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. (A)</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. (B)</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. (A)</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. (B)</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. (C)</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 (A)</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 (B)</p> Signup and view all the answers

What is a certificate of incorporation considered to be?

<p>Conclusive evidence of compliance with registration requirements (C)</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 (A)</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 (B), Only if the shareholders agree unanimously (C)</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 (D)</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 (B)</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 (C)</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 (B)</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 (D)</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 (D)</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 (C)</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 (C)</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. (C)</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 (A)</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. (A)</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. (B)</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. (D)</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 (B)</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% (A)</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 (C)</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. (D)</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. (B)</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 (A)</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 (C)</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 (A)</p> Signup and view all the answers

Which responsibility does the chair have during board meetings?

<p>Preserve order and lead discussions (B)</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 (C)</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 (C)</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 (B)</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 (A)</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 (A)</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 (A)</p> Signup and view all the answers

What must every company maintain regarding directors' meetings?

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

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

<p>False (B)</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 (A)</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 (B)</p> Signup and view all the answers

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

<p>True (A)</p> Signup and view all the answers

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

<p>False (B)</p> Signup and view all the answers

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

<p>False (B)</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 (A)</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 (A)</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 (B)</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 (B)</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 (A)</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 (B)</p> Signup and view all the answers

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

<p>False (B)</p> Signup and view all the answers

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

<p>False (B)</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 (A)</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 (A)</p> Signup and view all the answers

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

<p>False (B)</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 (B)</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 (A)</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 (A)</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 (A)</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 (B)</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 (B)</p> Signup and view all the answers

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

<p>True (A)</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 (B)</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 (A)</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 (A)</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 (B)</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 (A)</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 (A)</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 (A)</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 (A)</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 (B)</p> Signup and view all the answers

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

<p>False (B)</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 (A)</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 (B)</p> Signup and view all the answers

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

<p>False (B)</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 (A)</p> Signup and view all the answers

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

<p>False (B)</p> Signup and view all the answers

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

<p>True (A)</p> Signup and view all the answers

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

<p>True (A)</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 (B)</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 (A)</p> Signup and view all the answers

Flashcards

Shareholder Agreements

Private contracts signed by shareholders, often including provisions about voting, share sales, and exit strategies.

Articles of Association

The company's rule book, outlining how the company is run, including director powers and shareholder rights.

Director Powers

Directors manage the company on behalf of shareholders, as outlined in the articles.

Model Articles

Default rules for company articles of association, if no specific ones are created.

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Shareholder Breach

If shareholders violate the terms of their agreements, other shareholders can sue for damages.

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Special Resolution

A shareholder vote to direct the directors on specific actions.

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Director Delegation

Directors can delegate some of their responsibilities to other employees.

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Company Act/Model Article Conflict

Articles of association cannot contradict the Companies Act.

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Amendment of Articles of Association

Changing the company's rules, done by members' special resolution (s21 CA 2006).

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Shareholder Investment Restrictions

Shareholders' investment limits cannot be altered to increase liability without agreement (s25 CA 2006).

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Entrenchment (in Articles)

Making some provisions harder to amend in company's articles of association, to protect minority shareholders.

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Certificate of Incorporation

Proof that a company's registration is in compliance with the law (conclusive evidence)

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Company Decision Making

How companies make decisions, delegated to organs and people with legal responsibility (director/stakeholders) for legal recognition.

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Decision-Making Organs

Directors, officers, and shareholders who make decisions on behalf or with the consent of the company.

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Distribution of Power

How decision-making power is given to different organs and stakeholders of a company, set by the company's articles and laws.

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Director's General Authority

Directors' primary responsibility for managing the company's operations, with certain powers outlined in the model articles.

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Shareholders Reserve Power

Shareholders can direct directors in specific situations (e.g., requiring action or inaction) through resolutions.

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Ordinary Resolution (OR)

A shareholder resolution passed by a simple majority (more than 50% of votes).

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Special Resolution (SR)

A shareholder resolution passed by an absolute majority (at least 75% of votes).

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Board Resolutions

Decisions made by the board of directors, usually requiring a simple majority (more than 50%) to pass.

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Majority Requirement: OR vs. SR

Ordinary Resolutions require more than 50% of votes to pass, while Special Resolutions need at least 75%.

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Separate Legal Personality

A company is treated as a distinct legal entity separate from its owners (shareholders).

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Corporate Veil

The legal concept protecting company shareholders from personal liability for company debts.

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Piercing the Corporate Veil

When courts hold shareholders personally liable for company debts, overriding the corporate veil protection

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Pre-incorporation contracts

Contracts entered into before a company is formed. These agreements bind individuals acting on behalf of the future company.

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Company Registration (Companies House)

The formal process of registering a new company with a government agency.

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Single Member Company

A company owned and controlled by a single person.

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Memorandum of Association

A document detailing a company's key features, like its name, registered office, and purpose.

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Salomon v Salomon & Co Ltd

Landmark court case establishing the separate legal personality of a company

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Gilford Motor Co Ltd v Horne

Successful case where the corporate veil was pierced to hold a person accountable.

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Board Meeting Notice

Notice of board meetings must be given to all directors, and the time given must be reasonable.

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Minimum Notice Period (General Meeting)

Companies Act sets minimum notice periods for general meetings (21 days for annual, 14 days for others).

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Quorum (Meeting)

Minimum number of qualified persons at a meeting to make decisions valid.

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Quorum (Private/Public Companies [CA2006])

Two members personally present, or one member for one member companies, if no quorum is specified in the articles.

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Chair's Duty (Meeting)

Maintain order, handle discussions, decide points (like amendments).

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Minutes of Directors' Meetings

Companies must record all director meeting proceedings.

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General Meeting (Calling)

Can be called by the board or shareholders. Shareholders can requisition if the board doesn't.

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Notice Period (General Meeting)

14 clear days for general meetings unless altered by special resolution or shareholder consent.

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Notice Alteration (General Meeting)

Notice period can be changed to a longer period by special resolution or if 90% of shareholders consent, or set out in the articles.

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Amendment of Articles

Process of changing the company's internal rules, requiring special resolution by shareholders (75% vote).

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Entrenchment

Adding provisions to the Articles making certain rules harder to change, often used to protect minority shareholders.

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Company Incorporation

The process of formally registering a company with the relevant government agency (Companies House).

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Memorandum of Association (MoA)

A key document outlining the company's fundamental details, like its name, purpose, and registered office.

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Salomon v Salomon

A landmark case establishing that a company is a separate legal entity, even if owned by one person.

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What's the difference between an OR and an SR?

Ordinary Resolutions require more than 50% of votes to pass, while Special Resolutions need at least 75%.

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How many shareholders are needed for an OR to pass?

More than 50% of the total number of shareholders need to vote in favor.

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Reasonable Notice

The time given for a board meeting notice must be long enough for directors to prepare for the meeting. The time must be practical.

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Quorum

This is the minimum number of people needed at a meeting for the decisions made to be considered legally valid.

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Quorum (Companies Act 2006)

The UK Companies Act 2006 states that for private and public companies (unless specified otherwise in the company's articles), a quorum is two members present. For one-member companies, it's just one member.

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Chair's Duty

A very important job. The chair maintains order during the meeting, oversees the discussion, manages proposals, and calls for votes.

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Minutes

A written record of everything that happened at a meeting. Companies must keep minutes of all directors' meetings.

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General Meeting: Who Calls it?

It can be called by either the board of directors or by the shareholders themselves. If the Board refuses to call it, shareholders can request it .

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General Meeting Notice

A formal notification to shareholders about an upcoming general meeting, including the date, time, and purpose of the meeting.

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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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