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SQE1 - Business > Nature and Formation of Companies > Flashcards

Nature and Formation of Companies Flashcards

1
Q

What is a benefit of an unlimited company?

A

It is not obliged to publish its accounts so enjoys more confidentiality

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2
Q

What are the two types of limited company?

A
  1. Company limited by shares
  2. Company limited by guarantee
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3
Q

In addition to the general requirements for a private limited company, what two additional things are required to register as a public limited company?

A
  1. Nominal share capital of at least £50,000
  2. Trading certificate
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4
Q

What is the minimum number of directors in a private company and a public company?

A

Private: Two
Public: One

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5
Q

Within what time period from the end of the accounting period must annual accounts be filed for a private company and a public company, and need they be audited?

A

Private: Nine months. Need not be audited.
Public: Six months. Must be audited.

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6
Q

Who is a promotor?

A

A person who takes the necessary steps to form a company

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7
Q

What is a Memorandum of Association?

A

A statement signed by people wishing to become members, indicating this intent and agreement

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8
Q

What duties are owed between promotors?

A

Fiduciary duty and duty of good faith

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9
Q

Who is liable on pre-incorporation contracts entered into in the company name, and what is a way to avoid this?

A

The promotor. Can be avoided by novating the contract after incorporation.

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10
Q

What eleven things must be included in the application for a company to the Registrar?

A
  1. Name
  2. Address
  3. Business activity code
  4. Whether public or private
  5. Whether limited by shares or guarantee
  6. Details of subscribers
  7. Statement of capital and initial shareholdings
  8. Proposed officers/directors, and their residential address
  9. Details of people with significant control
  10. Statement of compliance with Companies Act 2006
  11. Payment of the relevant fee
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11
Q

What are the five limitations on a company name?

A
  1. Cannot be the same or essentially the same as an existing company
  2. Must end in Limited or Ltd or Public Limited Company or Plc
  3. Cannot be offensive
  4. Approval required if name suggests connection to government
  5. Approval required if name suggests a protected profession
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12
Q

What type of company does not have to use the word Limited?

A

A company limited by guarantee

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13
Q

What is required for a company to change its name?

A

A special resolution of the members

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14
Q

What documents make up a company’s constitution?

A
  • Articles of Association
  • Any resolutions/agreements adopted to amend the articles
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15
Q

What articles apply automatically unless the company opts for its own?

A

The Model Articles

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16
Q

What document is not required to be filed with the Registrar?

A

The Articles of Association

17
Q

What five things are dealt with in the articles?

A
  1. Directors’ meetings and decision making
  2. Appointment/removal of directors
  3. Share capital
  4. Rights attached to shares
  5. Shareholder meetings
18
Q

Whilst a company need not restrict its objects, what must the directors do if it does restrict them, and what is the consequence of failing to do so?

A

Directors must adhere to the restriction, and they breach their duty if they do not, and may be subject to an injunction if the act is not yet carried out, otherwise equitable action for damage caused

19
Q

Even though a director would be in breach, what is the status of an act done beyond the scope of the objects?

A

It is still valid

20
Q

What is the legal effect of the articles?

A

They are a contract between the company and each of the shareholders, as well as the shareholders with each other

21
Q

What is the extent of a shareholder’s right to enforce provisions of the articles, and when is a shareholder not able to enforce?

A

Only insofar as it relates to membership rights, and a shareholder cannot enforce the articles in any other capacity, e.g. a personal right, or if they are also a director

22
Q

What is a shareholders agreement?

A

A separate voluntary agreement entered into by some or all shareholders and only binding on those who sign it

23
Q

Can the articles contain a provision requiring unanimous consent to amend them?

A

No, this is prohibited by the Companies Act

24
Q

Can the shareholders agree among themselves in a shareholders agreement to not amend the articles unless they all agree, and why is this different?

A

Yes, because they are merely agreeing among themselves to a course of action they will take. It is not enshrined in the company’s constitution itself, which is what the prohibition in the Companies Act is concerned with

25
Q

Under the Companies Act, what is the unchangeable requirement to amend the articles?

A

A special resolution

26
Q

What is one thing an amendment to the articles cannot require?

A

A shareholder to increase their liability to the company, i.e. subscribe for more shares

27
Q

What does an entrenched provision of the articles require?

A

A more onerous approval process than even a special resolution, e.g. 100% of members

28
Q

In what two ways can provision for entrenchment be made?

A

In the articles on formation, or by special resolution

29
Q

To whom must notice be given if the articles are to contain an entrenched provision?

A

The Registrar

30
Q

What is the fate of a provision in the articles which attempts to prevent amendment of the articles, and what will always be the rule?

A

Such a provision will be ineffective, and the articles can always be changed by special resolution

31
Q

What must be true of an amendment to the articles before a shareholder who did not vote for it can apply for the court to set it aside?

A

No reasonable person would consider it to be for the benefit of the company

32
Q

What alone is not grounds for challenging an amendment to the articles?

A

That it adversely affects minority shareholders, as long the amendment is made in good faith

33
Q

What is the question the court will ask in determining whether an amendment which affects the minority should be set aside?

A

Is the benefit derived at the expense of the minority, or is it something that any and all members could enjoy?

34
Q

What are the only times that the corporate veil has deemed to have been lifted?

A

Directors or shareholders in breach of other legal provisions, e.g. company was formed to carry out a fraud or avoid existing obligation

35
Q

What is wrongful trading and fraudulent trading?

A

If a director causes the company to trade knowing the company is insolvent, the director commits the:

  1. Civil offence of wrongful trading, and
  2. Criminal offence of fraudulent trading
36
Q

Who is personally liable if a Plc trades without a trading certificate?

A

The directors

37
Q

Is a subsidiary company liable for the debts of the parent or other subsidiaries, and is a parent company liable for the debts of the subsidiaries?

A

No

SQE1 - Business (20 decks)

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