BPP SQE1 - Business Law and Practice

What are shareholders?

Owners of the company who invest money in return for shares and the possibility of dividends. They are not involved in the day-to-day management of the company but usually have voting rights and control key decisions.

What are subscribers?

The name given to the first shareholders in a company who invest in the company when it is initially set up (incorporated).

What are directors?

Officers / managers of the company. Directors are involved in the day-to-day running of the company.

What are persons with significant control?

Generally, persons with more than 25% of a company's shares. Details of PSCs must be provided to Companies House.

What are the key features of private companies limited by share?

Most common type of company

No minimum share capital requirements

Prohibited from offering shares to the public

Can be formed by one person.

What are the key features of private companies limited by guarantee?

No share capital;

Liability of members is limited to the amount that they agreed to contribute in the event of a winding up;

Membership is not transferable.

What is the key feature of unlimited private companies?

liability is unlimited

What are the key features of public companies limited by shares? (4 things)

1. Can offer their shares to the public

2. Need a minimum of 2 directors

3. Minimum share capital requirement of £50,000

4. Requires a trading certificate before it can trade

What is the minimum share capital requirement for public companies limited by shares?

£50,000

What is meant by a 'listed' company?

'Listed' means admitted on a regulated investment exchange (eg LSE). This assists in the marketing of shares to the public.

What is the minimum amount of share capital for private companies?

There is no requirement for a private company to have any specified minimum amount of share capital.

How many directors should a private company have?

at least 1

How many directors should a public company have?

at least 2

Does a private company need a secretary?

no

Does a public company need a secretary?

yes

Does a public company need to conduct AGMs?

yes

Does a private company need to conduct AGMs?

no

What is the effect of a company memorandum of a company which was incorporated before 2006?

the memorandum will still be binding on the company unless the company's articles of association are modified

What is the purpose of a company's memorandum today?

it is a declaration on the part of the company's subscribers though it no longer forms a part of the company's constitution

What is the purpose of a company's articles of association?

it is a company's main constitutional document and sets out how the relationship between shareholders, directors, and the company ought to be regulated

A company's Articles must be interpreted in light of the provisions of _________.

The CA 2006

What is the legality test under the CA 2006?

A company's articles must comply with the minimum provisions of the CA 2006

When will the CA 2006's model articles apply?

where a company does not have its own articles or gaps in its articles

How can a company alter its articles of association?

Once a company has adopted articles, it is able to alter them at any future date by special resolution (s 21(1) CA 2006).

An alteration to a company's articles will only be valid if ______________.

such an alteration is bona fide in the interest of the company as a whole

What is an entrenched provision?

a provision which can only be amended or repealed if specific conditions are met, or if procedures more restrictive than a special resolution are complied with

Entrenched articles can nevertheless always be amended by __________________.

the agreement of all the members or by a court order

What is the legal effect of a company's articles of association?

they will be enforceable and binding on both the company and its members

What is the nature of the contract formed via a company's articles of association?

it is a contract between the company and its members in their capacity as members and with respect to their rights and obligations as members

When is a member unable to enforce rights contained within a company's articles against that company?

if the right is irrelevant to his capacity as a member

There is conflicting authority as to whether one member may enforce a company's articles against another member directly (Rayfield) or only through the company itself (Welton). But generally, the courts take the _________ view.

latter

What 4 things are required to be filed at Companies House to incorporate from scratch?

1. company memorandum

2. articles of association

3. incorporation fee

4. application for registration (Form IN01)

What 7 things does an application for registration (Form IN01) contain?

1. proposed name and registered office

2. whether the company is private or public

3. whether the company is to be limited by shares or guarantee

4. a statement of capital and initial shareholdings

5. a statement of the company's proposed officers

6. details of any company guarantees

7. a statement of compliance

Once the Registrar of Companies has approved the application for incorporation of the company, the company is sent _________________.

a certificate of incorporation authenticated by the Registrar's official seal

What 3 things does a certificate of incorporataion set out?

1. the name of the company

2. the company's registered number

3. the date of incorporation

A company becomes a legal entity from ___________.

the date of incorporation set out in the certificate of incorporation

What 4 key rules apply to company names?

1. the name must not be offensive

2. the name must end in limited/ltd (for private limited companies)

3. the name must not be the 'same as' another one on the index of company names

4. a company needs approval if its name suggests a connection to government or public authority or contains sensitive words

Once a company has chosen its name and had it registered, it has an obligation to display it in ________________.

certain prescribed locations

A new company name becomes effective from ___________________.

the date on which the new certificate of incorporation on changes of name is issued by the Registrar of Companies

A company auditor is usually appointed by _____________.

A board resolution

A company comes into existence at the time of issue of the certificate of incorporation by the Registrar of Companies (s 16 CA 2006). Until this time, it is not a legal entity and therefore _______________.

has no capacity to enter into contracts

What is the effect of a contract which was entered into pre-incorporation?

the contract is personally binding on the person purporting to act for the company or as agent for it

Much of the standard day-today business of a company is carried out by its __________________.

directors

What are the 2 ways in which a shareholders resolution may be passed?

1. at a meeting of the shareholders (aka GM)

2. in writing (for private companies only) unless the resolution is to remove a director or an auditor

What are the 2 types of shareholder resolutions?

1. ordinary resolutions which are passed by a simple majority (over 50%)

2. special resolutions which are passed by a majority of 75% or more of the voters being in favour

What is a show of hands vote?

A show of hands vote means that each shareholder is entitled to one vote.

What is a poll vote?

A poll vote is where every shareholder is entitled to one vote in respect of each share held by him.

Who can demand a poll vote? (4 things)

1. the chairman of the meeting

2. the directors

3. two or more persons having the right to vote on the resolution

4. a person or persons representing at least 10% of the total voting rights of all the shareholders entitled to vote on the resolution

In what 2 circumstances can a poll vote be demanded?

1. in advance of the GM where the vote will take place

2. at a GM either before a show of hands on that resolution or immediately after the result of that vote

What kind of company can pass shareholder resolutions by way of the written resolution procedure?

private companies

Where a company has a share capital, every member has _____________________ when voting on a written resolution?

one vote in respect of each share held by them

What are the 2 types of written resolutions?

1. a written ordinary resolution: passed by a simple majority of the total voting rights of eligible members

2. a written special resolution requiring at least 75% of votes

Who can call a board meeting?

MA 9 provides that any director may call a BM or require the company secretary (if the company has one) to do so at any time.

What kind of notice should be given ahead of a Board Meeting?

reasonable notice of the BM, ie whatever notice is usual for the directors to give

What is the meant by quorum?

the minimum number of directors which must be present in order for a vote to take place

How many directors are normally required to be a quoarate?

2

Board resolutions are passed by _______________.

a simple majority vote on a show of hands

How many votes does each director get in board meeting?

each director has one vote but the chairman may have a casting vote to prevent deadlock

Who calls a general meeting?

the board

What kind of notice must be given ahead of a general meeting?

14 clear days notice for private companies

In order to convene the GM, the Board must _______________.

inform the shareholders of when (and where) it is taking palace, by giving notice to the shareholders

What is generally the quorum for a general meeting?

two shareholders (or one shareholder for single member companies)

What is meant by a general meeting sandwich?

a BM is first required to call the GM

a GM is then required for the shareholders to vote on the proposed solution

another BM is then required to put into effect the outcome of the shareholder vote

The CA 2006 allows for GMs to be called on less than the usual amount of notice (14 clear days) if ___________.

sufficient members agree, ie a majority in number of the shareholders who together hold shares with a nominal value of not less than 90% of the total nominal value of the shares which give the right to attend and vote at the GM

Who can propose the use of a written shareholder resolution?

directors or members of a private company so long as it is passed when the required majority of the eligible members signify their agreement to it

the required majority will depend upon whether it is an ordinary or a special resolution

If the company does not receive a sufficient number of responses to pass the WR, it will lapse. For a company with MA, the lapse date is ____ days beginning with the circulation date.

28

What types of resolutions may not be passed by way of written resolution?

to remove a director or auditor from office

WRs must be recorded in _____________ of the company in the same way as the minutes of a GM.

the minute books

Under the model articles, when will a written resolution lapse if not voted on?

28 days

Minutes of all meetings need to be kept for __________ (hint: time).

10 years

What kinds of resolutions need to be filed at Companies House?

special, generally ordinary resolutions do not need to be filed

What is a traditional partnership?

a relationship between persons carrying on a business in common with a view to making profit

Does a traditional partnership have separate legal personality?

no

What is the minimum number of partners to form a traditional partnership?

2 (real or legal)

A partnership will arise irrespective of _____________.

the parties' intentions

What are the 2 key factors for determining whether a partnership exists?

1. evidence of profit sharing

2. if all individuals take part in decision making

Partners owe ______________ (hint: what duty and to whom).

an overriding duty of good faith to their other partners

What 3 partners duties are reflected in the PA 1890?

1. a requirement of honest and full disclosure

2. prohibition on unauthorised personal profit

3. prohibition on conflicts of duty and interest

What is the contractual liability of traditional partners?

Every partner in a firm is liable jointly with other partners for all the debts and obligations of the firm incurred whilst they are a partner

What is the tortious liability of traditional partners?

In tort, the partner's liability is joint and several

What is the extent of liability for partners who have recently joined a traditional partnership?

a new partner will not automatically be liable in relation to debts incurred by the partnership before they become partner

A partner will still be liable after they retire in respect of ___________________.

debts incurred by the partnership whilst they were a partner

When will a partner be liable for a debt incurred after they have left?

a third party can treat all apparent partners of the firm (ie before the departure) as jointly liable to pay any new debt incurred by the partnership unless that third party has been notified of this change either by actual or constructive notice

What is meant by 'holding out'?

a person who is not a partner will be personally liable for a partnership's debts if he holds himself out as a partner (or has knowingly allowed himself to be so held out)

What are the 3 elements of holding out?

1. a representation to a third party to the effect that a person is a partner

2. the third party's action in response

3. the third party's state of mind

In what 2 circumstances will an unauthorised partner's act still bind the partnership?

1. if viewed objectively the act is for carrying on business of the kind carried on by the firm

2. if viewed objectively the act is for carrying on such a business in the usual way

In what 2 circumstances will an unauthorised partner's act NOT bind the partnership?

1. if the third party knew that the partner in question was not authorised to enter into the contract on behalf of the firm

2. the third party did not know or believe that the partner was a partner

A partner who binds his firm without actual authority may be liable to the other partners for ____________.

breach of contract

At common law, an agent who has no actual authority may still bind the firm if he has _________________.

apparent authority

When does apparent authority arise?

When the principal (ie the firm) represents or permits a representation to be made to a third party that a person has authority to bind the firm. Once the principal's representation has been made to, and relied upon, by the third party, the principal is bound by the actions of that person.

What is tax transparency (in relation to partnerships)?

the principle that each partner is liable as an individual on his share of the income or gains of the partnership

Even though a partnership is not a distinct legal entity and therefore does not itself pay tax, HMRC requires a partnership to ____________________.

make a single tax return of its profits which must be agree with HMRC

Partners in a partnership are liable to pay ______________ (hint: 2 types of tax).

both income and capital gains tax on their share of profits

Each partner is personally liable for the income tax on _________________.

his share of the partnership profits

When does capital gains tax apply to parntersups?

Normal capital gains tax principles apply on disposal of a capital asset by a partnership. Each partner is treated as owning a fractional share of the asset - on disposal by the partnership, each partner is treated as making a disposal of his share and will be taxed on this share of any gain, subject to the availability of any reliefs available to individuals.

What is the basis for a partner's fractional share of assets/profits?

A partner's fractional share shall be based upon the agreed PSR or, there is no agreed PSR, then equally in accordance with s 24(1) PA 1980.

How can a partnership agreement be modified?

The partners' mutual rights and obligations (under an agreement or under PA 1890) can be varied at any time by their unanimous consent (s 19 PA 1890), and this can be expressed or inferred from a course of dealing.

If the partners being working together prior to the commencement date stipulated in their partnership agreement then the ______________ (hint: what applies instead?).

default provisions of the PA will apply until the commence date of the agreement

As a partnership does not have a separate legal personality, each partner is deemed to own a share in __________________. An individual partner does not have a right to any particular ________________.

the property belonging to the partnership

partnership asset

In the absence of agreement, s 24(1) provides that all partners are entitled to _________________.

share equally in income profits