Limited Liability Companies

Question 1

When does an LLC come into existence?

Answer 1

When a cert of incorporation is issued.

Question 2

3-step process for incorporating a company?

Answer 2

1. Fill in application form IN01
2. Decide on Articles of Association – consider whether to use MA or special articles; decide whether to entrench any articles (notify Registar and submit statement of compliance)
3. Pay fee (electronic or paper filing)

Question 3

What is the test for piercing the corporate veil?

Answer 3

Prest v Petrodel (Lord Sumption) - Piercing corporate veil only arises where a company is set up to deliberately evade a PRE-EXISTING legal obligation or restriction.

Question 4

2 instances where D can be held liable for Coy losses?

Answer 4

1. Fraudulent Trading (carry on business to defraud creditors or for any other fraudulent purposes)
2. Wrongful trading (carry on trading where D ought to know that insolvency is inevitable)

Question 5

Effect of S.33 CA 2006? Limit?

Answer 5

Any provision in the AOA binds the Coy and its members as if they were covenants given in a deed - i.e., can be enforced as contractual promises.

Only applies to rights which attach to shares (e.g. voting rights or dividend rights) - cannot enforce provisions in the AOA as of right.

Question 6

4 types of shares

Answer 6

1. Ordinary
2. Right to annual dividend before other classes
3. Cumulative preferences (right to carry forward entitlement to annual dividend if not paid in one year)
4. Redeemable shares (Coy has option to buy back after a certain period)

Question 7

4 requirements for valid dividend?

Answer 7

1. Members cannot declare a dividend without directors consent.
2. Directors must recommend a dividend, and members can then ratify - in fact, obliged to ratify.
3. Dividend can only be paid out of distributable profits.

Question 8

Two ways of voting on resolutions?

Answer 8

1. Show of hands - one vote each

2. Poll - one vote per share

Question 9

Who can propose a WR (3 categories)

Answer 9

1. Directors by providing a copy to every eligible member with a statement informing members how to vote and the deadline for voting; or
2. 5% of members eligible to vote on the WR, identifying the resolution and any accompanying explanatory statement or
3. 100 or more members with average paid up capital of £100

Question 10

3 ways to call an EGM?

Answer 10

1. Directors - at any time
2. Court order
3. Members holding 10% of paid-up share capital can requisition meeting within 21 days, which Ds must call within 28 days of the notice

Question 11

Notice period for AGM (2 different notice periods)? Can waive? What 4 details must notice contain?

Answer 11

1. General notice - 14 clear days for private Coy; 21 clear days for public Coy
2. Removal notice - 28 days for resolution to remove directors or auditors before end of term

For GENERAL NOTICE ONLY - shorter period can be imposed by AOA, or the notice requirement can be waived by a majority in number of shareholders holding more than 90% (ltd)/95% (plc) of share capital

Notice contains: Date, time, venue, agenda

Question 12

Re Duomatic principle?

Answer 12

Where all shareholders entitled to attend and vote assent to a matter that could be approved by resolution, their assent will be binding as if it had been made by resolution

Question 13

What is the role of a Company secretary (2 points)? Compulsory?

Answer 13

1. Officer of the company
2. Has ostensible authority to enter into contracts relating to the administrative side of a company’s business

Only compulsory for public companies and must have certain qualifications

Question 14

Two requirements for amending AOA?

Answer 14

1. Need a SR

2. Must file amended articles at CH within 15 days.

Question 15

5 requirements for a valid BM? BM always required?

Answer 15

1. Reasonable notice
2. Venue
3. Date
4. Time
5. Method of communication

BM not required if decision is unanimous.

Question 16

Which 4 categories of people can demand a poll under the Model Articles?

Answer 16

1. Chairman
2. Directors
3. Two or more people with right to vote; or
4. Single shareholder with at least 10% of voting rights
   (MA 44)

Question 17

2 prerequisites for a derivative action?

Answer 17

1. Prima facie evidence of a breach involving director

2. Coy failed to pursue the breach

Question 18

3 cases when leave for a DA will be refused?

Answer 18

1. Actions have been ratified
2. Directors acting in accordance with S. 172 (duty to promote success) would not continue claim
3. Claim would have unnecessary and negative impact on company