Business Law and Practice PDF

Business Law and Practice Part One: Business Law and Practice Chapter 1 - Starting a New Business: Types of Business Medium ​ Incorporated and Unincorporated Businesses ​ Unincorporated Businesses - does not have its own legal identity/ separate personality and no distinction bet...

Business Law and Practice Part One: Business Law and Practice Chapter 1 - Starting a New Business: Types of Business Medium ​ Incorporated and Unincorporated Businesses ​ Unincorporated Businesses - does not have its own legal identity/ separate personality and no distinction between the business and its owners (sole traders and partnerships) ○​ Sole Trader - self-employed and owns and runs their own unincorporated business - while they may have employees they are the sole owner of the business ​ Term sole practitioner is sometimes used for sole traders who have a profession rather than a trade ​ No legal separation between the business and the sole traders personal affairs/ assets - risks unlimited liability - their personal assets will be at risk and they can be made bankrupt if the business is unsuccessful ​ No specific formalities or legal processes required to set up - need to register with HMRC (and in some cases register for VAT) but additional costs of forming a company are avoided and no ongoing formality, filing and disclosure requirements ​ Pay income tax on their trading profits and capital gains tax on their capital gains ○​ Partnerships - unincorporated business that exists when two or more people carry on a business in common with a view of profit - partnerships under the PA must be distinguished from limited liability partnerships ​ As with sole traders while the partners may have employees they are the owners of the business and may be involved in any trade business or profession ​ No specific formalities are required to set up the business as it can arise through oral agreement or conduct - if the parties are actually carrying on business together with a view of profit then a partnership exists - but usually desirable to have some form of formal partnership agreement setting out the terms of the partnership - otherwise many provisions of the PA will apply without an express or implied agreement to the contrary ​ No separation between the business and thus they are personally liable ​ S5 PA - no separation between ownership and control - every partner may act for the purposes of the partnership business and the acts of any one partner may bind the partnership - management can be more straightforward ​ Need to register with HMRC and maybe VAT but the additional costs of forming a company are avoided - no onerous ongoing formality - decision making filing and disclosure requirements  ​ Individual partners pay income tax on their share of the trading profits and capital gains tax on their share of the capital gains ​ Incorporated Businesses - own legal identity/ separate personality - there is a legal distinction between the business and its owners and managers ○​ Companies - incorporated business with separate legal personality and where the owners usually have limited liability - may be limited by shares or guarantees and can be public or private ​ If it just says a name in a question e.g. “car company” it is assumed not to be limited liability and the shareholders will be liable unless the question says “car company ltd/ limited) ​ Creation of a company must be filed at companies house to be born - it is not possible for a company to exist without the involvement of companies house. ​ Companies can be involved in any trade business or profession ​ Separate legal personality - enshrined in Salomon v A Salomon - the cases where the court will disregard this are very rare - company is separate from its members/shareholders and directors- can own property, enter into contracts and be party to legal proceedings a exist indefinitely ​ Promoter (individual who undertakes to form a company) will will personally liable for any contract entered into prior to incorporation ○​ Subscribers are those who put their names to a memorandum of association and comply with things such as the filing of an application to register a company - these become the first members of the company ○​ PLC must have at least one issued share with no max (unless articles say otherwise) ​ Not the agent of its shareholders and acts in its own right not just on behalf of its owners ​ Separation of membership and management is a key advantage of incorporation but can be unnecessarily cumbersome for smaller businesses ​ Sale or transfer of a company is more straightforward as can be done through the transfer of shares rather than the assets themselves ​ Limited Liability - members have a limit on their liability to contribute to companies debts - limited by shares (any amount unpaid on shares) or guarantees (limited to any amount they promise to pay in the event the company is wound up) ​ If it is an unlimited company then there is absolutely no cap on the amount the company may call on them to pay ​ If the unpaid shares are held by another company then that company will be liable - if the company has no assets on its own then a liquidator could call the owners of the holding company to pay ○​ If held by individuals - then creditor cant call on them directly - the company/ insolvency practitioner can ​ Members of a company cannot be held liable to contribute any further sum in respect of the debts liabilities or obligations of the company other than in exceptional circumstances: ​ Legislative offences: fraudulent/ wrongful trading or transactions to defraud creditors (ie gifts with no consideration or significant undervalue) ​ Piercing the veil - Either to prevent evasion or concealment of facts to bypass or frustrate an existing legal obligation or liability ​ Imposition of tortious liability - Ie parent company that has assumed a DOC for the safety of employees of a subsidiary - can be held liable for damages. Or negligent misstatements by directors, employees and members if it is made to a C who transacted with company if reasonable reliance and personal responsibility created a special relationship between hem ​ Non of this means that you should not be permitted to ring-fence on its own - ie isolating and protecting certain assets as is common in parent - subsidiary relationships - must be something greater such as fraud or improper purposes ○​ If the aim of the ring fencing was legitimate (e.g. for tax purposes) then wont be able to enforce a claim ​ Advantages of incorporation ​ Companies can grant floating and fixed charges - more flexible form of security ​ Al ​ Disadvantages of incorporation ​ Pretty onerous ongoing formality, decision making, filing and disclosure requirements that can add to administrative burden and legal expenses over time ​ Public and private companies Private Limited Company Public Limited Company S4(1) CA 2006 Certificate of incorporate states that it is a public limited company May be limited by shares or May be limited by shares guarantee Shares cannot be offered to General public can be invited general public (s755 CA) to subscribe for shares No minimum capital Minimum capital requirements requirements £50k Shares must be at least 25% paid up (does not actually have to be listed to be public and can become delisted but remain public) Subject to more onerous  rules on things like disclosure Company can apply for shares to be listed for trading on recognised investment exchange Listed companies have further disclosure rules ​ Limited Liability Partnerships (LLPs) ○​ Formed by sending form LLIN01 to companies house - cross between a company and a partnership - will not be formed until CH issues certificate of inspection ○​ Available for persons “carrying on a commercial business with view to profit” (S2(1)(a) LLPA) and every member is deemed to be an agent of the LLP (s6 LLPA) ​ This is even if the view to profit is incidental and not the primary motivation - may arise later if that view comes up after the fact - provided that it is a commercial enterprise and not just charitable ​ If it is charitable making a profit then it wont be a partnership as it is not a commercial business ○​ However has a separate personality and members have limited liability/ are not directly responsible for its debts S1(4) and (5) LLPA ○​ Anything invested in the property by the partners (whether cash or not) will become part of the partnerships assets ○​ Provide provisions that apply between the partners in default of express or implied agreement to the contrary - more flexibility with regard to management than companies which have a stricter separation of powers ○​ Like companies can grant fixed and floating charges over their assets and are subject to stringent administrative and reporting requirements ○​ Might not be as well recognised internationally as limited companies ○​ LLP itself does not pay tax, instead members pay income tax on their share of the trading profits and capital gains tax on their share of the capital gains ○​ If anyone the LLP deals with in the course of business makes a written request for the address of its registered office, place of inspection or type of records kept there the LLP must provide the information within 5 working days ​ Must also have a register of the names and addresses of its members and identify any member controlling >25% of its assets or voting rights / who has significant control (ie can appoint or remove the majority of those involved in management) ​ Register of members ​ Register of members residential addresses ​ PSC register ​ And to the extent that it has any - a register of debenture holders Chapter 2 - Partnerships ​ Formation of Partnerships and the PA  ○​ What is a partnership and how is it formed? ​ One way in which a business may be run - an unincorporated business and not a separate legal entity ​ Agreement to operate in partnership can be oral or in writing or may even be implied by conduct - not legally required to have a partnership agreement but it is advantageous ​ Partnership agreement - formal document setting out the terms of a partnership, usually deals with the relationship between the partners and their relationships with third parties - often varies or amends default provisions under the PA 1890 ○​ Who can be a partner - generally any capable person - maximum number of persons who could be a partner used to be 20 but professions like solicitors and accountants were exempt - since 2002 there is no limit regardless ​ Any person can become a member of an LLP in accordance with an agreement of existing members (majority) ​ Must have at least 2 designated members (if non are designated or only one is then every member is deemed to be a designated member) ○​ The Partnership Name ​ If it includes the name of any member on letters it must include all members names (unless >20 provided it keeps a list at the principal place of business) ​ Law relating to business names is contained in Part 41 of the CA 2006 - no restrictions if name consists only of the surnames of all partners without forenames or initials - in any other case the CA will apply and certain words or expressions forming part of the business name will require prior approval - including those in the Company, LLP and Business Names Regulations 2014 ​ Partnership that uses a business name must also comply with the prescribed disclosure requirements under the CA - details about the partners must appear at the main place of business and on partnership stationary (need to include names of partners on stationary unless >21 partners) ​ Need details of the partnership at all of its addresses ​ Partnership Agreements and the PA ○​ Purpose of a Written Partnership Agreement - not a strict requirement but has benefits like: providing evidence of partners relations and partnerships terms, overrides some of the provisions of the PA which will automatically apply except to the extent that there is contrary agreement - many default provisions have undesirable consequences for modern partnerships ​ If an LLP and no LLP agreement the relationship between the LLP and its members will be governed by the limited liability partnership regulations 2001 ○​ Usual Clauses in a partnership agreement: ​ The parties - will be the partners, no new partner may be admitted without the consent of all of the partners although sensible for smaller partnerships this may be unworkable for larger ones - larger ones will usually have a formal partnership agreement that does not require unanimity ​ Commencement date - existence of a partnership is a question of fact - partnership will exist from the date the S1 PA criteria are satisfied - thus an agreement subsequent to that date will only govern rights and responsibilities from that date ​ Nature and place of business - unanimity is required by the partners to change the nature of the business (s24(8) PA) ​ Partnership name - need unanimity to change unless otherwise provided for ​ Duration - partnership may run for a specific venture or a fixed term, fixed term partnership that continues after expiry will be presumed to continue on terms consistent with a partnership at will (no end date) (s27(1)(PA) otherwise it will be dissolved (s32 PA). For partnerships at will the following applies: ​ Any partner may determine the partnership (bring it to an end) at any time by giving notice to other partners - no requirement for written notice - but it is how they are commonly determined ​ Partnership shall be dissolved from the date specified in the notice or date notice is given ​ Remaining partners may seek to continue in what would be a new business - usual to provide in the agreement that the partnership will continue (technically as a new partnership) despite the retirement death expulsion or bankruptcy of a partner ​ Capital - important to specify what each partner is contributing to the business and how capital profits/ losses will be shared between the partners - absent express or implied agreement to the contrary the PA provided that profits and losses will be shared equally (S24(1) - may be implied that unequal contributions of capital permit unequal withdrawals but should be clear in agreement. Agreement may also provide for interest to be paid on partners capital contributions ​ Income - agreement should specify how the income profits/ losses of business will be shared between the partners - absent express or implied agreement to the contrary income profits and losses will be shared equally and this may not be suitable to clients specific circumstances - agreement should also deal with the payment of salaries from profits before the final profit shares are divided - PA does not provide for salaries to be paid to partners and this could be particularly important where not all partners work full time for the business. Drawings - amount that partners withdraw on account of profits - a well drafted agreement should deal with how and when drawings are made and provide for repayment with interest if too much is taken ​ Partnership Property - should be specified so that they are clearly distinguishable from the assets belonging to individual partners - some things may be owned by a partner but can be used for the purposes of the business ​ If a partner spends their own money in the ordinary conduct of the firms business (ie dont have company card so spend own  and reimburse) they will be entitled to be refunded provided they are acting in good faith - can be excluded by agreement though ​ Management - all partners are entitled to take part in the management of the business (s24(5) PA) - may not always be what occurs as some just invest in the business. All matters connected with the partnership business may be decided by a majority of the partners (s24(8) PA) - except for changing the nature of the business where unanimity is required - thought should be given to whether unanimity should be required for other decisions and whether a majority decision should always be applicable - some issues may just be for senior partners to decide on. Absences should be catered for ​ Different if the share in the partnership is assigned - ie lender takes share - cannot intermeddle at all or even require production of accounts - is only entitled to receive profits from the share and share of assets if dissolved ​ Retirement - retirement simply means leaving the partnership - PA does not provide for the possibility of a partner leaving a partnership without it being dissolved - significant shortcoming of the PA so usually agreement has a mechanism for a partner to leave following appropriate notice and get what is owed to them without dissolving the firm ​ Absent any other agreement the outgoing partner or his estate is entitled to such share of the profits made since dissolution as attributable to his share in assets that he has a proprietary interest in ​ Death and bankruptcy - unless otherwise agreed by partners the partnership will be dissolved by death or bankruptcy of any partner - can have serious consequences for continuing partners - provision should be made in agreement for continuation of firm by surviving partners and payment of the gone partners share ​ Dead partners share of partnership assets will not go to her estate - instead will be sold first as part of dissolution process ​ Expulsion - under PA no majority may expel any partner S25 PA - thus an express power to expel a problem partner should be included specifying grounds for expulsion and providing for patent of their shares and provision that the partnership should continue rather than dissolving as regards the remaining partners - with the other partners buying the expelled partners share ​ Can also be dissolved by the court if partnership itself is illegal or automatically if the law changes making the business illegal, or a partner applies under S.35 because a partner is permanently incapable of performing his part, is guilty of a prejudicial offence, breaches of the partnership agreement, is unable to profit, or it is just and equitable ​ Payment for outgoing partners share - specific provision should be made for the following: ​ Remaining partners to purchase the share ​ Valuation of outgoing partners share ​ Payment of the outgoing partner share  ​ Dissolution if the option to purchase is not exercised - dissolution takes place in accordance with provisions of the partnership agreement or S44 of the PA - proceeds of sale are used to pay third party and partner creditors and partners capital entitlements ○​ Any balance is then divided between partners in accordance with their profit sharing ratios ​ May be a financial advantage in selling the business as a going concern rather than dissolving ​ Restrictive covenants - consideration should be given as to whether there should be a restriction on ex-partners competing, approaching employees or former clients etc - nothing is provided for in PA so provision must be made ​ Administrative Provisions - agreement will need sufficient administrative provisions to make it workable - definitions and interpretation, service of notices, costs and arbitration in the event of disputes ​ Partners Duties to Each Other ○​ Partners owe each other a duty of good faith and the PA provides for three fiduciary duties ​ Duty to provide true accounts and full information on partnership matters (s28 PA) ​ Duty to account for profits derived from the position as partner (s 29 PA) ​ Or from the use of any partnership property ​ Duty to account for profits from a competing business (S 30 PA) ​ Other partners can also obtain injunctive relief to restrain the continuing competing trade ○​ Many agreements have further provisions such as not to start or join any other business while partner ○​ Further provisions of the PA relate to the relationship between partners - in usual way it can be varied by contrary agreement - include right to inspect partnership books and payment of 5% interest on loans made by partners to the firm (but no interest if it is just a capital investment) ​ These will be paid back after the creditors if the partnership is dissolved ○​ Firm should indemnify partners where own funds were used in ordinary and proper conduct of the business ​ Liabilities to Third Parties ○​ Is the partnership liable? - starting point is S5 of the PA based on the law of agency - provides that each partner is an agent of their fellow partners and as such a partner acting within the scope of their actual or apparent/ ostensible authority will bind the partnership as a whole ○​ Actual authority - partner is actually authorised to bind the partnership in the circumstances whether under partnership agreement or through authority through things like course of conduct ○​ Apparent/ ostensible authority - would appear to the third party that the transaction is authorised by the partnership in the circumstances ​ Is the transaction related to the partnership business? ​ Would a partner usually be expected to have authority to enter into the transaction? ​ Does the third party know that the partner has no actual authority?  ​ This is different in companies - if a director enters a contract which would normally need a resolution under the articles and the third party is aware of this restriction - they are entitled to rely on the belief that directors have full bower to bind the company ​ Does the third party know that the partner concerned is not in fact a partner of the firm or do they have suspicions that this is the case? ○​ (a) If a partner entered into a transaction with actual or apparent authority then partnership will be bound by that act ○​ (b) If not actual or apparent authority then partnership will not be bound – only partner concerned (for example if the partnership told a company that 3 partners needed to approve contracts but entered into one with only 2 partners - while normally this would be apparent authority as the company was informed then the partnership would not be bound only the partners who entered contract) ​ Example could be where acting outside of the usual way of business - if a partner in a law firm gave financial advice - would not be course of business and while personally liable the firm would not be ○​ (c) If a partner entered with only apparent authority he will be liable to fellow partners for breach of warranty of authority - partnership will still be bound and third party contract not affected - individual partner will still be liable personally to account to fellow partners for any loss to the partnership ○​ Which Partners are Liable? ​ Once established whether the partnership as a whole is bound by a transaction with a third party it must be established precisely which partners are liable - partners are jointly and severally liable for debts and obligations of the partnership without limit (S9 PA) - where unable to pay its debts out of partnership assets a creditor can obtain payment from private assets of the partners ​ In the case of fraud, wrongful acts and omissions by one partner, the partnership will be liable if it can be established that it was in the course of business (partner will also be liable - could sue any partner or partnership) ​ Changes of partners - important to distinguish between existing debts (those incurred prior to the change) and future debts (those incurred after the change) ​ Partner is liable for the debts incurred whilst they are a partner (s9) ​ New partner is not liable for debts incurred by the partnership before they became a partner (s17(1)(PA) ​ Retiring partner is not released from debts incurred by the partnership whilst they were a partner (s17(2)) - retiring partner may seek to protect themselves from liability for existing debts through a deed of release, a novation agreement or an indemnity ​ Type of document Description Effect Deed of release Release of Release of  outgoing partner outgoing partner from any outstanding debt/ liability Novation Tripartite Newly constituted agreement from agreement partnership stands willing creditors between (1) the in shows of old creditor (2) the one as regards the (this may also be partnership as debt/ liability used in the sale of before retirement a sole trader) (3) partnership as following retirement - consideration or a deed will be required in order to be valid/ binding Indemnity from Bipartite Not binding on continuing agreement (1) third parties and partners outgoing partner outgoing partner and (2) continuing will still be liable partners but able to seek indemnity from continuing partners ​ Retired partner may be liable for debts incurred after their retirement if they fail to comply with sections 36 and 14 ​ S36 - retiring partner must give notice to third parties of their leaving the partnership ○​ Actual notice - to existing/ former clients - inform directly via letter etc ○​ Constructive Notice - potential future clients - place advertisement in London Gazette ​ S14 - must avoid being held out as a partner - doing something or allowing something to be done that suggests one is a partner, that is relied upon by someone, who gives credit to the firm as a result Chapter 3 - Limited Companies: Part 1 ​ Company formation and Constitution ○​ Incorporating a company ​ Two ways to provide a business client with a company: ​ Incorporating a new company ​ Acquiring a company that has already been incorporated but has not traded (off the shelf company) ​ Incorporation procedure, forms and documents - need to send the following to companies house:  ​ Application to register a company (form IN01) can be done online ​ Memorandum of association (can be completed as part of INo1) ​ Articles of association ​ Requisite fee ​ Form IN01 - Part 1: Company Details ​ Subject to very limited exceptions the name of a company must end with limited, Ltd, public limited company or Plc (or welsh equivalent) ○​ Company name cannot be chosen which: is the same of an existing company, in the opinion of the SoS is offensive or refers to an activity prohibited by law, unless previously approved includes words suggesting a connection with the Government, local authority or any other sensitive words defined in Company, Limited Liability Partnerships and Business Names Regulations 2014 ○​ If name is same as or similar to existing business and the business is likely to be affected by the similarity the company may be subject to a passing off action in tort ○​ Company can change its name by special resolution -form NM01 must be filed at Companies House with a copy of the special resolution and required fee ​ Also must send copy of the special resolution and a notice to the registrar ​ May need secretary of state approval if including govt words like “national” ​ Name change will take effect from the date on which the new certificate of incorporation is issued ​ Must include company type - public or private, limited by shares or guarantee ​ Principle business activity - CH has list of code numbers to select from to define this ​ Situation of registered office and registered office address - official correspondence address of a company - can be changed later by board resolution (s87 CA) and form AD01 filed with the registrar ​ Articles of Association - particularly important constitutional document for a company - contract between (1) a shareholder and the company and (2) a shareholder and other shareholders ○​ There are a standard model articles for different types of company - not compulsory and companies can make amendments or use a bespoke set of articles ○​ Unless adopting in entirety the articles must accompany the application ○​ Special resolution is required to change the articles (S21(1)(CA) - copy of the special resolution and  amended articles must be filed at companies house within 15 days ​ Form IN01 Part 2: Proposed Officers ​ Company secretary - person responsible for keeping records and filing documents at Companies House - not a requirement but if there is one then their name and address for service must be given - no particular qualifications are required to act as a company secretary of a private limited company - if private can also be a director at the same time ○​ Not automatically entitled to enter into commercial contracts but do have ostensible authority for those to do with administration ○​ For public must have either been a secretary of another public company for 3/5 of the last years, chartered barrister or solicitor, or has held another position that makes it seem to the directors that they would be capable of discharging the functions of a secretary ○​ Must notify the registrar of any changes and keep a register of secretaries available for inspection - failure is a criminal offence ​ Directors - name, month and year of birth, nationality and business occupation must be set out - address for service and usual residential address given (can apply for exemption if would be a danger) - residential address will be hidden and service address will be public ○​ Private companies must have at least one director and public 2 ○​ Directors must be at least 16 years of age and at least one be a natural person (check that the law hasn't changed) ​ Form IN01 Part 3: Statement of capital and initial shareholdings ​ Number of shares of each type and their nominal value ​ Rights attaching to different types/ classes of share ​ Initial shareholdings ​ Minimum of one shareholder is required ​ Form IN01 Part 4 - statement of guarantee (only if company limited by guarantee) ​ Form IN01 Part 5: Details of people with significant control ​ Hold more than 25% of shares (25.1% or above basically) ​ Have more than 25% of voting rights ​ Have right to appoint or remove majority of the board ​ Or significant control in another capacity - ie shareholder director with influence (not just because both) ​ Form IN01 Part 6: Election to keep information on the public register - rather than maintaining the statutory books the subscribers can agree to keep the information that would be contained within them solely on the central registers held by companies house. Statutory books include: ​ Register of secretaries  ​ Register of directors ​ Register of directors and their residential addresses ​ Register of members (do not need to keep if private) ​ PSC register ​ Form IN01 Part 7: Consent to act ​ In all cases the subscribers must make a statement that the proposed officers and company secretary have consented to act in the relevant roles ​ Form IN01 Part 8: statement about individual PSC Particulars: ​ Subscribers must make a statement that the PSCs know their details have been provided as part of the application ​ Form IN01 Part 9: Statement of Compliance - confirms requirements of the CA as to registration have been compiled with ​ Memorandum of association - statement of intention of the subscribers to form a company and become shareholders taking at least one share each - the prescribed form of memorandum is set out in the Companies Regulations 2008. Under old CA 1985 the memorandum of association was an important ongoing constitutional document setting out the objects of the company, following the CA the objects are moved to the articles and may be changed by special resolution (objects is the purpose for which a company is formed) ​ Certificate of Incorporation - documents are examined by Companies House and provided that they are in order a CoI is issued including the company name, number and date of incorporation - the number remains consistent always ​ Post incorporation steps ○​ Order company seal (optional) ○​ Publishing companies name (outside place of business and in correspondence) ○​ Including the correct particulars on business stationary - include company’s name register office and number ○​ Registering for VAT with HMRC ○​ Dealing with all matters relating to the companies employees: contracts of employment, PAYE etc ○​ Arranging insurances ○​ Opening company bank account ○​ Obtaining all requisite licences/consents ○​ Maintaining the statutory books (if kept) ○​ Keeping other documents at the registered office - include copies of charges, directors employment contracts etc ​ First Board meeting ​ Company Meetings and Resolutions ○​ Board meetings - meetings of the directors who pass board resolutions to make decisions ​ If there is a chairman and the board members reach no majority (split vote) then the chairperson has casting vote  ​ (remember the same does not apply to resolutions of members - they do not have anyone with casting vote if incorporated after 2009 - instead will have deadlock) ○​ General meetings - meetings of the members/ shareholders who pass ordinary resolutions and special resolutions to make decisions ○​ Directors make most day to day decisions but some key decisions must be approved/ authorised by the members first - can be because of the provisions of the CA or articles if this is the case the the directors normally call a BM to pass BR or call a GM ​ Do not need to keep records of the resolutions passed at general meetings ○​ Exercise of Directors Powers Board Meetings ​ Powers of directors are laid down in companies articles and MA3 ​ Generally directors make decisions at BMs by majority vote (MA7) or unanimous (MA8) ​ It is common to give the directors the right to delegate any of their powers (MA5) Calling and notice Any director may call a BM at any time or require the company secretary to do so (MA9) Reasonable notice must be given (MA9(1)) All directors must be given notice (MA9(3)) Permitted forms of communication include telephone, video, text, IM (MA10(1)) Directors can waive the right to notice (MA9(4)) An Agenda is not a legal requirement If failure to give notice then new meeting can be demanded Must keep a written record for 10 years of every majority or unanimous decision Quorum - minimum number Two (MA11(2)) of people required to be present for valid decisions If no quorum the only thing it an do is appoint further directors to be mad or call a GM Voting Show of hands or oral assent (MA7(1)) - each member has one vote - not based on percentage of shares Chairperson's casting vote in the event of deadlock (MA13) MA14 and s117 and 182 Resolutions and majority BRs - simple majority required (deadlock if equity of votes and MA13 does not apply)  ​ Conflicts of interest ​ MA14 prevents a director from voting and counting towards the quorum on any Board meeting decision in which they have a personal interest - ie buying or selling property from or to the company - conflicts with the fiduciary duties owed to the company - can still count as a shareholder ​ MA14(3)(a) allows a company to suspend or relax the general application of MA14 or ​ S177 and 182 CA require a director to declare the nature and extent of a personal interest in a proposed or existing transaction or arrangement subject to limited exceptions (declaration of a conflict of interest is separate from voting and counting towards quorum) - will be voted on by members of the board but can also write to all directors ○​ Will not need to declare it if it is already been mentioned that they have an interest and the members are aware or the interest ○​ Do not need to declare if it is unlikely to lead to a conflict of interest ○​ Do not need to declare if it is a service contract ​ Minutes of BMs - must be kept for at least 10 years in the minutes book (don't need to keep those of general meetings though) ​ Unanimous decisions - MA8 provides that a procedure for unanimous decision making may be used instead of holding a BM - enables the directors to make decisions in writing or more informally ○​ Exercise of Shareholders Powers: GMs ​ Powers of members are laid down in the CA and articles - generally exercise their powers by passing resolutions in GMs (2 types): ​ AGM - annual general meeting - if formed on or after 1 october 2007 is not required - if before and articles have not been amended then this will be required. 21 clear days notice (unanimity if earlier) ○​ Quorum for private - 2 (1 if only one member) ○​ Public companies still need to have them ○​ Single member companies dont need them but should write down their resolutions ​ EGM/ GM - any other general meeting 0 can be called at discretion of directors whenever, by members of >5% share capital/ voting rights (paid up), if members request then directors must call within 21 days (doesnt mean working days) and 28 days of the call. Must have 14 clear days notice (shorter if >90/95% (private/public) of voting rights request ○​ Need 28 days notice if a special thing like removing directors or auditors ​ Two types of resolution: ​ Ordinary Resolution - requires simple majority of shareholders attending and voting at a GM  ​ Special resolution - requires 75% majority or more of shareholders attending and voting at a GM (shareholders NOT shares) all special resolutions must be filed at CH within 15 days of being passed ​ Can also pass resolutions without a meeting or without a written resolution if all members agree to it (Duomatic principle) - even if outside of articles of association ​ It is also possible to entrench something - ie if say it cant be changed - will be able to change but will need unanimity - SR wont be enough ○​ If have a provision for entrenchment anywhere in the articles - will need to submit a statement of compliance to CH whenever articles are changed (alongside amended articles and resolution) even if the articles being changed are not entrenched provisions ​ Cant use a written resolution if removing a director or auditor from office - must have a GM ​ Key provisions of GMs ​ Calling and notice Usually the directors call a GM (s 302) Written or electronic notice may be given Shareholders power to requisition a GM 14 clear days notice required -in effect 16 as do not include date of service and date of meeting) Extra 2 days notice if by email or post Short notice may be agreed by (1) a majority of members (2) holding at least 90% of voting shares Contents of notice - date, time, place, nature of business, full text of SR proposed and sufficient detail, reasonably prominent proxy notice - a notice informing the shareholder of their right to send someone to attend and vote in their stead Quorum 2 (unless one member company)  Meeting must remain quorate throughout Voting - Show of hands unless poll vote demanded Poll may be demanded by (1) chairperson, (2) 2+ voting members, (3 any members holding at least 10% of voting share (cant be restricted in articles) One vote per share on a poll vote Resolutions and majorities OR - >50% SR - >75% ​ Shareholders power to requisition a GM - Although it is usually the director who calls GMs the members of a company may also indirectly call for them - directors must call a GM when members holding at least 5% of the paid up share capital with voting rights requisition them to do so - directors then have 21 days from date of requisition to call a GM which must be held within 28 days - if meeting is not called the shareholders may call the meeting themselves and recover the costs from the company ​ Written resolutions - alternative to GM - pass resolutions in writing with shareholders having one vote per share (if 5% request or directors) ​ Formalities - ​ minutes kept for 10 years, ​ signed copy of every SR and some ORs (such as issue of shares) must be filed at companies house within 15 days ​ Where resolution alters companies articles a copy of the amended document must be filed ​ Any appropriate forms must be filed ​ Where appropriate the company's statutory books must be updated ○​ Summary of Key Decisions ○​ Substantial Legal Procedural Filing/ admin requirements Requirements and requirements directors declaration of personal interests Change of company name (takes effect from when new certificate is issued) Check whether PR - BM > GM > BM Filing- copy SR, NM01 company name DOI: not usually form, fee requires approval applicable If unique articles - give  notice to registrar and a statement that the name change was in line with the companies articles Admin - update company stationary. BM and GM minutes Change of trading name MA3 (BR) PR - BM Admin - update DOI: not usually company stationary applicable BM minutes Change of registered office MA3 (BR) PR - BM Filing - form AD01 DOI: not usually Admin - update applicable company stationary BM minutes Change articles (but takes effect from date of SR - unless it is changing the specified purpose of the business if the company decided to select one) SR PR - BM > GM > BM Filing - SR amended DOI: not usually articles applicable Admin - BM and GM minutes Send the amended articles, the resolution to adopt the amended articles and a notice to remove (CC02) or add (CC01) any restriction (ie provisions for entrenchment such as SRs which are above the normal 75%) on the articles (if necessary) Appointment of chairperson MA3 PM - BM Admin - update MA12 DOI - S177 and MA14 company stationery BM minutes Change of accounting reference date MA3 PR: BM Filing - AA01 DOI - usually not Admin - BM minutes applicable ​ Accounts ○​ Directors must file account with companies house every financial year ​ Failure to do so could lead to criminal penalties  ○​ Small companies are exempt from the requirement for accounts to be audited - two or more of the following ​ Turnover of not more than £10.2m ​ Balance sheet of no more than £5.1m ​ Not more than 50 employees ○​ Directors must also prepare a financial report for each financial year (small companies exempt) ○​ Medium companies also have more relaxed accounting requirements - if ​ Max 250 employees ​ Up to £36m turnover ​ Balance sheet of up to £18m ○​ Accounts for private companies must be filed with companies house and circulated to its members within 9 months of deadline for submission ​ Public company is 6 months ​ However if they have filed the accounts with CH must at the same time send to shareholders (cant send to CH and then later send to them) ​ Confirmation statement ○​ Must be filed each year, within 14 days of the anniversary of the company’s incorporation ○​ Confirms that all information required to be delivered to companies house had been duly filed and provides details of any changes to shareholdings (important where the changes were not really notifiable (ie no one new of significant control) ​ Company and its officers may be criminally liable if not filed within 14 days ○​ First confirmation statement must be filed within 12 months of initial incorporation - then all others every 12 months after date of incorporation ​ Other stuff ○​ Large companies are required to include an analysis of non-financial performance indicators in its strategic report ○​ If quoted it must also report on greenhouse gas emissions in the directors report ○​ If less than £6.5m turnover balance sheet below £3.26m max 50 employees is not required to do so ○​ Medium companies - turnover over £25.9m balance sheet £12.9m and max 250 employees only need to do so if quoted Chapter 4 - Limited Companies: Part 2 ​ Directors ○​ Any person occupying the position of director by whatever name called ​ Shadow director - although not properly appointed as a director does exercise a major influence on the directors ​ De facto director - who has no been properly appointed under CA but performs the role of a director ​ De jure - a properly appointed director ○​ Appointment of Directors  ​ Requirement for directors ​ Private must have 1 and public must have 2 ​ Company can be a director but must be one natural person ​ Human directors must be at least 16 and not disqualified from being a director ​ First directors - automatically appointed on incorporation if named in Part 2 of IN01 ​ Subsequent directors - articles may specify the permitted minimum and maximum number of directors ​ Articles will provide for the appointment of subsequent directors - ​ important to understand that directorship is an office - non executive position but can also be executive ○​ Non executive - do not work for the company in a paid position - will be entitled to fees for duties ○​ Executive director - paid position and will have an employment or service contract - often have a particular role and job title linked to their duties or specialism ​ Appointment of a non-executive director ​ Dealt with under MA17 and can be done via OR of shareholders or BR of directors ​ Appointment of executive director ​ Dealt with under MA19 and may be done by BR ​ Following appointment the company must: ○​ Update register of directors and register of addresses ○​ File form AP01 (individual directors) or AP02 (corporate directors) as appropriate with Companies House within 14 days ​ Directors Duties ○​ Directors owe fiduciary duties to their company (act in best interest of the company and not make a secret profit) - shareholders may act in their own interests ○​ The company can make a claim directly or by way of derivative claims against the directors - remedies include damages, restoration and account of profits. Members can also ratify breaches (provided they don't involve illegality such as fraud) ​ Any provision seeking to exempt / indemnify a director for negligence, default, breach of duty or fraud will be void ○​ To act within the company’s constitution and to exercise their powers for proper purposes (s171) ​ Directors must adhere to the provisions of the company’s articles and exercise their powers in the best interests of the company - their own personal interests for example when issuing shares or entering into contracts should not sway them ○​ To promote the success of the company (s172) ​ Director must act in a way they consider in good faith would be the most likely to promote the success of the company for the benefit of the members as a whole (just the company in question and not any parent  companies or those in the group etc) - test is subjective and in acting directors must have regard to 6 non-exhaustive factors: ​ The likely long term consequences ​ Employees interests ​ The need to foster good business relationships ​ Impact on the community and the environment ​ The desirability of maintaining a reputation for high standards of business conduct ​ The need to act fairly between members ​ The subjective nature of the test and the lack of weight given to the respective factors is a key criticism of this provision as it can make it very difficult to establish a breach - directors only need to “have regard” to the factors and the need to promote the success of the company will usually take precedence ○​ To exercise independent judgement (s173) ​ Director must not do anything to fetter (compromise or undermine) their right to exercise independent judgement unless it is done in good faith and in the best interests of the company - they may take legal or financial advice without being in breach of this section ​ Ie being swayed by minority shareholder may indicate not ○​ To exercise reasonable care, skill and diligence (s174) ​ Standard of care is of a reasonably diligent person - minimum objective standard (standard knowledge, skill and experience that may reasonably be expected of a director) which may be raised based on the actual knowledge skill and experience that the director has - e.g. if are a financial director rather than a generic director it will be imputed that they have more knowledge ○​ To avoid conflicts of interest (s175) ​ Taking advantage of property information or opportunities that belong to the company whether or not the company was in a position to exploit these - the directors of a private company may authorise a breach of this duty by BR - although the interested directors vote will not count ○​ Not to accept benefits from third parties (s176) ​ Will be no breach of this duty if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict (minimal or relates to normal corporate hospitality). However receipt of a gift may constitute bribery under the Bribery Act 2010 ○​ To declare interest in a proposed transaction with the company (s177) ○​ Remedies and ratification ​ As directors owe their duties to the company it is the company that is the proper claimant in any action for their breach - shareholders may consider taking derivative action if the directors fail to act ​ Remedies can include an account for profits, damages or an injunction ​ Shareholders may ratify a breach of a duty by OR - the votes of any interested director who is also a shareholder and those persons that they are connected with will not count ​ Unless by OR the shareholders vote to allow their vote to be counted  ​ Cannot have a provision that purports to exempt a director from or indemnify them in relation to any liability arising from negligence, default, breach of duty etc - will be void ​ Personal Liability of Directors ○​ A director will be personally liable to third parties dealing with the company while the director has given a personal guarantee or is guilty of wrongful trading, fraudulent trading or misfeasance. ​ It is unlikely that a director will be personally liable for fraudulent or negligent misstatements to a third party if he did not make an assumption of responsibility or had no personal nor special relationship with a third party ○​ Personal Guarantee - lenders often insist on personal guarantees from director-shareholders - makes them personally liable for the liabilities of the company taking away the real benefit of limited liability ○​ Wrongful trading - director of an insolvent company may be liable to contribute to the assets of a company where the company continued to trade and they knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvency ​ Combined objective and subjective test - will be a defence if the director took every step to minimise potential loss to creditors as ought to have been taken ​ Will be as the court sees fit - all directors will be able to potentially contribute not just who seems to be most in the wrong ○​ Fraudulent Trading (s 213 IA) - director of an insolvent company may be liable to contribute to the assets of a company where the company carried on business with intent to defraud creditors or for any fraudulent purposes - criminal offence ○​ Misfeasance (s212 IA) - breach of directors duties discovered on winding up - personal liability may be imposed in these circumstances ​ An example could be if within 12 months of commencing winding up the company made a payment out of capital in respect of the redemption or purchase of any of its own shares ○​ Criminal liability of companies for offences requiring mens rea by way of the identification principle - acts and state of mind of the company - directors and potentially other senior manager/ officers ​ Powers of Directors ○​ The powers of the directors are set out in the companies articles - their wide powers of management (MA3) are subject to any instruction given to the board by special resolution of the members (MA4) ○​ Directors powers are exercised either by making decisions at board meetings or by unanimous agreement (MA8), MA5 also contains wide powers of delegation ○​ Articles may make provision for appointing an alternate director during absence ​ Disclosure of Information Under CA 2006 ○​ Companies must maintain a register of directors (s162) and a register of directors residential addresses (s165) unless they have applied for exemption ○​ If a directors particulars change they must be reported to companies house using CH01 (individual) CH02 (corporate)  ○​ Registered name must be displayed at registered office, on business letters, publications, invoices, correspondence etc certain communications etc ○​ Must have country of registration and its company number and address on things like order forms and business letters ○​ Directors names do not need to be in business letters but if they are all must be included (s82 CA) ○​ Copies of directors service contracts or a memorandum of their terms must be kept by the company for up to one year after expiry/ determination (s228 CA) members have a right to inspect these (s299 CA) ​ Restrictions on Directors ○​ Restrictions on directors: directors service contracts (S188 CA) ​ Shareholders approval by OR is required for service contracts of a guaranteed fixed term of more than 2 years as such contracts could lead to significant liability for the company if wrongfully terminated ​ If guaranteed term is not duly approved by OR the service contract will be terminable on reasonable notice ​ Although the director will not need to declare their interest in the proposed service contract due to the exception in S117(6)(c) CA they will be unable to vote where it is approved ​ Memorandum of the proposed terms must be made available for inspection 15 days prior to meeting and during meeting s188(5) CA ○​ Restrictions on directors: substantial property transactions (s190 196 CA) ​ Directors under their general management powers may approve most property transactions involving the company but substation ones require shareholder approval by OR ​ Substantial property transaction - acquisition/ disposal of a non-cash asset where: ​ The parties involved are the company and a director or a person connected to a director and ​ The asset is substantial, ie value is not £5k or less and either more than £100k or more than 10% of the company's net asset value ​ Person connected to a director (S252- 257 CA) - spouse, civil partner, romantic partner, children, stepchildren, parents, children of romantic partners (siblings, grandparents, grandchildren, uncles, aunts, nephews are fine). ​ Body corporate - director and persons connected with the director who own at least 20% of the company voting shares ​ Transaction with body corporate (company which has that many shares) is voidable - unless did not have notice (bona fide for value), or is affirmed ​ If CA 190 is breached then a transaction is voidable (s195) ○​ Restriction on directors - Credit transactions ​ If under £15k for a credit transaction/ £10k if a loan or in the ordinary course of the company's business a credit transaction or provision of a security for a credit transaction - will not need approval ○​ Restrictions on directors: loans to directors (or directors of the holding/ parent company) (s197 CA)  ​ With limited exceptions loans made to a director or holding directors of more than £10k in total require the approval of the members by OR ​ Less than this just needs a BR ​ Unless it is for the purposes of the company, defending legal proceedings or in connection with regulatory action it will need OR ​ Transaction will be voidable if not approved unless ratified by OR of the shareholders within a reasonable time ​ Memorandum of the proposed terms must be available for inspection for 15 days prior to the meeting and at the meeting itself (s 197(3)) ​ Does not apply if the company is a money lending business ○​ Restrictions on directors: Payments for Loss of Office (s215-222 CA) ​ Certain payments to directors for loss of office require approval of the members by OR if they exceed £200 - does not include those due under existing contracts or pursuant to a legal obligation ○​ Restrictions in constitution/ articles ​ Ie if director is not allowed to contract the company to a loan or for transactions over a certain amount - validity cannot be challenged on the grounds of lack of capacity and company will be bound ​ Unless the other party acts in bad faith (just knowing that the other party is contracting beyond their powers is not enough to constitute bad faith) ​ To change the articles requires a special resolution - must register any change with copy of resolution and new articles to registrar within 15 days (change takes effect immediately from resolution though unless it is a change of objects in which case it is when registered) ​ Removal of Directors ○​ Director holds office until death, voluntary retirement, removal of disqualification ○​ Voluntary retirement/ resignation - director may resign by serving notification of resignation on the company - executive director will have to adhere to the terms of any service contract ○​ Removal - Bankruptcy order, entering into composition with creditors, physician or mental incapacity - directors office ceases in these circumstances (MA18(b-d)) ○​ Removal under S168 CA - shareholders removal via OR ​ Special notice (at least 28 days) of the proposed resolution must be given to the company of the proposed resolution s168(2) and 312(1) CA ​ Director has the right to be informed and make representations (S169) - written resolution procedure cannot be used here ​ Company must serve notice of the GM (s312(4)) - members may need to requisition a GM if board is uncooperative ​ Removal of a director is without prejudice to any right to compensation which the director may have - therefore it is important to check the directors service contract ​ Important to check for any Bushell v Faith clause - clause giving shareholder-directors weighted voting rights for every one that they would normally have on a resolution to remove them as director ​ Any shareholder agreement should also be consulted as may contain an agreement as to how voting powers are to be exercised  ​ Following resignation/ removal the company must: ​ Update register of directors and address ​ File form TM01 (individual directors) or TM02 (corporate directors) with CH within 14 days ○​ Disqualification by court under Company Directors Disqualification Act 1986 (CDDA) ​ Directors may be disqualified by the court from acting as director for 2-15 years in England and Wales ​ Grounds: ​ Conviction of an indictable offence in connection with promotion formation management or liquidation of a company ​ Persistent breaches of companies legislation (ie failing to file company's confirmation statement or accounts) ​ Fraud in winding up ​ Summary conviction for failure to comply with companies legislation ​ Wrongful or fraudulent trading ​ Being unfit director of insolvent company ​ Can include relevant foreign offences ​ It is a criminal offence to breach a disqualification order and the director will be personally liable ​ The Company Secretary ○​ The person responsible for: keeping company records, filing documents at Companies House, general administration of the company ○​ Not required for private company but is required for public (has some qualification requirements if public) ○​ If chooses not to appoint a secretary its first secretary named in part 2 of form IN01 is automatically appointed on incorporation - company must confirm on form IN01 on behalf of the secretary that he consents to act as such ○​ It is possible for another company to act as secretary ○​ Directors can remove and appoint new secretary by BR under MA3 ○​ Administrative formalities on a change of secretary are: ​ Update register; and ​ File form AP03 (individual appointment) or AP04 (corporate appointment) or TM02 (termination) within 14 days ​ Company Members ○​ Becoming a company member ​ Every private company must have at least 1 member - no legal maximum ​ First members of company are subscribers who signed companies memorandum prior to incorporation and agreed to become members of the company S112 CA ​ Subsequent members of the company are those who acquire shares and are registered as such ​ Registration of membership - every company must keep a register of its members S113 CA unless an election is made to keep the records centrally S128B CA - Shareholders may inspect and receive a copy within 5 days (unless it is for an improper purpose) - others can request  to do so and may need to pay a fee and specify why (company must comply within 5 days or if not for a proper purpose then apply to the court to refuse the request) - journalism is a proper purpose ​ Classes of share - different classes of share may be used with different rights attached ​ Shareholders agreements - may be entered into between shareholders to govern their relationship (protect minority shareholders, how voting rights will be exercised etc) ​ Liability of members - absent personal guarantees the company is liable for its own debts - the liability of a member to contribute to the debts of the company is limited to their investment in that company ○​ Members Powers ​ Powers of the members are laid down by statute and in the companies articles - they exercise it by passing resolutions in GMs or by written resolutions ​ Powers and rights given to members depend in many cases on the holding of a particular proportion of the company's voting shares although members have some powers irrespective of their shareholding ​ Examples of members powers: ​ Receive a share certificate ​ Receive notice of GMs, vote at GMs or appoint a proxy ​ Receive a copy of the company's annual accounts (must be sent to all whom the company has the address of whether they request or not (will have a copy of address if significant control 25.01+%)) ​ Inspect minutes of the GMs, company books and directors service contracts ​ Receive dividends where payable and declared ○​ Ordinary shares ○​ Preference shares - right to payment of any dividend declared in priority to other shares ○​ Redeemable shares - can be bought back by the company after a certain period ○​ Cumulative preference shares - carry a right that if the company cannot pay the dividend in one year then it can carry it forward to successive years ​ Request the court hold a GM ​ Bring winding up proceedings ​ Claim minority shareholder protection ​ Minority and Majority Shareholders ​ Majority shareholders thus have the right to remove a director under s168 CA ​ Percentage Power 100% Control the company  75% Pass SR 50% Block ordinary resolution >50% (50.1% +) Pass ordinary resolution >25% (25.1%+) Block SR Majority in number holding at Consent to short notice of least 90% of voting shares GM Any 2 voting members or any Demand a poll vote member(s) holding 10%+ voting shares >10% Refuse consent to short notice of GM 5%+ with voting rights Circulate written resolutions Circulate a written statement as to proposed resolutions 5% Requisition a GM ○​ Minority Shareholder Protection ​ Petition for unfairly prejudicial conduct (s994 CA) - member can petition the court for an order that the company’s affairs have been or are proposed to be conducted in a way that is both prejudicial and unfair to them, in this case the shareholder is the proper claimant - can cover a whole range of conduct - e.g. refusing to pay dividends when can cover a whole range of conduct - e.g. refusing to pay dividends when properly payable exclusion from management or excessive pay being awarded to directors e.g. promising that will be able to appoint a director if purchase shares but then company refusing to- most popular order of the court is that the shareholder is bought out ​ Cant bring on behalf of another shareholder if themselves have not been unfairly prejudiced ​ Derivative action (S260 - 264 - no longer a common law remedy) - claim by shareholder that act or omission of a director in breach of their directors duties - negligence, default or breach of duty or trust ​ Shareholders cannot bring a claim against directors if directors breach has caused a loss in the form of a decrease in share value if the company can bring the claim itself - unless suing in another capacity such as a creditor ​ Winding up on the just and equitable ground (s122(g) IA) - most drastic remedy and enables a member to apply to wind up the company on the basis that it is just and equitable to do so - e.g. due to total breakdown of communication or total deadlock/ inability to make decisions/ cant fulfil its intended purpose/ member has been excluded from management despite genuine expectation of being entitled to participate Chapter 5 - Financing a Business, Financial Records and Accounting Requirements ​ Equity Finance ○​ Also called share finance is the issue of new shares in exchange for consideration (ie where something of value is given in exchange for a promise received by a company - generates money/ assets for a company) ○​ Share issue ​ Process whereby new shares are allotted (technically different to issuing) in exchange for consideration received by the company and the member is entered into on the register of members in respect of those shares ​ Must file resolution with CH within 15 days and a return of allotment and statement of capital within a month ​ Directors authority - ​ In private companies with model articles and one class of shares the directors are free to issue further shares of the same class by board resolution ○​ Shares can have different nominal value, denominated in any currency and can be different depending on class and can be transferred in accordance with companies articles - if have different types of share then the director requires authorisation in articles or ordinary resolution ​ Otherwise proposed issue of shares by director requires advanced authority of members by OR - for companies after 2009 need to check articles for restrictions (can amend by SR) if before then in memorandum of association (OR to change) ​ Authority to issue must state - maximum number of shares the directors are allowed to issue and the date when the authority will expire ​ If OR is passed it must be filed at Companies House within 15 days ​ Pre-emption Rights ​ If it is proposed to issue shares wholly for cash then pre-emption rights may apply - generally on issue of new shares (provided it is ordinary shares and for cash consideration) they must first be offered to existing members on the same or more favourable terms in proportion to their existing shares - have right for 14 days ​ Statutory rights may be: ○​ Varied or removed in articles ○​ Disapplied by SR of members ○​ Formerly waived in relation to specific issue if all members intend to decline offer ​ Articles can also extend pre-emption to shares for both cash and non-cash consideration ○​ Standard articles means that this only applies to ordinary shares - other shares or shares not issues for cash  consideration or under an employees share scheme dont have pre-emption rights ​ Payment for shares and administration/ filling ​ Shares may be issued fully or partly paid - for private companies with MAs MA21 states that they must be fully paid ​ Shares are quite commonly issued at a premium - for price exceeding their base/nominal/ par value ​ Shares may not be offered at a discount ​ Form SH01 must be sent to Companies House within 1 month of share issue ​ Copies of any OR or SR must be sent to CH within 15 days and any relevant PSC forms filed within 14 days ​ Register of members if kept must be updated and share certificates issued within 2 months - PSC register should also be updated ○​ Includes name and address, date they were registered, date they ceased to be a member, statement of shares held, amount paid ​ If it keeps its records with CH instead of their own books then all members details will be publicly avaliable ○​ If over 50 members then must keep an index of names ○​ Technically will not become a member until the buyer of shares is added to the register of members ○​ Share transfer ​ Share transfer - involves dealing with existing shares - no new money or assets are generated for the company - but potential for individuals control of company to change ​ Share transmission - transfer of shares by operation of law- e.g. to PRs on death or trustee in bankruptcy - these people will receive dividends but do not become shareholders. They may apply to be registered as a member or sell in their capacity ​ Transfer process: ​ 1) - transferor completes and signed stock transfer form and sends it with share certificate to transferee ​ 2) transferee pays stamp duty on STF (0.5% rounded up to nearest £5 - only payable if the consideration given is >£1000) - will be on each individual class of share- cant group multiple classes for a total sum - not if gifts - even if exempt from the duty will still need to send to HMRC for stamping ○​ If the consideration is shares for shares for bona fide commercial reasons (and is only shares) ie company A and B issuing shares to each other and the number and class of shares mirrors each other then HMRC may grant stamp duty relief ○​ Exempt from stamp duty if it is appropriated by PRs or in satisfaction of a general legacy of money  ​ 3) transferee sends stamped STF and share certificates to company ​ 4) directors pass BR to approve/ reject transfer (absolute discretion) ​ 5) Transfer must be registered and new share certificate sent to the new member within 2 months of application unless directors have right to refuse register of transfer ​ 6) company will update details of shareholders annually on confirmation statement ​ Until entered onto register of members the transferor holds on trust - so if directors do not register then will never be the legal owner but transferor must vote according to their wishes and hold dividends on trust ​ If company becomes multi member or goes from multi member to just one then must update the members register with a note stating the company has multiple members ​ If the amount of members increased above 50 - company must then keep an index of its members unless the register will be sufficient - do so within 14 days ○​ Dividends ​ A payment the company makes to its members providing them with a return on their financial investment in the company ​ May only be made out of profits available for the purpose - the company must calculate its accumulated realised profits to date and deduct its accumulated realised losses to date - ​ Any profits or losses will be carried forward - may be able to pay dividend even if it makes a loss that year (accumulated profits exceed accumulated losses) - includes interim dividend payments (no special authorisations for interim dividends- dont even need OR just board approval) ​ Can even make one before first year accounts - provided use initial accounts that give a reasonable judgement as to amount of profit loss assets etc (if it is not first year then just look at last years accounts and if it can be reasonably determined that accumulated profits exceed accumulated losses) ​ Articles will further regulate how they are to be paid ​ 1) check profits are available ​ 2) check special articles ​ 3) directors decide whether dividend ought to be declared and make recommendation to members in GM ○​ Directors can rescind this any time before the shareholders resolution ​ 4) members vote (OR) to pay themselves the amount recommended by directors or less (cant vote for more) - this is the date that the debt is created ​ If does not declare a dividend when properly payable then this may be grounds for unfairly prejudicial conduct  ​ Will need to be approved by resolution - but remember the Duomatic principle - often fine for smaller companies if everyone is there and agrees ​ If a distribution is unlawful: ​ Any member who knew or ought to have known it was unlawful will be liable to repay the corresponding sum to the company ​ Board of directors who recommended the distribution may be in breach of duty ​ Directors will be jointly and severally liable but not the members so long as they did not know ​ Final dividend - will be based on the companies last audited annual accounts ○​ Buyback of shares ​ Where company buys back its own shares and they are cancelled ​ This is a method of capital maintenance - capital provided by shareholders must be maintained and not be returned to them as creditors rely on it ​ If it was made and within a year the person whose shares were bought and the directors will be liable jointly and severally (except for directors who can show that they had reasonable grounds for their opinion) ​ Redeemable shares (ie shares which in the terms of the share will be redeemed by the company at a specific time) - not subject to these requirements ​ Buyback is heavily regulated ​ Buyback from profits - a buyback that is only permitted where distributable profits are available ​ 1) check shares are fully paid ​ 2) check articles don't prohibit buyback ​ 3) directors should consider duties under s172 and 174 ​ 4) check profits are available ​ 5) OR required to approve contract (holders of shares being bought cant vote) ​ 6) - copy buyback contract or summary of it must be sent with written resolution or made available for inspection for 15 days before and at GM. Payment must be made at time of buyback ​ 7) - file forms SH03 and SH06 within 28 days, cancel shares, update register of members, file relevant PSC forms and update PSC register. Make contract/ summary available for 10 years at registered office ○​ Cash asset value and profit and loss should be reduced by purchase price while share capital should be reduced by nominal value and capital redemption reserve created in the same sum ​ Buyback from capital - can only use if profits are not available (ev