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The Companies Act 2006 Flashcards

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1
Q

What was the primary purpose of the Companies Act 2006?

A

The primary purpose was to modernize and simplify UK company law, making it more accessible, reducing regulatory burdens (particularly for SMEs), and supporting a competitive business environment.

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2
Q

What key objectives did the Companies Act 2006 aim to achieve?

A

The Act aimed to enhance shareholder engagement, ensure better regulation, particularly for SMEs, simplify company formation and operations, and provide flexibility for adapting to future changes.

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3
Q

How does the Companies Act 2006 address directors’ duties?

A

The Act codifies directors’ duties in Part 10 (Sections 171–177), consolidating common law and equitable principles into statutory form for clarity and accountability.

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4
Q

What is the significance of Section 172 of the Companies Act 2006?

A

Section 172 requires directors to act in good faith to promote the success of the company for the benefit of its members while considering factors such as employees’ interests, environmental impact, and long-term consequences.

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5
Q

What are the key duties codified in Sections 171–177 of the Companies Act 2006?

A
  1. Duty to act within powers (s.171).
  2. Duty to promote the success of the company (s.172).
  3. Duty to exercise independent judgment (s.173).
  4. Duty to exercise reasonable care, skill, and diligence (s.174).
  5. Duty to avoid conflicts of interest (s.175).
  6. Duty not to accept benefits from third parties (s.176).
  7. Duty to declare interest in proposed transactions (s.177).
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6
Q

How does the Companies Act 2006 simplify company formation?

A

It introduces a streamlined registration process, replaces Table A with Model Articles, and allows private companies to adopt flexible governance arrangements.

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7
Q

What change did the Companies Act 2006 make to financial assistance rules?

A

The Act abolished restrictions on financial assistance for private companies while retaining restrictions for public companies.

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8
Q

What is the purpose of the Model Articles introduced by the Companies Act 2006?

A

Model Articles provide default governance rules for private and public companies, ensuring a simplified and standardized framework unless bespoke articles are adopted.

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9
Q

How does the Companies Act 2006 address shareholder rights?

A

It enhances engagement mechanisms, simplifies decision-making through written resolutions, and strengthens minority shareholder protections, such as unfair prejudice remedies under Section 994.

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10
Q

What role does Part 13 of the Companies Act 2006 play?

A

Part 13 outlines procedures for company resolutions and meetings, including voting thresholds, written resolutions, and flexibility in AGM requirements for private companies.

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11
Q

What are the reporting requirements under Part 15 of the Companies Act 2006?

A

Companies must file financial statements, annual reports, and, for large companies, a strategic report addressing their environmental and social impacts.

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12
Q

How does the Companies Act 2006 promote transparency in governance?

A

By requiring companies to maintain a People with Significant Control (PSC) register and file annual confirmation statements to ensure updated and accurate information.

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13
Q

What are the implications of Section 994 for minority shareholders?

A

Minority shareholders can seek relief for unfairly prejudicial conduct, ensuring their interests are protected from abuse by majority shareholders or directors.

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14
Q

What is the Enlightened Shareholder Value (ESV) approach under the Companies Act 2006?

A

ESV encourages directors to balance shareholder interests with broader stakeholder considerations, including employees, the environment, and long-term sustainability (s.172).

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15
Q

How does the Companies Act 2006 address corporate social responsibility (CSR)?

A

By mandating directors to consider social and environmental impacts (s.172) and requiring large companies to include ESG factors in their strategic reports.

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16
Q

What is the legal framework for distributions under Part 17 of the Companies Act 2006?

A

Dividends must only be paid from distributable profits to protect creditors, ensuring financial stability and compliance.

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17
Q

How does the Companies Act 2006 address company reconstructions and arrangements?

A

Part 26 provides a legal framework for mergers, demergers, and creditor-approved schemes of arrangement, balancing flexibility with creditor protection.

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18
Q

What was the impact of Salomon v A. Salomon & Co Ltd (1897) on the Companies Act 2006?

A

The case established the principle of separate legal personality, which underpins the Act’s provisions on corporate liability and governance.

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19
Q

How does the Companies Act 2006 handle derivative claims?

A

Part 11 allows shareholders to bring claims on behalf of the company for breaches of directors’ duties, fostering accountability when the company fails to act.

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20
Q

What are the rules on auditors under Part 16 of the Companies Act 2006?

A

It establishes guidelines for auditor appointment, duties, independence, and liability, ensuring objectivity and reliability in financial reporting.

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21
Q

What is the PSC register, and why is it required under the Companies Act 2006?

A

The PSC register identifies individuals with significant control over a company, promoting transparency and accountability in corporate ownership.

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22
Q

How does the Companies Act 2006 simplify decision-making for private companies?

A

By allowing written resolutions instead of physical meetings and removing mandatory AGM requirements.

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23
Q

What flexibility does the Companies Act 2006 provide to SMEs?

A

It reduces administrative burdens by removing the need for company secretaries, simplifying capital reduction procedures, and allowing tailored governance structures.

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24
Q

What are the criticisms of the Companies Act 2006 regarding regulatory complexity?

A

Despite efforts at simplification, the Act’s length and detailed provisions can be overwhelming, particularly for SMEs, requiring external advice for compliance.

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25
How does the Companies Act 2006 address auditor independence?
By mandating auditor rotation, limiting relationships with clients, and defining duties to ensure objectivity and unbiased financial reporting.
26
What are the disclosure requirements for directors under the Companies Act 2006?
Directors must declare interests in proposed (s.177) and existing (s.182) transactions to ensure transparency and avoid conflicts of interest.
27
How does the Companies Act 2006 protect creditors?
Through restrictions on financial assistance, rules on distributions, and provisions requiring directors to prioritize creditors’ interests during insolvency (s.172(3)).
28
How are AGM requirements different for private and public companies under the Companies Act 2006?
Public companies must hold AGMs, while private companies are not required to, offering greater flexibility in governance.
29
What role does the strategic report play under the Companies Act 2006?
Large companies must include a strategic report addressing long-term performance, environmental impact, and governance factors.
30
What are the legal consequences of breaching directors' duties under the Companies Act 2006?
Breaches can lead to liability for compensation, restitution of personal gains, disqualification, or legal action through derivative claims.
31
What is the purpose of Section 239 of the Companies Act 2006?
Section 239 allows shareholders to ratify directors’ breaches of duty, provided the ratification is approved by a resolution of disinterested shareholders, ensuring fairness and transparency.
32
How does the Companies Act 2006 facilitate capital reduction for private companies?
Private companies can use a solvency statement procedure to reduce share capital without court approval, streamlining the process and reducing costs.
33
What are the implications of Section 51 of the Companies Act 2006 regarding pre-incorporation contracts?
Section 51 states that if a company enters into a contract before incorporation, the liability rests personally with the individual who made the contract unless expressly stated otherwise.
34
How does the Companies Act 2006 address conflicts of interest for directors?
Section 175 requires directors to avoid situations where their personal interests conflict with the company’s interests, and conflicts must be authorized by non-conflicted directors or shareholders.
35
What is the significance of Section 176 in the Companies Act 2006?
Section 176 prohibits directors from accepting benefits from third parties that could compromise their duties to the company, ensuring integrity and loyalty.
36
How are corporate reconstructions handled under Part 26 of the Companies Act 2006?
Part 26 provides a framework for schemes of arrangement, allowing companies to restructure debt, merge, or reorganize, subject to court approval and creditor consent.
37
What does Section 414CZA of the Companies Act 2006 require for large companies?
It mandates a Section 172 statement in the annual strategic report, explaining how directors have considered broader factors like employee interests and environmental impact.
38
What is the role of a confirmation statement under the Companies Act 2006?
A confirmation statement replaces the annual return, requiring companies to confirm or update information held by Companies House annually, simplifying compliance.
39
What is the impact of Section 994 of the Companies Act 2006 on shareholder disputes?
Section 994 allows minority shareholders to claim relief if they face unfairly prejudicial conduct, such as exclusion from decision-making or misuse of company assets by the majority.
40
How does the Companies Act 2006 encourage transparency in executive remuneration?
By requiring disclosure of directors’ remuneration in the annual report, including bonuses and performance-related pay, to align with governance best practices.
41
What protections does the Companies Act 2006 offer for whistleblowers in companies?
While not directly covered in the Act, related provisions under the Public Interest Disclosure Act 1998 protect employees who report illegal or unethical behavior in companies.
42
How does Section 414A of the Companies Act 2006 affect financial reporting?
Section 414A requires companies to prepare a strategic report alongside financial statements, addressing the company's long-term strategy, risks, and opportunities.
43
What are the voting thresholds for ordinary and special resolutions under the Companies Act 2006?
Ordinary resolutions require a simple majority (over 50%), while special resolutions require at least 75% approval from shareholders.
44
How does the Companies Act 2006 address insolvency and creditor interests?
Section 172(3) requires directors to consider creditor interests when the company approaches insolvency, ensuring creditor protection during financial distress.
45
What changes did the Companies Act 2006 make to company secretaries?
Private companies are no longer required to appoint a company secretary unless specified in their Articles of Association, reducing administrative burdens.
46
What is the purpose of Section 993 in the Companies Act 2006?
Section 993 defines fraudulent trading, making it an offense for directors to conduct business with the intent to defraud creditors or for any fraudulent purpose.
47
How does the Companies Act 2006 streamline corporate decision-making?
It permits private companies to pass written resolutions without holding meetings, provided the required majority of shareholders approves.
48
What are the requirements for maintaining the PSC register under the Companies Act 2006?
Companies must identify and record individuals with significant control (e.g., owning more than 25% of shares or voting rights) and submit this information to Companies House.
49
How does the Companies Act 2006 define small and medium-sized companies for reporting purposes?
Small companies must meet two of three criteria: turnover under £10.2M, total assets under £5.1M, or fewer than 50 employees. Medium companies have higher thresholds.
50
What is the role of the Registrar of Companies under the Companies Act 2006?
The Registrar oversees company registration, maintains public records, and enforces compliance with filing obligations, ensuring transparency and legal conformity.
51
How does the Companies Act 2006 address fraudulent trading?
Section 993 criminalizes conducting business with intent to defraud creditors or for fraudulent purposes, with penalties including fines and imprisonment.
52
What flexibility does the Companies Act 2006 offer for share capital?
Companies can issue, buy back, or redeem shares under Part 18, allowing flexibility in managing share capital to meet business needs.
53
How does the Companies Act 2006 ensure compliance with international governance standards?
By mandating transparent financial reporting, director accountability, and ESG considerations, aligning with global best practices in corporate governance.
54
What protections does the Companies Act 2006 provide against director disqualification?
The Company Directors Disqualification Act 1986 (related to the Act) allows courts to disqualify directors for misconduct, ensuring accountability.
55
How does the Companies Act 2006 define 'enlightened shareholder value'?
Enlightened shareholder value under Section 172 balances shareholder interests with broader stakeholder considerations like employee welfare and environmental impact.
56
How are derivative claims under the Companies Act 2006 brought by shareholders?
Part 11 allows shareholders to sue directors on behalf of the company for breaches of duty, particularly when the company itself fails to act.
57
What reporting exemptions are available to micro-entities under the Companies Act 2006?
Micro-entities can file simplified accounts with fewer disclosure requirements if they meet specific thresholds (e.g., turnover under £632,000 and fewer than 10 employees).
58
How does the Companies Act 2006 protect creditors during distributions?
Directors must ensure dividends are only paid from distributable profits, and improper distributions can lead to personal liability for directors.
59
What changes did the Companies Act 2006 introduce to unfair prejudice remedies?
Section 994 broadens the scope for minority shareholders to challenge decisions or actions that harm their interests, promoting fair treatment.
60
How does the Companies Act 2006 promote accountability in corporate governance?
Through codified directors’ duties, stricter financial reporting, shareholder protections, and mechanisms like the PSC register for transparency.
61
What was the primary purpose of the Companies Act 2006?
The Act aimed to modernise and simplify company law to support a competitive economy, making the UK a prime destination for starting and running businesses, while promoting long-term investment and shareholder engagement.
62
What key approach does the Companies Act 2006 adopt for small and medium-sized enterprises (SMEs)?
The Act incorporates a 'Think Small First' approach, simplifying administrative requirements, removing the mandatory company secretary for private companies, and introducing written resolutions to facilitate decision-making.
63
When was the Companies Act 2006 granted Royal Assent, and when was it implemented?
It was granted Royal Assent in 2006, but its implementation was delayed until 2009 due to the scale and complexity of changes.
64
What major change did the Companies Act 2006 make regarding financial assistance?
The Act abolished restrictions on financial assistance for private companies while retaining them for public companies to protect creditors.
65
How did the Companies Act 2006 replace Table A for articles of association?
Table A was replaced by tailored Model Articles for private and public companies, offering more concise and user-friendly governance rules.
66
What is the doctrine of 'Enlightened Shareholder Value' introduced in the Companies Act 2006?
Enlightened Shareholder Value (ESV) under Section 172 requires directors to consider broader factors such as employee welfare, environmental impact, and long-term sustainability alongside shareholder interests.
67
How does the Companies Act 2006 address shareholder engagement?
It simplifies decision-making processes with written resolutions, enhances minority protections through Section 994, and mandates transparency in corporate governance.
68
What change did the Companies Act 2006 make to company formation?
It simplified the registration process, introduced new Model Articles, and eliminated the requirement for private companies to hold Annual General Meetings (AGMs) unless specified in their articles.
69
How does the Companies Act 2006 address pre-incorporation contracts?
Under Section 51, any contract made before incorporation binds the individual who entered it, not the company, unless the company explicitly adopts it after incorporation.
70
What is the significance of the Register of People with Significant Control (PSC Register)?
The PSC Register enhances transparency by requiring companies to identify and report individuals who own more than 25% of shares or voting rights.
71
What is the purpose of Section 172 statements required by the Companies Act 2006?
These statements, included in the strategic report, explain how directors have considered broader stakeholder factors like employee interests and environmental impact.
72
How did the Companies Act 2006 improve financial reporting requirements?
It streamlined obligations, introduced exemptions for small companies, and required strategic reports to cover environmental and governance impacts.
73
What flexibility does the Companies Act 2006 provide regarding resolutions for private companies?
Private companies can pass written resolutions without holding physical meetings, provided the required shareholder majority is achieved.
74
How does the Companies Act 2006 promote transparency in corporate governance?
Through measures such as the PSC Register, mandatory disclosures in annual reports, and strategic reporting on non-financial factors.
75
What protections are available for minority shareholders under the Companies Act 2006?
Minority shareholders can use Section 994 to claim unfair prejudice and bring derivative claims under Part 11 for breaches of directors’ duties.
76
How does the Companies Act 2006 address dividend distributions?
Dividends can only be paid from distributable profits, ensuring the financial stability of the company and protecting creditor interests.
77
What did the Companies Act 2006 do regarding company secretaries?
It removed the requirement for private companies to appoint a company secretary unless their Articles of Association specify otherwise.
78
How does the Companies Act 2006 ensure creditor protection during insolvency?
Section 172(3) requires directors to prioritize creditor interests when insolvency becomes imminent, aligning with insolvency law.
79
What is the legal threshold for passing special resolutions under the Companies Act 2006?
Special resolutions require at least 75% of shareholder votes in favor to be passed.
80
How does the Companies Act 2006 define 'micro-entities' for reporting purposes?
Micro-entities are companies with a turnover under £632,000, total assets below £316,000, and fewer than 10 employees, allowing for simplified reporting.
81
What are the consequences for failing to comply with the PSC Register requirements?
Non-compliance may result in penalties, including fines, as it undermines transparency and corporate accountability.
82
What change did the Companies Act 2006 introduce regarding capital reduction for private companies?
It allows private companies to reduce share capital through a solvency statement procedure without needing court approval.
83
How does the Companies Act 2006 encourage corporate social responsibility (CSR)?
By requiring strategic reports and Section 172 statements to address environmental, social, and governance (ESG) impacts in annual disclosures.
84
What provisions in the Companies Act 2006 protect creditors during distributions?
Directors must ensure that distributions comply with legal requirements, and improper payments can lead to personal liability.
85
What innovation did the Companies Act 2006 bring to company reconstructions?
Part 26 allows for court-approved schemes of arrangement to restructure debts, merge companies, or reorganize assets.
86
How does the Companies Act 2006 address improper use of pre-incorporation contracts?
Section 51 ensures that individuals, not the company, bear liability for pre-incorporation contracts unless explicitly adopted by the company post-incorporation.
87
How does the Companies Act 2006 promote ESG considerations?
Through strategic reporting and the requirement for large companies to address environmental and social impacts in their annual reports.
88
What was the impact of the Companies Act 2006 on Table A?
Table A was replaced by tailored Model Articles, which are more concise and user-friendly, streamlining governance for private and public companies.
89
How does the Companies Act 2006 define 'distributable profits'?
Profits available for dividend distribution, ensuring that payments to shareholders do not jeopardize the company's financial health.
90
What criticism is often made of the Companies Act 2006 regarding SMEs?
Despite its simplification goals, the Act's length and complexity can still overwhelm small and medium-sized enterprises.
91
How does the Companies Act 2006 enhance shareholder protections?
By codifying directors' duties, simplifying resolution procedures, and providing legal remedies like unfair prejudice claims under Section 994.
92
What is the role of auditors under the Companies Act 2006?
To ensure the accuracy and reliability of financial statements, maintain independence, and adhere to statutory and professional standards.
93
How does the Companies Act 2006 balance shareholder primacy with stakeholder interests?
By emphasizing Enlightened Shareholder Value (ESV) under Section 172, requiring directors to consider the interests of stakeholders alongside shareholder returns.
94
What role does Companies House play under the Companies Act 2006?
Companies House oversees company registration, maintains public records, and enforces compliance with statutory filing obligations.
95
How does the Companies Act 2006 address director disqualification?
It enables courts to disqualify directors for misconduct under the Company Directors Disqualification Act 1986, ensuring accountability.
96
What flexibility does the Companies Act 2006 offer regarding share buybacks?
Companies can repurchase shares under Part 18, subject to legal safeguards to protect creditors and shareholders.
97
How does the Companies Act 2006 impact strategic decision-making for companies?
It encourages directors to consider long-term sustainability and stakeholder impacts, ensuring decisions align with Section 172 obligations.
98
How did the Companies Act 2006 streamline the filing of annual returns?
It replaced annual returns with confirmation statements, simplifying the process for verifying and updating company information.
99
What are the legal consequences for directors who fail to comply with Section 177?
Directors must declare any interests in proposed transactions, and failure to comply can result in criminal penalties or invalidation of the transaction.
100
How does the Companies Act 2006 address court-approved schemes of arrangement?
Part 26 provides a flexible framework for reconstructions, allowing companies to gain shareholder and creditor approval for restructuring plans.

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