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Business Flashcards

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1
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2
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3
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What is the role of Directors in a company?

A

Directors manage the company on a day-to-day basis through an agency relationship, accountable to the company rather than the shareholders.

Example sentence: The directors are responsible for making operational decisions within the company.

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4
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What is the role of Shareholders in a company?

A

Shareholders own the company but have a say only in key decisions via resolutions (e.g., changing the company’s name).

Additional information: Shareholders typically have voting rights based on the number of shares they own.

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5
Q

What are the key distinctions between Directors and Shareholders?

A

Directors manage daily operations, require shareholder authority for certain actions, and owe duties to the company. Shareholders own the company and control key decisions through resolutions.

Example sentence: Directors are responsible for the day-to-day running of the business, while shareholders have the power to make significant decisions.

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6
Q

Under CA 2006, what decisions require shareholder approval?

A

Certain decisions like amending articles or removing directors require shareholder approval.

Additional information: Shareholder approval is necessary for significant changes that affect the company’s structure or governance.

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7
Q

What is the authority of directors under Model Articles (MA)?

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Directors can make decisions on behalf of the company in all other matters, such as hiring employees, entering contracts, managing property, raising funds, and compiling company accounts.

Example sentence: The directors have the authority to sign contracts on behalf of the company.

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8
Q

What does MA 5 allow?

A

MA 5 allows the delegation of authority to an individual director or committee for specific decisions (e.g., HR Director).

Example sentence: The board can delegate HR-related decisions to the HR Director under MA 5.

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9
Q

What can happen if directors’ powers go unchecked?

A

Directors could abuse their powers by lending company funds to themselves on favorable terms or providing false information in accounts.

Additional information: Unchecked powers may lead to conflicts of interest or financial mismanagement.

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10
Q

What statutory limitations are placed on directors under Part 10 CA 2006?

A

General duties and regulations restrict directors’ actions, and they can face civil or criminal liabilities under various acts, including CA 2006, Fraud Act 2006, Theft Act 1968, and others.

Additional information: Directors are legally obligated to act in the best interests of the company and its stakeholders.

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11
Q

What are De Jure Directors?

A

Validly appointed directors.

Additional information: De Jure Directors have legal authority to act on behalf of the company.

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12
Q

What are the requirements for directors under s 154 CA 2006?

A

Private companies need at least one director, public companies need at least two, and at least one director must be a natural person.

Additional information: The number and qualifications of directors are regulated by company law.

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13
Q

What is the minimum age requirement for a director under CA 2006?

A

The minimum age is 16 (s 157 CA 2006).

Additional information: The law sets a minimum age requirement to ensure directors have the necessary maturity and understanding.

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14
Q

What are De Facto Directors?

A

Individuals who act as directors but are not validly appointed, and they have the same fiduciary duties as de jure directors.

Additional information: De Facto Directors may still be held accountable for their actions as if they were formally appointed.

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15
Q

What are Shadow Directors?

A

Individuals whose directions the directors are accustomed to follow, as defined under s 251(1) CA 2006, and they are subject to the same duties and restrictions.

Additional information: Shadow Directors exert influence on the company’s decisions without holding an official position.

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16
Q

What is an Alternate Director?

A

An alternate director steps in for absent directors if provided for in the company’s articles and typically holds the same voting rights as the director they replace.

Additional information: Alternate Directors ensure continuity in decision-making when regular directors are unavailable.

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17
Q

How are Executive Directors different from Non-Executive Directors?

A

Executive directors work full-time in the company’s business and act as both officers and employees, while non-executive directors are not involved in daily operations and provide independent advice.

Example sentence: The executive directors are responsible for the day-to-day management of the company.

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18
Q

Is it mandatory for private companies to have a company secretary?

A

No, private companies are not required to have a company secretary under s 270(1) CA 2006.

Additional information: The appointment of a company secretary is optional for private companies.

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19
Q

What is the requirement for public companies regarding a company secretary?

A

Public companies must have a company secretary with requisite qualifications under s 271 CA 2006.

Additional information: Public companies are mandated to have a company secretary to ensure compliance with legal and regulatory requirements.

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20
Q

What is the method of director appointment under Model Articles?

A

Directors can be appointed by an ordinary resolution of shareholders or by board decision.

Additional information: The process of director appointment is governed by the company’s Articles of Association.

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21
Q

Are directors automatically entitled to remuneration?

A

No, directors are not automatically entitled to pay; remuneration is determined by the board, subject to the company’s Articles.

Additional information: Director remuneration is typically based on performance and market standards.

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22
Q

What must companies do with service contracts?

A

Companies must retain service contracts at the registered office for inspection by shareholders (s 228 CA 2006).

Additional information: Service contracts provide details of the terms and conditions of employment for key personnel.

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23
Q

What information must companies keep in the register of directors?

A

Companies must keep a register of directors (s 162(1) CA 2006) and secretaries (s 275(1) CA 2006) at their registered office.

Additional information: The register of directors contains essential details about the company’s key personnel.

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24
Q

What is included in the personal information of directors under s 163(1) CA 2006?

A

The personal information includes name, former names, service address, country of residence, nationality, business occupation, and date of birth.

Additional information: Personal information helps to identify and verify the directors’ identities and backgrounds.

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25
What financial information must be disclosed in annual accounts?
Information regarding directors’ salaries, bonuses, pensions, and compensation for loss of office must be disclosed in annual accounts (s 412 CA 2006). ## Footnote Additional information: Transparency in financial reporting ensures accountability and compliance with regulations.
26
How can shareholders remove a director under s 168(1) CA 2006?
Shareholders can remove a director via an ordinary resolution with special notice of 28 days. ## Footnote Additional information: The removal of a director requires proper notification and approval from the shareholders.
27
What are the methods by which a director’s office may be vacated?
A director's office may be vacated through resignation, removal by shareholders, disqualification, or death. ## Footnote Additional information: Various circumstances can lead to the termination of a director's position.
28
financial information must be disclosed in annual accounts?
Information regarding directors’ salaries, bonuses, pensions, and compensation for loss of office must be disclosed in annual accounts (s 412 CA 2006). ## Footnote Example sentence: The company disclosed the director's salaries and bonuses in the annual accounts.
29
How can shareholders remove a director under s 168(1) CA 2006?
Shareholders can remove a director via an ordinary resolution with special notice of 28 days. ## Footnote Example sentence: The shareholders voted to remove the director with the required notice period.
30
What are the methods by which a director’s office may be vacated?
A director may resign by notice, or their office may terminate automatically due to disqualification, insolvency, or incapacity (MA 18). ## Footnote Additional information: The director's office can also be vacated due to bankruptcy.
31
What does the Company Directors Disqualification Act 1986 (CDDA) allow?
The CDDA allows courts to disqualify individuals from holding director roles for fraudulent trading, wrongful trading, or persistent breaches of company law. ## Footnote Additional information: The CDDA aims to protect companies from individuals engaging in fraudulent activities.
32
What is the retirement by rotation requirement in public companies?
Public company directors must retire and be re-elected every three years, while listed company directors are subject to annual re-election. ## Footnote Example sentence: The public company directors followed the retirement by rotation requirement.
33
What is required when a director’s appointment is terminated?
The company must file form TM01 with Companies House upon termination of a director’s appointment. ## Footnote Example sentence: The company promptly filed form TM01 after the director's appointment was terminated.
34
What is the duty of directors under s 171 CA 2006?
Directors must act within powers, in accordance with the company's constitution, and only use their powers for their intended purposes. ## Footnote Example sentence: The directors ensured they were acting within their powers as outlined in the company's constitution.
35
What is the duty to promote the success of the company under s 172 CA 2006?
Directors must act in a way that they believe, in good faith, will most likely promote the success of the company for the benefit of its shareholders. ## Footnote Example sentence: The directors made decisions that they believed would promote the company's success.
36
What is the duty to exercise independent judgment under s 173 CA 2006?
Directors must make independent decisions and not blindly follow instructions from others. ## Footnote Example sentence: The directors exercised their independent judgment when making key decisions for the company.
37
What does the duty to exercise reasonable care, skill, and diligence under s 174 CA 2006 require?
Directors must meet both objective and subjective standards of care, considering their qualifications and expertise. ## Footnote Example sentence: The directors demonstrated reasonable care, skill, and diligence in their decision-making process.
38
What does the duty to avoid conflicts of interest under s 175 CA 2006 entail?
Directors must avoid situations where their personal interests could conflict with the interests of the company. ## Footnote Example sentence: The directors took steps to prevent conflicts of interest in their dealings with the company.
39
What must directors do under the duty to declare an interest in a proposed transaction under s 177 CA 2006?
Directors must declare any direct or indirect interest in proposed transactions with the company. ## Footnote Example sentence: The directors disclosed their interests in the proposed transaction as required by law.
40
What are some remedies for breach of duty under s 178 CA 2006?
Remedies include injunctions, restitution, setting aside transactions, and damages for loss caused to the company. ## Footnote Additional information: Courts may impose various remedies to address breaches of duty by directors.
41
What governs transactions between a company and its directors?
The Companies Act 2006 governs transactions between a company and its directors. ## Footnote Example sentence: The company ensured compliance with the Companies Act 2006 in all transactions with directors.
42
What is required for certain transactions between a company and its directors to be valid?
Shareholder approval is required for these transactions to be valid. ## Footnote Example sentence: The board sought shareholder approval for the transaction with the director.
43
Why are some transactions between directors and shareholders regulated?
These transactions risk conflicts of interest between directors and shareholders. ## Footnote Additional information: Regulating these transactions helps maintain transparency and fairness in corporate dealings.
44
What are examples of transactions that require shareholder approval?
Directors' Long-Term Service Contracts, Substantial Property Transactions, and Loans/Quasi-Loans/Credit Transactions. ## Footnote Example sentence: The board presented three transactions requiring shareholder approval.
45
Which sections of the Companies Act 2006 cover Directors' Long-Term Service Contracts?
Sections 188–189 CA 2006 cover Directors' Long-Term Service Contracts. ## Footnote Example sentence: The legal team reviewed sections 188–189 of the Companies Act 2006 for guidance on service contracts.
46
Which sections of the Companies Act 2006 regulate Substantial Property Transactions?
Sections 190–196 CA 2006 regulate Substantial Property Transactions. ## Footnote Example sentence: The company complied with the regulations outlined in sections 190–196 for property transactions.
47
Which sections of the Companies Act 2006 cover Loans, Quasi-Loans, and Credit Transactions?
Sections 197–214 CA 2006 cover Loans, Quasi-Loans, and Credit Transactions. ## Footnote Example sentence: The finance team referred to sections 197–214 for guidance on credit transactions.
48
What happens if transactions proceed without shareholder approval?
The directors breach their duties under ss 171-177 of the CA 2006. ## Footnote Example sentence: The directors were found to have breached their duties by proceeding with the transaction without shareholder approval.
49
What is required for directors' service contracts exceeding two years?
Shareholder approval by ordinary resolution is required. ## Footnote Example sentence: The shareholders passed an ordinary resolution to approve the director's service contract exceeding two years.
50
What types of contracts require shareholder approval?
Contracts with a fixed term exceeding two years where the director controls continuation, contracts that can only be terminated by the company in specific circumstances, and contracts requiring a notice period exceeding two years. ## Footnote Additional information: Shareholder approval is crucial for contracts that heavily impact the company's future.
51
Who must approve directors' service contracts that exceed two years?
Shareholders of both the company and any holding company where the director serves on both boards must approve. ## Footnote Example sentence: Both companies' shareholders voted to approve the director's service contract exceeding two years.
52
What happens if a company breaches section 188 of the Companies Act 2006?
The provision is void to the extent of the breach. ## Footnote Example sentence: Due to the breach of section 188, the provision was deemed void by the court.
53
Who must approve directors' service contracts that exceed two years?
Shareholders of both the company and any holding company where the director serves on both boards must approve. ## Footnote Answer provided in accordance with shareholder approval requirements.
54
What happens if a company breaches section 188 of the Companies Act 2006?
The provision is void to the extent of the breach. ## Footnote Breach consequences outlined.
55
What is the effect of a breach of s 188 CA 2006 on the service contract?
The contract is deemed to include a clause allowing the company to terminate it at any time with reasonable notice. ## Footnote Contract termination clause due to breach.
56
What is an example of a service contract exceeding two years that requires shareholder approval?
A contract requiring nine months' notice after an 18-month non-terminable period. ## Footnote Example provided for clarity.
57
What is the exemption for wholly owned subsidiaries regarding director contracts?
Approval is not required for a director's contract in a wholly owned subsidiary. ## Footnote Exemption detailed for wholly owned subsidiaries.
58
Does a wholly owned subsidiary need shareholder approval for a director's service contract exceeding two years?
No, if the subsidiary is 100% owned by a holding company, approval is not needed. ## Footnote Approval exception for wholly owned subsidiaries.
59
Are directors required to disclose their interest in service contracts under s 177(6)(c) CA 2006?
No, directors are not required to disclose their interest. ## Footnote Disclosure requirement clarified.
60
Is it recommended for directors to declare their interest in service contracts?
Yes, best practice dictates that directors declare their interest under s 177(1). ## Footnote Best practice advice provided.
61
Can a director vote on a board resolution related to their service contract?
No, directors cannot vote or count in the quorum on board resolutions related to their service contract. ## Footnote Voting restriction for directors.
62
Where must a company retain copies of directors' service contracts?
At the company's registered office. ## Footnote Storage location specified.
63
How long must a company retain directors' service contracts after termination?
For one year after the contract's termination or expiry. ## Footnote Retention period after contract conclusion.
64
What rights do members have regarding directors' service contracts?
Members have the right to inspect or request copies of these contracts. ## Footnote Members' inspection rights detailed.
65
Under which sections of the Companies Act 2006 do members have inspection rights for directors' service contracts?
Under sections 228 and 229 CA 2006. ## Footnote Sections specified for inspection rights.
66
What must a company provide before a General Meeting for shareholder approval of a director's service contract?
A memorandum outlining the proposed service contract. ## Footnote Required document before General Meeting.
67
How long must the memorandum outlining the director’s service contract be available before a General Meeting?
At least 15 days before the meeting. ## Footnote Timeframe for availability of memorandum.

SQE (6 decks)

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