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Compliance & admin > Module 3 revision cards - part 1 > Flashcards

Module 3 revision cards - part 1 Flashcards

1
Q

When did the concept of separate legal entity come in

A

1844 - Joint Stock Companies Act

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2
Q

When did the concept of limited liability come in

A

1855 - Limited Liability Act

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3
Q

What is the concept of separate legal entity

A

The company is seen as a separate legal personality with perpetual succession of ownership of assets standalone from its investors

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4
Q

What is the concept of limited liability

A

Shareholders are only limited to pay the cost of the shares they have bought and not for any additional monies or debts that the company incurs

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5
Q

What is the definition of a company

A

An artificial construct having its own legal identity separate from its owners and managers

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6
Q

What 4 types of company can be incorporated under the Companies Act 2006

A

Public company limited by shares
Private company limited by shares
Private company limited by guarantee
Private unlimited company, with or without shares

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7
Q

What activities can companies incorporated under the Companies Act 2006 participate in

A

Any activity provided that it is legal

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8
Q

What is the default and most popular form of company

A

Private company limited by shares

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9
Q

Private companies limited by guarantee are usually what type of business

A

Non profit organisations, clubs or membership orgs

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10
Q

Can a public company exist if it doesn’t offer shares to the public

A

Yes, sometimes used as a marketing ploy to seem bigger and more established than what they are

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11
Q

Where must a companies registered office be

A

In the county in which the company is registered. Either company head office or the address of one of their professional advisors

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12
Q

What detail must be displayed at a company’s registered office

A

The company name on the outside of the building

OR

Electronically in reception where a number of companies use the same address

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13
Q

Where must a business keep its statutory registers and other docs

A

Either at the company’s registered address or at a Single Alternative Inspection Location (SAIL address)

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14
Q

Who owns a company

A

Its members/shareholders

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15
Q

What do shareholders contribute

A

Funds/working capital in exchange for ownership rights

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16
Q

What does a share represent

A

A proportion of ownership pf the company

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17
Q

How many members must a company limited by shares have

A

1 shareholder and there is no max

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18
Q

How many members must a company limited by guarantee or an unlimited company have

A

2 shareholders

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19
Q

What are the 2 elements to becoming an member

A
  1. Person must consent to being a member
  2. Agree to have their details entered into the company’s register of members
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20
Q

What is the process by which a company sells its shares called

A

Share allotment/share issue

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21
Q

What 2 ways do Directors have authority to issue new shares

A

Authority contained in the articles of association

OR

By resolution of the members

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22
Q

What is the right of pre-emption for existing shareholders

A

Protection to existing members by giving them first refusal on new shares being offered by the company in proportion to the number of shares they already hold before those shares are then offered to new members. Details contained in the Articles

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23
Q

What is the general rule regarding issuing new shares under pre-emption rights of a PUBLIC company

A

Only authorised to issue shares up to a max stated number (usually no more than 1/3 of existing issued share capital of which only 5% may be issued without observing the rights of pre-emption

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24
Q

What happens to any shares not taken up on pre-emption rights

A

Shareholders percentage will be diluted once the new shares are issued

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25
Q

What is a share transfer

A

The process by which a shareholder can transfer ownership of the shares they hold to another person

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26
Q

Name an exemption where stamp duty is not paid on a share transfer

A

Where the shares are being traded on the Alternatives Investments Market (AIM) or if under £1000

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27
Q

What is the stamp duty rate on transfer of shares (if it needs to be paid)

A

0.5% on any amount over £1000

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28
Q

Are share pre emption rights available for a PUBICALLY listed company

A

No, public shares must be freely transferable

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29
Q

What is a share transmission

A

Where shares transfer by operation of law e.g. when a member dies or in a divorce settlement

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30
Q

What is the main role of a director

A

To exercise the powers and authority of the company (subject to any restrictions in the articles)

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31
Q

What must all companies have as a director for :
a. Private Co
b. Public Co

A

A natural person who is at least 16, there is no upper age limit
a. 1 min, max set out in articles
b. 2 min, max set out in articles

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32
Q

Upon appointment what must all DIRECTORS do

A

Consent to act

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33
Q

Which 2 ways can a director consent to act

A
  1. with the statement pre programmed in the AP01 & AP02 forms
  2. Explicit written consent from the director (advisable to avoid contesting)
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34
Q

When does the appointment of a PRIVATE company director come to an end

A

Until they resign
Are removed from office
Death
Incapacitated through ill health
Majority of shareholders voting (this rule cannot be removed from the Articles)

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35
Q

When does the appointment of a PUBLIC company director come to an end (if not listed/not under the UK Corp Gov Code)

A

Every 3 years (reoffer for re-election)
Are removed from office
Death
Incapacitated through ill health
Majority of shareholders voting (this rule cannot be removed from the Articles)

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36
Q

When does the appointment of a PUBLIC company director come to an end (if listed/under the UK Corp Gov Code)

A

Every year (reoffer for re-election)
Are removed from office
Death
Incapacitated through ill health
Majority of shareholders voting (this rule cannot be removed from the Articles)

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37
Q

Name some of the restrictions that might be imposed on directors as set out in the articles

A

Borrowing limits
New shares that can be issued
Transfer of shares

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38
Q

Name some ways in which the directors powers might be restricted

A

Articles of association
Service agreement
Board policies
Matters reserved for the board
Authorised signatory lists

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39
Q

What are the 7 key duties of a director

A

Act within their powers
Promote the success of the company
Exercise independent judgement
Exercise reasonable care, skill and diligence
Avoid conflict of interest
Not accept benefits from third parties
Declare interests in any proposed transaction or arrangement

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40
Q

Do Directors carry personal liability when carrying out their duties

A

Yes

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41
Q

What are the 3 main categories of the role of the company secretary

A

The Board - procedures in place, papers delivered timely, practical support and guidance especially to the NEDs and guide corporate governance

The company - compliance with legislation and codes. Be a central source of info to the board and senior execs

The shareholders/members - primary point of contact

42
Q

Which companies MUST employ a company secretary

A

Public companies (optional for private Cos)

43
Q

Are there specific duties set out in the Companies Act for Co Secs

A

No

44
Q

What does PSC stand for

A

Persons with Significant Control

45
Q

What is the main aim of the PSC register

A

To combat terrorism, organised crime and money laundering

46
Q

What is the criteria for being listed on the PSC register

A

Holds (directly or indirectly) more than 25% of the shares in the Co

Holds (directly or indirectly) more than 25% of the voting rights in the Co

Holds the right (directly or indirectly) to appoint or remove a majority of directors

Has the right or does exercise significant influence or control over the company

47
Q

What should be considered when deciding what type of company to incorporate as

A

Is separate entity concept required
Where is profit to be taxed - company or owners
Are the roles of management and ownership separate
Is charitable status to be sought
Ownership structure
Privacy of financial info

48
Q

What are the rules around company name

A

Can only be made up of specified letters, numbers, punctuation marks or limited symbols

Some words are restricted such as royal or bank

Is the name already protected by trademark or internet domain name

49
Q

What are restricted words around company name called

A

Sensitive words

50
Q

What are documents that need to be filed with Companies House to register/incorporate a company

A

Complete form IN01
Memorandum of Association
Articles of Association

51
Q

What is the name of the document that confirms a Company has been registered/incorporated

A

Certificate of incorporation

52
Q

What information is in a certificate of incorporation

A

Company registered name
Company registered number
Date of incorporation
Type of company

53
Q

Aside from a certificate of incorporation what other document does a PUBLIC listed company need before it can begin trading

A

Trading certificate (demonstrating that it meets the minimum authorised share capital). Application made using the SH50 form

54
Q

Who can file incorporation docs for a company

A

Company itself through Companies House Portal
Registration agent
Lawyer
Accountant

55
Q

What are the 4 main rights categories for shares

A

Right to vote
Right to profit/dividends
Right to capital - surplus cash if the biz wound up
Right to manage

56
Q

What are the 3 main share classes

A

Ordinary
Preference
Redeemable

57
Q

What are the features of ordinary shares (most common share class)

A

Right to vote
Right to profit or capital
Make amends to the articles (through voting)
Amend the composition of the board (through voting)
Any other powers of the members stated in the articles

58
Q

What are the features of preference shares

A

Carry a preferential right to one or more of the variable rights of (voting, profit, capital or management)

59
Q

What is the main purpose of preference shares

A

Raise additional working capital either generally or for a specific purpose without diluting control (usually no voting right but preferential right to profit or capital

60
Q

What are the features of redeemable shares

A

Right to be purchased by the company subject to distributable reserves

Redeemed at a fixed date or at any time either the shareholder or the company (or both) call them

61
Q

Define tag along rights

A

When a buyer wants to obtain a large number of shares the minority shareholders can get the purchaser to acquire their shares on the same terms

62
Q

Define drag along rights

A

Allows the purchaser of a major holding the right to acquire the minority shareholders shares on the same terms

63
Q

Who tends to look after large share registers

A

A share registrar (outsourced company)

64
Q

What is the timeframe for updating the register of members

A

2 months from the date of registration

65
Q

What details must the register of members contain

A

Full name
Address
Date membership commenced
Date and number of shares acquired or disposed of
Whether the shares are fully or partly paid
Amount still due if partly paid
Date of end of membership (if applicable)

66
Q

What are the stages of transfer of ownership of shares

A

Seller to complete and sign stock transfer form
Pass to the purchaser with the share cert for at least the number of shares being sold
Purchaser to pay the agreed price to the seller
Purchaser to pay stamp duty (if applicable) and get doc stamped
Stock transfer form & share certs sent to the company for registration
Company to issue new share cert in name of the purchaser and any balance certificate in the name of the seller

67
Q

What are the stages of transmission of ownership of shares (e.g. through divorce or death)

A

Seller to complete a letter of request and send to company
Company to issue new share cert in name of the will executor or beneficiaries

68
Q

How do you cancel a damaged share certificate

A

Send damaged certificate to the company so that it can be cancelled and a replacement can be issued and sent back to the shareholder

69
Q

How do you cancel a lost share certificate

A

Cert is Prima Facie evidence so is more complex process
Indemnity form and sometimes indemnity insurance will need to be taken out (especially for publicly traded shares) in case the original comes to light

70
Q

Can a shareholder request that their shares be split over numerous certificates

A

Yes

71
Q

What is the 3 part process for death of a member

A

Death notified to the company - original or certified copy of death certificate will need to be provided

Date of death noted in the register, any dividend mandates cancelled and the death certificate returned

Shares in joint names pass to other named holders. Executor of a will can determine if shares are held with them or given directly to another beneficiary but only once the grant of probate has been issued to the Executor

72
Q

How should electronic comms with shareholders be processed

A

Company must request that members give their consent to be contacted electronically
Deemed consent states that no response is an opt in response
Usually comms put on company website - shareholders are notified by email or letter

73
Q

Give 2 examples of when a company can not communicate with a shareholder electronically

A

When they have specifically expressed that they don’t want to be

When the company’s articles specify that electronic comms is not permitted

74
Q

What are the 2 constitutional documents of a company

A

Memorandum of Association
Articles of Association

75
Q

What info is contained in the Memo of Association subscriber clause

A

That the subscribers wish to form a company under CA2006
Agree to become the first members
Agree to take at least one share

76
Q

What are Articles of Association

A

Internal rules governing the relationship between the company and its members and directors

77
Q

What job do the Articles do

A

Form a contract between the company and each shareholder

78
Q

What is an entrenched clause in the articles

A

A clause that has a higher threshold to amend, remove or alter a provision in the articles. Makes certain amendments either more difficult or impossible to pass

79
Q

How can clauses in the Articles be amended

A

By special resolution

80
Q

Can you amend the rights of a non voting share class without getting consent of the class

A

No

81
Q

What are the main topics covered by Articles of Ass

A

Share capital - allotment of shares, calls, rights attached to diff share classes and rights of pre emption

Directors - quorum for meetings, max number to appoint, appointment and removal process, voting rights

Meetings - detail around the convening and holding of general meetings, notice periods, clear days, proxies, poll votes

Communication - how to give notice and notice periods

82
Q

What is a shareholder agreement

A

A more detailed document outlining the same topics as those contained in the articles

A non public document unless it is referenced in the Articles in which case it must be filed at companies house

83
Q

What is the document called that sets out the responsibilities and areas of decision for a COMMITTEE

A

Terms of Reference

84
Q

What is the name of the document that sets out items that only the BOARD can decide

A

Matters Reserved for the Board

85
Q

Are there tight regulations around organising DIRECTOR/Board meetings

A

No - CA2006 is largely silent and it is for the directors themselves to regulate according to their and the businesses needs

86
Q

Who can convene a DIRECTORS meeting

A

Any director or the company secretary under the direction of a director

87
Q

What is the notice period for convening a DIRECTORS meeting

A

There isnt one - reasonable notice just needs to be given (allowing time for papers to be read and considered)

88
Q

What is a quorum

A

The minimum number of directors who must be present throughout a meeting to make it valid

89
Q

Who must ensure that Director and member meeting minutes are made and kept

A

The Directors

90
Q

Are there tight regulations around organising MEMBER/General meetings

A

Yes

Can only be convened by resolution of the board or in exceptional circumstances by the shareholders

91
Q

Minimum notice period for an AGM

A

21 days

Shorter only if ALL members agree

92
Q

Minimum notice period for a general meeting of a private or public company

A

14 days

Shorter only if a majority of members agree

93
Q

What is the default quorum for a members meeting

A

2 people in person

94
Q

What resolutions must be filed at companies house

A

Ordinary resolutions that change the constitution or share capital

All special resolutions

95
Q

What filings must be made to companies house on an annual basis

A

Confirmation statement
Annual report and accounts

96
Q

Name some filings that need to be made to companies house on an ad hoc basis

A

Change of company name
Appointment or termination of a director
Changes to the articles
Commencement of liquidation

97
Q

What are the 2 main types of board structure

A

Unitary and 2 tier

98
Q

What are the 3 main types of meeting held by a company

A

Members meetings (AGM & General)
Class meetings
Director/Board meetings

99
Q

What is the paragraph of information on the memo of association called

A

Subscriber clause

100
Q

What types of business decision do the board, members and executive managers take

A

Board - strategic
Members - constitutional changes
Exec managers - day to day

101
Q

What is the purpose of the main statutory registers

A

To help provide business transparency

102
Q

What is the definition of a meeting

A

An assembly of people for a lawful purpose

Compliance & admin (2 decks)

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