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SQE - BLP > Company Law - Pre-Module Reading > Flashcards

Company Law - Pre-Module Reading Flashcards

1
Q

Different legal forms of busines - (a) Introduction: Why set up a business?

A
  • Generally to make a profit.
  • Business generates income through selling product and or service and in doing so will incur expenses, as long as the income exceeds the expenses fo business, it will make a profit.
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2
Q

Different legal forms of busines - (a) Introduction: Why do businesses need to raise finance?

A
  • Purchase premises to operate from and any plant and machinary, stock, computers, etc to be able to manufacture and sell goods or provide service.
  • To employ staff
  • To obtain professional advisors such as accountants
  • To expand and grow such as aquiring other businesses, marketing activity, etc.
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3
Q

Different legal forms of busines - (a) Introduction: How do businesses raise finance?

A
  • Owners may investy by contributing capital
  • Outside investors may be prepared to make capacity contributions for a share of future profits
  • Business may borrow money, such as from bank
  • Proportion of profits may be retained to help grow rather than distrbuted to owners.
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4
Q

Different legal forms of busines - (a) Introduction: How much business models be considered?

A
  • Lawyers may have to advise on most ppropiate business model for their business.
  • As such, must be aware of the differewnt types and key considerations for each.
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5
Q

Different legal forms of busines - (a) Introduction: What are the business models we consider?

A
  • Sole trader
  • Partnership
  • Limited Partnership
  • Limited Liability Partnership
  • Company’s
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6
Q

Different legal forms of busines - (a) Introduction: What are the key considerations when forming a business?

A
  • Costs - How much will this business model cost to set up?
  • Risk - Will participants in business have personal liability for debts?
  • Structure - Does the business model provide clear organisational structure? Is this flexible?
  • Formalities - Are there legal formalities which must be followed and how flexible is model regarding these?
  • Privacy - to what extent is information by business required to be publically disclosed?
  • Finance - How can business raise capital?
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7
Q

Costs, Entity, Liability, Structure, Filing/procedure, Privacy

Different legal forms of busines - (b) Sole Traders: What is the key characterstics?

A
  • No set up costs - No formalities and sole trader can start trading straight away.
  • Entity - Sole trader is not seperate legal entity and contracts from between individual and not a company with third parties.
  • Unlimited personal liability - Sole traders personal assets such as home and cars potentially liable to be sold for debts.
  • No formal structure - Individual can choose how they wish to run their business.
  • Companies House - No filing or procedural requirements for runnign business.
  • Complete Private - No need for pubically filed accounts.
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8
Q

Costs, Entity, Liability, Procedural, Privacy, Act

Different legal forms of busines - (b) Partnerships: What are the key characteristics?

A
  • No set up costs - No formalities, partnership can start trading straight away and formed without any formal agreement of even intention. (See below)
  • Entity - Not a seperate legal entity and any contracts between third partis and partners in the partnership as individuals.
  • Unlimity personal liability - Partners have unlimited joint (in contract) or joint and several (in tor) liability for debts and obligations of the partnership incurred while they are partners so personal assets can be sold to meet.
  • No companies house filing or procedural requirements.
  • Complete privacy - No requirement for pubically filed accounts.
  • Partnerships are governed by provisions of partnership act 1890.
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9
Q

Different legal forms of busines - (b) Partnerships: How are Partnerships formed?

A

S1(1) PA 1890 defines partnership as “the relation which subsist between persons carrying on a business in common with a view to profit.

This means that they can be created without any formalties and does not need to be an inention, and two or more people workign together with a view to profit automatically form a partnership

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10
Q

Different legal forms of busines - (b) Partnerships: Does a Partnership exist?

A

S2 PA 1980 contains list of rules determing existence of a partnership and factors include:

  • Whether profits and or losses shared,
  • If loan made from one partner to another,
  • If property is held jointly
  • Evidence of profit sharing will be prima facie evidence of partnership but not necessarily conclusive

A loan of money by one party to another does not necessaily create.

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11
Q

Different legal forms of busines - (b) Partnerships: How are the factors applied in determing if partnership exists?

A

No one factor alone will suffice to create, so necessaily in all cases to consider the facts such as:

  • Limited v Minstry of National Revenue: If there is agreement to share losses as well as profits, then this makes existence of partnership more likely.
  • Case law also set out if person is not being “held out” as a partner, this makes existence less likely - Walker v Hursch (A clerk lent money to partnership and paid fixed salary and 1/8th of profits and losses but never held out as partner so found no partnership.
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12
Q

Different legal forms of busines - (b) Partnerships: What is it advisable in respect of partnerships and why?

A

While no formalities, advisable to have partnership agreement drawn up otherwise it will be governed by default provisions of PA 1890:

  • S24(1) - Profits and losses: Partners entitled to share equally in profits and must share equally in losses, even where capital contributed unequally. (So, best for express provision to set out profit sharing ratio other wise equal.)
  • S24(6) - Remuneration: Partners not entitled to a salary.
  • S24(8) - Decision Making: Decisions in ordinary course of business are decided by majority, except for any change to nature of partnership business whcih requires unamninity.
  • S25 - Expulsion: Partner cannot be expelled by majority vote unless all partners have previously expressly agreed a majority can do this.
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13
Q

Different legal forms of busines - (b) Partnerships: What is it important for partners to do?

A

S19 PA sets out partners mutual rights and obligations can be varied at anytime by unamous consent so can themselves draw up the agreement.

However, important in modern days to seek legal advice as default provisions of PA not fit for modern business and such agrements will often focus on:

  • Profit sharing ratio
  • Salaries
  • Decision making
  • Leaving rhw partnership
  • How to appoint new/remove partners
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14
Q

Two types, Act,

Different legal forms of busines - (c) Limited Partnerships: What are the key characteristics?

A

LP has two different types of partners:

  • Limited Partners: These have limited liability and must not be involved in management of business (often called sleeping partners) and if they do become involved, they lose their limited status and become GP with unlimited liability.
  • General partners who run the business and have unlimited liability (traditional partnership.)
  • There must be at least one limited partner and one general partner.

LP’s governed by Limited Partnership Act 1907 and must be registered at CH but have no requirement to file accounts.

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15
Q

Different legal forms of busines - (c) Limited Partnerships: What are often used for?

A

Not commonly for general business but for investement vehicles.

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16
Q

Act, Entity, Tax position, who can createm Liability, procedural CH?

Different legal forms of busines - (d) Limited Liaiblity Partnerships: What are the key characteristics?

A
  • Introduced by LLP Act 2000.
  • Key different is that LLP has seperate legal personality and can own property or enter contract on its own behalf.
  • Note, for tax purposes, treated as partnershp and members taxed as partners each liable to pay tax on their shares of income or gains (tax transparency)
  • S2(1)(a) LLLPA 2000 states two or more persons associated for carrying on a lawful business with view to profit can incorpoate an LLP (Person can be a company as well as individual.
  • All Partners in an LLP have limited liability and their liability to TP’s is limited to amlount they ahve agreed to pay under terms of partnership agreement.
  • LLP’s registered at companies house as same way as companies and required to file annual accounts and therfore in effect are hybrid between traditional partnership and a company.
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17
Q

Profit sharing, Indemnity, Management, Decision making, expulsion

Different legal forms of busines - (c) Limited Partnerships: What is the orgnaisational strucure for LLP?

A

Very flexible and should be decided between partners in formal written members agreement, in absence of this, Reg 7 and 8 of LLP Regulations 2001 contain default provisions:

  • Members share equally in capital and profits
  • LLP must indemnify its members for payouts made and personal liabilities incurred by them in ordinary and proper conduct of business.
  • Every member may take part in management but no member entitled to remuneration for managing LLP
  • No person can become a member or assin their membership without consent of all existing members.
  • Ordinary decision making may be the majority of the members with any change to nature of business requiring consent of all.
  • No implied power of explusion of a member by majority unless members expressly provide for such power in agreement.
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18
Q

Entity, Liability, act, Procedural requirements.

Introduction to Companies - (a) Intro: What are the key characteristics?

A

Companies are the most popular business model and the characterstics are:

  • Seperate legal entity and therfore distrinct from their owners known as shareholders or members so the company owns the property, enters contracts, can sue and be sued in name and profits and losses belong to company and not shareholders and therfore liabile for its own debts.
  • Limited Liability- Liability of shareholders is limited to amount unpaid on shares (if any) so protects them and facilities investement.
  • Governed by Companies Act 2006 which contains detailed requirements regulating how companies run and filings that must be made.
  • Formal procedural requirements can be onerous especially for small private companies where shareholders and directors often same.
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19
Q

Introduction to Companies - (a) Intro: Who are the shareholders?

A

These are known as members are are the owners of the company who invest money in return for shares and possibility of dividends but not involved in day to day management but usually have voting rights on key decisions.

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20
Q

Introduction to Companies - (a) Intro: Who are Subscribers?

A

Name given to first shareholders in company who invest when is is initially incorporated

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21
Q

Introduction to Companies - (a) Intro: Who are the directors?

A
  • Officers/Managers of the company
  • Involved in day to day running of company
  • Collectively known as the board
  • In small private companies, directors will often also be shareholders
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22
Q

Introduction to Companies - (a) Intro: Who are persons with significant control?

A

Details of PSC must be provided to companies house, and these are shareholders with over 25% of the shares.

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23
Q

Introduction to Companies - (a) Intro: Who are the other stakeholders?

A

Anyone interested in the company sch as employees, creditors, etc.

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24
Q

Introduction to Companies - (b) Comapnies Act 2006: What does this govern?

A

Key legislation which governs companies in England and Wales and primary am was to simplify the law for private companies, changes included:

  • Removal of requirement for private companies to hold annual general meetings or submit annual returns
  • Codification of directors duties so that directors of small rpviate companies can easily understand obligations
  • Allow private companies to pass shareholder resolutions in writing, dispensing with requirement for meetings (general meetings)
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25
Q

Introduction to Companies - (c) Different types of companies: What are the different types of private company?

A
  • Private companies limited by shares (Ltd)
  • Private companies limited by guarantee
  • Unlimited Companies
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26
Q

Introduction to Companies - (c) Different types of companies: What are elements of private company limited by shares?

A
  • Most common type of company
  • No minimum share capital requirements
  • Prohibted from offering shares to public
  • Can be formed by one person
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27
Q

Introduction to Companies - (c) Different types of companies: What are elements of private companies limited by guarantee?

A
  • No Share capital
  • Liability of members is limited to amount they agreed to contrubte in event of winding up
  • Membership is not transferable
  • These companies are relevatively rare.
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28
Q

Introduction to Companies - (c) Different types of companies: What are elements of Unlimited companies

A
  • Liabiltiy of members if unlimited
  • Companies are rare.
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29
Q

Introduction to Companies - (c) Different types of companies: What are the type of public companies?

A
  • Public companies limited by shares (plc)
  • Listed companies
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30
Q

Introduction to Companies - (c) Different types of companies: What are elements of Public companies limited by shares (plc)

A
  • They can offer their shares to the public
  • Need a minim of 2 directors
  • Minimum share capital requirement of £50,000 (S763 CA)
  • Requires a trading certificate before it can trade s761
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31
Q

Introduction to Companies - (c) Different types of companies: What are elements of listed companies?

A
  • Only public comapnies can be listed
  • Not all public companies are listed
  • Listed means admitted on a regulated investement exchange such as London Stock exchange
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32
Q

Introduction to Companies - (c) Different types of companies: How does the CA define each type fo company?

A
  • S4(1) CA 2006 states “a private company is any company that is not a public company” and will end with word Limited or Ltd (s59)
  • S4(2) CA 2006 states a public company is a company whose certificate of incorpoation states that it is a public company and ends with Plc or Public Limited company.

For practical purpose, main different is generally only public companies can offer shares to public and are subject to more onerous regulatory requirements.

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33
Q

Introduction to Companies - (d) Key Different between Private and Public companies?: How is the name different?

A

As mentioned, name of private will end with Limited or Ltd and name of public will end Public Limited Company or Plc.

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34
Q

Introduction to Companies - (d) Key Different between Private and Public companies?: What are differences for share capital?

A
  • No requirement for a private company to have any specific minimum amount of share capital and could be incorporated with just one share of 1p, in practice is is often £1 that is with one share that has nominal value of £1.
  • Public company must have share capital with nominal value of at least £50,000 of which at least one quarter must be paid up (paid at time of purchase)
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35
Q

Introduction to Companies - (d) Key Different between Private and Public companies?: What is the director requirement?

A

Private need only have one whereas public must have two minimum.

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36
Q

Introduction to Companies - (d) Key Different between Private and Public companies?: Are company secretary’s required?

A
  • Private company may choose if to have a company secretary but is not obliged and if they do not, directors or any person authorised may do anythign secrtary is required to do.
  • Public company must have a company secretary and person appointed to post must have requisite knowledge and experince and hold one of qualificatiosn speficied in S273(2)
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37
Q

Introduction to Companies - (d) Key Different between Private and Public companies?: Are annual general meetings required?

A
  • Public company is required to have one annual general meeting each year - s336 CA
  • Private companies no longer required to hold an AGM, but may do so if they wish.

An AGM provides members who are not directors and opportunity to question them.

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38
Q

Introduction to Companies - (d) Key Different between Private and Public companies?: How are each regulated?

A
  • Public companies are potentially able to offer their shares to the public and therfore they are subject to higher level of regulation than private companies.
    *
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39
Q

Introduction to Companies - (e) Benefits/Disadvanges to incorporation? What are the advantages?

A
  • Allows investement with limited liability
  • Minimises risk
  • Gives a formal structure for the business to run?
  • Easier to raise finance through issue of shares/bank loans
  • Potential for return on investmeent through dividends
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40
Q

Introduction to Companies - (e) Benefits/Disadvanges to incorporation? What are the disadvantages?

A
  • For small private companies where directors and shareholders same, effective seperation of ownership from control not achieved
  • High levels of formality may not be appropiate
  • Public disclosures necessary
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41
Q

The company’s Constititon - (a) Introduction: What is it important to understand?

A
  • CA 2006 came into force on 1 October 2009 and prior to this, companies goverend by CA 1985 and as you will deal with companies incorporated before CA 2006, it is important to note some provisions of 1985 still apply
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42
Q

The company’s Constititon - (a) Introduction: What was and is the position for consittional documentS?

A
  • CA 1985 required companies to ahve two constitional documents, the articles of association and the memorandum.
  • Under S17 CA 2006, memorandyum no longer forms part of company’s constitution, it is only required as part of procedure to register at companies house.
  • Momorandum of company under CA 2006 simply is declration of part of company’s subscribers that first member of company wish to form a company and agree to become members.
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43
Q

The company’s Constititon - (b) Memorandum: What was position for memorandum under CA 1985?

A
  • More complex document forming part of company’s constitution
  • Companies could set out constitutional restrictions in their memorandum and were required to include an objects clause setting our purposes for which company formed and anything outside this was acting outcome company’s capacity.
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44
Q

The company’s Constititon - (b) Memorandum: What was position for memorandum under CA 2006?

A

Companies have unrestricted objects S31 unless objects are specifically restricted in company’s articles.

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45
Q

The company’s Constititon - (b) Memorandum: How does CA 2006 impact memorandum of company under 1985?

A

Any provisions in memorandum must be treated as provisions of company’s articles so under CA 2006, therefore the object clause of older company continues in force, operating on limitation of capacity unless and until articles of company amended to remove its objects clause

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46
Q

The company’s Constititon - (c) Articles of Association: What are the requirements for articles of association (articles)?

A
  • All Companies must have Articles.
  • Under CA 2006, articles form main constitional document of a company and purpose of articles is to regulate relationship between shareholders, directors and the company.
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47
Q

The company’s Constititon - (c) Articles of Association: What are the examples of provisions within Articles?

A
  • Number of directors required to transact business (both to form a quorum at board meetings and take decisions at board meetings.
  • Method of appoointment of directors
  • Powers of directors
  • How board meetigs are to be conducted
  • Any special rights attaching to shares
  • How shateholder meetings are to be conducts and
  • How and to whom shareholders may transfer their shares
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48
Q

The company’s Constititon - (c) Articles of Association - Relationship between CA and Articles: What is the relatonship between CA 2006 and the Articles?

A

Company’s articles must be interpreted in light of relevant legislation and there is considerable scope of overlap between procedures set out in CA 2006 and those that may be contained in articles.

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49
Q

The company’s Constititon - (c) Articles of Association - Relationship between CA and Articles: What must article comply with and what is it known as?

A

Article must comply with minimum provisions of CA 2006 and this is known as legality test.

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50
Q

The company’s Constititon - (c) Articles of Association - Relationship between CA and Articles: Can Articles be more oneerous than CA 2006?

A
  • A company may in certain circumstance provided a more onerous procedure.
  • E.G: S154(1) provides that a private company must have a minimum of one director. Company X could set out three directors required and therefore would need to comply with the articles rather than CA 2006.
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51
Q

The company’s Constititon - (c) Articles of Association - Relationship between CA and Articles: Can all provisions be more onerous in articles than CA 2006?

A

No - There are some provisions in CA which override anything in company’s articles such as S321 CA 2006, the right to demand a poll vote at a general meeting cannot be removed in articles.

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52
Q

The company’s Constititon - (c) Articles of Association - Relationship between CA and Articles: What do CA provide by default?

A

Powers available under provisions of CA 2006 unless articles provide otherwise such as power of private company to issue redeemable shares.

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53
Q

The company’s Constititon - (c) Articles of Association - Relationship between CA and Articles: What must therefore be reviewed?

A

**Importatn to check the procedures set out both in relevant legislation and client’s articles. **

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54
Q

The company’s Constititon - (c) Articles of Association - Form of Articles: What are the three choices to form of articles?

A
  • Model Articles (MA)/Table A
  • Amended MA
  • Tailor Made Articles
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55
Q

The company’s Constititon - (c) Articles of Association - Form of Articles: What are the model Articles / Table A?

A
  • Sec of State has prescribed MA’s for different types of company under S19
  • If new company does not register articles at CH, S20 provides that relevant MA will consistute company’s articles by default.
  • This was similar under CA 1985, but these were known as Table A and you may encounter in older companies.
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56
Q

The company’s Constititon - (c) Articles of Association - Form of Articles: What are the amended MA’s?

A
  • Not all provisions within MA’s are suitable for all companies.
  • Many choose to adopt MA as articles, but elect to exclude or modify some.
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57
Q

The company’s Constititon - (c) Articles of Association - Form of Articles: What are tailor made articles?

A
  • This involves isntructing a solicitor to draft articles which are tailor made for that particular company.
  • This is time consuming and costly, so smaller companies prefer to adopt MA subject to certain amendments.
58
Q

The company’s Constititon - (c) Articles of Association - Amending the Articles: What can be done after adopting articles?

A
  • Once adopted, company can alter them at any future date by special resolution - S21 (this is a decision of the shareholders.
59
Q

The company’s Constititon - (c) Articles of Association - Amending the Articles: What is entrenchment?

A
  • S22 allows for entrecnhment of specific provisions within company articles, but this occurs relatively rarely.
  • Entrenchment of a provision is when it can only be amended or repealed if specific conditions met or if procedures more specific than special resolution complied with. (However, can always be amended by agreement of all members/court order.
60
Q

The company’s Constititon - (c) Articles of Association - Amending the Articles: What does case law set out re amendment of articles?

A
  • Basic rule is to be valid, any alteration must be made in the interests of company as a whole - Allen v Gold Reefs
  • Court has held that an amendment to articles is not valid if no reasonable man could consider it for benefit of company - Shuttleworth v Cox
  • Sidebottom v Kershaw: Company altered articles to allow directors power to buy out at fair price, shareholding of any member competing with company’s business, those who were carrying on tried to challenge the validty but court of appeal deemed the alteration was initiated in good faith and bona fide interest of company.
  • Re Charterhouse Capital Ltd: Amendment of comapny articles to allow shares of minority holder to be compuslorily aquired during takeholder held valid as it was consistent with shareholders agreement.
61
Q

The company’s Constititon - (c) Articles of Association - Legal effect of the articles What does the articles establish?

A

Nature of the contract established by Articles is set out in S33 which provides provisions in the company’s aeticles bind the company and its members to same extent as if there were covenants on the part of the company and each member to observe those provisions and therfore binding on both company and its members.

62
Q

The company’s Constititon - (c) Articles of Association - Legal effect of the articles Where has case law arisen in respect of legal effect?

A

CA2006 predeceassor, S14 CA 1985.

The generally established rules is that the articles evidence a contract between the company and its members in their capacity as members and with respect to their rights and obligations. - Hickmn v Kent

63
Q

The company’s Constititon - (c) Articles of Association - Legal effect of the articles How do the articles take effect?

A

Between the company and its members and between the members themselves.

64
Q

Incorporation - Introduction: How can a company be formed?

A
  • Incorporation from scratch - Submitting relevant information to company house
  • Shelf company conversion - Purchasing a shelf company followed by formlaities to enable necessary changes
65
Q

Incorporation - (a) Incorporation from Scratch: What must be made?

A
  • Application must be made to registrar of company have new company registered at CH.
66
Q

Incorporation - (a) Incorporation from Scratch: What is the benefit of incorporation from scratch?

A

Advantage of ensuring the company is taiolor made to meet client requirements.

67
Q

Incorporation - (a) Incorporation from Scratch: What must be delivered to registrat of companies to register?

A

Under S9, must deliver:

  • A copy of the company’s memorandum
  • Articles prescribing regulations for the company (If does not itnend for MA’s to be used)
  • The fee
  • Form IN01 - Application for registration: This will state company proposed name, if registered office in E/W or Scotland or NI and whether liability limited and if private of public and should include the next FC.
68
Q

Incorporation - (a) Incorporation from Scratch: What else must be included with application/form?

A
  • Statement of capital and initial shareholdings (If company to have share capital and is not company limited by guarantee)
  • Statement of company’s proposed offices (directors, company sec)
  • If company limited by guarantee, then details of this
  • Must also contain statement of compliance stated CA has been complied with.
69
Q

Incorporation - (a) Incorporation from Scratch: What happens when Registrar approves app?

A

Company is sent a certficiated of incorporation and this sets out:

  • The name of the company
  • Company’s registered number
  • Date of incoporation
70
Q

Incorporation - (a) Incorporation from Scratch: When does a company become a legal entity?

A

The date set out in the certificate of incorportation

71
Q

Incorporation - (a) Purchasing a shelf company: What was the traditional position?

A

Traditionally, solicitor would purchase shelf company on behalf of client, but due to introduction of online incorporation, this is changing.

72
Q

Incorporation - (a) Purchasing a shelf company: What was the advantage and what still is?

A

It could be done quickly as avoids need to draft and submit incorporation documentation, but due to online incorporation different in speed is minimal.

Conversion of shelf company retain advantage as been an option all the time on everyday whereas online incorporation can only take palce during CH open hours.

73
Q

Incorporation - (a) Purchasing a shelf company: What changes will client need to make for shelf company to meet their requirements?

A
  • Name - Shelf company will be unrelated in name, so under S77 company name can be changed by special resolution of shareholders or any other means under articles.
  • Articles - Common to have MA’s so need to consider if existing articles need to be amended to meet requirements of client.
  • Registered office - May need to substitute clients chosen address
  • Members, directors and company secretary - Representatives of company registration agent will have become first members/subscribers/directors, so essentially there that shares held by subscribers transfered to our client, client’s representatives appointed as directors and company secretary fi there is one and the first directors/sec resign.
74
Q

Stakeholders in a Company - Introduction: Who are te stakeholders in a company?

A
  • Shareholders (or members)
  • Directors (together “the board)
  • Persons with Significant Control (PSC) (Usually shareholders over 25% shares)
75
Q

Stakeholders in a Company - (a) Shareholders (Members): Who are the owners of the company?

A

The owners are the shareholders (members) who invest money (share capital) in return for ashare in the ownership of the company, evidenced by a share certificate.

76
Q

Stakeholders in a Company - (a) Shareholders (Members): When does membership begin?

A

When a members name is entered in the companies register of members.

77
Q

Stakeholders in a Company - (a) Shareholders (Members): What are the first shareholders called?

A

Its subscribers and called this as they subscribe to the company’s memorandum of association,.

78
Q

Stakeholders in a Company - (a) Shareholders (Members): Does shareholder have to be human?

A

No, company’s have seperate legal identity and can, amongst other things own property in its own name and therfore can own shares and this is how group companies/subsidiaries operate.

79
Q

Stakeholders in a Company - (a) Shareholders (Members): What are shares?

A

Often described as a bundle of rights and by investing in share capital, shareholder becomes part owner of the company and will often have voting rights.

Note - There are several classes of shares with different rights and entitlements and most common is ordinary share which will usually entitled holder to vote at shareholder meetings and receive share of profits.

80
Q

Stakeholders in a Company - (a) Shareholders (Members): What does nominal (or par) value mean for shares?

A
  • Shares in limited company must have fixed nominal value commonly for ordinary shares will be 1p, 5p or £1
  • Nominal value is therfore is the minimum subscription price for that share and represents unit of ownership rather than actual value of share.

**Note - Share may be issued at more than its nominal value and the excess over this nominal value is known as the premium and often market value of share will foten be much higher than the nominal value. **

81
Q

Stakeholders in a Company - (a) Shareholders (Members): What is issued share capital?

A

This is total amount in value (nominal and premium)of all shares in issue at any time and will be the amount shown in company accounts.

82
Q

Stakeholders in a Company - (a) Shareholders (Members): What is paid up share capital?

A

It is not always necessary for shareholders to pay full amount due on their shares immediately and amount paid is known as “paid up share capital”.

83
Q

Stakeholders in a Company - (a) Shareholders (Members): What can company do in respect of shares not paid up?

A

Demand at any time, and once demended the payment has been “called”

84
Q

Stakeholders in a Company - (a) Shareholders (Members): Example of Nominal value and premoum as well as total issued share capital

A
85
Q

Stakeholders in a Company - (a) Shareholders (Members): How is a company’s share capital made up?

A
  • Shares purchased by the first members of company known as subcriber shares
  • Further shares issued after company incorporated to new or existing sharegolders (new can be issued at any time provided procedures follows)
86
Q

Stakeholders in a Company - (a) Shareholders (Members): What is allotment?

A

Defined is S558 in which shares are said to be alloted when a person aquires the unconditional right to be included in company’s register of members in respect of shares.

87
Q

Stakeholders in a Company - (a) Shareholders (Members): How do shares allow for limited liability?

A

Total nominal value of shares held by a shareholder is equal to total amount of shareholders liability to contrbiute if company becomes insolvement, so if fully paid, he will not have to contribute any further on insolvency.

88
Q

Stakeholders in a Company - (b) Persons with Significant Control (PSC) What are companies required to do and who will these people be?

A

UK companies required to identify PSC’s which are:

  • Own more than 25% of shares or voting rights
  • Has power to appoint or remove a majority of its board of directs; or
  • Otherwise exercises significant influfence or control over the company
89
Q

Stakeholders in a Company - (b) Persons with Significant Control (PSC) What must company’s maintain and for what purpose?

A

Must maintain register of PSC’s and must be open to public inspection and the purpose is to help combat tax evasion, money laundering and terrooist finacncig.

This mustbe filed at CH with company’s confirmation statement.

90
Q

Stakeholders in a Company - (c) Directors Why are directors required and for what?

A
  • Company is an artificial person and thus needs human agents to act and all companies will therfore have one or more directors as offices of company who manage day to day management of company.
91
Q

Stakeholders in a Company - (c) Directors What governs directors and what do they owe?

A

Directors agents of company and conduct governed by statute and common law principles of agency as well as owing fidicuary duties.

92
Q

Stakeholders in a Company - (c) Directors What are the number requirements for directors?

A

S154 CA:

  • Private company must have at least one director and
  • A public company must have at least two directors

Minimum age limite of 16 for directors.

93
Q

Stakeholders in a Company - (c) Directors What must at least one director be?

A

A Natural person s155 in order to ensure ther eis always on person in place to aid accountability.

94
Q

Stakeholders in a Company - (c) Directors What is the position for corporate directors?

A

These are directors who are themselvesd companies and government are enacting legislation to set out general rule that all directors will ened to be individuals subject to certain exceptions.

95
Q

Stakeholders in a Company - (c) Directors How do directors interact with shareholders?

A

The role will always be seperate from that of a shareholder but often in small private companies it will be the same people and it will be important to consider the two roles seperately.

96
Q

Stakeholders in a Company - (c) Directors What are the types of director?

A
  • Executive Directors
  • Non-Executive Directors
  • Shadow Directors
  • De facto directors

Key to understand all these owe the same duties to company and same responsbilities under CA and insolvency legislation.

97
Q

Stakeholders in a Company - (c) Directors What is an executive director?

A

One appointed to executive office such as finance director, managing director and such will generally spend majority of time working on the business of company and will be both office and employee.

98
Q

Stakeholders in a Company - (c) Directors What is an non-executive director?

A

They are also an office of the company but will not be an employee of the company and they do not take part in day to day running of company.

The role is generally for indepedent guidance and advice to the board.

99
Q

Stakeholders in a Company - (c) Directors What is a shadow director?

A

A person in accordance with who directions or instructions the directors of the company are accustomed to act.

However, person will noy be simply because directors act on advice given by them in profressional capacity.

100
Q

Stakeholders in a Company - (c) Directors What is an alternate director?

A

Comapny articles may provide for appointment of alternate directors.

They atrend board meetings and act ind irector place if the actual is incapacited, otherwise engaged or out the country.

101
Q

Stakeholders in a Company - (c) Directors What is a de facto director?

A

Someone who assumes to act as a director but has in fact not been validily appointed and therfore is not a de jure (legal director)

102
Q

Stakeholders in a Company - (c) Directors How are directors appointed?

A

CA does not stipulate procedure for appointment of directors, so this will be dealt with by the articles of the company.

MA set out as follows: Any person willing to act as director is permitted by law to do so, may be appointed:

  • By ordinary resolution of shareholders
  • By a decision of the directors (This is easier so usually the board will unless any reason to use resolution.
103
Q

Stakeholders in a Company - (c) Directors What should executive directors be given?

A

As an employee of the company,s hould be given a written contract of employmenet (service contract dealing with duties, remuneration etc.

General rule is that directors service agtreement only require resolution of board but shareholder approval may be needed for long term service contracts.

104
Q

Stakeholders in a Company - (c) Directors What is the position for executive directors and long term service contracts?

A

S188 applies if service contract provides for guarnateed term which is or may be longer than two years and if so, shareholder approval is required for the service contract.

**If not given when needed, then term incorporated into service contract does not comply and it is void and under s189 it will be deemed to contain term entitling company to terminate contract at any time with reasonable notice. **

105
Q

Resolutions - Introduction: Why are board/shareholder resolutions required?

A

Company is an artificial person and unable to carry out company business itself, instead decisions are made on behalf by directors or shareholders.

106
Q

Resolutions - Introduction: Waht are decisions by directors known as?

A

Decisions of directors taken by passing board resolutions in board meetings.

107
Q

Resolutions - Introduction: What are decisions of shareholders known as?

A

Decisions of sharegolders tkane by passing shareholder resolutions either in a meeting of the sharegolders (General meeting) or in writing.

There are two types, ordinary resolutions and special resolutions.

108
Q

Resolutions - (a) Directors: Board Resolutions: What decisions are taken?

A

Standard day to day decisions of company are taken by board of directors in board meetings and unless power for particular decision delegated to board by a director or committee of, a decision of the board of directors mustbe taken in accordance with procedure set out in company articles.

109
Q

Resolutions - (a) Directors: Board Resolutions: What is the procedure for passing a board resultion at BM?

A

Art 7(1) MA provides that decisions of directors can be made by majority decisions at a meeting of the directors and this is usualy decision making process.

110
Q

Resolutions - (a) Directors: Board Resolutions: What happens if there is deadlock between voters?

A

Art 13 MA povides that if deadlock, chairman of the BM if appointed under Art 12 will have casting vote.

111
Q

Resolutions - (a) Directors: Board Resolutions: What/who is the chairman of the board?

A

Chairmen chosen by directors under Art 12 MA and they can be used to tip balance in deadlck or if company has only two directors, a chairman with a casting vote can take decisions alone.

112
Q

Resolutions - (a) Directors: Board Resolutions: What quorum is necessary for valid BM?

A

Quorum is the number of people to attend a meeting in order for it to be valid.

Art 11 MA confirms no proposal may be voted on at BM unless quorum is participating and goes onto state te quorum for a directors meeting may be fixed from time to time by decision of directors but must neber be less than two and unless otherwise fixed, is two.

113
Q

Resolutions - (a) Directors: Board Resolutions: What is the alternative procedure?

A

Art 8 MA makes provision for directors to make decisions by unamious agreement without BM.

This requires all directors to indicate to each that they share common view on the matter and can indicate this by any mean such as written resolution or telephone conversation (But written record of decision must be kept)

114
Q

Resolutions - (a) Directors: Board Resolutions: What is the position for companies with one director?

A

Requirements in MA as to decision making by directors, do not apply to companies with only one and sole director can make decisions on their own.

115
Q

Resolutions - (b) Shareholder Resolutions: When are these required?

A

Some fundamental decisions cannot be taken by directors without shareholder authisation such as:
* Making of changes to company consistution
* Approvval of certain transactions between directors and the company; and
* The formal declaration of dividends

116
Q

Resolutions - (b) Shareholder Resolutions: What are the two types of shareholder resolution under CA?

A
  • Ordinary Resolution and
  • Special resolution

If CA does nto specify type needed, then ordinary is sufficient unless company articles require higher majority.

117
Q

Resolutions - (b) Shareholder Resolutions: What is an ordinary resolution?

A

This means a resolution is passed by a simple majority - More than 50%

118
Q

Resolutions - (b) Shareholder Resolutions: What is a special resolution?

A

Requires majority of not less than 75%.

119
Q

Resolutions - (b) Shareholder Resolutions: How may shareholders vote at GM?

A
  • Shareholders may vote at GM on show of hands or on a poll.
  • If by show of hands, each shareholder present at meeting enetitled to one vote regardless of shares. (provided the share has voting rights under article)
  • If voting on a poll, shareholder has one vote in respect of every share held by them and votes counted out of those present and voting.
120
Q

Resolutions - (b) Shareholder Resolutions: What does right to demand a poll vote entail?

A

Very important, especially where shateholders not in agreement over a resolution and S321 CA sets out conditions which must be met for SH to demand a poll vote.

121
Q

Resolutions - (b) Shareholder Resolutions: What is the right to appoint a proxy?

A

A member of company is entitled to appoint another as their proxy to exercise all or any rights to attend and speak at GM in their place.

See adapt for example of how these votes operate.

122
Q

Resolutions - (b) Shareholder Resolutions: What is the quorum for a GM?

A

S318(2) sets out quorum required for a GM is two qualfying persons and this includes proxies and reps of corporate shareholders. (Reps relate to when company holds shares as a corporate shareholder in which S323 allows directors to authorise a person to act as a representative.

123
Q

Resolutions - (b) Shareholder Resolutions: What is the position for single member companies and quorum?

A

Only one qualfying person present is sufficient to constitute a quorum for a GM.

124
Q

Resolutions - (b) Shareholder Resolutions: What can written resolutions allow and when?

A

S281 CA 2006 allows private companies to pass shareholders resolution without holding a GM by using the written resolution procedure.

If cast in writing, relevant majority is counted out of all shareholders entitled to vote rather than those present.

125
Q

Resolutions - (b) Shareholder Resolutions: What is it important to note regarding written resolutions?

A

A written resultion is a method of voting and not type of vote, and must always vote by ordinary or special resolution but can either be done at a meeting or (for private companes) in writing as a written resolution.

126
Q

Resolutions - (b) Shareholder Resolutions: What resolutions cannot be pased as written?

A
  • Removal of a director
  • Removal of an auditor
127
Q

Introduction to Company Procedure - (a) Board Meetings: What is the position for notice?

A

Court held that reasonable notice of BM was necessary and this is whatever notice is usualy or the directors to give.

E.G: If all in the same building, then likely can be called immediately but if in different buildings or parts of the country, couple of days or weeks may be needed

128
Q

Introduction to Company Procedure - (a) Board Meetings: What is the position for quorum?

A

Directors may not valdilly make a decision unless a minmum number of directors entitled tov ote are present and Art 11 requires minimum of two.

129
Q

Introduction to Company Procedure - (a) Board Meetings: What is the position for voting?

A

Board resolutions are by majority vote on a show of hands with each director having one vote and chairman may have casting vote to prevent deadlock.

130
Q

Introduction to Company Procedure - (b) Shareholders: When will referal need to be made to shareholders?

A
  • If matter outside powers of directors and must be approved by a resolution of shareholders or
  • Where a matter is within the powers of directors but requires prior approval of shareholders before directors can be authorised to act.
131
Q

Introduction to Company Procedure - (b) Shareholders/Resolutions: What if resolution required?

A

There must also be a shaeholders meeting - GM.

132
Q

Introduction to Company Procedure - (b) Shareholders/Resolutions: Who must convene and what notice is required?

A
  • Board must call the general meetings and decide when it takes place.
  • For private companies, 14 days clear days notice is required for calling of a GM and notice means to a period of time between boards act of convening GM and it actually taking place.
133
Q

Introduction to Company Procedure - (b) Shareholders/Resolutions: How is board actually covened?

A
  • Board must inform the sharegolders of when and where it is taking place by giving notice
  • Notice here means a document inviting shareholders to attend GM drafted in accordance with CA.
134
Q

Introduction to Company Procedure - (b) Shareholders/Resolutions: What is the quorom for GM?

A

Two shareholders although one for single member companies.

135
Q

Introduction to Company Procedure - (b) Shareholders/Resolutions: What are the two types of notice relating to GM?

A

As seen above, there are two types of notice relating to GM and therfore it can be:

  • A document sent by directors to shareholders annocuning GM will take place
  • A period of time which elapses between directors act of calling GM and GM itself taking place.
136
Q

Introduction to Company Procedure - (b) Shareholders/Resolutions: What happens after GM has taken place?

A

A second BM will be necessary to enable directors to implement the matter which shareholders have voted so for a company to put into effect a change which shareholder approval needed, there must be three meetings: BM, GM, BM.

137
Q

Introduction to Company Procedure - (b) Shareholders/Resolutions: What is the position for short notice GM’s?

A
  • Gm’s can be called on less than usual notice if sufficient members agree.
  • S307(5) provides if private company, GM may be called on short notice if agreed by majority in number of members who hold shares with nominal value not less than 90% of total value so with companies how few shareholders, ften possible to hold at short notice.
138
Q

Introduction to Company Procedure - (c) Written resolution for private companies: What is the positon for board resolutions?

A

Art 8 allows directors tot ake decisions in form of directors written resolution provided procedure followed.

139
Q

Introduction to Company Procedure - (c) Written resolution for private companies: What is position for ordinary and special resoluutions?

A
  • Only private companies may pass shareholders resolution by written esolution.
  • S282 CA states a written ordinary resolution can be passed by simple majority of total voting rights of eligable members.
  • S284 state written special resolution can be passed by majority of members representing not less than 75% of eligible members.
  • S284 states where company has share capital, every member has one vote in respect of each share held by him when voting on written resolution.
  • S288 provides that resolutions to remove director or auditor may not be passed by written.
140
Q

Introduction to Company Procedure - (d) Psot meeting dealing with docs: What must be done with copies?

A
  • Copies of all resolutions affecting company’s constitution must be sent to registrar of companies within 15 days of their being passed.
  • All special resolutions must be filed as they form part of company constiution.
  • Copies of any amended articles must also be filed.
  • Directors will be responsible for updating statutory books.
141
Q

Introduction to Company Procedure - (e) Correct procedures: Why is it important to follow correct procedure?

A

If not followed, resolutions may be invalid and there may also be criminal sanctions such as if company fails to record minutes of meetings in relevant statutory bookers, every office in default liable to fine.

SQE - BLP (3 decks)

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