BPP - BLP (SQE - FLK1)

Which ONE of the following correctly represents the characteristics of an LLP?

The LLP is a separate legal entity and enters into contracts on its own behalf. All partners have limited liability. LLPs must be registered at Companies House and must submit annual accounts.

Which ONE of the following is correct in relation to a traditional partnership?

In the absence of express agreement, the Partnership Act 1890 provides that all profits are shared equally, partners are jointly and severally liable for debts of the partnership and all partners can participate in management.

Although any express agreement will override the default provisions of the Partnership Act 1890 (written or oral), partners should ensure that they draw up a written express Partnership Agreement to regulate their partnership as they require which will provide for certainty. The default provisions of the Partnership Act 1890 are rarely appropriate for modern businesses.

Which ONE of the following is correct?

LLPs are required to file annual accounts at Companies House.

Which ONE of the following is correct?

Directors of a company can also be shareholders in the same company.

Jason, Kim and Sophia have set up a brand consultancy business (Branded). The business is doing well and they now are looking to expand. They have a number of family members and friends who are willing to invest in the business. They seek your advice as to whether to incorporate the business as a private limited company. Which of the following is correct?

A key advantage of incorporation is that shareholders are able to invest in shares in the company with their liability being limited to the amount unpaid on their shares (if any).

Which ONE of the following is correct in relation to a listed company?

A listed company is a public limited company whose shares are listed on a regulated investment exchange such as the London Stock Exchange.

Which ONE of the following is correct in relation to the company's articles of association?

The articles take effect as a contract between the company and its members and between the members themselves.

Which one of the following correctly states the position with regards to provisions in the Memorandum restricting the objects of companies formed under the Companies Act 1985?

Any restrictions in the Memorandum of companies incorporated under the 1985 Act take effect as if they were contained in the Articles and are binding until the Articles are amended or new Articles adopted.

Which one of the following correctly describes the position of the objects clause (the clause setting out the purposes for which the company was formed) of companies incorporated under the Companies Act 2006?

Companies formed under CA 2006 have unrestricted objects, unless a specific restriction is inserted into the company's articles.

When incorporating a company from scratch, which one of the following correctly states the documents that must be filed at Companies House?

The Memorandum, Articles of Association (unless Model Articles are used without amendment), fee and form IN01.

When does a company become a legal entity?

From the date of incorporation as set out on the certificate of incorporation.

Your client has purchased a shelf company which has been incorporated with Model Articles and seeks your advice as to how to effect a change of name of the company. Which one of the following is correct in relation to the procedure required to change the name of the company?

A special resolution of the shareholders is required. See s 77(1) CA 2006.

What is the 'nominal value' of a share?

The minimum subscription price for that share.

What is the 'issued share capital' of a company?

The total amount in value (nominal and premium) of all shares in issue at that time.

Which one of the following would be a Person with Significant Control in relation to a company?

A shareholder who holds 30% of the voting share capital of the company.

What is the meaning of “quorum” for a board or general meeting?

The minimum number of people that must be present for the meeting to be valid.

Which of the following correctly sets out the thresholds for ordinary and special resolutions of the shareholders?

An ordinary resolution is passed by more than 50% of the votes. A special resolution is passed by 75% or more of the votes.

Which ONE of the following is correct ?

The chairman has a casting vote under MA 13, but this may be removed. The chairman is chosen by the board of directors.

Bill, Paul, Simon and Ben are all shareholders of Magic Music Limited (‘Magic’). They have recently decided to rebrand Magic as they feel that the company’s name is outdated. As part of the rebranding they will need to change Magic’s name. They each hold the following number of shares in Magic:

Bill - 28 shares

Paul - 48 shares

Simon - 20 shares

Ben - 4 shares

Magic’s Articles of Association do not deal with changes to Magic’s name and Magic intends to deal with the change of name at a forthcoming GM. Which ONE of the following statements is correct?

On a poll the resolution could be passed if only Bill and Paul voted in favour of it.

Changing the name of the company requires a special resolution (s 77 CA 2006). A special resolution requires the approval of 75% or more of the votes. Bill and Paul together hold 76% of the shares so on a poll vote they can pass a special resolution.

Major decisions affecting the company (such as the power to remove a director and the power to change the company’s name) will be taken by which ONE of the following?

The shareholders.

The shareholders take the important decisions and the examples given are reserved for them by CA 2006.

Which of the following correctly represents the documents that must be filed at Companies House when a company votes to amend its articles?

Copy of a special resolution, copy of the amended articles.

A special resolution is required in order to amend a company’s articles of association pursuant to s 21(1) CA 2006, not an ordinary resolution. All special resolutions must be filed at Companies House, together with the amended articles.

Which one of the following is the correct meaning of limited liability?

Limited liability means that the shareholders’ liability for debts and liabilities of the company is limited to the amount (if any) unpaid on their shares.

What is the significance of section 16 CA 2006?

It confirms that a company becomes a legal person on the date of incorporation. This means that from this date the company is capable of exercising all the functions of an incorporated company.

What is the significance of the House of Lords decision in the case of Salomon v Salomon & Co Ltd (1897)?

This decision confirmed that a validly formed company has a separate legal personality and therefore even where there is effectively one person running the business and receiving the profits, that person will not be personally liable for the debts of the company.

Which one of the following correctly summarises the circumstances in which the courts may ‘pierce the corporate veil’ to find shareholders liable according to the decision in Prest v Petrodel?

Where a person under an existing legal obligation or restriction deliberately evades or frustrates that obligation or restriction by setting up a company.

What is the best explanation of the meaning of the phrase ‘piercing the corporate veil’?

It refers to situations in which the courts may go behind the corporate framework and the company’s separate legal personality to make shareholders of a company liable for the liabilities of the company.

What was the outcome of the Supreme Court judgment in the case of Prest v Petrodel?

The Supreme Court concluded that, although this was not a case in which the corporate veil should be pierced, the properties were found to be held on trust by the company for the husband (the principal shareholder) and therefore an order was made for the sale of the property and for the money to be given to the wife.

Which one of the following is the best explanation for why the doctrine of ultra vires is less significant in relation to modern companies than in the past?

Because under CA 2006 the memorandum has no objects clause, therefore the vast majority of modern companies have unrestricted objects clauses.

What is the effect of s 40 CA 2006?

Third parties who deal with a company in good faith are entitled to assume that directors’ powers are free of any constitutional limitations.

A director may be able to act as an agent on behalf of the company, binding the company into a contract, in situations where that director has no actual authority. This is known as ‘deemed authority’. Which of the following correctly describes all of the different situations in which a director may have deemed authority to act on behalf of the company?

The acts of an agent will bind the principal if the agent has deemed authority under s 40 CA 2006, at common law (ostensible authority) or under the ‘indoor management’ rule in Turquand’s case.

Which one of the following is correct in relation to contracts purported to be formed with a company pre-incorporation?

The contract will take effect between the third party and the person purporting to act for the company, subject to any agreement to the contrary. The company will not be bound by the contract.

Which one of the following is the best explanation of the liability of a company in tort?

A company may be liable in tort either by way of primary liability, where the company itself is said to have committed the tort through the acts of an individual which are attributed to the company, or by way of vicarious liability for the acts of an individual director or employee.

In what circumstances can a company be found liable for manslaughter?

A company may be liable for the offence of corporate manslaughter where the manner in which the company’s activities are managed or organised by its senior management causes the death of a person and amounts to a gross breach of the relevant duty of care to that person.

Which one of the following would be likely to be seen as a shadow director?

A person in accordance with whose directions or instructions the directors of the company are accustomed to act.

Which one of the following is correct in relation to the CA 2006 requirements for directors?

A private limited company must have at least one director and a public limited company must have at least two directors. All directors must be at least 16 years old.

Which one of the following best describes a de facto director?

A person who assumes to act as a director but has in fact not been validly appointed.

A director of a company has recently been convicted of an indictable offence in connected with the management of the company’s premises. Which of the following correctly states the position in relation to whether the director will be disqualified?

The conviction of an indictable offence in connection with the management of the company or company property is a discretionary ground for disqualification under s 2 Company Directors’ Disqualification Act 1986. The court will consider all the circumstances in deciding whether the director should be disqualified.

Which one of the following is the correct description of a Bushell v Faith clause?

A Bushell v Faith clause is a clause which may be inserted into the company’s articles to give weighed voting rights allowing directors who are also shareholders to effectively block an ordinary resolution to remove them from office.

Which one of the following is correct in relation to the appointment of directors under MA 17?

A director may be appointed either by an ordinary resolution of the shareholders or by a decision of the directors.

Who do the company’s directors generally owe their duties to?

The company itself s170(1)

Section 171 provides that directors must act in accordance with the company’s constitution and only exercise powers for the purposes for which they are conferred. Which ONE of the following is likely to be deemed a breach of s 171?

The directors issuing new shares for the purposes of defeating a takeover offer.

Before the enactment of CA 2006, the duties of directors derived from the common law. The duties of directors were codified in CA 2006. To what extent are the old common law rules and equitable principles relevant in the interpretation of directors’ duties?

The duties under CA 2006 must be interpreted and applied in the same way as the common law rules and equitable principles. This means that any claim for breach of duty must be based on the statutory duties but the old case law will continue to be relevant in the interpretation of these duties.

Which of the following is correct where a director has an interest in a proposed transaction or arrangement with the company?

The director must declare the nature and extent of that interest to the other directors. The disclosure need not be in writing – informal disclosure to the other board members will suffice.

Which one of the following is correct in relation to the duty not to accept benefits from third parties under s 176?

This duty is absolute and there is no provision for authorisation by the board of directors for breach of s 176.

Which one of the following is correct in relation to conflicts of interest under s 175?

Provided there is nothing in the articles to the contrary, the other directors are able to authorise a conflict of interest of one of the directors, in order to avoid a breach of s 175.

Which one of the following is correct in relation to directors’ service contracts under s188?

Directors’ service contracts with a ‘guaranteed term’ of longer than two years require shareholder approval by way of an ordinary resolution.

Which one of the following is correct in relation to loans to directors under 197?

No company may make a loan to any of its directors or directors of its holding company unless the loan is approved by an ordinary resolution of the shareholders.

Which one of the following is a “person connected with a director” under s 252 – 254 CA 2006?

The director’s step-son.

Which one of the following is correct in relation to the power of directors to authorise conduct that would otherwise constitute a breach of duty?

Directors are able to authorise conduct that would otherwise constitute a breach of duty under s 175 or s 177, provided there is nothing to the contrary in the articles.

Which one of the following correctly sets out the potential remedies for breach of the duty to exercise reasonable care, skill and diligence under s 174?

Damages only as it is not a fiduciary duty so the only remedy for breach.

Under section 239, what types of conduct of directors may shareholders ratify by ordinary resolution?

Any conduct by a director amounting to breach of duty, negligence, default or breach of trust.

Which one of the following correctly summarises all of the ways in which shareholders may exercise their votes?

Shareholders may vote at a general meeting either by a show of hands or on a poll vote. For private companies only, shareholders may also vote by written resolution.

Who may call a general meeting?

The Board may call a general meeting. If the Board refuse to do so, shareholders holding not less than 5% of the paid up voting share capital of the company have the power to serve a request on the Board to call a general meeting. If the board then do not do so within 21 days, the shareholders may call a general meeting themselves.

A company has four shareholders, who each hold 25% of the shares. All are ordinary shares. Which of the following is correct in relation to the passing of an ordinary resolution?

At a general meeting on a show of hands or a poll vote, assuming all four shareholders attend, at least three of the four shareholders must vote in favour for the ordinary resolution to be passed.

What is meant by the term “issued share capital”?

All of the company’s shares currently in issue – including the subscriber shares and any shares issued subsequently

Which one of the following correctly describes when shares are allotted?

Shares are 'allotted' when a person acquires the unconditional right to be included in the company’s register of members in respect of those shares.

At what point does a person acquire full legal title to shares?

When that person’s name is registered in the company’s register of members.

Which of the following correctly summarises the features of preference shares?

There is nothing in CA 2006 which defines classes of shares, so the label attached to a class of shares is not definitive. The rights attaching to the preference shares are set out in the company's articles.

Which of the following is the correct definition of ordinary shares?

Shares other than shares that as respects dividends and capital carry a right to participate only up to a specified amount in a distribution.

Which one of the following would constitute a variation of class rights?

Altering the rights attaching to a class of participating preference shares to make the shares non-participating as respects dividends.

This is a change to the substantive legal rights of this class of shares.

Which one of the following is correct in relation to shareholders’ agreements?

Shareholders’ agreements are private agreements between the shareholders themselves. The company may be a party to a shareholders’ agreement but not to any provisions in the agreement which would have the effect of fettering the statutory power of the company.

What is the effect of s 33 CA 2006?

It provides that the articles operate as a contract between the company and its members and between the members themselves. The members are entitled to enforce the articles against each other and the company. The company is entitled to enforce the articles against the members.

Which one of the following correctly summarises the requirements for a successful claim for unfair prejudice?

The petitioner must show that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members.

Why did the petition for unfair prejudice fail in the case of O'Neill v Phillips?

The petitioner argued that he had a legitimate expectation of receiving 50% of the voting shares. The House of Lords held that there was no unfair prejudice here as the entitlement to 50% of the profits was never formalised and was conditional on him running the business, which he was no longer doing.

Which of the following is the most common remedy that the court will order in a claim for unfair prejudice?

An order that the company or the other shareholders purchase the petitioner’s shares.

Which of the following correctly represents the reason that the court granted an order for just and equitable winding up in the Ebrahimi v Westbourne Galleries case?

The company had been formed on the understanding that the shareholder/director would remain in management, so his exclusion from management was a breach of that understanding, therefore it was just and equitable for the company to be wound up.

What is the meaning of a “quasi partnership” in this context?

A company will be seen as a quasi partnership where the directors and shareholders are the same individuals and the company was formed with an expectation that all the shareholders would continue to participate in management.

Which of the following correctly represents the relationship between just and equitable winding up and unfair prejudice?

Just and equitable winding up is seen as a last resort, so if there are grounds for a claim of unfair prejudice, the court is likely to award relief on these grounds.

Which of the following is the correct definition of a derivative claim?

A claim brought by a member in respect of a cause of action vested in the company seeking relief on behalf of the company.

Under the statutory procedure in s 260 CA 2006, who may bring a derivative claim?

Any shareholder

Which of the following correctly summarises the rule in Foss v Harbottle?

The proper claimant in respect of a wrong done to a company is the company itself; 2. Where the alleged wrong is a transaction which might be made binding on the company and its members by a simple majority of the members, no individual member may bring an action in respect of that matter; 3. If the matter relates to an irregularity that the company is able to ratify or condone by its internal procedure then no individual member may bring an action.

Which of the following correctly describes the shareholders entitled to request that the directors call a general meeting under s 303 CA 2006?

Shareholders holding not less than 5% of the voting paid-up capital of the company.

Which of the following correctly represents the shareholders entitled to demand a poll vote at a general meeting under s 321 CA 2006?

Not less than 5 members having a right to vote at the meeting, or members holding not less than 10% of all voting rights that could be cast at the meeting.

The rule in Foss v Harbottle provides that personal claims of shareholders for reflective loss cannot be brought. What is reflective loss?

Where the alleged wrong results in a loss to the company as well as the shareholder and the only loss alleged to have been suffered by the shareholder is in fact a reflection of the loss sustained by the company.

Which one of the following is correct regarding share capital?

Public companies must have a minimum share capital of £50,000.

Company A is a private limited company which has unamended model articles and 100 £1 ordinary shares in issue. The directors of Company A wish to issue 100 further £1 ordinary shares. Which one of the following is correct in relation to the authority of directors to issue shares?

The directors will have automatic authority to issue the new shares under s 550.

Which ONE of the following classes of shares will NOT give rise to pre-emption rights?

£1 5% preference shares with no entitlement to participate in dividends or excess capital on a winding up.

Which one of the following is a correct definition of the doctrine of maintenance of share capital?

Companies must maintain and not reduce their share capital other than in certain exceptional circumstances.

A company wishes to pay a dividend of £10,000 to its shareholders. In which ONE of the scenarios below will the company be permitted to do this without any further steps being taken?

Its most recent annual accounts state that distributable profits were £6800, however since then the company has sold a significant asset and its interim accounts show distributable profits of £12700. The dividend is an interim dividend.

Which ONE of the following is an unlawful “disguised” distribution?

Payment of a salary to a director who is also a shareholder, where that director has not in fact been working for the company.

Which one of the following correctly sets out all the methods which may be used by a private company to effect a reduction of capital?

By a special resolution of the shareholders and an order of the court, or by a special resolution of the shareholders and a solvency statement of the directors.

Where are the terms of a redemption of shares set out?

The terms on which redeemable shares may be redeemed are determined at the time that the shares are issued and are set out in the company’s articles.

Which one of the following is TRUE in relation to buyback of shares?

All companies may purchase their own shares using distributable profits. Private companies may also purchase shares out of capital if they comply with the statutory requirements in CA 2006.

Which one of the following is a correct summary of the case of Brady v Brady?

It was held that the incidental part of a larger purpose defence to financial assistance did not apply since the essence of the reorganisation was for J to acquire B Ltd's shares, therefore the acquisition of these shares could not be said to be "incidental" to the reorganisation.

What is “financial assistance”?

There must be assistance provided for the purchase of shares and that assistance must be financial in nature. This includes gifts, loans, guarantee, security or indemnity.

Which one of the following transactions would constitute unlawful financial assistance?

A Ltd offering assistance by way of a loan to the purchaser of shares in its holding company, B Plc.

Which one of the following is a correct summary of the case of Brady v Brady?

It was held that the incidental part of a larger purpose defence to financial assistance did not apply since the essence of the reorganisation was for J to acquire B Ltd's shares, therefore the acquisition of these shares could not be said to be "incidental" to the reorganisation.

Which of the following is the best definition of a “representation” in a loan agreement?

A statement of fact as to legal and commercial matters made on signing the loan agreement and repeated periodically during the life of the loan.

Which one of the following is NOT a debenture?

A term loan

Which one of the following is a type of debt security?

A bond

Which one of the following assets would normally be the subject of a fixed charge?

Plant and machinery

Which one of the following correctly sets out the period in which a fixed charge must be registered at Companies House?

Within 21 days beginning with the day after the date of creation of the charge.

Which one of the following correctly describes the effect of crystallisation of a floating charge?

When a floating charge crystallises, it ceases to float over all of the assets in a class and instead fixes onto the assets in the class charged at the time of the crystallisation, preventing the borrower from dealing with those assets.

Which one of the following is a method by which a shareholder holding ordinary shares may receive back the amount of their investment?

Where the shareholder transfers the shares for full payment.

Which one of the following companies has the highest gearing?

A company with a bank loan of £100,000 and a share capital of £1,000.

Is the following statement true or false?

“In times of financial hardship it is better for companies if possible to raise money by selling shares, since dividends do not need to be paid where a company is not making profits whereas interest payments on loans are a contractual obligation.”

True

Which one of the following is true in relation to CVAs?

Although the CVA is binding on all unsecured creditors, it does not affect secured or preferential creditors.

Which one of the following terms is the correct name for the process by which a company's business is wound up and its assets transferred to creditors and (if there is a surplus of assets over liabilities) to its members?

Liquidation

Companies in financial difficulty may apply to court for a pre insolvency moratorium. Which one of the following is NOT a ground for the moratorium automatically coming to an end?

The company commences negotiations with creditors and shareholders with a view to entering into a CVA.

The moratorium will not automatically come to an end until the CVA plan is implemented (s A16 IA 1986).