Mailing #1 Notes Flashcards
What are the three basic types of business organisation?
Sole trader
Partnership
Limited company
What is the most important defining quality of a limited company?
Is has separate legal personality.
Which Act governs partnerships?
Partnership Act 1890
What is the definition of a partnership?
The relation which subsists between persons carrying out business in common view of profit.
(Partnership Act 1890)
In what 2 scenarios can a partnership be formed?
1) By express agreement when Articles of Partnership are drawn up and signed.
2) By implication if the courts find that the definition of partnership is met.
What are 4 advantages to forming a partnership?
1) Pooling of skills and experience
2) Sharing risk
3) Conduct is secret (unlike public company)
4) No formalities required to start partnership
Is a partnership a separate legal personality?
No, the partners are personally liable.
What are the 2 main downsides to forming a limited company?
1) Government regulation
2) Publicity
What are the two general characteristics of the limited company?
1 Independent legal personality
2 Limited liability
What are the 8 key differences between a limited company and a partnership?
1 Members of a company have limited liability, partners are fully liable
2 Companies are separate in law
3 Company are formed by registration, partnerships by agreement
4 Certain company documents are open to inspection, partnerships are private
5 No member of a company can contract unless appointed, partners have implied authority.
6 Company powers are determined by constitution, a partnership can do whatever the partners wish.
7 Company is managed by directors, all partners can manage
8 Company is dissolved when the registrar cancels its registration, but partnerships are dissolved by agreement or the court
What are the two primary purposes of company law?
Protect investors
Protect creditors
Why do companies limited by guarantee often have little working capital?
The members promise to contribute an amount on winding up.
Which body has responsibility for registering CIOs?
The Charity Commission
When might a limited company’s members lost limited liability?
1 The company trades with less than the minimum number of members
2 Engages in fraudulent or wrongful trading
3 The veil is lifted
Which subsection of CA 2006 classifies public and private companies?
S 4
Which companies may be limited by either shares or guarantee?
Private (not public)
Which companies may offer shares to the public?
Public (not private)
Which companies require a trading certificate?
Public
Which companies must have a minimum of 2 directors?
Public (private only need one)
Which companies must have a secretary?
Public (private do not need one)
What is the collective name for a holding company and all its subsidiaries?
“The group”
Can a subsidiary company be a member of its holding company?
No
Which case sets out that a holding company is not responsible for the debts of its subsidiary?
Prest v Petrodel (2013)
What is an OEIC?
Open-Ended Investment Company
What must be the purpose of an OEIC?
To invest in transferable securities with the aim of spreading investment risk and giving shareholders the benefits of the results.
What is the definition of an overseas company?
A company registered outside the UK (s1046 CA).
What information must an overseas company provide to the registrar when establishing a UK branch?
1 Memorandum and articles
2 Details of directors and secretary
3 Name and address of a UK resident willing to accept notices for the company.
To which companies is the “capital lock” applicable?
Community Interest Companies
What is a capital lock?
The assets of a CIC cannot be disposed of without prior consent of the registrar to ensure assets are used for the benefit of the community.
Which regulations give authority for Societas Europaea?
European Public Limited Company Regulations (2004)
What must a Societas Europaea’s name end in?
“SE”
How may an SE be formed?
1 Merging two or more public companies
2 Transforming a public company which has had a European subsidiary for over two years
3 Creating a subsidiary from companies in two or more EU countries.
What must be sent to the Registrar of Companies on registration?
1 Memorandum of association
2 Articles of association
3 Form IN01
4 Fee
What is the memorandum of association?
A statement that subscribers to the memorandum wish to form a company and agree to take at least one share each.
What are the three sets of model articles?
1 For private companies limited by shares
2 For private companies limited by guarantee
3 For public companies
What will the registrar issue on incorporation?
A certificate of incorporation (s15 CA)
What are the three effects of registration of a company, set out in s 16 CA?
1 Subscribers become members of the company from the date of incorporation
2 The company has limited liability for its members
3 The certificate of incorporation is conclusive evidence that the Act has been complied with
How is a trading certificate obtained for a public company?
By applying to the register following allotment of the minimum statutory share requirement (£50,000, 1/4 paid up)
What records must a company maintain for the inspection by its members?
Register of members
Register of charges
Minutes of proceedings of company, directors and managers
Accounting records
Register of directors and secretaries
Register of interest in voting shares (for public companies)
When MUST a public company re-register as private?
Where there is a serious loss of capital, i.e. where net assets are less than half the called-up share capital.
What are the requirements for re-registration from private to public?
1 Special resolution to change status
2 Submission of documents to registrar, including
- proposed name
- proposed secretary
- copy of special resolution
- copy of articles
- copy of balance sheet and unqualified auditors report
- valuation report on any recent non-cash consideration for shares
- statement of compliance
What are the requirements for re-registration from public to private?
1 Special resolution to change status 2 Submission of documents to registrar - proposed name - copy of special resolution - copy of proposed articles - statement of compliance
What are the requirements for re-registration from private limited to unlimited?
1 All members consent
2 Company has not been previously re-registered as limited
3 Submission of docs to registrar including
- proposed name
- assent of all members on prescribed form
- statement of compliance
What are the requirements for re-registration of unlimited company to private limited company?
1 Special resolution stating whether limited by shares or guarantee
2 Company has not been previously re-registered as unlimited
3 Submission of docs to registrar including
- proposed name of registration
- copy of special resolution
- copy of proposed articles
- statement of compliance
What are the requirements for re-registration of public company to unlimited company?
1 All members consent
2 Company has not previously been re-registered as limited or unlimited
3 Company must make changes in name and articles
4 Submission of documents:
- proposed name on registration
- assent of all members on prescribed form
- copy of amended articles
- statement of compliance
Where must company names be displayed?
1 Place of business
2 On letters, notices, invoices, receipts and negotiable instruments.
What is the “domicile clause”?
A clause within the company’s objects which state whether it wishes to be registered in England and Wales, Wales, Scotland or Northern Ireland.
Why is it significant that any company registered in the UK is “British”?
Because the UK Government offers protection to British companies operating overseas.
Why is the domicile of a company significant?
The domicile determined which regional law affects the company. E.g. English v Scottish
What is stated by s86 CA regarding the registered office?
All companies must have a registered office to which all communications can be addressed.
Can a registered office be changed?
Yes
For what two reasons is the registered office important?
1 Company’s official address for legal service
2 Place where documents can be inspected.
What key document must be available for inspection at a company’s office?
1 Register of charges 2 Register of directors and secretaries 3 Register of members 4 Minutes of general meetings 5 Copy of directors service contracts
Are the objects of a company restricted?
No, unless specified within the articles (S 31 CA)
What information must be included in the “statement of capital” upon incorporation?
1 Total value of shares allotted (in £)
2 Total nominal share value allotted in other currencies
3 Total number of shares issued and total nominal value
What is the “statement of compliance”?
A statement from every person subscribed to the memorandum confirming that they have complied with the CA 2006.
Upon change of address, for how long must a company maintain both addresses?
14 days
What is the process for alteration of company name?
1 Check the new name is available
2 Board adopt new name
3 Convene general meeting for passing special resolution
4 If pass, resolution is send to CH and printed on all memoranda
5 Registration of new name and certifcate of incorporation
What is the process for increase of share capital?
1 The company must have authority of the members (ordinary resolution).
2 Notice given to the registrar within one month
What is the process for a reduction in share capital?
Private - special resolution supported by solvency statement
Public - special resolution confirmed by the court.
What is the purpose of the articles according to S 17 CA?
To act as the company’s constitution.
What does s 33 CA state with regards to the articles?
The articles bind the company to its members as though they had individually covenanted to obey the provisions.
What is “entrenchment” of the articles?
Articles may be restricted such that they may only be amended if certain provisions are met.
How many articles be altered?
By special resolution.
What are the main roles of companies house?
- incorporate new companies
- receive and register statutory documents
- provide information to the public
- dissolve and remove companies
- prosecute
Which case sets out Comapnies House’s duty of care?
Serby v Companies House, where a company was incorrectly wound up.
From 30 June 2016, what new process replace the annual return?
Confirmation statement - the company checks and confirms the information held by CH.
How did the statement of capital change after 30 June 2016?
Only the aggregate unpaid amount on the total number of shares need to be displayed (instead of the amount unpaid on each individual share)
What statutory records must every company keep? (9 points)
- register of members
- register of directors
- register of director’s residential addresses
- register of secretaries
- register of interests in shares (if public)
- PSC
- minutes of general meetings
- minutes of board meetings
- accounting records
What information must the register of members contain?
- name and address of member
- date that person became a member (and ceased to be)
- number class and amount paid up on shares
- extra details where shares have been converted to stock (share warrants)
Is data protection registration with the ICO required for the register of members?
No, so long as only information required by statute is recorded.
When may an entry be removed from the register of members?
Once a member has ceased to be a member for 10 years
When may the court order rectification of the register under S 125 CA?
- if a member who has not agreed to take shares is entered
- if a lawful member has been omitted
- default or unnecessary delay in altering the register
What is the difference between an overseas company and an overseas branch register?
An overseas company is one registered outside the UK but with a UK office. An overseas branch register is a company operating in the UK that operates a register of members outside the UK.
What information must be included in the register of directors?
- full names (including previous names)
- nationality
- service address
- country or state of residency
- date of birth
- business occupation
What information must be included in the register of directors if the director is a body corporate?
- corporate or firm name
- registered principal office
- the legal form of the firm and law by which it is governed,
How quickly must a change of director be notified to the Registrar?
14 days
When must a person notify a traded company of their percentage of voting rights he holds as a shareholder under DTR 5.1.2?
At 3% or each 1% threshold thereafter
Within what time period must a member notify a public company of a change in their share under DTR 5.1.2?
2 trading days
What does s 793 CA allow a public company to do regarding a person’s interest in its shares?
To give notice requiring them to confirm their status and state their intentions with the company’s shares.
What qualifies as an “interest in shares” for a public (non-traded) company under s 820 CA?
- an interest of any kind
- includes beneficiaries under a trust, spouses, civil partners and any infant children
What is the purpose of the Market Abuse Regulations Article 19?
To set out the notification obligations in respect of transactions conducted on their own shares of the company or any related financial instruments.
Who is affected by the Market Abuse Regulations Article 19?
Companies and managers and their connected persons
What is a “closed period” for the purpose of MAR Article 19?
A period in which directors must not trade, commencing 30 days before the announcement of a financial report.
How promptly must a director notify their dealing in company securities under MAR Article 19, and to who?
3 business days, to the company and to the FCA.
Which law requires the maintenance of insider lists?
Market Abuse Regulations Article 19
What information must be included in an insider list?
- who has access to information
- the date and time that access was gained/lost
When did MAR come into effect?
July 2016
Who qualifies as PSC?
- owns more than 25% shares
- holds more than 25% voting rights
- can appoint or remove a majority of directors
- can or does exercise significant influence or control
- can or does exercise significant control over a trust or company that meets one of the above.
What changes to the PSC regime were brought about by the EU Fourth Anti-Money Laundering Directive?
- AIM companies must comply with PSC requirements
- companies must keep a PSC register and update it within 14 days of any change.
What are the 4 markets of the London Stock Exchange?
1 Main market
2 AIM
3 Professional securities market
4 Specialist Fund Market
What are the 4 advantages of going to the stock market?
1 Access to capital
2 Founders can sell shares
3 Director’s profits increase
4 Company’s own shares can be used as consideration for a take-over bid.
What are the 7 disadvantages of going to the stock market?
1 Stock market rules
2 Criticism from financial press
3 Directors management can be criticised at AGMs
4 Risk of takeover
5 Less financial stability
6 Expensive
7 Success may not be good for the company or directors
What is “SETS” on the LSE?
Stock Exchange Electronic Trading Service
What is a “market maker” on the LSE?
Someone who is guaranteed to buy or sell certain company shares.
What is SEATS PLUS on the LSE and who uses it?
Stock Exchange Alternative Trading Service - used by AIM companies.
What is MiFiD?
EU Markets in Financial Instruments Directive (MiFiD)
What is “dark pool trading”?
Large institutions using MiFiD authorised platforms to gain anonymity in trading.
How are “dark pools possible?
MiFiD allowed companies to trade elsewhere other than regulated stock exchanges.
What are the three sets of rules with which companies wishing to list on the main market must comply?
1 The Listing Rules (LR)
2 The Disclosure Rules (DR)
3 The Prospectus Rules (PR)
In what ways may securities be offered to the public? (11 types)
1 Offer to the public 2 Offer for sale 3 A placing 4 Vendor consideration placing 5 Introductions 6 Rights offers 7 Open offers 8 Capitalisation or bonus issues 9 Exchanges and conversions 10 Options 11 Employee share schemes
Once a company’s securities are being listed on the stock exchange, what are the six listing principles which govern the company?
1 Ensure directors understand their role and duty as directors
2 Ensure it has proper controls in place to comply with obligations
3 Act with integrity to its members
4 Prevent false markets
5 Ensure all shareholders are treated equitable
6 Cooperate openly with the FCA.
What are the three insider dealing offences under Part V CJA 1993?
- the dealing offence
- the encouraging offence
- the disclosure offence
What is insider information?
Information that
- relates to particular securities
- is specific
- has not been made public
- would have a significant effect on share price if made public
What are the defences to insider dealing?
- the individual did not expect to profit
- the individual reasonably believed the information had been disclosed
- the individual would have acted as he did anyway
- the individual was a market maker
What is the penalty for insider dealing?
The FCA can impose unlimited civil fines.
Where is it set out that companies must keep “adequate accounting records”?
s 386 CA 2006.
What are the consequences of failing to keep adequate accounts?
Criminal offence of breach of duty - every officer is liable and the maximum penalty is two years.
How does CA 2006 s 391 define the accounting reference period?
The period of more than 6 months but not more than 18 months after incorporation, ending with its accounting reference date, followed by successive 12 month periods.
What does s 414 require regarding annual accounts?
They must be approved by the board of directors.
How does preparation of accounts differ for small or micro companies?
They can claim exemption from audit (s 477 CA)
What is the time limit for filing accounts? (Hint: different for private v public)
s 442 CA:
Private - nine months from the end of the relevant accounting reference period
Public - 6 months after the end of the relevant accounting reference period.
Which section of CA requires preparation of a directors’ report?
s 415 CA.
What information must be contained within the directors’ report?
- principal activities and review of the business
- significant events in the company year
- company activities in research and development
- significant changes in the values of fixed assets and land
- name and interests of directors
- company share purchases
- charitable and political contributions
- employment of disabled persons
- health and safety
- employee development
What part of the CA sets out the need to prepare a strategic report?
Chapter 4 A
Which companies must prepare a strategic report?
All but small companies, who are exempt.
Listed companies have additional requirements for annual reporting. Where is this requirement set out?
FCA Handbook DTR 4.1
What additional information must a LISTED company’s strategic report contain?
- description of company strategy
- description of business model
- breakdown of the number of persons of each sex who were directors of the company
Which section CA requires listed companies to prepare a directors’ remuneration report?
CA S 420.
What information must be included within half-yearly reports?
- condensed financial statements
- interim management report
- responsibility statements
How are auditors appointed?
- by the directors any any time before the first AGM
- by the AGM until the end of the next AGM
Who is disqualified from acting as an auditor?
- employee of officer of the company
- a partner or employee of a company officer
- a person who is disqualified
What are the three duties of the auditor? (3 duties)
- report to the members on the accuracy of the accounts
- to report on a private company giving assistance for the purchase of its own shares
- to report on particulars of assets and liabilities, profits and dividends
What rights do auditors have? (4 rights)
- free access to books, accounts and vouchers
- demand any relevant information from company officers
- receive same notices as members
- attend and speak on relevant matters at general meetings
How may an auditor be removed before his retirement?
Ordinary resolution with special notice of 28 days
In what ways may a company be dissolved?
- striking off the register
- cancellation of registration for illegal purpose
- compromise or arrangement
- take-overs
- administration order under IA 1986
- winding up under IA 1986
What is the process for striking a company off the register?
CA S 1000:
- registrar send a letter to a company he believes is not carrying out business
- no reply in 1 month then notice intending to strike off is issues and published in the Gazette
- 2 months notice after which company is struck off and dissolved
Which section CA 2006 allows a voluntary striking off?
S 1003
What was the only case where a company has been cancelled for illegal purpose?
Attorney-general v Lindi St Claire (Personal Services) Ltd (1980) - prostitute tried to create a limited company.
What is the objective of an administration order ?
Either save the company as a going concern, or create the best outcome for creditors.
When should s110 IA be used for a compromise arrangement?
- during voluntary liquidation
- if the board of the companies are willing for a merger to take place
When should s988 be used for a compromise arrangement?
When not all members or creditors agree (but at least 75% of them do).
What are the 4 main types of takeover according to ICSA?
1 Purchase by formal agreement with shareholders
2 Purchase by buying individual blocks of shares
3 Purchase by public offer
4 Under the provisions of s 899 CA.
What are the 3 functions of the Panel on Takeovers and Mergers?
1 Draft the takeover code
2 Interpret the takeover code
3 Investigate and enforce the takeover code
How many principals and rules doe the Takeover Code have?
6 principles, 38 rules
What are the 6 principles of the Takeover code?
1 All shareholders treated equally
2 Shareholders given sufficient time to make an informed decision
3 Board of the offeree company must act in the best interests of the company
4 False markets must not be created
5 An offeror must announce they have sufficient cash for a bid
6 An offeree company must not be hindered in the conduct of its affairs for longer than neccessary
What is a “squeeze out” in reference to takeovers?
s 979 CA:
An offeror who has acquired 90% of shares may give note to the remaining shareholders that he wishes to acquire those shares. He is entitled and bound to aqcuire them.
What is a “sellout” in relation to takeovers?
s 983 CA:
The holder of shares who has not accepted a purchase offer may require the offer to acquire the shares if the offerer has acquired 90% of shares already
What is the basic procedure for an administration order?
1 Petition presented to court by company, directors or creditors
2 Administrative receiver appointed
3 Court satisfies itself that the company is unable to pay its debts as per s 123 CA
What are the three aims of administration?
1 Resucing the company as a going concern
2 Achieving a better results for the company’s creditors than otherwise
3 Realising property in order to make a distribution to one or more preferential creditors.
What are the two methods of winding up according to s 73 IA?
Voluntary
Winding up by the court
What are the two types of voluntary winding up?
Members’
Creditors’
When may a company be voluntarily wound up?
- the article provide for winding up after a certain event
- the company passes a special resolution
What is the significance of a statement of solvency in a winding up?
If statement of solvency has been made = members’ winding up
If no statement = creditors’ winding up.
When may a company be wound up by the courts under s 122 IA?
- the company passes a special resolution to that effect
- a public company has no trading certificate within a year of registration
- the company ceases trading for a year
- the number of members in a public company is less than 2
- the court believes it is just and equitable
When is a company unable to pay its debts according to s 123 IA?
- creditor of more than £750 has served notice
- creditor has obtained judgement against company
- it is proved to the court that the value of assets is less than liabilities
What is a dormant company?
One that has no significant accounting transactions (s1169 ca)
When may the Registrar restore a company to the register?
With a court order
When may restoration of a company be ordered by the court?
When:
- a person was not given a copy of the the company’s application to be struck off
- breach of conditions of striking off application
- for some reason it is just to do so.
