
21 days. A failure to do so means the charge is void against a liquidator or administrator and the company's other creditors
73
What registers must private companies keep?
```
A register of members
A register of directors
A register of secretaries
A register of charges
A register of people with significant control
```
These must be available for inspection by members for free and by the public for a fee
74
How long do minutes of shareholder meetings have to be kept?
10 years
75
What is a Company's first Review Period?
12 months from the date of incorporation
76
When does the annual confirmation statement have to be filed?
14 days after end of review period
77
How long do directors' service contracts have to be kept?
1 year, and must be available for members to inspect
78
When does a charge have to be filed?
21 days
79
When does an ordinary / special resolution have to be filed?
Within 15 days
80
When do Company accounts need to be filed?
9 months after the end of the accounting period
This must include a balance sheet with a statement of profit and losses
an audit report is NOT required
81
Do medium and large companies need to file an annual directors report?
YES
82
What is required for a company's change of address?
A Change of Address form needs to be filed with Company's House
83
What is required for a change of accounting reference date?
File a Change of Accounting Reference date form at Company's house
84
Filing requirements for appointment of a director
Appointment of Director form filed within 14 days
Internally: update register of Directors and register of Director's addresses
85
Filing requirement for removal of a Director
Termination of Director form within 14 days
Internally: update register of Directors and register of Director's addresses
86
Filing requirement for issuance of new shares
File:
- The shareholders resolution within 15 days
- Allotment of Shares form within 1 month
Internal: update register of members and create a new share certificate within 2 months
87
What is the internal process for a transfer of shares?
1. Existing shareholders gives share certificated and STF to transferee
2. Transferee pays stamp duty within 30 days
3. Transferee sends share certificated and stamped STF to company
4. Board checks the articles and considers if they have power to refuse registration
5. Board either resolves to register the new member or refuse registration
6. if they resolve to register then board also resolves to issue a new share certificate
7. Register of members is updated
(no filing at Companies House is necessary)
88
What are the internal filing requirements for a transfer of shares?
A new share certificate must be issued within 2 months and the member of registers updated
89
Filing requirements for changing the Articles of Association
Special resolution and New Articles to be filed within 15 days
90
Filing requirements for changing the Company's registered name
Special Resolution + Change of name form + fee filed within 15 days.
Once new certificate issued, company documentation and website must be changed.
91
Insolvency options for sole practitioners and partners: Individual Voluntary Arrangement
Where the creditors each agree to accept less than what is owed to them (only makes sense if debtor has reasonable amount of money to offer to creditors)
Must be done with the help of an insolvency practitioner
If 75% in value of the debtor's unsecured creditors agree to the proposal, it will be binding on all unsecured creditors who had notice of the meeting
Preferential creditors are not bound unless they agreed to the proposal
92
Bankruptcy
Assets transferred to the trustee in bankruptcy; the debtor will be discharged from most of their debts after 1 year, they can no longer be chased
93
Creditor's application for bankruptcy - when will it succeed?
One or more unsecured creditors who are owed at least £5,000 can present a petition for an order of bankruptcy to the bankruptcy court (statutory demand required)
94
Things excluded from the bankruptcy estate
Entitled to keep things needed for day-to-day living, salary, and tools required for their trade
95
What is the bankrupt not allowed to do during bankruptcy?
Apply for credit
Act as company director
Be a partner
Trade under another name
They are allowed to have a job
96
Order of priority for distribution to creditors (bankruptcy)
1. Costs of bankruptcy
2. Preferential creditors (up to £800 each)
3. Ordinary unsecured creditors
4. Spouse or civil partner
Money ranks and abates proportionately - each person will receive a proportion of what they lent
97
What is a culpable bankrupt?
Someone who has caused the bankruptcy by their own dishonesty, negligence or recklessness
= can be subject to a court bankruptcy order for 15 years
98
What are the three options available to companies that go insolvent?
Receivership
Administration
Liquidation
99
What is receivership?
A specific secured creditor may appoint an administrative receiver to take possession of an asset which secures the loan
100
What is administration?
The aim of the administration is to rescue the company to sell as a going concern and achieve best result for all creditors.
The court can make the order only if it is satisfied that the company is unable to pay its debts and the order is likely to achieve a better result for creditors than liquidation
A moratorium will be imposed to restrict other insolvency procedures
101
What is Company Voluntary Arrangement?
Same as IVA. 75% or more in value of the unsecured creditors must agree to the CVA
102
What is members' voluntary liquidation?
Used when the Company is solvent
The members of the company pass a special resolution to start the liquidation and an ordinary resolution to appoint a liquidator
The liquidator distributes funds to the creditors in the statutory order
Company dissolved after 3 months
103
What is Creditor's Voluntary liquidation
The directors resolve that the company is insolvent
Members pass a special resolution to start the liquidation
The resolution is advertised in the London Gazette
The creditors nominate the liquidator
The liquidator distributes funds in the statutory order
Company dissolved after 3 months
104
Who can start Compulsory liquidation and in what order will debts be paid?
Any creditor who can show that the company is unable to pay its debt. The order of priority is:
1. Expenses of winding up
2. Preferential debts
3. Debts secured by floating charges in order of priority
4. Unsecured debts
5. Shareholders
Insolvency will be proven by a creditor serving a statutory demand which is not paid within 21 days in respect of a debt of £750 or more, or by obtaining a judgment and attempting to execute the judgment but the debt is not fully satisfied.
105
What are preferences?
When a debtor does something that puts a creditor in a better position on liquidation than they would otherwise be
106
What is required for a preference to be established?
The company must have DESIRED to prefer the creditor
This DESIRE is presumed if the preference is in favour of a connected person
Must have occurred within 6 months of insolvency (or 2 years to a connected person)
= transaction will be voidable
107
What is a transaction at an undervalue?
An asset sold at significantly less than market value within two years of company insolvency or five years of individual bankruptcy
The company must have been insolvent at the time or became insolvent as a result of the transaction
insolvency presumed if the transaction is to a connected person
Defence: good faith
108
Is granting a security interest considered a transaction at an undervalue?
No, but it may be a preference
109
What is fraudulent trading?
When a director intends to defraud creditors, they can be personally liable to make contributions to the company's assets
110
What is wrongful trading?
That at some point before insolvency, the director knew or ought to have known that there was no reasonable prospect that the company would avoid insolvency and failed to take adequate steps to minimise losses to creditors
Defence: Director took every step to minimise loss
111
When will a floating charge be automatically void?
If it was made for no consideration within 12 months of insolvency
At a time when the company was insolvent or became insolvent as a result of the charge
112
What is ring-fencing?
A liquidator is required to set aside part of the assets subject to a floating charge for unsecured creditors
=
50% of the first £100,000 in value of the assets, and 20% of amounts above that, with a cap of £800,000.
