Raising Finance and Business Models

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Questions and Answers

What is the key change regarding the memorandum of a company under the Companies Act 2006 compared to the Companies Act 1985?

The memorandum forms part of the company's constitutional framework.

The memorandum only serves as a declaration by the company's subscribers. (correct)

The memorandum must now include an objects clause.

The memorandum is no longer required for company registration.

Which statement about ultra vires in relation to Companies Act 2006 is accurate?

All companies under CA 2006 automatically have an objects clause.

The ultra vires rule only applies if an objects clause is added to the Articles. (correct)

CA 2006 eliminates the concept of ultra vires for all companies.

Companies under CA 1985 cannot operate under the ultra vires principle.

What effect does s 28 CA 2006 have on older companies incorporated under CA 1985?

It mandates these companies to adopt new objects clauses.

It allows these companies to disregard their original memorandum.

It requires them to dissolve if they do not comply.

It converts their memorandum provisions into Articles provisions. (correct)

What role do the Articles of Association play under the Companies Act 2006?

They regulate the relationships between shareholders, directors, and the company. Signup and view all the answers

Which of the following statements about the objects clause is true for companies formed under the Companies Act 2006?

Companies formed under CA 2006 can have unrestricted objects unless restricted in their Articles. Signup and view all the answers

What is one primary reason businesses may need to raise finance?

To purchase necessary assets like equipment and raw materials. Signup and view all the answers

Which of the following is not a method of raising finance for a business?

Selling personal assets of the owners. Signup and view all the answers

Which business model structure offers limited liability to its partners?

Limited liability partnership (LLP) Signup and view all the answers

When forming a business, which key consideration is important to evaluate?

The cost of the chosen business model to set up. Signup and view all the answers

Which of these is a benefit of retaining profits within a business?

It allows for growth and reinvestment in the business. Signup and view all the answers

What must be included when incorporating a company from scratch?

Form IN01 Signup and view all the answers

What is a key requirement when converting a shelf company?

Meeting of the directors and shareholders Signup and view all the answers

Which document is NOT typically required when forming a company from scratch?

Register of Members Signup and view all the answers

What defines a shareholder's membership in a company?

Entry in the company's register of members Signup and view all the answers

Which of the following correctly describes the legal identity of a company?

It has a separate legal identity Signup and view all the answers

What is true about the first shareholders of a company?

They subscribe to the company’s memorandum of association Signup and view all the answers

Which is NOT a right typically held by shareholders?

Right to appoint external auditors Signup and view all the answers

When incorporating a company using Model Articles, which document can be omitted?

Articles of Association Signup and view all the answers

In what scenario would a company A have a wholly owned subsidiary?

When it owns all the shares in company B Signup and view all the answers

What role do shareholders play in a company?

They provide funding in exchange for ownership Signup and view all the answers

Study Notes

Raising Finance

Businesses raise finance for several reasons:
- Purchasing premises, equipment, stock, raw materials, and software.
- Employing staff.
- Seeking professional advice.
- Expanding and growing, such as acquiring businesses, marketing, and investing in new assets.
Businesses can raise finance through four main methods:
- Owner contributions of capital.
- Outside investor contributions for profit sharing.
- Borrowing money, such as from banks.
- Retaining a portion of generated profits for growth instead of distribution.

Business Models

Businesses can be structured in different legal forms:
- Sole Trader.
- Partnership.
- Limited Partnership.
- Limited Liability Partnership (LLP).
- Public and Private Companies.

Key Considerations When Forming a Business

Cost is a crucial factor to consider when choosing a business structure.

Memorandum

Under the Companies Act 1985 (CA 1985), the memorandum was a key constitutional document with specified objects.
Acting outside these objects was considered "ultra vires."
Under the Companies Act 2006 (CA 2006), the memorandum is less complex, serving as a declaration of intent to form a company by subscribers.
CA 2006 companies have unrestricted objects unless specified in the Articles, eliminating the ultra vires rule.
Companies incorporated under CA 1985 retain their memorandum provisions as part of their Articles.

Articles of Association

All companies must have articles of association (Articles), which govern the relationship between shareholders, directors, and the company.
Purchasing a shelf company can be cheaper initially, but modifications may equalize costs with setting up a new company.

Summary of Company Setup

A company can be formed from scratch directly with Companies House or converted from a shelf company.
Setting up a company from scratch requires:
- A fee.
- Form IN01.
- Memorandum.
- Articles (unless using Model Articles).
Converting a shelf company involves meetings of directors and shareholders to make necessary changes.

Key Stakeholders

Key stakeholders in a company include:
- Shareholders.
- Directors.
- Persons with Significant Control.

Shareholders

Shareholders, also known as members, invest money (share capital) in the company in return for ownership.
Shareholder rights, such as voting and dividends, are outlined in the Articles and may be further detailed in a shareholders' agreement.
A company can own shares in another company, creating a wholly owned subsidiary when all shares are held.

Directors

Directors are responsible for managing the company and have fiduciary duties to act in the best interests of the company.
Directors can be appointed in different ways, such as:
- By the shareholders.
- By the directors themselves.
- Through alternative directors.
- As de facto directors (acting as a director without formal appointment).

Directors' Service Contracts

Executive directors are employees of the company and should have written employment contracts specifying their duties, remuneration, and notice provisions.

Board Meetings

Board resolutions can be passed at board meetings (BM) without requiring shareholder approval.
Directors may set their own meeting procedures, with reasonable notice required.
A quorum of directors must be present to make valid decisions.
Voting is by majority show of hands, with each director having one vote, and a potential casting vote for the chairman.

Matters for Shareholder Approval

Certain matters must be referred to shareholders for approval:
- Matters outside the powers of the directors.
- Amendments to the articles of association.

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Description

This quiz explores key methods for raising finance in businesses, including owner contributions, outside investments, and bank loans. It also examines various business structures such as sole traders and corporations, along with important considerations when forming a business. Test your understanding of these essential business concepts!