Sources of Company Law and Governance

Question 1

What are the 6 sources of company law?

Answer 1

1. Legislation
2. Case law
3. The constitution of the company
4. Contract law
5. European Union law
6. Human Rights Law

Question 2

2. Which 2 pieces of legislation amended the CA2006?

Answer 2

1. The Enterprise & Regulatory Reform Act 2013

2. Small Business, Enterprise & Employment Act 2015

Question 3

What are the 5 functions of subordinate legislation?

Answer 3

1. Expands upon the basic rules with an Act of Parliament
2. Brings parts of Acts into force via Commencement Orders
3. Can amend existing legislation including Acts of Parliament
4. Implements EU law
5. Empowers certain persons or bodies to create law

Question 4

What is BEIS and what is their role?

Answer 4

Department for Business, Energy, Industry, and Strategy: responsible for leading the government’s relationship with business and is most closely involved in company law and corporate governance matters

Question 5

What are 3 company law rules with legislative backing?

Answer 5

1. The FCA handbook (Financial Services & Markets Act 2000)
2. The City Code on Takeovers and Mergers (CA2006)
3. FRC standards in relation to the conduct of audits

Question 6

What are 4 reasons why case law is important?

Answer 6

1. Case law principles may end up in legislation e.g Director’s duties
2. Case law sets out the scope and application of statutory remedies and punishments
3. Provides the interpretation of statutory rules and may fill in any gaps
4. Certain areas of company law are created by case law e.g. rules relating to attribution are entirely made by judges

Question 7

What is the constitution of the company and what does it consist of?

Answer 7

The company’s internal rules setting out how it is to be run.
S.17 CA2006:
1. The Articles of Association
2. Any resolutions & agreements affecting the company’s constitution, listed in S.29(1)

Question 8

What are the 2 major sources of European company law?

Answer 8

1. Regulations

2. Directives

Question 9

What is the right of establishment contained in the Treaty on the Functioning of the European Union (TFEU)?

Answer 9

Article 49 prohibits restrictions on the freedom to set up and manage undertakings, including companies.

Question 10

Why has the process of company law harmonisation been largely carried out via directives?

Answer 10

Because directives provide member states with flexibility. Directives set out the goals/aims to be achieved and then allows member states to decide how to achieve them in the way those aims are implemented.

Articles 50(1) of the TFEU states freedom of establishment shall be attained by directives.

Question 11

Name 7 areas of UK law that’s have been heavily influenced by EU law

Answer 11

1. Listing Regime
2. Auditor regulation and independence
3. Market abuse regime
4. Capital maintenance regime
5. Takeovers
6. Shareholders’ rights
7. Corporate transparency

Question 12

Which 2 human right laws apply to legal persons? Give examples of each

Answer 12

1. European Convention on Human Rights (ECHR) e.g. Article 1 of the First Protocol = every natural or legal person is entitled to peaceful enjoyment of his possessions
2. Human Rights Act 1998 e.g. the right to a fair trail (no punishment without law)

Question 13

What are 7 notable Acts of Parliament?

Answer 13

1. Stock Transfer Act 1963: share transfer rules
2. CA 1985: Largely repealed but provisions relating to company investigations remain
3. Insolvency Act 1986: framework for corporate insolvency law, rules for winding up, and mechanisms to rescue financially struggling companies
4. Company Directors Disqualification Act 1986: rules when a director can be disqualified and imposes penalties
5. Criminal Justice Act 1993: rules insider dealings
6. Financial Services and Markets Act 2000: establishes the FCA and regulation rules for financial services and markets
7. Corporate Manslaughter and Corporate Homicide Act 2007: created the offence of corporate manslaughter

Question 14

Can the constitution be used to modify statutory rules?

What about company powers?

Answer 14

1. Statute may allow companies to use their constitution to exclude or modify statutory rules
   e.g. s.567 CA2006 = private companies with 1 share class can exclude pre-emption rights granted under s.561
2. Constitution can limit company powers
   e.g. types of activities the company, directors, or members can engage in
   Breach could amount to breach of ultra vires rule, breach of contract, or breach of directors’ duties