Business Writing Topics Business

Question 1

Differences Between different registered companies?

Answer 1

1. Unlimited Companies
   - still registered
   - members personally liable
2. Limited by Shares
   - not personally liable beyond amount paid/promised for shares
   - can be public companies
3. Limited by Guarantee
   - members to paid fixed guaranteed amount in event of winding up
   - must have one member/guarantor
4. Public vs Private Limited by Share
   - private and only sell shares by private agreement

• public can sell shares to public
• if listed can trade on exchange
• public company needs min. nominal value of £50k
• requires trading certificate to trade

Question 2

Options for Setting up Company

Answer 2

1. From Scratch
   - promotor to enter pre-incorporation contracts
   - put together memorandum of association
   - must apply to CH for registration
2. Shelf Company (pre-incorporated and never traded)
   - uses model articles so may have to change (special resolution)
   - notify CH of articles, members, names etc.
   - are there hidden liabilities in shelf company (conduct DD)

Question 3

What does a promotor do and what are they liable for?

Answer 3

1. Enteres pre-incorporation contracts
2. Personally liable so either:
   - enter novation agreement with all parties; or
   - assign benefit to company in return for indemnity
3. Fiduciary Duty to Company
   - not to make secret profits
   - disclose interest in transactions entered into

Question 4

Requirements of application to register company

Answer 4

Company Details

1. Proposed Name
   - not same as existing company
   - end in Ltd or Plc (Welsh Equivalent)
   - not offensive
   - approval if connected to public or regulated sector
2. Statement of Capital and Initial Shareholding
   - total number of shares
   - amount for which all shares are to sold
   - classes shares (description of rights)
   - amount that will be paid up vs left unpaid
3. Location of Registered office
4. Details of business activity
5. Limited by share of guarantee
6. Public or private

People

7. Subscribers
8. Proposed officers
   - residential adresses
   - secretary if public

9 People with Significant Control

Other

10 Statement of compliance with Companies Act

11. Relevant fees

Question 5

What if someone wants to entrench a provision for decision making in a company?

Answer 5

1. Can entrench in Articles
   - decision requires more than 75% vote
   - must be done by special resolution
   - must give registrar notice
   - cannot prevent amendment of Articles by special resolution
2. Shareholder Agreement
   - private so no need to disclose
   - can require over 75% to amend articles
   - only binding on shareholders who signed
   - cannot require shareholders to subscribe for more shares

Question 6

What can shareholder do if they want to remove alteration to articles?

Answer 6

1. Claim no in best interest of company
   - if no reasonable person would consider it in best interest of company
   - shareholder did NOT vote in favour can apply to court
   - court can set aside if not bona fide in best interest of company (can any shareholder benefit from it)
2. Have dismissed if insufficient notice of meeting
   - keep in mind permission for short notice meeting
3. Claim prejudicial to minority shareholder
   - if they are minority shareholder

Question 7

When can veil of incorporation be lifted?

Answer 7

Makes directors or shareholders directly liable

Example:
- company formed to carry out fraud or avoid existing legal obligations
- fraudulent or wrongful trading
- PLC trades without trading certificate

Examples:
- to avoid non-compete
- investor fraud
- to avoid contractual liability (promise to sell then incorporate)

Question 8

How can new directors be appointed?

Answer 8

Check Articles

Model Articles
- ordinary resolution; or
- by board

Notice:
- CH in 14 days
- update register of Directors

Question 9

How many directors do companies need

Answer 9

Private
- 1 director

Public
- 2 directors

At least 1 director of a company has to be natural person over age of 16

Question 10

Types of Directors

Answer 10

De Jure Directors
- formally known, properly appointed and registered

De Facto Director
- not formally appointed/registered
- but carries out all the duties and behave like director
- held out by company as director

Shadow Director
- regularly influences acts of company directors
- company directors are accustomed to acting in accordance with their advice

Exec vs Non-Exec
- Exec responsible for day to day running
- Non-Exec more supervisory/consultig role

Alternate Director
- appointed by director to attend and vote at board meetings when director is unable to attend

Nominee Director
- appointed to represent interest of particular stakeholder
- must still act in best interest of the company

Question 11

Power of Directors: how is it exercised and is it limited?

Answer 11

Check Articles
- can delegate some powers

Board meeting
- MA quorum is 2
- majority vote
- chairman has casting vote
- director with interest does not court to quorum

Written Resolution
- must be unanimous

Shareholders
- can compile board by special resolution

Question 12

When does directs service contract require approval?

Answer 12

If over 2 years then ordinary resolution

Question 13

When can a director bind a company? How should contracts be executed?

Answer 13

1. Actual Authority
   - express
   - implied (title or past dealing)
2. Deemed
   - appears to have authority because of representation by company (holding out etc.); and
   - 3rd party acting in good faith
   - director may be sued for breach by company

Execution of Contracts
- company seal
- signature of 2 directors / secretary
- 1 director if witnessed

Question 14

Liability of director breaching duty?

Answer 14

1. Can continue even after they are no longer director
2. Damages
3. Account for profit or benefit made
4. Breach can be ratified by ordinary resolution

Question 15

How can director protected against liability for breach of duty?

Answer 15

1.Breach can be ratified by ordinary resolution

2. Purchase insurance
3. CAN NOT be excluded in articles or service contract

Question 16

• Shareholder wants to remove director.
• Is this limited?
• What might happen once removed

Answer 16

1. Ordinary resolution
   - NOT written
2. Process
   - 28 days notice
   - director has right to speak
3. Limited
   - only by Bushel vs Faith clause
   - gives director/shareholder weighted voting rights
4. Effect
   - if breaches service contract may be liable for damages
   - ordinary resolution can allow additional paymnet (basically gift)

Question 17

How can dividends be given?

Answer 17

1. directors to recommend
   - must have profits available for purpose
2. Shareholders to approve by ordinary resolution
   - can approve less but not more
3. If unlawful (no profits available for purpose)
   - if shareholder knew or had reasonable grounds for believing is liable to repay
   - directors may be personally liable

Question 18

What should you do if director is breaching duty? (full process)

Answer 18

Can bring Derivative Claim

1. Believe directors has or is about to breach duty
2. Company will not prevent or remedy action
3. You are shareholder or have shares through operation of law (inheritance)
   - even if not shareholder at time of breach
4. Damages go to company
   - can be indemnified in common law

Court Process: must dismiss claim if:

1. 1st Stage
   - if no prima facie case
2. 2nd Stage
   - satisfied person promoting best interest of company would not seek to continue; OR
   - action was authorise or is likely to be authorised (ordinary resolution)

Question 19

When might a minority shareholder have claim for unfair prejudice? What can they do?

Answer 19

Shareholders have right not be be unfairly prejudiced

Examples of unfair prejudice:
- exclusion from management in quasi partnership
- directors excessive renumeration (and not paying dividends)
- directors exercising powers for improper purpose

Can:

1. Negotiation with Directors to sell your share
2. bring unfair prejudice claim
   - typically order for shareholder to be bought out
3. Apply to wind up company if can show:
   - is solvent
   - just and equitable to do so
   - typically get less money than selling shareholding

Question 20

Shareholder wants to call general meeting

Answer 20

Can require director to hold meeting if:

1. Hold either:
   - 10% voting rights; OR
   - 5% if private company and no meeting for 12 months
2. Directors to:
   - give notice of meeting in 21 days
   - hold meeting in 28 days of notice
3. If directors do not then applicant or shareholders with over 50% voting right can
   - claim reasonable expenses

Question 21

What is the notice requirement for general meetings? What if insufficient notice?

Answer 21

1. Private companies
   - 14 clear days (count 15 days)
   - 2 days if not personal service (count 17 days)
2. Public Companies
   - 21 clear days notice (count 22 days)
   - 2 days service (count 24 days)
3. Short Notice
   - if majority of shareholders with 90% of shares agree; AND
   - no documents must be laid out for 15 days
4. Insufficient notice
   - member can seek to have it declared invalid

Question 22

How to demand poll vote

Answer 22

1. Must be
   - 5 shareholders; or
   - shareholders with 10% voting rights or paid up capital

Question 23

Who can demand written resolution?

Answer 23

Board or shareholders with 5% voting rights

Always as poll vote and based on all shareholders eligible to vote (compared to those that show up at a in-person meeting)

Question 24

Process of Issuing new shares

Answer 24

1. Dis-apply preemption rights
   - if ordinary shares issued for cash
   - special resolution
   - if private company may already be misapplied in articles

Pre-Emption Rights not misapplied
- if ordinary shares issued for cash
- then existing shareholders to be given 14 days to accept

2. Issue new shares
   - board decision if post 2009 and one class of share
   - otherwise ordinary resolution

Question 25

What if someone wants to sell/transfer their shares?

Answer 25

1. seller to give stock transfer form and share certificate to buyer
2. Buyer sends these to company
3. Board can refuse transfer (subject to articles)
4. Board resolves to register or refuse
5. Board issues new share certificate
6. Register of members updated

Question 26

What are records and files that must be kept and updated by companies?

Answer 26

1. Registers (members for free and public for fee)
   - register of members
   - register of directors
   - register of directors residential addresses
   - register of charges over company assets
   - register of secretaries
   - register of PSC
2. Minutes of General Shareholders Meeting
   - for 10 years
3. Directors Service Contracts
   - 1 year after end of contract

Question 27

Accounts and statements that must be filled with CH?

Answer 27

1. Annual Confirmation Statement
   - 14 days of end of review period/anniversary of incorporation
   - failure to file in time is an offence
2. Charges
   - 21 days
3. Accounts:
   - 9 months private,
   - 6 months public (after end of accounting period)

Only Med and Large Companies (if over 50 employees or £10.2m turnover)

4. Directors Report
   - states names of directors and recommended dividends
5. Strategic Report
   - inform on development and performance

Question 28

Contents of Accounts for Companies

Answer 28

• company number, nature and location
• balance sheet for last day of finical period
• statement of profit and loss
• directors must approve accounts, stating that they are true and fair
• unless small company must be audited

Question 29

What requires special resolution?

Answer 29

All registered with CH in 15 days

1. Share buy back
   - registered 15 days with statement of solvency
2. Change in Articles
   - registered including new articles
3. Change Company Name
   - after new certificate of incorporation update website etc.
4. Require Directors to take/refrain from specified actions
5. Winding up the company
6. Dis-applying Pre-emption Rights
7. Start liquidation

Question 30

Matters Requiring Ordinary Resolution

Answer 30

1. Approve Dividends
2. Remove Director/Auditor
   - notify CH within 14 days
   - update register of directors
3. Appoint Director/Auditor
   - notify CH within 14 days
   - update register of directors
4. Authorise Allotment of Shares
   - notify CH of resolution in 15 days
   - notify CH within 1month of issue
   - update register of members
   - issue share certificate (2 months)
5. Approve Substantial Property Transactions
6. Ratify Breach of Duty
7. Approve Service Contract over 2 years
8. Loan to Directors
9. Compensation to Director for Loss of Office

Question 31

• When is company insolvent “cash flow” vs “balance sheet” tests?
• When to use each test?

Answer 31

Balance Sheet: liabities > assets
Cashflow: cannot pay debts as they fall due

Deciding if dividends can be paid
- use balance sheet test

Deciding if company is insolvent (duty shifts to creditors)
- either cashflow or balance sheet test

Question 32

What are the cashflow vs balance sheet tests?

Answer 32

Cash Flow: Can you pay debts as they fall due

Balance Sheet: Do debts/liabilities exceed assets