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Business Law Practice > Unit 4 > Flashcards

Unit 4 Flashcards

1
Q

How many directors’ must all companies have at least (except public)?

A

1.

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2
Q

How many directors do public companies need?

A

2.

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3
Q

Do all companies need at least 1 director who is a natural person?

A

Yes.

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4
Q

Does every company require at least 1 director who is 16 years or older?

A

Yes.

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5
Q

What is a NED?

A

non-executive director. Are appointed to the board and are registered but do not recieve a salary. They have no service agreement with the company.

  • Can receive directors’ fees for attending board meetings.
  • Directors duties apply to NEDs in the same way as employed directors.
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6
Q

How can directors appoint a chairperson?

A

Board resolution.

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7
Q

What is a de facto director?

A

A person who carries out the job of a director even though they are not officially appointed.

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8
Q

What is a shadow director?

A

Where a governing majority acts in accordance with their instructions but they have not been formally appointed.

  • More likely to be in background, not continuing normal functions of a director, but having influence & control.
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9
Q

How can directors be appointed?

A

– Board resolution; or
– Ordinary resolution of shareholders

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10
Q

What are administrative requirements of appointing a new director?

A

– Must notify CH within 14 days of appointment
– Done by form AP01 (for individual)
– Done by form AP02 (for corporate director).
– Director must be entered on register of directors and register of directors’ residential addresses.

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11
Q

What are the situations where a person ceases to be a director?

A
  1. Bankruptcy order made against them
  2. Doctor gives written statement that they’re incapable of acting as a director and may remain so for more than 3 months
  3. They’re disqualified
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12
Q

What are the notification requirements when a directorship ends?

A

– Must complete form TM01 within 14 days of resignation at CH.

– Must complete form TM02 if a corporate director.

– Only an ordinary resolution is required to remove a director so this does not need to be filed at CH.

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13
Q

What resolution is required to end a directorship?

A

Ordinary resolution with special notice.

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14
Q

What are special notice requirements?

A

Intention to pass the OR to remove the director must be given to the company at least 28 days before the GM is proposed.

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15
Q

Formalities of special notice:

A
  1. Inform the director & any other shareholders 28 days before GM
  2. Shareholders may be informed 14 days before GM
  3. If after special notice has been given, a GM is called for 28 days or less, the notice is deemed to have been properly given.
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16
Q

Are directors who are the subject of a removal resolution entitled to speak?

A

Yes. They can make representations to the shareholders and can state their case.

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17
Q

What is a bushell v faith clause?

A
  • Gives someone who is both a shareholder and director greater voting rights as a shareholder if the resolution in question is one to remove them as a director.

E.g., the articles may state this director/shareholder has 10 times more votes as usual.

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18
Q

What is a voting clause?

A
  • Where some or all of the company’s shareholders are also directors, the shareholders may include a provision in their shareholder’s agreement obliging them to vote against the removal of their fellow shareholders from their office of director.
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19
Q

To whom are directors’ duties owed?

A

The company itself. Not shareholders not creditors.

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20
Q

When a claim is made against a director for breach of duty, who will be the claimant?

A

The company itself.

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21
Q

What is S 171 CA?

A

Duty to act within powers

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22
Q

What is S 172 CA?

A

Duty to promote success of company

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23
Q

What is S 173 CA?

A

Duty to exercise independent judgement

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24
Q

what is S 174 CA?

A

Duty to exercise reasonable care, skill & diligence.

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25
Q

What is S 175 CA?

A

Duty to avoid conflicts of interest

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26
Q

What is S 176 CA?

A

Duty not to accept benefits from third parties.

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27
Q

What is S 177 CA?

A

Duty to declare interest in a proposed transaction or arrangement.

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28
Q

How can shareholders ratify a breach or proposed breach of a directors’ duty?

A

Ordinary resolution.

– The director whose breach is being ratified will not be included in the resolution for voting.

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29
Q

What is S 182 CA?

A

Declaration if interest in existing transaction or arrangement

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30
Q

Where a director votes in favour of ratifying their own breach, what happens to their vote?

A

It does not count.

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31
Q

Is failure to comply with s 177 CA a civil or criminal?

A

A civil matter.

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32
Q

Is failure to comply with s 183 a civil or criminal matter?

A

Criminal

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33
Q

What resolution is required to remove an authorised share capital clause within a company incorporated before the CA 2006?

A

Ordinary resolution. Exception to general rule that special resolution is required to amend the company’s articles.

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34
Q

Do directors of private company with one class of share have authority to allot shares?

A

Yes. All that is required is a board resolution. S 550 CA.

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35
Q

If there is a private company with one class of share before and after allotment and they were incorporated before the CA 2006, what needs to be passed to activate S 550 CA and give them permission to allot the shares?

A

Ordinary resolution.

36
Q

What is S 551 CA 2006?

A

Directors of public companies, or private companies with more than one class of shares before or after the allotment, must obtain an ordinary resolution to allot the shares.

37
Q

What must the ordinary resolution for s 551 state?

A

– The maximum number of shares the directors may allot and the date on which the authority will expire,

– Which must not be more than five years from the date that the ordinary resolution passed

38
Q

Once the authority to allot has expired under s 551, how is it renewed?

A

Ordinary resolution. Can only be renewed for a further period of 5 years with the same formalities as the first OR.

39
Q

To amend the articles to provide the directors with the power to allot shares under s 551, what is required?

A

Ordinary resolution.

40
Q

What are the formalities for pre-emption rights?

A

– Must be offered to existing shareholders first in proportion to the shares owned by them.

– Offer must state the period of acceptance and cannot be withdrawn within that period

– Cannot be less than 14 days

41
Q

When do pre-emption rights not apply?

A

– Bonus shares
– Consideration for the allotment is wholly or partly non-cash
– shares are allotted under an employee share scheme

42
Q

To exclude pre-emption rights what is needed?

A

Special resolution.

43
Q

What is a share ‘premium’?

A

The increase in value of a share.

44
Q

Where are premiums recorded?

A

Company’s balance sheet.

45
Q

When do copies of resolutions need to be sent to CH with regards to allotment?

A

Within 15 days.

46
Q

What company forms need to be sent to Companies House after a share allotment?

A

– Return of allotment and statement of capital (Form SH01) within 1 month of allotment.

– Any PSC form where someone has more than 25% shareholding.

47
Q

When does the register of members need to be updated after a share allotment?

A

– within 2 months.

48
Q

When do share certificates need to be updated?

A

– within 2 months.

49
Q

Where a transferee is not entered on the register of members what is their interest in the shares?

A

Beneficial interest. The transferor remains the legal owner of the shares.

  • If a GM is held after share transfer, but before the registration of the transfer, it is the transferor who will be permitted to attend and receive any dividends paid (as the transferor is still the legal owner).

However, at the GM, the transferor must vote in accordance with the beneficial owners’ wishes and dividends must then be paid on to the beneficial owner.

50
Q

How are shares transferred?

A

The transferor must complete and sign a stock transfer form and give it to the transferee along with the share certificate relating to the shares.

After stamp duty is paid, the transferee must then send the share certificate and stock transfer form to the company.

51
Q

Once the transferee has sent the share certificate and stock transfer form to the company, what must they do?

A
  • Send the new shareholder a new share certificate in their name within 2 months.
  • Enter their name on the register of members within 2 months.
  • Notify the Registrar of Companies of the change in ownership of the shares when the company files its annual confirmation statement (CS01).
52
Q

If the sale price of the shares is over £1,000 does the buyer need to pay stamp duty on the stock transfer form?

A

Yes.

53
Q

If shares are a gift, is stamp duty applicable?

A

No.

54
Q

Under MA 27 what happens when a shareholder dies or becomes bankrupt?

A

Trustee in bankruptcy and the PRs do not become shareholders of the company but are entitled to dividends declared on the shares.

– The trustee in bankruptcy / PRs can choose to be registered as shareholders themselves (unless the directors are entitled to refuse to register them as shareholders and refuse to do so) and can then sell the shares.

– Can sell them directly in their capacity as representative.

55
Q

Can dividends be paid out of capital?

A

No. Just distributable profits.

56
Q

What are the 3 ways a company can alter its share capital?

A
  1. Share buyback
  2. Purchasing its own shares under a court order for unfair prejudice
  3. Winding up
57
Q

What is distributable profits?

A

company’s accumulated, realised profits less its accumulated, realised losses. Shown under the bottom half of the company’s balance sheet under profit/loss reserve.

58
Q

Under an off-market share buyback, how should the shares be paid for?

A

Distributable profits.

59
Q

What resolution must be passed to authorise a share buyback?

A

Ordinary resolution.

60
Q

How long does a copy of the buyback contract need to be available before the GM?

A

15 days.

61
Q

Once the buyback has occured, how long does a copyu of the contract need to be kept at SAIL?

A

10 years.

62
Q

Can public companies perform a buyback out of capital?

A

No.

63
Q

Can rprivate companies perform a buyback out of capital?

A

Yes unless the articles forbid it. They can only buy back shares out of capital if they have first exhausted their distributable profits.

64
Q

What are the extra conditions for a share buyback out of capital?

A
  1. statement of solvency – must be issued no less than 1 week before the GM
  2. Auditors’ report – must be annexed to the statement of solvency
  3. Special resolution – payment out of capital requires a special resolution
  4. Gazette notification & appropriate newspaper – within 7 days of special resolution
  5. Directors’ statement & auditors statement of solvency need to be filed at same time as Gazette notification.
  6. Statement of S 721 Prevention – must state that any creditors of the company can within 5 weeks after the special resolution apply for a s 721 prevention of the buyback from capital.
  7. Directors statement & auditors report – needs to be available for inspection for 5 weeks after special resolution at registered address.
65
Q

What is the window for the board to enter into a contract for share buyback out of capital?

A

– No earlier than 5 weeks after the date of special resolution to approve it.

– No later than 7 weeks after the date of the special resolution.

(i.e., 2 weeks from 5 weeks after the resolution).

66
Q

MA 30 – Who decides whether or not to recommend that a dividend be paid and how much it should be?

A

Directors. Shareholders then pass an ordinary resolution for it to be approved or declared.

67
Q

Can dividends be paid out of capital?

A

No.

68
Q

What is the key rule relating to dividends?

A

It can only be paid if the company has profits available. This includes profits from previous years.

69
Q

What resolution needs to be passed to authorise a service contract with a guaranteed term of more than 2 years?

A

Ordinary resolution.

70
Q

How long must the copy of the memorandum setting out the terms of the proposed service contract be kept at the registered office for?

A

15 days.

71
Q

Do shareholders have the right to inspect them without charge and how long after requesting to see them do they need to be provided?

A

Yes and within 7 days after requesting them.

72
Q

Define a substantial property transaction

A
  1. A director, in their personal capacity, or someone connected with a director
  2. Buys from, or sells to, the company
  3. A non-cash asset
  4. Of substantial value.
73
Q

What resolution is required to authorise an SPT?

A

Ordinary resolution.

74
Q

Who counts as a directors’ family?

A

Members of a director’s family are defined as:

 The director’s spouse or civil partner.

 The director’s child or stepchild.

 The director’s parents.

 Any person who lives in an enduring relationship with the director as their partner (i.e., romantic); and

 Any children of a person who lived in an enduring relationship with the director as their partner.

75
Q

Do siblings count as person connected with a director?

A

No.

76
Q

What are the requirements of a person connected with a director for an SPT?

A

Owns at least 20% of the body’s corporate shares; or

Is entitled to exercise control of more than 20% of the voting power at any general meeting of the company.

(This can be including the directors’ shares)

77
Q

Define substantial in relation to an SPT?

A

 It will automatically be classed as substantial if its value is over £100,000.

OR

 It will be substantial if it is worth more than £5K AND more than 10% of the company’s net asset value.

78
Q

What is the effect of an SPT?

A

Transaction is voidable. Alternatively, shareholders may affirm the SPT by ordinary resolution.

79
Q

Can the director and the person connected to them be made to account for any gain made from an SPT?

A

Yes.

80
Q

What resolution is required to make a loan to the director of a company?

A

Ordinary resolution.

81
Q

What are the key exceptions to the requirement for an ordinary resolution for a directors loan?

A
  1. Expenditure on company business. Only available to a maximum of £50,000.
  2. Expenditure defending civil or criminal proceedings in relation to the company.
  3. Expenditure defending an investigation by regulatory authority.
  4. minor & business transactions not exceeding £10,000
82
Q

Payment for loss of office – for payments of £200 or more what is required?

A

Ordinary resolution.

83
Q

A memorandum containing particulars of the payment for loss of office must be drawn up and made available at the company’s registered office for how long?

A

15 days prior to the GM and at the GM itself.

84
Q

If there is a breach as to payment for loss of office (i.e., no OR was approved of) what happens?

A

Payment is held by the recipient on trust for the company and any director who authorises the payment is held jointly and severally liable to indemnify the company that made the payment for any loss resulting from it.

85
Q

What is the effect of disqualification of director?

A

Director cannot be involved in any way or be concerned with the promotion, formation or management of a company.

It is a criminal offence to breach a disqualification order.

86
Q

Is a disqualified director personally liable for the debts of the company if they are involved in the management of the company while disqualified?

A

Yes.

87
Q

What is required to be sent to Companies House for a change of company name?

A

Change of name form (NM01) to be sent to the Registrar of Companies following the change.

Business Law Practice (10 decks)

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