Business - Errors from Tasks

Is member approval required to accept a directors’ resignation?

No, a director may resign at any time

Is member approval required to allow transfer of shares between members?

No, members may transfer shares freely amongst themselves

Is member approval required to change a company’s office address?

No, a company may change its address without member approval

Is a resolution required to approve a substantial property transaction?

Yes - an ordinary resolution

When is approval required to make a loan to a director?

When the value exceeds £10,000 (approval never required if loan is made in ordinary course of business)

What is the rule for directors’ expenditure in related to regulatory action or expenditure?

Loans for regulatory action or expenditure not need members’ approval

What is required for the removal of a director?

An ordinary resolutions with special notice of at least 28 days

What content must be in a notice of a general meeting?

• Time

• Date

• Location

• Resolution to be agreed

• Business to be transacted

• Right to appoint a proxy

When is a meeting quorate?

When two members of a company are present (or one if a single member company)

Does a dividend distribution reduce a company’s taxable profits?

No

How is a chargeable gain treated for a company?

It contributes towards its taxable profits

What is the dividend allowance for individuals?

£500

Does an Partner’s salary contribute to the taxable profits of the Partnership?

No, only non Partner salaries

How do you work out Capital Gains Tax liability for partners in a partnership?

Divide the capital gain by each partner’s share and for each partner minus their annual allowance

What is an individual’s capital gains tax allowance?

£3,000

When does an individual’s personal allowance no longer apply?

When earning over £125,140

What are the current rates of Capital Gains Tax?

24%

What must you consider with voting provisions?

Check whether the voting is in poll vote or physical shareholder vote

What extra consent must be obtained when voting to amend the rights of a class of share?

You must obtain consent in writing of at least 75% in nominal value of shareholders of that class or a special resolution from that class

Is a resolution which not all shareholders had notice of immediately invalid?

Not necessarily ie where the resolution would have passed regardless of that shareholder’s vote

When may an objection to a variation of the Articles be made to Court?

No later than within 21 days of the relevant resolution

What are the requirements for an unfair prejudice claim?

1. The conduct must be prejudicial in the sense of causing prejudice or harm to the relevant interest of the members or some part of the members of the Company

2. It must be unfair

How does the Court test/measure an unfair prejudice claim?

Objectively and there is no need to show intent

How may a court resolve an unfair prejudice claim?

With any such order it sees fit

What are the options for a disgruntled shareholder?

1. Object to a variation

2. Unfair Prejudice Claim

3. Derivative Claim

4. Apply to wind up the company

How should directors declare their interest in a meeting in the minutes if they are also shareholders?

They should declare their interest as a shareholder of the company regardless of whether they are involved in a transaction - they simply need to state they are a shareholder of the company

How should the minutes of a director’s meeting reflect different matters of business?

Each matter should be allocated its own numbered section ie 1. Director’s Resignation 2. Registration of Share Transfer

What must you note when indicating a transfer of shares in the minutes of a general meeting?

1. The production of duly executed stock transfer forms (and relevant share certificates)

2. The registration of the new shareholders

3. The issue of new share certificates for the transferred shares, executed by the Company and delivered to the new shareholders

What must you note in the administrative matters section of a company’s meeting minutes?

1. The relevant forms to be filed ie Form TM01 of AD01

2. Which registers are to be updated

What are the key registers of a Company (and those most likely to change)?

1. The register of transfers

2. The register of members

3. The register of directors

4. The register of people with significant control

What must you include in meeting minutes whenever anyone is appointed to a new role in a company?

Whether they consented to the new role

What must you include in the meeting minutes whenever anyone leaves a company?

When the departure is to take effect - immediately? On a certain date? When a certain condition is met?

What must you ensure when formatting meeting minutes?

Each paragraph is numbered and the minutes are signed by the Chairman (or both chairman if there is a change during the meeting)

What must you add when noting down which directors are present at a board meeting?

Whether they are also present in any other capacity ie Chair or Company Secretary

What must you always ensure where there is a dispute within a company?

Have you checked the Shareholders Agreement for a Dispute Resolution Clause? Have you engaged with that clause before starting a claim?

Can a partner be sued personally for the actions of the partnership?

Yes especially where they caused the claim or are the ‘face’ of the partnership however they can claim contributions from the other partners

Is it likely that the Court will sever a partner’s severable liability?

No, it is more likely that the partner will have to recover their losses from the other partner(s)

Is a partner still liable for existing liabilities after they leave the partnership?

Yes unless they have an agreement with the other partners and creditors

Can a partner be expelled from the partnership?

Only if there is an express power to do so in the Partnership Agreement

What is the minimum startup share capital for a public company?

£50,000 (and 25% paid)

What is the minimum number of directors for a public company?

2

When is a Company Secretary required?

When the company is public

When must a company hold an AGM?

When public

When can a party not pass written resolutions?

1. When public

2. When removing director or auditor

When may a member of a company be found personally liable for the actions of the company?

1. As a consequence of carrying out a legislative offence

2. Upon ‘piercing the corporate veil’

3. Where the Court imposes liability in tort (ie negligent misstatement)

How may shares must a private limited company have to be incorporated?

At least one issued share

What are companies given unrestricted objects by default?

When incorporated post 1 September 2009

When must resolutions or agreements affecting a company’s constitution (ie the articles) be sent to the registrar?

Within 15 days

What are the requirements for amending a company’s articles?

1. Special Resolution

2. Must be in the best interests of the company as a whole

When to amendments to a company’s articles take effect?

Immediately unless it relates to the company’s objects (then it will not be effective until registered)

What should founding members consider when they have particular articles that are very important?

Entrenchment

What is the Annual Confirmation Statement?

A statement sent by every company at least once every 12 months to confirm the company has notified the registrar of any changes applicable

How may a company execute contracts?

1. Company Seal

2. Two directors

3. Director and witness

4. Director and company secretary

When does a company become a ‘Large company’?

Must pass two of the following:

• Turnover of over £36 million;

• Balance sheet total of over £18 million; or

• Over 250 employees

When is a company considered a ‘very large company’?

Must not be subject to a corporate governance requirement and meet at least one of:

• Over 2,000 global employees; or

• Turnover of over £200 million and balance sheet total of over £2 billion

What are the two types of dividend?

1. Interim - Payable at any point

2. Final divided - payable at the end of the accounting period

What are the consequences of an unlawful dividend?

1. Any member who know or reasonably should have known the divided was unlawful to repay the sum

2. Directors who recommended the dividend may be in breach of duty and liable to compensate the company for the loss

What must the register of members contain?

1. Name and address of each member

2. Date on which each member was registered

3. Date on which any member ceased to be so

4. Statement of share held by each member

5. Amount paid or to be paid on shares of each member

When will a member classify as a Person of Significant Control?

1. Holds directly or indirectly more than 25% of shares

2. Holds directly or indirectly more than 25% of voting rights

3. Holds right directly or indirectly to remove or appoint majority of board members

4. Holds right to or exercises significant control over the company

How can the members call a general meeting?

1. Have 5% of shares or voting rights

2. Directors must call within 21 days of request

3. Meeting must be held within 28 days of request

What is the required notice for company meetings?

1. General Meeting - 14 clear days notice (reduced if 90% for private of 95% for public companies of members by voting rights available for shorter notice)

2. AGM - 21 clear days notice

What is the procedure for passing a written resolution?

1. Must be proposed by directors or members with 5% voting rights

2. Must be sent to members electronically or by hard copy

3. Must identify if a special resolution

4. If sufficient ‘Yes’ are not received within 28 days, resolution will fail

How much notice must be given for resolutions requiring special notice?

28 days (ie for removal of director or auditor)

How may voting occur at a meeting?

1. Show of Hands

2. By poll vote

How long must companies keep minutes of general meetings and resolutions passed?

10 years

What is a Derivative Claim?

A claim brought by a member of the company by the company against the company itself

When may a Derivative Claim be brought?

When there is an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director

What must be proved to allow a derivative claim?

Claimant has a prima facie case

When may a company experience a just and equitable winding up?

1. Can no longer fulfil its intended purpose

2. Deadlock in the company

3. Serious mismanagement

4. Member excluded from management despite genuine expectation of participation

What are the requirements to become a director?

1. Over 16

2. Not be bankrupt

3. Not be subject to debt relief of bankruptcy order

4. Have a moratorium period under a debt relief order applied to him

When will a director automatically cease to be?

1. If bankrupt

2. Dead

3. Composition with creditors

4. Registered medical practitioner confirms lack of capacity for more than 3 months

What is a Bushell v Faith clause?

Allows for a director to have enhanced voting rights on removal resolutions and may allow them to block their removal

What is apparent/ ostensible authority?

Where a person binds the company as the third party reasonable believes they have the authority to do so

What are the requirements for apparent/ ostensible authority?

1. Company presents/ allows the employee to present that they have more authority than they actually do

2. The third party relies on this perception

3. Belief is both genuine and reasonable and in good faith

What are the duties of directors?

1. Act within powers

2. Act for proper purpose

3. Promote success of the company

4. Exercise independent judgment

5. Exercise reasonable care, skill and diligence

6. Avoid conflicts of interest

7. Not accept benefits from third parties

8. Declare interest in proposed transactions

What remedies are typically available for breach of Directors’ Duties?

1. Damages

2. Restoration of property

3. Account for profits

4. Ratification

When may the Court grant relief to a director for negligence, default or breach of duty?

1. Director is or may be liable but acted honestly and reasonably; and

2. With regard to all the circumstances, the director ought fairly to be excused

Can an article exempt a director from any liability for negligence, default, breach of duty or trust?

No, they are void

When do directors not need to declare interest in a transaction?

1. When interest not likely to give rise to a conflict of interest

2. Other directors aware or ought reasonably to be aware of interest

3. Interest concerns terms of service contract and has already been considered as part of service contract

What qualifies for a substantial property transaction?

1. Exceeds 10% of company’s asset value and is more than £5,000; or

2. Exceeds £100,000

What are the requirements for a wrongful trading claim against a director?

1. Company in insolvent liquidation

2. Before or during winding up, the director knew or ought to have known there was no reasonable prospect of avoiding insolvent liquidation

3. Director was a director at the relevant time

What is the defence to a wrongful trading claim?

Took every step with a view to minimising potential loss to the company’s creditors

To what standard will the Court assess the conduct of a director for a wrongful trading claim?

1. The general standard reasonably expected of a person carrying out the director’s role; and

2. Any special knowledge, skill and experience the director has

When is a company deemed insolvent?

1. Cannot pay debt of over £750

2. Cannot pay a judgment debt once enforced

3. Cannot satisfy cash flow test (pay debts as they fall due)

4. Cannot satisfy balance sheet test (liabilities exceed assets)

What are the features of a statutory moratorium?

1. Last for 20 business days (can be extended)

2. Must file relevant documents to court or apply to court

3. Creditors cannot commence insolvency or other legal proceedings

4. Landlords cannot forfeit leases

5. Company not required to make payment of pre-moratorium debts or debts falling due during moratorium

6. Court appointed monitor monitors the company’s affairs

7. Monitor may apply for administration or liquidation

What is a Company Voluntary Arrangement?

Allows a company to repay a portion of its debts and have the rest written off to avoid insolvency (does not apply to preferential or secured creditors)

What are the requirements for a Company Voluntary Arrangement?

1. Company can propose if not in insolvency proceedings

2. Overseen by insolvency practitioner (usually administrator or liquidator)

3. If overseer is not administrator or liquidator, they must confirm viability to Court within 28 days of proposal

4. Must be approved 75% (in value) of voting creditors

5. Dissenting creditors cannot be more than 50% (in value) of all unconnected creditors

6. Must be approved by majority of members

What are the advantages of a CVA?

1. Relatively informal

2. No need to involve court (unless challenged)

3. May be cheaper

4. May result in better return for creditors

What are the disadvantages of a CVA?

1. No automatic statutory moratorium

2. Not binding on secured or preferential creditors

3. Cannot be used to facilitate distributions to members

What is Administration?

Allows for reorganisation of a company or realisation of its assets under protection of statutory moratorium

When will the Court order Administration?

1. Company is or is likely to become unable to pay its debts

2. Administration order reasonably likely to achieve purposes of administration

When may an administrator be appointed without a court order?

1. Qualifying floating charge which is enforceable and relates to substantially whole of company’s property provides power to appoint; or

2. Company or directors may appoint if company is or likely to become unable to pay its debts, no administration application is pending, no receiver has been appointed and no winding petition has been presented

What must an appointing party do for an administration procedure?

1. Give 5 days’ notice to qualifying floating charge holders; and

2. File prescribed documents at court

What are the main aims of administration?

1. Survival of company as going concern

2. Achieve a better result for creditors as a whole than on winding up

What are the advantages for administration?

1. Statutory moratorium

2. May be cheaper if out of court

What are the disadvantages of administration?

1. Often leads to liquidation

2. Can be a costly and lengthy process

What is Administrative Receivership?

Appointed by floating charge holder over assets to take custody of assets to secure debts owed

What must an administrative receiver do after appointment?

1. Notify company

2. Notify creditors within 28 days

What is a scheme of arrangement?

Formal insolvency procedure allowing a company to restructure its debt and facilitate recovery from financial distress

What are the requirements for a Scheme of Arrangement?

1. Approval from majority in number constituting 75% in value of relevant class of credit; and/or

2. Members must vote in favour and court approval is obtained