Miscellaneous- Procedures, Structures, Debt & Equity Flashcards

Question

How do you register a charge? What happens if you fail to register it (4)?

Answer 1

To register the charge: 1. File Form MR01 (statement of particulars of the charge). 2. Submit a certified copy of the charging instrument (the written document that creates or evidences a charge over a company’s assets) and pay the fee. Once registered: 3. The registrar places a copy of the charge on the public register. 4. The lender receives a certificate of registration as evidence. What are the rules for registering a charge at Companies House? * Must be registered within 21 days of creation. * If not registered in time, the charge is void against creditors, liquidators, and administrators. * The company still owes the debt, but the lender is unsecured.

Answer 2

Appointment: Can be done by: * Ordinary resolution (OR) of the shareholders, or * Board resolution (BR) by existing directors (if allowed by Articles) * File Form AP01 at Companies House within 14 days

Answer 3

Removal: * Requires an ordinary resolution of the shareholders * Must give the company special notice (28 days) before the general meeting * The company must notify the director concerned and all shareholders * The director has the right to make written representations and be heard at the meeting * File Form TM01 at Companies House within 14 days of removal

Answer 4

What is an unfair prejudice claim? * Shareholders can apply to court if the company’s affairs are conducted in a way that is unfairly prejudicial to their interests. * Covers actual or proposed acts or omissions. Who is an unfair prejudice claim against? * In an unfair prejudice claim, shareholders are bringing the action against the people controlling the company (usually the directors or majority shareholders), not the company itself. ✅ They are saying: * "The way the company is being run is unfairly harming my interests as a shareholder." * The company is often named as a respondent in the case because it's the business that needs fixing (or because it may be affected by the outcome), but the real target is the people in control who are acting unfairly. What must a SH show to bring an unfair prejudice claim? Must show: * Conduct was prejudicial (caused harm) * Conduct was unfair (objective test: would a reasonable bystander consider it unfair?)

Answer 5

Examples include: * Diverting business opportunities to a competing company * Awarding excessive pay to directors * Excluding shareholders from management roles they were promised * Removing auditors due to disagreements (s.994(1A)) * Court less likely to find unfairness if the conduct follows the Articles of Association.

Answer 6

Remedies * Buyout order: Prejudiced shareholder’s shares bought by others or by the company * Court may restrict changes to the Articles or allow a derivative claim Challenges: * Evidence-heavy: Much of it held by the company * May require expert reports (e.g. share valuation) * High court scrutiny: Single-stage process but demanding proof

Answer 7

* A shareholder-initiated claim for a wrong done to the company, usually by a director. * Can be brought for acts/omissions involving: Negligence Default Breach of duty Breach of trust * Claimant = the company (claim is made by shareholder on its behalf) * Defendant = usually a director

Answer 8

There are two stages: 1. Stage 1 (Prima Facie Case) – * Court reviews application without a hearing * If no case is shown, the claim is dismissed 2. Stage 2 (Full Hearing) – * Court considers whether to grant permission for the shareholder to continue the claim on behalf of the company. * Since the claim legally belongs to the company, a shareholder can’t continue it without the court’s permission. At Stage 2, the court decides whether the shareholder should be allowed to proceed with the derivative action in the company’s name. At this stage, the court may: * Direct the company or others to provide more evidence * Adjourn the hearing to gather further information * Decide whether the claim should proceed to trial

Answer 9

Court must refuse if: * A person acting under s.172 (promoting company success) wouldn’t continue the claim * The act was authorised before or ratified after it occurred Court may refuse if: * Claim isn’t in good faith * It wouldn’t promote the company’s success * Likely the company would ratify it * The shareholder could sue personally * The company chose not to act * Views of objective shareholders with no personal interest suggest refusal

Answer 10

Outcomes after full hearing: * Permission granted (possibly with terms) * Proceedings adjourned * Directions given for trial Costs: If permission refused, shareholder pays If granted, company pays: * Costs of the claim * Defendant’s costs (the director) if claim is unsuccessful

Answer 11

**1. Payment for loss of office** (e.g. on resignation, retirement, or transfer of shares) * Requires approval by shareholders via ordinary resolution * The written memorandum setting out the proposed payment terms must be available for 15 days before the general meeting or circulation of a written resolution **2. Loans to directors** (and quasi-loans, credit transactions, or guarantees) * Requires shareholder approval * Terms of the loan must also be made available at the registered office for 15 days **3. Directors service contract with a guaranteed term of more than 2 years** * If a company is proposing to approve a director’s service contract with a guaranteed term of more than 2 years, the written memorandum or a copy of the contract must be made available for inspection by members: * At the company’s registered office for at least 15 days before the general meeting **AND** * At the meeting itself.

Answer 12

1. Act within powers (s.171): * Follow the company’s constitution and only use powers for their proper purpose. 2. Promote the success of the company (s.172): * Act in good faith for the benefit of shareholders as a whole. 3. Exercise independent judgement (s.173): * Use their own judgment and avoid being unduly influenced by others. 4. Exercise reasonable care, skill and diligence (s.174): * Meet the standards of a reasonably diligent person with both general and actual knowledge. 5. Avoid conflicts of interest (s.175): * Do not place personal interests ahead of the company’s interests. 6. Not accept benefits from third parties (s.176): * Avoid gifts or benefits that may cause a conflict of interest. 7. Declare interests in transactions (ss.177, 182): * Must disclose any direct or indirect interest in proposed or existing transactions.

Answer 13

If a director breaches their duties, the court may order: * Account of profits – the director must pay over any personal gain. * Damages/Equitable compensation – damages for any losses suffered by the company. * Injunctions – to prevent or stop a breach. * Rescission – undoing a contract entered into in breach. * Restoration of property – returning misused or wrongly obtained assets. * Ratification (s.239 CA 2006) –shareholders may ratify the breach by ordinary resolution, unless there was fraud or dishonesty.

Answer 14

1. Filing Requirements with Companies House: * AP01/AP02 – for director appointments * TM01/TM02 – for resignations/removals * CH01/CH02 – for changes to director details 2. Penalties: * Fines for late or incorrect filings * Criminal liability for failing to maintain statutory registers or submitting false information

Answer 15

*** Control is retained** – Lenders do not receive shares, so shareholders' control remains unaffected. **Interest is tax-deductible** – Interest payments reduce taxable profits. *** Predictable obligations –** Repayment schedules and interest rates are agreed in advance. *** No profit participation** – Lenders receive only interest; they do not share in company profits. *** Private and flexible** – Loan terms are set by contract, with minimal regulatory interference.

Answer 16

*** Repayment required** – Capital must be repaid, sometimes on demand. *** Interest must be paid regardless of profit** – Even during periods of low or no profitability. *** Security may be required** – Often secured over company assets, increasing risk on default. **Restrictive covenants** – Loan agreements may restrict or limit dividend payments, asset sales, or further borrowing. **Higher insolvency risk** – Excessive debt (high gearing) increases financial pressure.

Answer 17

*** No repayment obligation** – Share capital is not repayable during the company’s life. **No fixed return**– Dividends are discretionary and only payable out of profits. *** Strengthens balance sheet** – More equity can improve financial stability and attract lenders. *** No asset security required** – Equity funding does not involve charges over company assets. **Investor alignment**– Shareholders are incentivised to support long-term company growth.

Answer 18

**Dilution of ownership and control**– Issuing new shares reduces existing shareholders’ influence. **Profit sharing**– Future profits must be shared with additional shareholders. **No tax relief on dividends**– Dividends are paid from post-tax profits so are paid after the company has already paid corporation tax on its profits. As a result they are NOT deductible and do NOT count as a business expense. **Transfer restrictions**– Particularly in private companies, share transfers may be limited. * In a private limited company (Ltd), the articles of association or a shareholders’ agreement often include pre-emption rights. * This means that if a shareholder wants to sell their shares, they must first offer them to existing shareholders before selling them to an outsider. * If investors know they can’t easily sell their shares later (because of pre-emption rights or board approval requirements), they might be less willing to invest. * This can make it harder for the company to raise money through equity finance. **Greater legal and regulatory burden** – Equity finance is subject to strict compliance under the Companies Act 2006. When a company issues new shares (equity finance), it must comply with strict procedures under the Companies Act 2006, like: * Filing a return of allotment (Form SH01) at Companies House within one month of issuing the shares; * Updating the register of members; * Potentially passing board resolutions and/or obtaining shareholder approval for certain share issues.

Answer 19

within 14 days

Answer 20

1. Contracts/Memos must be available must be available for 15 days before the date of the general meeting where the contract will be approved. They must also be available for inspection at the meeting itself. 2. Special resolutions and new articles must be filed at companies house within 15 days.

Answer 21

1. AP01: APointment of director 2. TM01: TERMination of director 3. CH01: CHange of director details 4. IN01: INcorporation of company 5. SH01: SHareholder (new shareholder e.g. allotment of shares) 6. AD01: ADdress (change of office address) 7. NM01: NAME (change of company name)

Answer 22

Directors make decisions collectively in board meetings via board resolutions (MA 7). Requirements for a valid meeting: * **Notice:** Must be reasonable (Re Homer District), and include time, date, place (MA 9). * **Communication method** must be stated if meeting isn’t in person (e.g., Teams/Skype) (MA 10). * **Quorum**: Minimum of 2 directors must be present (MA 11). * **Voting:** Each director has 1 vote; chair has casting vote if tied (MA 7).

Answer 23

* Yes – under MA 8, decisions can be made via unanimous written resolution or any method showing unanimous agreement. * Common in practice as it avoids calling a meeting. * Must be unanimous or the decision is invalid.

Answer 24

Under MA 14, a director must not count in quorum or vote if the decision: * Concerns a transaction or arrangement with the company * Is one in which the director is personally interested Exception: Director can still vote/count on other board matters. The company can disapply MA 14 in the articles, but: * s 177 CA 2006 requires a declaration of interest regardless (unless exception applies).

Answer 25

* Under s 177 CA 2006, a director must declare the **nature and extent** of any personal interest in a p**roposed transaction.** Exceptions (s 177(6)): 1. Not likely to give rise to a conflict 2. Other directors are already aware 3. Concerns terms of a service contract already considered by the board Best practice: Always declare if in doubt.

Answer 26

Actual authority: * Express (e.g. via service contract or board discussion) * Implied (past actions without objection by board) Apparent authority: * Based on company’s conduct or representation to third party. * If the company creates an impression that the director has authority, it is estopped from denying it. * **If neither actual nor apparent authority: the director is personally liable.**

Answer 27

Under s 188 CA 2006, shareholder approval (ordinary resolution) is needed if the guaranteed term exceeds 2 years. Shareholders must be sent/circulated a memorandum with contract terms: * 15 days before the general meeting (or with the written resolution). If entered without approval: * **Guaranteed term is void**, *rest of the contract remains enforceable.* * Contract becomes terminable on reasonable notice.

Answer 28

Under s 167(1)(a) CA 2006, the company must: * Notify Companies House within 14 days. File: * Form AP01 (individual director), or * Form AP02 (corporate director). Update: * Register of directors * Register of directors’ residential addresses Failing to comply is a breach of duty and may result in penalties.

Answer 29

Under MA 14, a director with a personal interest cannot vote or count in quorum, so with two directors, the board becomes inquorate. Solutions: 1. Amend the company’s articles by special resolution (s 21 CA 2006) to disapply MA 14 so the director with an interest is able to count in the quorum. 2. Temporarily suspend MA 14 using an ordinary resolution under MA 14(3) Either approach allows the board to approve the contract despite the conflict.

Answer 30

* Ordinary resolution: Passed by a simple majority (over 50%) of votes cast at a general meeting (s 282 CA 2006). * Special resolution: Requires 75% or more of votes cast to be in favour (s 283 CA 2006). Both can be passed either: * At a general meeting (with proper notice and quorum) * By written resolution (private companies only — not allowed for public companies)

Answer 31

Notice (s 307 & 360 CA 2006): * Minimum of 14 clear days between service of notice and the meeting. * If sent by post/email, add 48 hours for deemed receipt (s 1147(2)). * Contents (s 311): Must state **date,** **time**, **place**, **nature of business to be voted on**, **proxy rights**, and wording of **special resolutions** (if any). Quorum (s 318 CA 2006): * Usually two shareholders, unless the company has only one.

Answer 32

* Available only to private companies (s 288 CA 2006). * Must be sent to every eligible member (s 291(2)), who has one vote per share. * Lapse date: 28 days after circulation (s 297). Passes when: * Ordinary resolution: >50% of votes of all eligible members * Special resolution: ≥75% of votes of all eligible members (s 296)

Answer 33

Short notice is allowed under s 307(4) CA 2006. Must be consented to by: * A majority in number of shareholders * Holding at least 90% of the voting shares (increased to 95% for public companies) (s 307(5)–(6)). * Once consent is obtained, the meeting can be held immediately or shortly after.

Answer 34

* Poll vote = One vote per share (MA 44); can be demanded by chair, directors, or qualifying shareholders. * Overrides a show of hands if results differ. * A poll vote can generally be demanded by shareholders representing at least 10% of the total voting rights of all shareholders having the right to vote at the meeting **OR** * By at least five shareholders having the right to vote * More accurate where share ownership varies — ensures those with more invested have more say. * Can be demanded **before**, **during**, or a**fter a show of hands** at the meeting.

Answer 35

Circulate a written resolution (s 292): * Shareholders with ≥5% voting rights can request. * Company must circulate it within 21 days, with optional statement (up to 1,000 words). Requisition a general meeting (s 303–304): * Must represent ≥5% of paid-up capital with voting rights. * Board must call a meeting within 21 days and hold it within 28 days of notice. * Max 7 weeks total from request to meeting.

Answer 36

* **Special resolutions**: Must always be filed (s 29 and s 30 CA 2006). Ordinary resolutions that must be filed include: * **Approval of a director’s long-term service contract** (s 188(5) CA 2006) * **Removal of a director** (s 168(1) CA 2006) * **Removal of an auditor before end of term** (s 510(1) CA 2006) Non-compliance: Filing is a legal requirement Penalty = **Fine for the company** and **every officer in default.** Use Companies House forms (e.g., Form RES01) to notify decisions.

Answer 37

Must keep: * Registers: Members (s 113), directors (s 162), etc. * Minutes of board meetings (s 248) and general meetings (s 355) * Written resolutions and outcomes Must be retained for 10 years at either: * The registered office, or * A SAIL address (notified using Forms AD02–AD04) * Option: Keep records on the central register at Companies House instead.

Answer 38

* Special resolution required = decision for shareholders. * Resolution of members (unspecified type) = usually ordinary resolution of shareholders (s 281(3)), unless articles require more. * Company may decide = default position = directors’ decision (they manage day-to-day).

Answer 39

* An Accounting Reference Date is the end date of a company’s financial year. * It determines the date up to which the company's accounts are prepared each year. * The default Accounting Reference Date is the last day of the month in which the company was incorporated (e.g., incorporated 10 March → ARD = 31 March).

Answer 40

**Private companies:** * Must file annual accounts within 9 months of the Accounting Reference Date. **Public companies (plc):** * Must file annual accounts within 6 months of the Accounting Reference Date.

Answer 41

**1. Board Resolution** * Directors must usually pass a board resolution to approve the change. **2. Filing at Companies House** * Submit Form AA01 ("Change of Accounting Reference Date") to Companies House. **3. Time Limit** * Must file the change of the Accounting Reference Date before the filing deadline for the current accounting period. * For a private company, the deadline is 9 months after the Accounting Reference Date. * For a public company, it's 6 months after the Accounting Reference Date. **4. Limits on Changes** A company can only change its accounting reference date: * More than once in a 5-year period only with Companies House permission; Without permission if: * Shortening the accounting period; * Extending the accounting period by no more than 6 months beyond the original end date. **5. Effect of Change** * Alters the date by which the company must file its next set of accounts.