Company Law

Question 1

What is a company?

Answer 1

A legal entity, separate from its shareholders and directors, that can enter into contracts, own property, and sue or be sued in its own name.

Question 2

What is meant by separate legal personality?

Answer 2

When a company is a distinct legal entity from its shareholders and directors.

Question 3

What is meant by limited liability?

Answer 3

Where shareholders are generally only liable for the amount unpaid on their shares.

Question 4

What is perpetual succession?

Answer 4

When a company’s existence is not affected by changes in its membership.

Question 5

What is meant by transerability of shares?

Answer 5

When ownership in a company can be easily transferred through the sale of shares.

Question 6

What is a limited by shares company?

Answer 6

Liability of members is limited to the amount unpaid on their shares.

Question 7

What is meant by limited by guarantee?

Answer 7

Liability of members is limited to the amount they agree to contribute in the event of the company’s winding up.

Question 8

What is an unlimited company?

Answer 8

Members have unlimited liability for the company’s debts.

Question 9

What is a private company?

Answer 9

A company that cannot offer shares to the public.

Question 10

What is a public company?

Answer 10

A company that can offer shares to the public and are typically listed on a stock exchange.

Question 11

What is the process for registering a company?

Answer 11

Certain documents, including the ‘Memorandum of Association’ and the ‘Articles of Association’, must be filed with the Registrar of Companies.

Question 12

What are the constitutional documents of a company?

Answer 12

The Memorandum of Association and the Articles of Association are the constitutional documents of a company and they outline the company’s rules and regulations.

Question 13

What is the role of the Memoradum of Association?

Answer 13

Under the Companies Act 2006, it is a short document that states the founders’ intention to form a company and their agreement to become members.

Question 14

What is the role of the Articles of Association?

Answer 14

It governs the internal management of the company, including shareholder rights, director duties, meetings, and the issuance of dividends.

Question 15

What is the ‘ultra vires’ doctrine?

Answer 15

This, now largely abolished, previously stated that a company could not act beyond the scope of its stated objects.

Question 16

What are the main duties of company directors?

Answer 16

The Companies Act 2006 codifies directors duties to act within their powers, promote the success of the company, exercise independent judgement, and demonstrate reasonable care, skill, and diligence.

Question 17

What is an Annual General Meeting?

Answer 17

Required for public companies to discuss financial statements and elect directors.

Question 18

What is an Extraordinary General Meeting?

Answer 18

Convened to deal with urgent matters or those requiring shareholder approval.

Question 19

What is a Class Meeting?

Answer 19

Held for specific classes of shareholders to vote on matters affecting their rights.

Question 20

What are the disclosure requirements for companies?

Answer 20

Public companies have more stringent requirements regarding financial information and director dealings; they must public annual reports, accounts, and prospectuses when offering shares to the public.

Question 21

What is insider dealing?

Answer 21

Using confidential information about a company for personal gain by trading its shares - criminal offence.

Question 22

What is market abuse?

Answer 22

Involves manipulating or distorting financial markets for unfair advantage, including practices like insider dealing, spreading false rumours, or engaging in misleading behaviour.

Question 23

How are charges ranked in company insolvency?

Answer 23

In order of priority, with fixed charges taking precedence over floating charges.

Question 24

What are the remedies available to minority shareholders?

Answer 24

Certain protections, including the right to bring derivative claims on behalf of the company, petition for unfair prejudice, or seek a ‘just and equitable’ winding up of the company.

Question 25

What are substantial property transactions?

Answer 25

Involve the sale, purchase, or lease of assets exceeding a certain value threshold, requiring shareholder approval under the Companies Act 2006.

Question 26

What is the role of the UK Corporate Governance Code?

Answer 26

Provides best practices for corporate governance in areas like leadership, board effectiveness, accountability, remuneration, and shareholder relations.

Question 27

What is the ‘comply or explain’ principle in corporate governance?

Answer 27

Companies can deviate from the Corporate Governance Code is they explain their reasons to shareholders.

Question 28

What are the different ways a company can raise capital?

Answer 28

Equity financing - Issuing fairs to investors.
Debt financing - Borrowing money from lenders.

Question 29

What is debt financing?

Answer 29

Involves borrowing money with an obligation to repay principal and interest.

Question 30

What is equity financing?

Answer 30

Involves selling ownership shares in the company, giving investors a claim on future profits.