Corporate Governance Quiz
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Questions and Answers

What primary authority do directors have in a company?

  • They are ultimately accountable to the shareholders for all decisions made.
  • They cannot delegate any powers under any circumstances.
  • They exercise all powers of the company on behalf of the shareholders. (correct)
  • They can change shareholder agreements at will.

    • Which of the following is a feature of shareholder agreements?

  • They are legally binding on the directors at all times.
  • They override the articles of association in decision-making.
  • They can include provisions that prevent selling shares to outsiders. (correct)
  • They are mandatory for all shareholders in a company.

    • What can shareholders do if the terms of the shareholder agreement are breached?

  • They can file a complaint with the directors of the company.
  • They can sue for breach of contract against the other shareholders. (correct)
  • They can request a review of the articles of association.
  • They can seek external arbitration without involving the courts.

    • Which statement is true regarding the articles of association?

    <p>They provide a flexible framework that shareholders and directors can adapt.</p> Signup and view all the answers

    What specific directive can shareholders give to the directors according to model articles?

    <p>Shareholders can direct directors to do or not do something by special resolution.</p> Signup and view all the answers

    In terms of board meeting procedures, what do model articles cover?

    <p>They outline how meetings will be called, voting procedures, and quorum requirements.</p> Signup and view all the answers

    What is a common provision in shareholder agreements regarding share transfers?

    <p>Shareholders are allowed to sell shares to other members at an agreed price.</p> Signup and view all the answers

    What overarching principle do shareholders have concerning their relationship with directors?

    <p>Shareholders are the ultimate owners of the company and their decisions are crucial.</p> Signup and view all the answers

    What is required for a company to amend its Articles of Association?

    <p>A special resolution of the members</p> Signup and view all the answers

    What does entrenchment in the Articles of Association refer to?

    <p>Making it more difficult to change specific provisions</p> Signup and view all the answers

    What is a certificate of incorporation considered to be?

    <p>Conclusive evidence of compliance with registration requirements</p> Signup and view all the answers

    Which entity is responsible for managing the company's business according to the model articles?

    <p>The board of directors</p> Signup and view all the answers

    When can the provisions of entrenchment be overridden?

    <p>If the court orders that it should be overridden</p> Signup and view all the answers

    How is decision-making power distributed in a company?

    <p>Through articles of association and the Companies Act 2006</p> Signup and view all the answers

    What is a legal consequence of decision-making by a company?

    <p>Certain actions by the company can create legal obligations</p> Signup and view all the answers

    What restrictions exist concerning an individual shareholder after the alteration of the articles?

    <p>Their liability cannot be increased without their written agreement</p> Signup and view all the answers

    What power does a company’s decision-making body consist of?

    <p>The board of directors and shareholders in a general meeting</p> Signup and view all the answers

    Which of the following statements about the trading certificate is true?

    <p>Conclusive evidence that the company can conduct business</p> Signup and view all the answers

    What is the primary legal consequence of a company's incorporation?

    <p>Establishment of limited liability for members</p> Signup and view all the answers

    Under which circumstances can the corporate veil be pierced, based on the cases mentioned?

    <p>Gilford v Motor Co Ltd and Jones v Lipman</p> Signup and view all the answers

    What documents must be delivered to the registrar for company incorporation?

    <p>Memorandum of association and articles of association</p> Signup and view all the answers

    Which statement accurately reflects the status of pre-incorporation contracts?

    <p>They require novation or agreement to terminate for liability relief.</p> Signup and view all the answers

    Who is allowed to incorporate a private company according to the Companies Act 2006?

    <p>One or more legal or natural persons</p> Signup and view all the answers

    What key principle regarding legal personality is established in Saloman v Saloman 1987?

    <p>A company has separate legal personality and obligations.</p> Signup and view all the answers

    Which of the following statements about the articles of association is true?

    <p>They are a flexible document that can reflect company management.</p> Signup and view all the answers

    What must a company do in compliance with S51 CA 2006 in terms of contracts prior to incorporation?

    <p>They are not legally allowed to enter contracts at all.</p> Signup and view all the answers

    What type of company formation allows for a single member according to section 7 of CA 2006?

    <p>Single member company</p> Signup and view all the answers

    What is required for an ordinary resolution to pass?

    <p>A simple majority that is more than 50%</p> Signup and view all the answers

    In a situation with two members holding equal shares (50:50), what is true regarding passing resolutions?

    <p>Both members must agree to pass either resolution</p> Signup and view all the answers

    Which statement regarding the special resolution is incorrect?

    <p>It is a decision that is less significant than an ordinary resolution.</p> Signup and view all the answers

    What power do model articles grant to directors regarding decision-making?

    <p>Directors can take decisions by a simple majority.</p> Signup and view all the answers

    Which party usually takes responsibility for decisions within a company as per the act?

    <p>The board of directors, as the acting company</p> Signup and view all the answers

    What is the minimum notice period required for an annual general meeting as per the company's articles?

    <p>21 days</p> Signup and view all the answers

    What constitutes a quorum for private companies if not specified in the articles?

    <p>Two members personally present</p> Signup and view all the answers

    Which responsibility does the chair have during board meetings?

    <p>Preserve order and lead discussions</p> Signup and view all the answers

    When can a company change the notice period for meetings to longer than 14 days?

    <p>By special resolution to articles</p> Signup and view all the answers

    What is the consequence if the company's articles provide for a notice period shorter than what is legally required?

    <p>The provision is void</p> Signup and view all the answers

    Shareholders can requisition a general meeting when which of the following situations arises?

    <p>The board fails to call a meeting</p> Signup and view all the answers

    What happens if the company's articles of association do not specify a quorum for meetings?

    <p>Two members personally present is the default quorum</p> Signup and view all the answers

    What is required from board members when calling a special resolution?

    <p>Full text of the special resolution</p> Signup and view all the answers

    Which of the following is a condition under which meetings may be called on short notice?

    <p>90% of shareholders consent</p> Signup and view all the answers

    What must every company maintain regarding directors' meetings?

    <p>Written minutes</p> Signup and view all the answers

    An ordinary resolution requires exactly 50% of shareholders to pass.

    <p>False</p> Signup and view all the answers

    The term 'special resolution' refers to a decision that requires at least 75% approval from shareholders.

    <p>True</p> Signup and view all the answers

    If two shareholders hold equal 50% shares, they can independently pass both ordinary and special resolutions.

    <p>False</p> Signup and view all the answers

    Directors can make decisions based on a simple majority according to the model articles.

    <p>True</p> Signup and view all the answers

    A special resolution can be passed with exactly 75% of the shareholders voting in favor.

    <p>False</p> Signup and view all the answers

    Directors can delegate all their powers without any limitations according to the model articles.

    <p>False</p> Signup and view all the answers

    Shareholder agreements can include provisions that allow shareholders to vote in a specified manner on certain matters.

    <p>True</p> Signup and view all the answers

    The articles of association must align with the provisions of the Companies Act and cannot contradict it.

    <p>True</p> Signup and view all the answers

    If a shareholder breaches the terms of the shareholder agreement, legal action can only be pursued if it is explicitly stated in the Companies Act.

    <p>False</p> Signup and view all the answers

    A company's decision-making process can be overridden by the shareholders' collective agreement regardless of what the model articles state.

    <p>False</p> Signup and view all the answers

    The model articles for companies established in 2008 apply only if no alternative articles are adopted.

    <p>True</p> Signup and view all the answers

    Directors have the authority to exercise all powers of the company without any engagement from shareholders.

    <p>False</p> Signup and view all the answers

    Model articles explicitly prohibit any amendment or change to articles of association once established.

    <p>False</p> Signup and view all the answers

    Entrenchment provisions in a company's articles can be easily amended without any special approval.

    <p>False</p> Signup and view all the answers

    A company's certificate of incorporation serves as conclusive evidence of compliance with registration requirements under the law.

    <p>True</p> Signup and view all the answers

    Shareholders have the authority to direct the board of directors through specific resolutions as stated in model articles.

    <p>True</p> Signup and view all the answers

    Decision-making power in a company cannot be limited by any agreements among shareholders.

    <p>False</p> Signup and view all the answers

    Individual shareholders can be compelled to take on additional shares against their will if the articles of association are altered.

    <p>False</p> Signup and view all the answers

    The decision-making authority of a board of directors is explicitly governed by a company's articles of association.

    <p>True</p> Signup and view all the answers

    A trading certificate guarantees that the company has met all legal obligations and is entitled to conduct business.

    <p>True</p> Signup and view all the answers

    The distribution of decision-making power within a company can be influenced by external regulations, such as the Companies Act 2006.

    <p>True</p> Signup and view all the answers

    General meetings of a company cannot be called for urgent matters without any specific notice requirements.

    <p>False</p> Signup and view all the answers

    A company's articles can include provisions that make it easier for minority shareholders to force amendments.

    <p>False</p> Signup and view all the answers

    Incorporation of a company creates a separate legal entity known as a corporate _____.

    <p>True</p> Signup and view all the answers

    Members of a company are always liable for the debts of the company even if the corporate veil is in place.

    <p>False</p> Signup and view all the answers

    The Gilford v Motor Co Ltd case is an example of successfully piercing the corporate veil.

    <p>True</p> Signup and view all the answers

    Under the Companies Act 2006, a company cannot ratify a pre-incorporation contract after it has been registered.

    <p>True</p> Signup and view all the answers

    A company can only be incorporated by natural persons according to section 7 of the Companies Act 2006.

    <p>False</p> Signup and view all the answers

    Under the Companies Act 2006, the memorandum of association no longer serves as a comprehensive document detailing a company’s objects.

    <p>True</p> Signup and view all the answers

    Personal liability for pre-incorporation contracts can only be removed through novation or termination agreed by the other party.

    <p>True</p> Signup and view all the answers

    The corporate veil can be considered a mechanism for protecting the personal assets of members from business liabilities.

    <p>True</p> Signup and view all the answers

    Companies house is a regulatory body that exists in England, Wales, Northern Ireland, and Scotland to oversee company registrations.

    <p>True</p> Signup and view all the answers

    Once a company is successfully incorporated, it cannot amend its Articles of Association in any circumstance.

    <p>False</p> Signup and view all the answers

    The minimum notice required for an annual general meeting is 14 days.

    <p>False</p> Signup and view all the answers

    In a private company, two members must be present to form a quorum if the articles do not specify otherwise.

    <p>True</p> Signup and view all the answers

    A company can change the required notice period for meetings to shorter than 14 days without any special resolutions.

    <p>False</p> Signup and view all the answers

    Minutes of all proceedings of directors' meetings are optional for companies.

    <p>False</p> Signup and view all the answers

    A chair is responsible for preserving order and calling on members to speak during the meeting.

    <p>True</p> Signup and view all the answers

    Shareholders cannot requisition a general meeting if the board of directors fails to do so.

    <p>False</p> Signup and view all the answers

    A special resolution must include the full text of the resolution to be valid.

    <p>True</p> Signup and view all the answers

    One member present is sufficient to constitute a quorum for a one member company.

    <p>True</p> Signup and view all the answers

    Companies are allowed to hold board meetings with less than 7 days notice if stipulated in the articles.

    <p>False</p> Signup and view all the answers

    If a company's articles provide a longer notice period than legally required, the longer period takes precedence.

    <p>True</p> Signup and view all the answers

    Study Notes

    Company Incorporation

    • Upon registration at Companies House, individuals (subscribers) become members (shareholders) of a newly created company.
    • This creates separate legal personality for the company.
    • Salomon v Salomon & Co Ltd (1897): Established the concept of the corporate veil, meaning a company is a distinct legal entity separate from its shareholders.
    • Piercing the corporate veil: An exception to the rule, where a court looks behind the corporate veil to hold shareholders liable for company debts.

    Pre-Incorporation Contracts

    • Until incorporated, a company cannot enter contracts.
    • A director/other person signing a pre-incorporation contract is personally liable.
    • This liability can be removed with novation or termination.

    Incorporation (Registration under Companies Act 2006)

    • Part 2 of the Companies Act 2006 (CA 2006) outlines incorporation procedures.
    • Private companies can be incorporated by one or more persons.
    • Registration occurs at Companies House.

    Documents Needed for Registration

    • Memorandum of Association
    • Articles of Association
    • Application for Registration
    • Other documents (such as private company limited by shares statement)
    • Statement of compliance

    Memorandum of Association

    • Pre-CA 2006: A document outlining the company's objectives.
    • Post-CA 2006: States formation and that the subscribers are company members and holds the same rights and interest.

    Articles of Association

    • The rulebook for the company's operation.
    • Resolutions and agreements affect the company's constitution.
    • Articles are public documents.

    Shareholder Agreements

    • Articles of association cannot cover every detail.
    • Directors exercise company management.

    Articles of Association – Status

    • On company, directors and officers
    • On members inter se (contract between members)

    Amendment of Articles of Association

    • Amendment by special resolution of the members (CA 2006 s21).
    • Restrictions on amendment after membership (CA 2006 s25)
    • Entrenchment provisions make amendments harder (s22).

    Money Payable to the Company

    • Money due from a member to the company is considered an ordinary contract debt.

    Articles of Association (Example of Breach)

    • Breaches by directors or officers towards shareholders are pursued through the company.
    • Personal rights issues allow for direct action by a shareholder.

    Certificate of Incorporation

    • Conclusive evidence that registration requirements are met.
    • Trading certificate shows that the company is entitled to do business.

    Company Business – Decision Making

    • Directors are responsible for day-to-day decisions, subject to limitations in the company's articles.

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    Description

    Test your knowledge on corporate governance, including the roles and responsibilities of directors and shareholders. This quiz covers key concepts such as shareholder agreements, articles of association, and decision-making processes within a company. Discover how well you understand the dynamics of company management and shareholder rights.

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