November 2021 Flashcards
Section 542(1) Companies Act 2006 provides that shares in a limited company must each have a fixed nominal value. Explain what the “nominal value” is and why shares are generally required to have a nominal value.
(1) The nominal value is a fixed value which is attached to the share.
(1) The nominal value is not always the same as the price of the share (i.e. the nominal value may not reflect the share’s market worth).
(1) Shares are often allotted for more than their nominal value, with the excess being known as the share premium.
(1) The nominal value represents the minimum value the share can be allotted for.
(1) Nominal value helps determine, if not already fully paid up, how much a shareholder will be required to contribute in the event of the company’s liquidation.
(1) If the shareholder has paid the nominal value, they will not be required to contribute any more in the event of the company’s liquidation.
(1) According to s. 542(2) CA 2006, failure to fix a nominal value renders the allotment void.
The company’s constitution forms a “statutory contract” between certain parties. Explain who the parties to this statutory contract are and how it differs from a standard contract at common law.
(1) Under s. 33(1) CA 2006, (1) the statutory contract imposes obligations on the company when dealing with the members, (1) the members when dealing with the company (1) and the members when dealing with each other.
(1) The statutory contract cannot be enforced by outsiders, whereas a standard contract can be enforced by third parties if s.1(1) Contracts (Rights of Third Parties) Act 1999 applies.
(1) Under a standard contract, any term may be enforced. Under the statutory contract only those terms relating to membership rights can be enforced.
(1) The terms of a standard contract can be rectified, whereas the terms of the statutory contract cannot.
(1) Alteration of a standard contract usually requires the consent of all parties, whereas the statutory contract can be altered without unanimous agreement (by special resolution or court order).
(1) A standard contract can be defeated on grounds of mistake, misrepresentation, duress or undue influence whereas none of these grounds will defeat the statutory contract.
Explain who has the power to appoint a director and how this is exercised.
(1) The subscribers to the memorandum appoint the first directors on incorporation.
(1) Thereafter, appointment of directors is a matter for the articles.
(1) The model articles provide that a director may be appointed by ordinary resolution or (1) by a decision of the directors.
(1) If the company’s articles do not state who has the power to appoint a director and the model articles have been excluded, then the power to appoint directors is exercised by the members passing an ordinary resolution.
In order to be guilty of insider dealing under the Criminal Justice Act 1993, a person must have inside information. Explain when information amounts to inside information under the Criminal Justice Act 1993.
(1) Under s.56, inside information is information which:
- (1) Relates to particular securities, or to a particular issue or issuer of securities (not securities or issuers generally);
- (1) is specific or precise
- (1) has not been made public
- (1) if it were made public, would likely have a significant effect on the price of any securities
Describe three key characteristics of a floating charge and explain why a creditor (or the company) may prefer to take a floating charge, rather than a fixed charge, over a company’s assets.
(1) In Re Yorkshire Woolcombers Associated Ltd, the key characteristics of a floating charge are described as follows:
- (1) it is a charge taken over a class of assets present or future
- (1) the class of assets is one which in the ordinary course of business will change from time to time
- (1) unlike a fixed charge, the company is free to deal with the charged assets.
(1) While the charge remains floating, the company can usually deal with and dispose of the charged assets. (1) A floating charge can also have broader coverage than a fixed charge as it can be taken over the entire undertaking.
