WS3 MCQ Flashcards
A private limited company is planning to grant a service contract for a three-year term to one of its directors. The company was incorporated in 2010 and has adopted unamended model articles.
The company is keen for this to be approved by the shareholders as quickly as possible and has already been advised that this will need to be approved by way of an ordinary resolution.
All shareholders are understood to be generally available and responsive over the coming weeks.
Which of the following statements best describes the appropriate method the company should use?
A) The company should call a general meeting under the usual notice requirements to ensure that all shareholders have an opportunity to participate in the voting.
B) The company should use the short notice procedure in calling the general meeting to ensure that all shareholders have an opportunity to participate in the voting.
C) The company should use the short notice procedure in calling the general meeting as this should allow the process to be shortened significantly.
D) The company should use the written resolution procedure to ensure that all shareholders have an opportunity to participate in the voting.
E) The company should use the written resolution procedure as this should allow the process to be shortened significantly.
E) The company should use the written resolution procedure as this should allow the process to be shortened significantly.
CORRECT:
The written resolution procedure is the only procedure that can be used to potentially bring down the time period significantly. The fact pattern indicates that all shareholders are expected to be available and responsive so there is no reason to suggest that a written resolution would take longer than a general meeting whether on short notice or not
Your client is a manufacturing company (‘Company A’).
The managing director of Company A (‘the MD’) asks to speak to you about a proposed contract between Company A and a website design company (‘Company B’).
Company B is run by the MD’s close friend. The managing director has even invested in Company B himself and now owns 5% in Company B.
The MD wants to discuss this proposed contract at the upcoming board meeting of the 5 directors of Company A. The other directors of Company A are already aware that the MD has shares in Company B. Company A is a private limited company with unamended Model Articles.
Which of the following statements best summarises the advice you should give to the MD of Company A?
A) The MD should sell their 5% shares in Company B to avoid a breach of their directors’ duties in the Companies Act 2006.
B) The MD should declare their interest in the proposed contract with Company B at the board meeting of Company A. The MD will not be allowed to vote on the proposed contract at the board meeting.
C) The MD should declare their interest in the proposed contract with Company B. If they do not, all 5 directors of Company A are at risk of breaching their directors’ duties contained within the Companies Act 2006.
D) The MD should not declare their interest in the proposed contract with Company B as the other directors are already aware that the MD has an interest in the proposed transaction.
E) The MD has a duty under s 175 of the Companies Act to avoid a conflict of interest. They are at risk of breaching that duty. They should therefore not propose that this contract is entered into at the board meeting of Company A.
B) The MD should declare their interest in the proposed contract with Company B at the board meeting of Company A. The MD will not be allowed to vote on the proposed contract at the board meeting.
A private limited company, which operates a publishing business, has no subsidiaries and is owned by individual shareholders. One of its directors wishes to undertake some home improvements and has obtained a quotation of £8,000 from a firm of builders. The director has asked the other board members if the company would pay this sum to the builders up-front, on condition that the director repay the company in monthly instalments over the coming year. The board is happy to approve such an arrangement and has asked you whether or not it also requires shareholder approval.
Which of the following comprises the best advice to the company’s board?
A) No shareholder resolution is necessary because the Companies Act 2006 does not require approval of this transaction.
B) No shareholder approval is necessary because the value of the transaction is below £10,000.
C) No shareholder resolution is necessary because the company is not a wholly-owned subsidiary of any other company.
D) An ordinary resolution is necessary because the transaction is a quasi-loan.
E) An ordinary resolution is necessary because the transaction is a credit transaction.
A) No shareholder resolution is necessary because the Companies Act 2006 does not require approval of this transaction.
