SPA BUSINESS Flashcards
SPA D
Drafting
Client - Harrop & Sons Kitchens Limited
Started by Richard Harrop, retired
Two sons Phillip and John
Four shareholders: Richard, Phillip, John, Alex Duffy
All except Richard are directors
Phillip to retire, resign from board
Phillip daughter appoint to board, tarnsfer shares to Michelle
No new employment contract
Change name to Harrop & Bennett
Meetings take place at Birmingham office 11am
Draft minutes for meetings required
Accept Phillip Harrop’s resignation as director
Appoint Michelle Bennett as a director
Transfer Phillip’s shares to Michelle
Change the name of the Company to “Harrop & Bennett Kitchens Limited”
See precedent pack
All resolutions passed at meetings tomorrow as Harrop to attend rather than written resolutions
Board minutes
-Input company name
-Input company number
-Address
-Time
-Present members
-In attendance
-State who is chair
-Director interest
-Resignation of director and appointment of new director
-Transfer of shares
-General meeting details
-Special resolution for company name change
-Administrative matters - various forms
TM01 - termination director
AP01 - appointment director
PSC07 - notice ceasing PSC
PSC01 - notice PSC
NM01 - notice change of name and copy special resolution
Registers:
Register of directors
Register of directors residential addresses
Register of PSC
General meeting
Special resolution
THAT: pursuant to s77 CA 2006, Company’s name changed to…
-Registered office address
Consent to short notice
-Input company name
Minutes of GM
-Company name
-Address
-Tomorrow’s date
-Present
-In attendance
SPA I
Writing
Client: Vandana Shetty - Baby Steps Limited
Matter: Sale of shares - CGT implications
VS is director and shareholder of BSL
£5m offer for entire issued share capital
Proposal
100% shares BSL sold to Pownall Limited
50k shares in issue
VS 25k £1 shares
Anjula Smith 15k £1 shares
Gemma Davies 5k £1 shares
Chris Dunning 5k £1 shares
VS, AS, GD all salaried directors
VS high taxpayer
No shareholder agreement
BSL model articles no amendments
Costs for share sale £10k
VS set up £2.7k
VS no disposals
VS tax time out consider invest Dazzle Dreams Limited
Letter
1-what capital gains tax is and why it will arise on the sale of her shares,
2-how much will be payable based on the information we have so far and
3-whether any reliefs may be available.
Client address
Annual CGT exemption
£12,300, the standard rate of
CGT is 10% and the higher rate is 20%
Structure
-Firm headed note paper
-Client name and address
-Date
-File reference
Content
Intro: understand intend sell shares in BSL and advice on CGT
1 CGT: payable by individual who dispose chargeable asset and make gain/profit over period of ownership
Shares are chargeable asset
If proposed BSL sale ahead, make significant gain on shares so likely pay CGT
2 CGT payable on sale of shares
-Calculate chargeable gain
-Deduct acquisition cost
-Expenses incurred at time acquisition
-During ownership or relating to disposal of shares
-No disposals so deduct annual exemption £12,300
£2,500,000 on sale of shares.
deduct
acquisition cost £25,000 nominal value of the shares an
acquisition expenses of £2,700 a
expenses on disposal of £10,000.
chargeable gain will be £2,450,000.
As you are a higher rate taxpayer, you will be charged CGT at a rate of 20%, which results in a CGT charge of £490,000.
3 Reduce or defer tax payable
Qualify for Business Asset Disposal Relief (BADR) - reduce rate of tax payable to 10% on first £1m of gain and save £100,000 in tax payable.
there is a lifetime limit of £1m gains for BADR.
buying shares in Dazzle Dreams Limited.
-may allow defer payment of some of the tax under the Enterprise Investment Scheme.
-number of conditions would need to be met
-company you invest in not being listed, having fewer than 250 employees and having gross assets not exceeding £15m.
need more information from you in order to advise fully on this.
I hope that this letter has helped your understanding of CGT and how it will apply to the sale of your shares in BSL. If you would like any further information or advice, please do not hesitate to let me know.
SPA N
CMA
client Antonia Fairbairn
advice and analysis on the structures for A biz
1-how to minimise liability to third parties;
2-how the business would be owned and managed;
3-how the individuals remunerated;
4- how the chosen structure might affect its ability to raise finance.
Offer stake in employees
Main areas for negotiation
Available structures
-General (unlimited) partnership
-limited liability partnership (LLP)
-(private) limited
company.
1- Limitation of liability
GP - Antonia, Sanjan, Eleanor
All 3 account w/o limit for business liailities
LLP or LC - liability limited to amount invested
Personal guarantees - borrowings - protect against other liabilities
Given limiting liability key concern, should use LLP or limited company, not general partnership
- Control, management and ownership
-Antonia contribute £1,500,000, made up of the value of the existing business plus a further £500,000.
-Sanjan’s contribution is likely to be much less and Eleanor’s will be only nominal.
-default position for an LLP is that each partner would have an equal say in most decisions, so Antonia would risk being outvoted by the other two.
-avoided by negotiating a carefully drafted partnership agreement. -For example, the
agreement could limit the authority of Sanjan and Eleanor to enter transactions, and
give Antonia a right of veto on specified decisions.
-In a limited company, management decisions are taken by the directors, voting by
simple majority on a show of hands.
-Major decisions are taken by the shareholders, and their voting power is based on the size of their investment.
-The directors are likely to be Antonia, Sanjan and Eleanor.
-They will be able to outvote Antonia at board meetings, and it will be necessary to negotiate provisions to protect her in the company’s articles or a shareholders’ agreement.
-At shareholder level, size of Antonia’s investment will give her control of most of the important
decisions and, ultimately, power to remove Sanjan and Eleanor as directors.
-risk that Sanjan and Eleanor could feel disenfranchised, and it may be necessary to find a way to compensate them for this, perhaps through their remuneration
package.
-A shareholders’ agreement could also give them some protection, for example from removal as directors.
-Whatever structure is chosen, the parties are likely to want to agree specific areas of responsibility, within which the responsible individual has greater power to take decisions.
- Remuneration
-Sanjan and Eleanor are likely to ask to be paid a share of the profits, as a reward for
investing and an incentive to perform.
-all of the parties are likely to want to be paid at least as much as they are earning now from the business, and will probably prefer the majority of that part of their earnings to be paid as a salary,
because it is guaranteed.
-In an LLP, the default position is that each partner shares equally in the profits of the partnership.
-not be acceptable to Antonia, given her relatively large
investment.
-One option would be to negotiate that at least some of the earnings are paid out to them as salaries, in proportions which more closely reflect their current earnings from the business.
-parties will also need to agree in what shares the profits will be distributed after any salaries have been paid.
-If a limited company is used, the parties can choose whether to take their remuneration as directors’ salaries, with any balance of profit being shared amongst
them as a dividend distribution. -The parties will probably want to be paid salaries which are at least equal to what they are currently earning.
-Sanjan and Eleanor are likely to press for more substantial salaries, because Antonia will hold the vast
majority of the shares and so will be entitled to by far the largest share of any profits which are distributed as dividends.
-remuneration package is likely to be heavily negotiated.
-It is an important part of
the incentive for Sanjan and Eleanor, but Antonia will want to ensure that she receives a proportionate return on her investment.
- Raising finance
-business will also need to borrow to fund expansion.
-Both an LLP and a limited
company can create floating charges.
-provide some security to the
lending bank and should allow the business to negotiate better borrowing terms.
Conclusion
-General partnership: not recommended because of the risk of liability and because
they cannot grant floating charges.
-LLP: offers limited liability; flexibility to design tailored management structure and
remuneration package.
-However, the default position is that Antonia could be outvoted by the other two despite her larger investment, so the limited partnership agreement will require careful drafting to protect her.
-Limited company: offers limited liability; separation of ownership and management allows client to maintain overall control but will require careful negotiation so as to
protect her from decisions by the other directors whilst also protecting them from
decisions by her as majority shareholder.
-Whichever structure is chosen, the parties will need to negotiate areas of responsibility and remuneration arrangements – as well as salaries, Sanjan and Eleanor will want a sufficient share of the business’s profits to incentivise them.
Other issues
-Conflict between 3 individuals as different stakes in business
-Sanjan and Eleanor independent legal advice once decide structure to adopt
SPA S
Research
Client - Stacey Goldberg, recently appointed company secretary of our client company All
Action Limited.
Company plan issue 25,000 new £1 ordinary shares to its finance director, Gavin Crawley.
1997 old style memorandum predating CA2006
Authorised share capital £100,000, already issued, reached limit
AoA not altered since incorporated
Unamended Table A AoA
Plan procedure for allotment
- Whether the company can still issue the new shares to Gavin despite the limit in its memorandum and, if so,
what it should do about the limit and whether there are any particular procedural requirements. - Whether Gavin can vote and count in the quorum on board decisions relating to the allotment of the shares
to him.
Structure
Client:
Matter:
Date:
Advice
Summary
We act for AAL
AoA predate CA 2006
AoA unamended Table A
Authorised share capital 100k
Limit reached
Company secretary further issue 25k £1 ordinary shares to the finance director Gavin
Crawley.
Two questions
1. As above
2. As above
Issue 1 Authorised share capital in memo of association
-All companies limit authorised share capital set out in memorandum s121 CA 1985
-Ceiling on number of shares allot
-Abolished 1 Oct 2009, transferred to articles s28 CA
-Result means authorised share capital in memo of association incorporated before CA came into forc econtinues as limit number of shares company issue
-AAL reached max
-Authorised share capital limit amend/revoke by ordinary resolution of CA 2006 Order 2008/2860 para 42
-Copy sent to registrar of companies at companies house within 15d after resolution passed CA2006 s29 and 30
Issue 2
-Normally under Table A articles director cannot count
-Table A Reg 94 and 95
-normally Gavin not able to take part in decision on allotment of shares
HOWEVER exception Table A Reg 94(c) director interest arise by virtue subscribe shares in company or any subsidiaries vote/count towards quorum
-Gavin count in quorum and vote on decision, exception to normal rule
Conclusion:
-Directors call general meeting of shareholders to obtain authority by way of ordinary resolution to amend max share capital 100k to 125k
-If ordinary resolution obtained directors authorised allocation and issue additional 25k shares to finance director and Gavin, who can attend and count towards quorum
Additional PFA
CMA
Read the SQE1 Study Guide Vol 1 Business Law Chapter 7.2 Joint Decision Making Summary
Client - Kerry Sanderson
director and shareholder in Studio SPT Limited
disagreement has arisen as to the future direction of the business
advice and analysis on whether Kerry and Amelie can force Kerry’s proposal
through despite Shaun’s opposition.
Background
-Kerry is one of three shareholders/directors in Studio SPT Limited
-2 colleague Shaun and Amelie
-Each 30k ordinary shares
-No chair
-Company AoA standard in model articles, 2 amendments
-Quorum is 3 directors
-directors to vote and count
towards a quorum even if they are interested in the transaction being considered
-No shareholder agreement
-Office value £2 million
Kerry seek advice
-Amelie’s husband Edward is a partner in a planning consultancy called The Acorn Consultancy which advises on obtaining consent for small and medium-sized developments.
-Edward’s two partners are close to retirement and Edward is trying to secure the consultancy’s future.
-Kerry and Amelie can see the potential for synergy between the two businesses.
-They have had preliminary discussions with Edward and his partners.
-They have agreed in principle that Studio SPT will buy The Acorn Consultancy.
-Edward will become a director in
the company, and will receive 20,000 ordinary shares in the company in return for his share in the consultancy. -The company will borrow £1.5 million to buy out his partners’ interests in the consultancy, and a further £2 million to finance the expansion of the
combined businesses.
-Shaun Pearson is opposed to the proposal in principle. He believes that architects should practise separately from other professions, and that combining the company’s existing practice with a planning consultancy will damage its creative flair.
-He has also expressed concerns about the level of borrowing required for the proposed deal.
-He argues that the debt will leave the
business exposed if there is a downturn in the building industry, and that the company even risks insolvency if the value of its goodwill falls substantially.
Kerry wishes to know whether she and Amelie can force their proposal through despite Shaun’s opposition.
-She and Amelie are very excited about it.
-They believe firmly that the merger with The Acorn Consultancy is the way forward, and in order to achieve
it they would be prepared to remove Shaun from the company if necessary.
-If it proves impossible to purchase The Acorn Consultancy, Kerry and Amelie would consider alternatives such as a collaboration agreement.
firm’s charging rate was £130 per hour plus VAT and disbursements,
Acquisition TAC and Allotment of Shares
Board resolutions
-Transactions require approval
-Client and Amelie simple majority BUT quorum is three so board inquorate if Shaun frustrate proposal
-Shaun can block
-Only solution change composition of board
Shareholder
-Client and Amelie more than 50% voting shares so pass ordinary resolutions
-Shaun cannot block ordinary
Approve transaction
-No shareholder required allot shares to Edward
-Statutroy pre-emption rights not apply because allotment non-cash consideration
-Proposed puchase of TAC is substantail property transaction by shareholder ordinary resolution because over 100k and purchae is connected person - husband
-Client and Amelie enough shares to pass
Change composition of board
-Client and Amelie appoint Ed as director
-Remove Shaun as director by using shareholder power to pass ordinary resolution
-Overcome problem Shaun refuse attend
- Call GM
-Normally board resolution and Shaun unlikely cooperate
-Client and Amelie more than 5% voting shares so can requisition general meetings and call if board fails
Shaun position
-Disgruntled shareholder
-25% shares so block special resolution
-Client consider bought out either by shareholders or company buy back shares
Director duties
-Shaun concern about company solvency serious and needs to be investigated
-Client and Amelie duty under CA 2006 s172 promote success of company
-Long-term consequences of decision
-Interest of company’s employees and relationships with suppliers and customers
-Action for breach of duty taken if wrong
-Seek advice on financial implications
Preliminary advice
-Quorum problem because Shaun unlikely attend and participate
-Overcome by appoint Edward as director, remove Shaun by client and Amelie as shareholders
-If Shaun oppose, client and Amelie power to requisition a general meeting
-Once quorum resolved, client and Amelie force proposal
-Shaun remain shareholder unless bought out
-Shaun concern about company solvency
-Client and Amelie try involve Shaun in investigating concerns, with view agreement go ahead with proposed purchase with agreement or purchase shares to provide exit route from company
-If no special article directors to count quorum and vote if interested, Amelie interest since husband owns TAC - Amelie can’t count, board inquorate
-Problem resolved if client and Amelie pass ordinary resolution suspend prohibition in Model Articles
PFA
Drafting
Client - ZapPoint Limited
won lucrative contracts including one with a nationwide carpark business and another with a chain of hotels.
two shareholders who are also directors (John Jenkins and Claire Richards) and there are currently
two other directors (Peter Allen and Joel Goodman)
- Appointing a new director – Karina Amfo is to be appointed as Marketing Director.
-new service agreement
-initial one year fixed term.
-After the initial year it can be terminated by either party on three months’ notice. - Peter Allen is relocating to Newcastle so that he can lead the expansion into the North East.
In order to convince Peter to make the move, it has been agreed that ZapPoint will lend him £75,000 to help refurbish
his new home and he will repay this over a two year period.
Check sample draft board minutes and written shareholder resolutions
Ensure deal with
*Appoint Karina Amfo as a director
*Approve and enter into Karina Amfo’s service agreement
*Approve and enter into the loan of £75,000 to Peter Allen.
Board meeting tmw office, 2pm
All directors, shareholders attend
Both service and loan agreement deeds
typographical errors and
errors of fact/ law.
-Spelling of Peter Allen’s name
-Company number in Written Resolution
-Defined term “Service Agreement” should be used in paragraph 9
-Change “resolutions” to “resolution” in written resolution
Key legal points
1. Karina Amfo is not a director during this meeting (her appointment takes effect at the end of the meeting) and so must be recorded as ‘in attendance’ rather than ‘present’
.
2. As Karina Amfo is not a director during this meeting, she does not need to make any declarations of interest. Whilst the board would be aware of Peter Allen’s interest in
the loan, it is good practice for him to make a declaration.
- The ordinary resolution of the shareholders approving Karina Amfo’s service agreement should be deleted (together with all references to it). A director’s service agreement
will only need shareholder approval if it has a guaranteed term of more than 2 years.
Here the service agreement has an initial fixed term of one year but can be terminated after this by either party on three months’ notice, so the guaranteed term does not exceed two years. The board has the power to approve and authorise execution of this
contract.
- An ordinary resolution approving the loan to Peter Allen should be inserted (together with appropriate consequential amendments in the board minutes and written
resolutions). This is because the loan does not fall within an exemption (for example, does not exceeds £10,000) and so requires shareholder approval in the form of an ordinary resolution. - As the Company has articles in the form of the model articles with no amendments, Peter Allen cannot vote in relation to his own loan so must abstain (see paragraph 8.1 in the exemplar) (Model Article 14).
*Review clauses in fuller detail
