Limited Companies Flashcards
What is a company?
An artificial legal person that a business may run.
What is the process of incorporating a company?
Involves producing documents and registering with Companies House.
What is a Shelf Company?
A company that has already been set up, often by a solicitor or a company formation agent.
What forms and documents are required for incorporating a new company?
- Form IN01
- Memorandum of association
- Articles of association
- Requisite fee
What is the minimum number of directors required for a private company?
At least 1 director.
What is the minimum number of directors required for a public company?
At least 2 directors, both aged 16 or older.
What is the fiduciary duty of directors?
To act in the best interest of the company.
What sections of law outline directors’ statutory general duties?
Sections 170-180.
What is Section 171 about?
Duty to act in accordance with the company’s constitution and exercise powers properly.
What does Section 172 require from directors?
To promote the success of the company and the benefit of the members.
What is the duty of directors under Section 173?
To exercise independent judgment.
What is the standard of care required from directors according to Section 174?
That of a reasonably diligent person.
What does Section 175 require directors to avoid?
Conflicts of interest.
What is prohibited under Section 176?
Accepting benefits from third parties in relation to their role as directors.
What must directors declare according to Section 177?
Interest in a proposed transaction with the company.
Define Shadow Director.
A person not formally appointed as a director but who exercises significant influence over the company.
Define De Facto Director.
A person who performs the role of a director without official appointment.
What is required for a director’s service contract exceeding 2 years?
Approval by shareholders.
What is a substantial property transaction?
Acquisition or disposal of non-cash assets valued above £100,000 or more than 10% of the company’s net asset value.
What is the process for removing a director by shareholders?
By Ordinary Resolution with at least 28 days’ notice.
What must be done following the removal of a director?
Update the Register of Directors and file Forms TM01 or TM02 within 14 days.
What is required for a proposed resolution to remove a director?
28 days’ notice.
What does a Bushell v Faith clause do?
Grants certain shareholder-directors weighted voting rights on a resolution to remove them.
What grounds can lead to disqualification of directors under the Disqualification Act 1986?
- Conviction of an indictable offence
- Persistent breaches of company legislation
- Fraudulent trading or misfeasance
- Being an unfit director in an insolvent company
What information must Form IN01 include?
- Company name
- Company type
- Principal business activity
- Registered office
- Articles of Association
- Company secretary
- Statement of capital and initial shareholding
- People with Significant Control (PSC)
- Consent to act
- Statement of compliance
What is one of the post-incorporation steps for a new company?
Ordering a company seal for official use.
What is a Board Meeting (BM)?
A meeting of the company’s directors to discuss business matters and pass board resolutions.
What is a General Meeting (GM)?
A meeting of the company’s members or shareholders to pass resolutions affecting the company.
How are board decisions made?
By a majority vote at a Board Meeting.
What is required for important decisions in a company?
Approval from the shareholders through a General Meeting (GM)
Important decisions often require a formal process to ensure compliance and transparency.
What is the role of the Board Meeting (BM) in decision-making?
To discuss and authorize calling a GM for shareholder approval
The BM handles internal decision-making before seeking external approval.
What is a quorum?
The minimum number of members required to be present at a meeting for decisions to be valid
In this context, the quorum is two members.
What voting method is commonly used in Board Meetings?
Show of hands or oral consent
This method allows for quick and clear decision-making among directors.
How is a conflict of interest defined for directors?
A director must declare any personal interest in a transaction with the company and cannot vote or count towards the quorum for that matter
This ensures transparency and fairness in decision-making.
What is the required notice period for calling a General Meeting (GM)?
14 clear days notice
An additional 2 days is required if notice is sent by email or post.
What is an Ordinary Resolution (OR)?
A decision requiring a simple majority (more than 50%) of votes at a general meeting
ORs are commonly used for routine decisions.
What is a Special Resolution (SR)?
A decision requiring a 75% majority of votes at a general meeting
SRs are needed for more significant decisions such as changing the company’s articles.
What must be filed with Companies House (CH) after passing a resolution?
A signed copy of the Special Resolution (SR) or Ordinary Resolution (OR) within 15 days
This is part of the formalities to ensure compliance with regulations.
What is the role of shareholders in requisitioning a General Meeting (GM)?
Shareholders holding at least 5% of the company’s shares can request the company to call a GM
This empowers shareholders to address concerns directly.
What is the time frame for a company to call a GM after a requisition?
21 days to call the meeting, which must occur within 28 days after the requisition
Timely response is crucial for maintaining shareholder rights.
What is the minimum number of members required for a quorum at a General Meeting?
Two members
The quorum must be maintained throughout the meeting.
What is a Derivative Action?
A shareholder can bring a derivative action to claim for a wrong done to the company, typically by a director
This allows shareholders to protect the company’s interests.
What is the purpose of the Confirmation Statement?
Form CS01 must be filed every year within 14 days of the anniversary of the company’s incorporation
Failure to file is a criminal offence.
What is the liability of shareholders in a company?
Shareholders’ liability is usually limited to their investment in the company
This limited liability protects personal assets in case of company debts.
What powers do majority shareholders have?
Can remove a director by Ordinary Resolution (s168) and pass resolutions
Majority shareholders have significant control over company decisions.
What is the purpose of keeping minutes of Board Meetings (BMs)?
A record of decisions made at Board Meetings must be kept for at least 10 years and signed by the chairperson
This ensures accountability and provides a historical record of decisions.
What is the process for changing a company name?
Requires approval, Form NM01 to CH, and updating company stationery and minutes
This formal process ensures legal compliance and proper documentation.
What is a petition for unfairly prejudicial conduct?
A member can petition the court if the company’s affairs have been conducted in a way that is unfairly prejudicial to their interests
This protects minority shareholders from oppressive actions.
What is the requirement for financial reporting for small companies?
May be exempt from financial reporting requirements if turnover is under £10.2m, balance sheet under £5.1m, and no more than 50 employees
This exemption reduces the administrative burden on smaller businesses.
What is the significance of different classes of shares in a company?
Companies may issue different classes of shares with various rights (e.g., voting rights, dividends)
This allows for flexibility in capital structure and governance.
What is a written resolution?
Private companies may pass resolutions in writing instead of at a meeting
This facilitates decision-making without the need for a formal gathering.
