November 2019 Exam

Question 1

All companies incorporated under CA 2006 are required to have a memorandum of association. (1)

Answer 1

True

Question 2

Define what a company’s “called-up share capital” is (2)

Answer 2

(1) Called-up share capital refers to the combined total of the nominal share capital that has actually been paid

(1) and any instalments due or any amount that the company has called upon to be paid.

Question 3

[Not the exam question]

What are the general duties of directors? (8)

Answer 3

• duty to act within powers
• duty to promote the success of the company
• duty to exercise independent judgement
• duty to exercise reasonable care, skill and diligence
• duty to avoid conflicts of interest
• duty not to accept benefits from third parties
• duty to declare an interest in a proposed transaction or arrangement
• declaration of interest in existing transaction or arrangement

Question 4

Outline the difference between a “transfer of shares” and a “transmission of shares” (2)

Answer 4

(1) Transmission of shares occurs by operation of law.

(1) Transfer of shares occurs when shares are passed from one person to another other than by operation of law

Question 5

Identify three documents which must be submitted to Companies House to incorporate a company by registration (3)

Answer 5

(1) Application for registration (Form IN01)

(1) Memorandum of association

(1) Statement of compliance

Question 6

State the two main methods of voting at a general meeting and explain how they operate (4)

Answer 6

(1) Show of hands: (1) each member has one vote, unless the articles state otherwise.

(1) Poll: (1) each member has one vote per share.

Question 7

Explain the advantages and disadvantages of trading as a sole proprietor (6)

Answer 7

Advantages:
- (1) ease of setting up
- (1) privacy (no need to make public financial or other information, no need to file formal reports)
- (1) minimal regulation (as e.g. not generally subject to Companies Act requirements);
- (1) sole proprietor entitled to all the profits;
- (1) ease of dissolution.

Disadvantages:
- (1) sole proprietor liable for the sole proprietorship’s debts;
- (1) unlimited personal liability of the sole proprietor;
- (1) difficult to raise investment;
- (1) limited opportunities for growth

Question 8

A fixed charge is a charge taken over a specific, identifiable asset of a company, such as a building or a piece of machinery.

Give reasons why the fixed charge provides such a strong form of security for creditors. (6)

Answer 8

(1) It usually imposes restrictions on the company’s ability to deal with the charged asset.

(1) The company cannot usually sell the charged asset without the creditor’s consent.

(1) The company cannot usually grant further chargers over the charged asset without the creditor’s consent.

(1) If the company defaults on the debt or goes into liquidation, the creditor can usually seize the charged asset and sell it to recover the debt owed.

(1) If the company goes into liquidation, the charged asset is not available to a liquidator

(1) No requirements to set aside part of the charge asset value for the unsecured creditors.

(1) Thus the fixed charge has the effect of making the charged debt rank ahead of other debts on a liquidation.

(1) A fixed charge cannot be set aside by a liquidator or administrator.