Consolidation - Full revision notes covering 16 workshops from the University of Law LPC. PDF

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Full revision notes covering 16 workshops from the University of Law LPC....

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Definitions Print out blank what-who-how-authority tables Incorporated and unincorporated -

Incorporated businesses are separate legal entities. Examples include: private limited company, public limited company, limited liability partnership. Unincorporated businesses are usually treated as being the same as the owner. Examples include: sole trader, partnership.

Sole trader -

A person who runs their own business as a self-employed person It can be one person who owns and runs the business but employs others The business has no legal entity of its own; it is unincorporated The sole trader is personally liable for all the debts of his business

Partnership -

Two or more people owning and running a business together as partners Governed by the Partnership Act 1890 The partnership has no separate legal status. Partners have unlimited liability, joint and several.

Limited partnership -

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Unincorporated business established by the Limited Partnership Act 1907 It allows the partnership to have one partner whose liability is limited to the amount he initially invested in the business, provided:o He does not control/manage the partnership o He does not have power to make binding decisions o He does not remove his contribution to the partnership Name of the partnership often ends in ‘LP’

Company -

Formed by completing formalities under the Companies Act 2006 Company has a separate legal personality Directors run the company on a daily basis. The shareholders, who own the company, usually only get involved in the most important decisions.

Unlimited company -

Owners are personally liable

Quorum: minimum number of directors required to be present for decisions at board meetings to be valid. Where the quorum is present, the meeting is quorate. Allotment of shares: Issuing of new shares to existing shareholders of third parties Transfer of shares: Selling of existing shares to shareholders or third parties

Workshop 1: Partnership Outcome: Recognise and advise on the existence of a partnership, and the terms that regulate the running of the partnership. -

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If the definition of a partnership under section one of the Partnership Act 1890 is satisfied, a Partnership will exist regardless of the parties intentions The definition can be broken down into three elements: o Carrying on a business (has a business started) o Business in common (are they working on the business together) o With a view to profit (do they intend to split the profits made) To determine the regulation of the partnership you need to consult the Partnership Act 1890. The provisions of this act can be changed by a Partnership agreement. If an agreement exists, consult this too.

Outcome: Advise on the key provisions of the Partnership Act 1890 -

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Duration: s32(c) and s26(2) It will last indefinitely, until notice is given by one of the partners Profit sharing: s24(1) Equal share in profit for income and capital Decision making: o Changing the nature of the partnership: s24(8) requires unanimous consent o A new partner joining: s24(7) requires unanimous consent o Changing the terms of the partnership: requires s19 unanimous consent o Day-today decisions: s24(8) requires a simple majority Retirement: s26(5) Can retire at will by giving notice, this will dissolve the partnership Expulsion: s.25 no majority can expel a partner unless a power to do so has been conferred by agreement of every partner (including the one who they want to expel) Dissolution: s33 if a partner dies or is made bankrupt, the partnership will be automatically dissolved

Outcome: identify and explain key provisions included in a written partnership agreement -

Likely to contain a provisions which excludes/ varies: o The indefinite duration of the partnership and factors that result in automatic dissolution  Likely to include an option to purchase the leaving partner’s share o The way profits are shared, to represent the amount of time put into the business and the amount of capital invested o The ability to expel partners

Outcome: Recognise the professional conduct implications of advising more than one partner of the terms of a draft partnership agreement -

Conflict of interest: The parties are likely to have invested different capital amounts, meaning their objectives are likely to differ. Cannot act in the best interests of all the parties.

Outcome: Advise on whether a former partner will remain liable for partnership debts -

The key is to work out whether the debts were incurred whilst the partner was part of the partnership or after they have left. It is worth drawing a timeline and plotting this.

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Debts incurred whilst the partner was at the partnership o The leaving partner is liable for all debts which were incurred during her time in the partnership. o S9: partners are jointly and severally liable o S17(2): debts incurred during time in partnership o The partnership agreement may have a clause which states that when leaving the partnership, the amount the partner receives will take account of any debts incurred. It will then say that the remaining partners will indemnify the partner who left, should s/he be sued for the debts.  Thus the leaving partner remains legally liable for all debts incurred during their time at the partnership – but they may have an element of contractual protection if the above clauses are in the partnership agreement Debts incurred after the partner has left the partnership o The partner can still be held legally liable for debts incurred after they have left the partnership in one of two ways o S14: If s/he is ‘holding out’ as a partner. i.e if s/he has failed to represent to third parties that s/he is no longer a partner  This can be achieved by removing their name from all documentation, letter heads, signs etc o S36: Where third parties knew that s/he was a partner in the past. Unless  The partnership gives actual notice to all third parties who have had dealings with the partnership in the past (customers, suppliers etc)  Would be achieved by writing to all the third parties  The partnership gives notice to everybody else.  Would be achieved by putting notice in the London Gazzete

Workshop 2: Separate Legal Personality Outcome: Describe the nature of separate legal personality and limited liability, identify and apply relevant legal principles -

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Separate legal personality: o The company is treated as being a legal person (separate legal entity) in its own right. o Separate legal identity to its owners o Can enter into contracts, own property, borrow money, sue/be sued etc o Requires the formalities of incorporation Limited liability: o The members (shareholders) of a limited company have limited liability o The members’ liability is limited to the nominal value of the shares they own. If they have paid the value of their shares in full, they cannot be proceeded against for the debts of the company. If they have not paid the value of their nominal shares in full, they are only liable to pay the remaining value. o The above is determined by s74 Insolvency Act 1986

Outcome: Identify the principal reasons for companies to operate within groups of companies, and explain the relationship between groups of companies

Definitions: -

Parent company: The company that owns another company. They own shares in the subsidiary company. Subsidiary: a company owned by a parent company. The parent company is the shareholder.

Why do parent companies have subsidiaries? -

For the purpose of limited liability, to ringfence the risk of moving into another area of business. If the subsidiary company goes insolvent, the parent company is not liable for its debts.

Outcome: Advise a client on how the principle of separate legal personality applies to a factual scenario Workshop 3: Directors’ Powers and Authority Outcome: Identify and analyse key provisions of Model Articles for private companies Key provisions -

Model article 2: Limits liability to the value of nominal shares S3(1) CA determines what a limited company is (limited by its constitution). S17 CA defines what a constitution comprises.

Decision making: -

Decisions within the directors’ capacity are made on a majority basis, model article 7 Articles 7-16 concern the decisions and methods for making decisions of directors Articles 37-47 concern decisions and methods for decision-making by shareholders

Delegation -

Directors can delegate power under model article 5

Meetings -

Directors meetings: The director and anybody else who is invited (eg solicitors) can attend. Only the director can vote. They have one vote each

Outcome: Evaluate whether certain company decisions can be made by the directors Process for working out who makes decisions, shareholders of directors 1. Check the CA 2006. a. If it says ‘directors’ or ‘shareholders’ then this is the answer 2. If the CA says ‘the company’ or is silent, then check the articles 3. The articles will either identify the decision maker or, if it is silent, assume the decision can be made by the director under MA 3 Decisions that directors can make Day-to day decision making Moving the registered office Extending accounting reference Appointing directors

Is done by majority (MA7) under M A 3 s.87 CA, MA 3, 7 s.392 CA, MA 3 Can be done by shareholders or directors (MA 17). Where BM’s are already taking place, it

makes sense for directors to make the appointment. MA 3 MA 19 for payment S188 CA if it is a contract for more than 2 years it requires shareholder approval

Service contracts

Protocol for board meetings Issue Giving notice for a BM

MA or CA MA 9

Quorum

MA11

Voting: 1. How do directors vote 2. How many directors need to vote in favour Can directors vote if they are interested in a resolution?

MA 7

Does the chair have a casting vote and when can it be used?

MA 13

Minutes: What must be kept and for how long?

CA 248 MA 15

MA 14

When must forms be sent to Companies house? What registers must be kept at the registered office?

Summary  Must give reasonable notice (Re Homer)  Must propose date, time and place  Must propose means of communication  Minimum of 2 directors must be present  Cannot vote without the quorum  Show of hands (1 vote per director)  Requires a majority No, unless MA 14(3) is satisfied  Must declare interest under s177 CA  The chair has a casting vote when the votes are equal  The casting vote can only be used to break a deadlock, not create one  Must be kept for 10 years at registered office  Must keep minutes, decisions, resolutions etc 14 day time limit 

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Directors’ residential addresses Directors list

Workshop 4: Skills Workshop on Board Meetings Outcomes: -

Navigate Companies House Website

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Demonstrate knowledge and understanding of the principles and concepts of decision-making within a company Use the Model Articles and Companies Act to produce minutes for a board meeting

Points to take from the workshop -

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Under Companies Act 2006 s 177 (6)(c) During a board meeting, a director does not have to declare a personal interest in resolutions concerning his service contract. This is an exception to the general rule. Where person A buys shares from person B, they do not legally own the shares until the directors have registered the new owner. Model article 25 gives directors powers to register the transfer. It is possible to pass a resolution which appoints a person as a new director, to take effect once the meeting has concluded. This is a way around giving them immediate voting rights.

Resolution Changing registered office Changing accounting reference Appointing a new director Resignation of directors Appointing new company secretary

Form to be completed AD01 AA01 AP01 TM01 AP03 Workshop 5: Members

Outcome: Identify and explain the decisions which are wholly within the control of the directors Decision (what) Change the company name

Who Shareholders (special resolution)

Authority CA 2006 s77

Change the model articles

Shareholders (special resolution)

CA 2006 S21

Paperwork Form NM01 and copy of special resolution send to Companies House Send companies house copy of new articles and special resolution

Outcome: Demonstrate knowledge of the impact of the Companies Act on the calling of general meetings in a company with model articles, whether holding the meeting on short or full notice. General Meetings on Full Notice Who calls the meeting? -

S302: Directors can call a GM but require a resolution (to be passed at a BM) in order to do so S303(1): Members can also call for a GM. They must request the directors to call a GM. To do so they must have a 5 % shareholding and meet the conditions in s303.

Notice to who? -

S310: Notice must be sent to all shareholders, directors and the auditor (if they have one) Must be given in hard copy or electronic form

Notice must include

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S311 Time, date and place of the meeting General nature of the business For special resolutions the exact wording of the resolution must be included s283(6) Statement of rights to appoint a proxy

Notice period -

S307, 360: Requires 14 clear days’ notice, not including the day the notice is given or the day of the meeting S1147: 48 hours’ time to receive the notice Essentially 18 days (Start counting on the day the notice is given, day 18 is the first day that the meeting can take place)

Quorum -

S318 requires a minimum of two

Voting -

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Will initially be done on a show of hand basis, with each shareholder receiving one vote s284(2) Or can be on a poll basis, with each shareholder receiving a vote for every share they own s284(3) MA 44 allows for a poll vote to be demanded by o The chairman o The directors o Any 2 shareholders o Any shareholder (or combined shareholders) holding at least 10 % of shares Ordinary resolution: requires a majority of more than half (if on show of hands) or above 50 % (if on poll basis) Special resolution: requires a majority of ¾ (if on show of hands) or 75 % (if on poll basis)

Short notice -

Short notice is any period less than the usual notice period required, GMs can be called on short notice with the agreement of the shareholders s307(4) For a GM to be held on short notice, a two stage test under s307 must be satisfied o A majority in number of the shareholders must agree o Those shareholders must hold at least 90 % of the voting shares (this can be increased by the articles)

Outcome: Demonstrate knowledge of the procedures required for a members decision to be made using the written resolution procedure Written resolutions are an alternative to holding a general meeting. They are only available to private limited companies and cannot be used for the removal of a director. S288 – 297 governs the procedure. What should be sent, by whom and to whom? -

Sent by directors Sent to all eligible members s291 Eligible members are all of those who would be able to vote on the matter at a GM s292

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S291(4): must include o Exact wording of the resolution o Details of how to signify their agreement o Details of the time by which the agreement is required o Any documents to append S297: the resolution will lapse after 28 days, or the specified time in the resolution

When does the written resolution become effective? -

S296, when the requisite majority have agreed, signed and returned the resolution to the company For ordinary resolution, agreement of above 50 per cent is required For special resolution, agreement of 75 per cent is required

When should it be received? -

Within 28 days of circulation (including day of circulation) s297

Voting/ how can it be validly passed? -

Voting is done on a poll basis Failing to reply in time, or abstaining is equated with voting against. There are no absentees or abstentions.

Who can and cannot vote? -

All eligible members can vote There are two exclusions to be covered at a later date

Workshop 6 (Skills) Company Constitutions Outcome: Explain the administrative requirements to achieve a change to the name and articles of a company Changing the name of a company -

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CA 2006 Part 5 A governs names which can and cannot be used S66(1) a new company cannot have the same name as another company appearing on the index Must check ss 53, 54, 54, 58 for restrictions on names Following the vote to change the name:o Form NM01 and copy of special resolution s78 s30(1) must be sent to Companies House o Within 15 days for special resolution, no deadline for NMO1 o The name change becomes effective from the date that the altered certificate of incorporation is issued o Copy of special resolution to be filed at registered office Change company name on all materials, signs etc Minutes must be kept at registered office for 10 years

Changing Company Articles -

Special resolution and appended copy of new articles s30(1); 26(1) must be sent to Companies House

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Within 15 days after amendment takes place Change takes effect immediately, as soon as resolution passed Minutes must be kept at registered office for 10 years

Outcome: Explain how the basic rights and powers of members vary according to their percentage shareholding in a company -

All shareholders with at least 10 % of the company’s shares has the right to demand a poll vote: s321(1) All shareholders who hold 5% of the total voting shares in the company can circulate a written resolution s292(1) All shareholders who hold 5% of the company’s shares have the right to require the directors to call a GM Workshop 7: Tax Workshop 8: Directors’ Duties and Directors’ Transactions

Types of duty Director are under three types of duty -

Administrative duties: such as the filing of certain documents with Companies House Fiduciary duties (duty of good faith): s170-177 and s182 CA Transactional duties: Those that arise by nature of a particular transaction between the company and a director. Such as SPTs, service contracts and loans.

It is the latter two categories of duty to which this workshop refers. Outcome: Explain the legal framework of responsibilities which apply to company directors and determine whether directors may be in breach of their duty Directors have a range of fiduciary duties to the company. -

S170 states that the duties in s171-177 are owed by directors to the company S171 Duty to act within powers S172 Duty to promote the success of the company S173 Duty to exercise independent judgment S174 Duty to exercise reasonable care, skill and diligence S175 Duty to avoid conflicts of interest S176 Duty not to accept benefits from third parties S177 Duty to disclose interest in proposed transaction or arrangement

One single incident/act by a director(s) can give rise to a range of different breaches. When considering whether a director has breached one of the above duties, you must consider both sides of the argument. For example, if the directors purchase an asset but borrow 80 % of the money to do so: On one side of the argument the directors have made the company liable to defaulti...