June 2021 Exam Flashcards
Explain the relationship of agency and how the types of legal authority an agent possesses can bind the company.
(1) An agency relationship is one whereby one person (the principal) appoints another (the agent) to act on behalf of the principal.
(1) An agent can bind the principal legally, e.g. by entering into contracts on its behalf.
(1) Agents may acquire actual authority, (1) which may be express (1) or implied.
(1) They may also acquire apparent authority.
What is an “off the shelf” company? Explain the advantages of such companies.
(1) An off-the-shelf company is a company which is validly incorporated and registered with Companies House, (1) but which remains dormant (“on the shelf”) until purchased by a promoter.
(1) Purchasing a shelf company means the promoter does not have to go through the process of incorporation, leading to the following advantages:
- (1) Ease - no need for special knowledge/expertise
- (1) Speed
- (1) Cost - formation agents’ fees are usually cheap
Explain how a director can vacate office.
(1) A director can vacate office at any time by resigning and the company must accept their resignation.
(1) The articles may specify when a director is to vacate office, e.g. the Model Articles provide that a director will vacate office if the director is prohibited from being a director or becomes bankrupt.
(1) In larger companies, directors are often required to retire by rotation (Model Article 21)
(1) A director may be removed from office, either in accordance with the CA 2006, (1) or via any power of removal which may be contained within the articles.
(1) A director will automatically vacate office if they are disqualified from being a director under the Company Directors Disqualification Act 1986
Explain the differences between a “de jure” and a “de facto” director.
(1) A de jure director is a person who has been validly appointed as a director, (1) in accordance with the relevant legal requirements (1) and the company’s articles.
(1) A de facto director is someone who acts as a directors or performs the functions of a director, (1) but who has not been validly appointed.
Explain the two methods by which a company may reduce its share capital in accordance with the Companies Act 2006.
The Act provides two methods for reduction:
(1) Special resolution followed by court confirmation. (1) This method is available for private and public companies. (1) The court will only confirm the reduction if satisfied that it will not be detrimental to the company’s creditors.
(1) Special resolution followed by solvency statement. (1) This method is only available to private companies. (1) The solvency statement must be made by all directors.
