Formation of a company MCQs Flashcards
A corporate client of your law firm has bought a shelf company named Shelfco 123 Ltd (‘Shelfco Ltd’) on your recommendation. Shelfco Ltd has unamended Model Articles for a private company limited by shares. The Board of Directors of Shelfco Ltd wishes to change the name of the company to a more suitable commercial name. What is the correct procedure for changing the company name of Shelfco Ltd under the Companies Act 2006? (Assume the name chosen by the client is available and not subject to any objections by another party.)
To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders must pass an Ordinary Resolution.
To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders must pass a special resolution.
To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders may pass a special resolution. Alternatively, the Board may pass a Board Resolution.
To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s Board merely needs to pass a Board Resolution.
To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders may pass an Ordinary Resolution. Alternatively, the Board may pass a Board Resolution.
To change the name of Shelfco Ltd under the Companies Act 2006, Shelfco Ltd’s shareholders must pass a special resolution.
Correct. Section 77(1)(a) Companies Act 2006 requires the shareholders of Shelfco Ltd to pass a Special Resolution. Section 77(1)(b) does allow for the company to determine another method for changing the name in its articles but since Shelfco Ltd has unamended Model Articles, the only option is to use the special resolution procedure.
Two individuals (A and B) want to incorporate a private limited company as soon as possible. A and B propose to each take 50% of the shares and become directors of the company. A is negotiating a supply agreement, on behalf of the not yet incorporated company with a company (C) to take effect once the company is incorporated. If A were to sign the agreement with C now, before the company is incorporated, who would be liable under the agreement?
Nobody, the contract would be void
A, B and the not yet incorporated company
A
A and B
The not yet incorporated company, once it is incorporated.
A
Correct. Under s 51(1) Companies Act 2006, the person signing the purported agreement between the unincorporated company and C would be personally liable.
You act for a private limited company that was incorporated last year. The company’s only asset is the company bank account which holds £10,000 on deposit. The company has asked for your advice on changing its current company name.
Which one of the following statements is correct in relation to the company’s change of name?
The change of name will be effective as soon as the company has passed the required special resolution to change the company’s name.
The change of name will be effective once the Registrar of Companies has received notice of the relevant special resolution.
The change of name will be effective once the Registrar of Companies has issued the certificate of incorporation on a change of name.
The company will not be issued with a new certificate of incorporation following the change of name. The Registrar of Companies will change the company’s name online at Companies House only. The change of name is effective once the Registrar of Companies has received notice of the relevant special resolution.
The company will be issued with a new certificate of incorporation following the change of name which will confirm its new name and new company number. The change of name is effective once this new certificate has been issued by the Registrar of Companies.
The change of name will be effective once the Registrar of Companies has issued the certificate of incorporation on a change of name.
Correct. A change of name will be effective once the Registrar of Companies has issued the certificate of incorporation on a change of name (s 16 CA 2006). The company registration number will not change.
A company entered into a contract with an office equipment supplier to purchase 3 projectors. The contract was signed by the sole director on behalf of the company. The director and his wife are the shareholders of the company. The supplier delivered the projectors as agreed but the company failed to pay the purchase price.
Which statement best describes what legal action the supplier can take?
The supplier can sue the company and the director for the purchase price.
The supplier can sue the sole director for the purchase price.
The supplier can sue the shareholders for the purchase price.
The supplier can sue the company and the shareholders for the purchase price.
The supplier can sue the company for the purchase price.
The supplier can sue the company for the purchase price.
This is correct. The doctrine of separate legal liability means that the company is liable for its own debts.
You are in the process of tailoring a shelf company (the “Company”) to meet a client’s requirements. The Company has adopted the unamended Model Articles of Association for Private Companies Limited by Shares. The client requires the Company’s name to be changed, the existing directors of the Company (“Existing Directors”) to be replaced with members of its team (the “New Directors”) and for the registered office of the Company to be changed before it is transferred to the client.
What board and shareholder resolutions are required to implement the client’s instructions most expeditiously (NOT including any resolutions required to convene meetings)?
A special resolution to change the company’s name, board resolutions to appoint the New Directors, board resolutions to accept the resignations of the Existing Directors and a special resolution to change the Company’s registered office.
A special resolution to change the Company’s name, board resolutions to appoint the New Directors, board resolutions to accept the resignations of the Existing Directors and a board resolution to change the Company’s registered office.
A special resolution to change the company’s name, ordinary resolutions to appoint the New Directors, ordinary resolutions to remove the Existing Directors and a board resolution to change the Company’s registered office.
An ordinary resolution to change the Company’s name, ordinary resolutions to appoint the New Directors, board resolutions to accept the resignations of the Existing Directors and an ordinary resolution to change the Company’s registered office.
A special resolution to change the Company’s name, board resolutions to appoint the New Directors, ordinary resolutions to remove the Existing Directors and a board resolution to change the Company’s registered office.
A special resolution to change the Company’s name, board resolutions to appoint the New Directors, board resolutions to accept the resignations of the Existing Directors and a board resolution to change the Company’s registered office.
Correct. This answer reflects the most expeditious and correct way of implementing the client’s required changes. While the other answer options might sound plausible, they are each incorrect. Since the Company has unamended Model Articles of Association for Private Companies Limited by Shares, a special resolution is required to change its name. Although it is possible to appoint directors by board resolution or by ordinary resolution, the most expeditious way of appointing the New Directors (and what is generally done in practice) is by board resolution. The Existing Directors would resign as directors and a board resolution would be passed accepting their letters of resignation. Changing the registered office of the Company would be effected by the passing of a board resolution, followed by the filing of the relevant form at Companies House.
Question 1
The board of directors of a company wants to call a general meeting on short notice. There
are five shareholders with the following shareholdings:
An accountant – 15,000 ordinary £1 shares
A financial adviser – 4,000 ordinary £1 shares
A doctor – 51,000 ordinary £1 shares
A teacher – 20,000 ordinary £1 shares
An estate agent – 10,000 ordinary £1 shares
Which of the following best describes which shareholders would need to agree in order
for the general meeting to be held on short notice?
A The doctor, because they hold a majority of the company’s shares.
B Any three shareholders, because between them they would constitute a majority in
number of the shareholders.
C The accountant, the doctor and the teacher and either the financial adviser or the
estate agent, because between them they constitute the required majority in number
holding between them at least 90% of the shares.
D The accountant, the financial adviser, the doctor and the estate agent, because
between them they constitute the required majority in number holding the majority of
the shares.
E All five shareholders, because they would all be needed in order for the required
majority in number holding between them at least 95% of the shares.
Answer
Option C is correct. A majority in number of shareholders who between them hold 90% or
more of the shares are required in order to agree to a general meeting being held on short
notice (s 307(4)– (6) CA 2006). All of the other options are wrong either because they do
not constitute a majority in number of shareholders or because those shareholders do not
between them hold 90% or more of the shares.
Question 3
A company has an entire issued share capital of 1,000 shares of £1 each. The original
shareholders were a nurse, who had 950 shares and a dentist, who had 50 shares. Last
week the nurse sold 500 of his shares to the dentist, and the rest of his shares to new
shareholders: 200 shares to a local investor and 250 shares to a surgeon.
Which of the following best describes the amendments the company must make to the
register of People with Significant Control (‘PSC register’) as a consequence of the sale
described above?
A The company will need to add the local investor and the surgeon to the PSC register.
B The company will need to add the local investor and the surgeon to the PSC register
and remove the nurse.
C The company will need to add the dentist to the PSC register and remove the nurse.
D The company will need to add the dentist to the PSC register.
E The company will need to add the dentist, the local investor and the surgeon to the
PSC register and remove the nurse.
Answer
Option C is correct. Only those with over 25% of the company’s shares need to be on the PSC
register. Before the transfers, the nurse had 95% of the company’s shares and the dentist had
5% of the company’s shares, so the nurse will have been on the PSC register and the dentist
will not have been on it. Following the transfers, the shareholdings changed to the dentist
(55%), the local investor (20%) and the surgeon (25%). The local investor does not have enough
shares to appear on the register and neither does the surgeon, because they do not have
over 25%. The dentist has enough shares to appear and must be added. The nurse should be
removed because he has ceased to be a shareholder.
Question 4
Last month a cycling enthusiast incorporated an online bicycle accessories shop. He is the sole director and he and a friend are the only shareholders.
Prior to incorporation of the company, the enthusiast negotiated a contract with a provider of cycling clothing. The contract was signed, prior to the receipt of the certificate of incorporation, by the enthusiast in his own name, on behalf of the company.
With whom, if anyone, does the benefit of the contract reside?
A. The company only.
B. The shareholders only.
C. The enthusiast only.
D. The enthusiast and the company jointly.
E. No one, the contract is void.
C - The enthusiast only.
Question 14
A private limited company was incorporated with the Companies (Model Articles) Regulations 2008 (‘the Model Articles’) as its articles of association, but following further investment from some new shareholders, has recently adopted amended articles of association. The amended articles of association (‘the New Articles’) are based on the Model Articles but also include some special articles.
What must be filed with the Registrar of Companies following the adoption of the New Articles?
A. The board minutes proposing the changes to the Model Articles and the shareholders’ resolution to adopt the New Articles.
B. The shareholders’ resolution to adopt the New Articles and the prescribed fee.
C. The New Articles and the prescribed fee.
D. The shareholders’ resolution to adopt the New Articles and the New Articles.
E. The board minutes proposing the changes to the Model Articles and the New Articles.
D - The shareholders’ resolution to adopt the New Articles and the New Articles.
A man visits a solicitor. The man informs the solicitor that he is a director of a company (‘the Company’) in which he is also employed. He explains that the Company is wholly owned by a US company (‘the Parent’), and that all the other directors of the Company are officers of the Parent and reside in the USA. The man resides in England.
The man explains that the Parent has requested that the Company purchases a particular property in London (‘the Property’) from which the Company will operate to expand its existing business.
The man further explains that the board of directors of the Company (‘the Board’) has met to consider the Parent’s request and has resolved to proceed with the purchase of the Property as they have determined that such a purchase would promote the success of the Company. The solicitor is asked to advise on the purchase of the Property.
Which of the following statements best explains who is the solicitor’s client?
A. The Parent, because the Company is wholly owned by it
B. The man, because he is the director of the Company who is resident in England.
C. The Company, because it is the Company that will be purchasing the Property.
D. The Parent, because the Parent requested that the Company purchase the Property.
E. The Board, as it has resolved to proceed with the purchase of the Property.
C - The Company, because it is the Company that will be purchasing the Property.
A private limited company with unamended Model Articles wishes to change its name. The company has four directors who are also the shareholders. All the shareholders have an equal share of the company’s issued share capital of 100 ordinary shares.
What is the procedure that must be followed in order to change the name of the company?
Select one alternative:
A board resolution is required to change the name of the company. A majority of directors will have sufficient voting power to pass the board resolution at a board meeting.
An ordinary resolution is required to change the name of the company. A majority of shareholders will have sufficient voting power to pass the resolution at a general meeting.
A special resolution is required to change the name of the company. Any three shareholders will have sufficient voting power to pass the resolution at a general meeting.
A special resolution is required to change the name of the company. Any three directors will have sufficient voting power to pass the resolution at a board meeting.
An ordinary resolution is required to change the name of the company. A majority of directors will have sufficient voting power to pass the board resolution at a board meeting.
A special resolution is required to change the name of the company. Any three shareholders will have sufficient voting power to pass the resolution at a general meeting.
This is a BLP question. A company may elect to change its name either by special resolution or by other means provided for in the company’s articles. The scenario indicates that the company has adopted articles in the form of unamended Model Articles and, on this basis, a special resolution will be required to be passed in a general meeting. A special resolution is required to be passed by a majority of not less than 75%. Applying this to the facts, this would require three of the shareholders to vote in favour.
A woman is the sole shareholder and director of a newly incorporated private limited company. She signed an agreement to lease business premises on behalf of the new company two days before the company’s certificate of incorporation was issued.
Who will be liable to pay the rent under the lease agreement?
Select one alternative:
The woman and the new private limited company will be jointly liable to pay the rent under the lease agreement.
The new private limited company will be solely liable to pay the rent under the lease agreement.
The lease agreement will be voidable at the instance of the new private limited company.
The lease agreement will be void as the company was not incorporated at the time the lease agreement was entered into.
The woman will be solely liable to pay the rent under the lease agreement.
The woman will be solely liable to pay the rent under the lease agreement.
This is a BLP question. This is a pre-incorporation contract. Under s 51 CA 2006, a person purporting to sign a contract on behalf of a company which has not yet been incorporated will be personally liable for performance of the contract. The woman will therefore be solely liable to pay the rent under the lease agreement.
