FAQ Notebook LLM of Gov and Comp law PDF

Key points: Corporate Governance and Company Law FAQ 1. What are the different types of business entities in Ireland? The Companies Act 2014 outlines several types of registered companies, including: LTD (Private Company Limited by Shares): The most common type, offering limited liabilit...

Key points: Corporate Governance and Company Law FAQ 1. What are the different types of business entities in Ireland? The Companies Act 2014 outlines several types of registered companies, including: LTD (Private Company Limited by Shares): The most common type, offering limited liability to shareholders. DAC (Designated Activity Company): Similar to LTD but requires an objects clause outlining its specific purpose. PLC (Public Limited Company): Allowed to offer shares to the public and can be listed on a stock exchange. CLG (Company Limited by Guarantee): Typically used for non-profit organizations, where liability is limited to a pre-determined amount. UC (Unlimited Company): Shareholders have unlimited liability for company debts. The choice of entity depends on factors like size, purpose, and desired liability structure. 2. What is the "separate legal personality" principle and its implications? The principle of separate legal personality, established in the landmark case of Salomon v A Salomon & Co Ltd AC 22, states that a company is a distinct legal entity separate from its shareholders. This has several consequences: The company can own assets, enter contracts, and sue or be sued in its own name. Shareholders have limited liability, meaning their personal assets are protected from company debts (except in the case of unlimited companies). The company's actions are not attributable to its shareholders, even if a single shareholder holds a majority stake. 3. What are the key rights of shareholders in a company? Shareholders have various rights, primarily stemming from Section 31 of the Companies Act 2014, which creates a contractual relationship between the company and its members: Voting rights: Shareholders can vote on important company decisions at general meetings. Dividend rights: Shareholders are entitled to receive a portion of company profits distributed as dividends, if declared by the directors. Capital surplus rights: In the event of a winding-up, shareholders have a right to participate in any remaining capital surplus after creditors are paid. Statutory rights: Shareholders have statutory rights to information, such as receiving financial statements and attending general meetings. 4. What remedies are available to minority shareholders in cases of oppression? The Companies Act 2014 provides remedies for minority shareholders who are oppressed by the actions of the majority:  Section 212: Allows a shareholder to apply to court if the company's affairs are conducted in a manner oppressive to them or disregard their interests. The court can issue orders to rectify the situation, including regulating company affairs, purchasing shares, or awarding compensation. Derivative action: In limited circumstances, a shareholder can sue on behalf of the company if a wrong has been done to the company, and the majority shareholders refuse to take action. 5. What are the duties of company directors? Directors have fiduciary duties to act in the best interests of the company, including: Duty to act in good faith: Directors must make decisions in what they genuinely believe to be the company's best interests. Duty to act honestly and responsibly: Directors must act with integrity and competence. Duty to avoid conflicts of interest: Directors must avoid situations where their personal interests conflict with those of the company. Duty not to profit from company information: Directors cannot use company information for personal gain. Duty to exercise care, skill, and diligence: Directors must exercise reasonable care and skill in their decision-making. 6. What are the implications of "piercing the corporate veil"? Piercing the corporate veil refers to situations where the courts disregard the separate legal personality principle and hold shareholders personally liable for company debts. This is an exceptional remedy used in limited circumstances, such as: Fraud or improper conduct: When the company structure is used to deceive creditors or evade legal obligations. Agency: If the company is acting as a mere agent of the shareholder. Groups of companies: In some cases, the courts may treat a group of companies as a single economic entity. 7. What are the key requirements for maintaining accounting records and preparing financial statements? The Companies Act 2014 mandates companies to: Maintain proper accounting records: Companies must keep accurate and detailed records of their financial transactions, assets, and liabilities. Prepare annual financial statements: Directors are responsible for preparing financial statements that give a true and fair view of the company's financial position and performance. Audit requirements: Depending on the company's size, financial statements may need to be audited by an independent auditor. 8. What are the restrictions on prohibited transactions involving directors? The Companies Act 2014 prohibits certain transactions involving directors, including: Directors' loans: Loans to directors and connected persons are restricted and require shareholder approval under the Summary Approval Procedure (SAP). Property transactions: Transactions where a director acquires company assets require shareholder approval. Financial assistance for the purchase of company shares: Companies are generally prohibited from providing financial assistance for the purchase of their own shares, subject to certain exceptions. These restrictions aim to protect the company's interests and prevent conflicts of interest. Brief of module: Briefing Document: Introduction to Corporate Governance and Company Law Source: ACC30050 Corporate Governance and Company Law Lecture Slides (Weeks 1-6) Author: Dr. Charles Garavan This briefing document reviews the key themes and important facts presented in Dr. Garavan's lecture slides for the ACC30050 module. The document covers topics relating to the purpose and history of company law, different types of business entities, the rights and remedies of shareholders, and the duties and responsibilities of company directors. 1. Introduction and Purpose of Company Law Company law serves three primary purposes:Regulation: Establishes rules for the formation, operation, and dissolution of companies. Protection: Safeguards the interests of stakeholders like shareholders, directors, creditors, and society. Promotion of enterprise: Creates a legal framework that encourages business formation and growth. Understanding company law is crucial for professionals in:Auditing Company secretarial work Directorship and board membership Providing client advice on planning, structures, and finance. 2. History and Evolution of Company Law Companies are legal entities with separate legal identities:Corporation sole: Represents a public office. Corporation aggregate: Comprises a group of individuals acting as a single entity.  Historical development of corporations:Roman concession theory: Early corporations were formed through concessions from the Roman state. British system: Corporations were established through royal charters or acts of parliament. Modern company law: Emphasizes limited liability and a codified legal framework. 3. Types of Business Entities Companies Act 2014 outlines different types of registered companies:LTD: Private company limited by shares, the most common type. DAC: Designated activity company, suitable for specific activities. PLC: Public limited company, for large businesses with publicly traded shares. CLG: Company limited by guarantee, typically for non-profit organizations. UC: Unlimited company, where members have unlimited liability. The Act categorizes company offences with varying penalties:Category 1: Most serious offences with potential imprisonment and substantial fines. Category 2: Less severe offences, still carrying potential imprisonment and fines. Category 3: Summary offences with lesser penalties. 4. The Constitution of a Company The company's constitution defines its legal parameters and the relationship with its members. Key elements of a company's constitution:Name clause: Indicates the company type and complies with naming restrictions. Liability clause: Defines the liability of members (limited or unlimited). Capital clause: Specifies the authorized and issued share capital. Objects clause: Outlines the company's permitted activities (relevant for DACs, PLCs, and CLGs). Supplemental regulations: Additional provisions governing the company's operations. 5. Separate Legal Personality and its Consequences The landmark case of Salomon v A Salomon & Co Ltd AC 22 established the principle of separate legal personality. Consequences of separate legal personality:Suing and being sued: The company, not its shareholders, can sue and be sued in its own name. Contractual obligations: Shareholders are not personally liable for company contracts. Tort liability: The company is responsible for its own torts, not its shareholders. Ownership of property: The company owns its assets, not the shareholders.  Exceptions to separate legal personality: The courts may "pierce the corporate veil" in cases of fraud, improper conduct, or avoidance of existing legal obligations (e.g., Jones v Lipman). 6. Shareholders' Rights and Remedies Shareholders' rights derive from Section 31 of the Companies Act 2014, creating a contract between the company and its members. Key shareholder rights: Voting at company meetings. Receiving dividends (if declared). Participating in surplus capital upon winding up. Accessing company information. Remedies for shareholder grievances: Rule in Foss v Harbottle: Generally, the company is the proper plaintiff for wrongs committed against it, not individual shareholders. Exceptions to Foss v Harbottle: Shareholders can sue in cases of: Ultra vires or illegal acts by the company. Transactions requiring more than a simple majority vote. Fraud on the minority shareholders. Situations where justice demands an exception. Derivative action: Shareholders can sue on behalf of the company with the court's permission if certain conditions are met. Oppression of a minority: Section 212 of the Companies Act 2014 allows shareholders to seek relief if the company's affairs are conducted in an oppressive manner. Winding up: Shareholders can petition the court to wind up the company under certain circumstances, such as if it is just and equitable to do so. 7. Directors: Types, Appointment, Powers, and Duties Types of directors:Executive directors: Employed by the company and involved in day-to- day management. Non-executive directors: Independent advisors providing oversight and strategic guidance. De facto directors: Individuals acting as directors without formal appointment. Shadow directors: Individuals influencing the board's decisions without holding formal positions. Appointment and removal: Directors are typically appointed by shareholders and can be removed by ordinary resolution.  Powers: Directors manage the company's business within the framework of the Companies Act and the company's constitution. Fiduciary duties: Directors owe various duties to the company, including: Duty to act in good faith and in the best interests of the company. Duty to act honestly and responsibly. Duty to act in accordance with the company's constitution. Duty to avoid conflicts of interest. Duty to exercise care, skill, and diligence. Duty to creditors: When a company is insolvent, directors owe a duty to consider the interests of creditors. Remedies for breach of duty: The company can seek remedies such as: An account of profits made by the director in breach of their duty. Damages for losses suffered by the company. An injunction to prevent further breaches of duty. Relief from liability: The court may relieve a director from liability in certain circumstances, such as if they acted honestly and reasonably. 8. Company Secretary Every company must have a company secretary. The secretary is responsible for:Maintaining company records. Filing statutory documents. Advising the board on corporate governance matters. Ensuring compliance with company law. 9. Accounting Records and Financial Statements Companies must maintain proper accounting records that accurately reflect their financial position. Directors are responsible for preparing financial statements that give a true and fair view of the company's financial performance. The Companies Act 2014 sets out detailed requirements for accounting records and financial statements. Failure to comply with these requirements can result in severe penalties for the company and its directors. Conclusion: Understanding the principles of corporate governance and company law is essential for anyone involved in the management and operation of companies. The information in this briefing document provides a foundation for further study and research in this complex and ever-evolving area of law. Attached short answer quiz questions and answers: Short-Answer Quiz Instructions: Answer the following questions in 2-3 sentences each. 1. What is the central principle established in the case of Salomon v A Salomon & Co Ltd? 2. Briefly explain the concept of "piercing the corporate veil." 3. What are two key differences between a private company limited by shares (LTD) and a designated activity company (DAC)? 4. Describe the function of the "objects clause" in a company's constitution. 5. Outline the three key elements of the "section 31 contract." 6. Explain the rule in Foss v Harbottle and its implications for shareholder remedies. 7. What is a "derivative action," and under what circumstances might it be used? 8. What are two statutory restrictions on individuals serving as company directors? 9. Briefly describe the role and responsibilities of a non-executive director. 10. Outline the key requirements for accounting records under the Companies Act 2014. Answer Key 1. Salomon v A Salomon & Co Ltd established the principle of separate legal personality for companies, meaning a company is a distinct legal entity from its shareholders, even if one person holds all the shares. 2. Piercing the corporate veil refers to the rare situations where courts disregard a company's separate legal personality to hold shareholders liable for the company's actions, typically when the company is used to commit fraud or evade existing legal obligations. 3. Unlike LTDs, DACs must have an objects clause limiting their activities and a minimum of two directors. Additionally, DACs can issue shares or be limited by guarantee, while LTDs are solely limited by shares. 4. The objects clause defines the company's permissible business activities. Actions outside the scope of the objects clause are considered ultra vires, potentially leading to legal challenges. 5. The section 31 contract binds: a) the company and its members, b) members to each other, and c) is enforceable by and against members regarding their rights and obligations as members. 6. The rule in Foss v Harbottle states that when a wrong is done to a company, the company itself is the proper plaintiff, not individual shareholders. It prevents minority shareholders from suing for wrongs that could be ratified by the majority.  7. A derivative action allows a shareholder to sue on behalf of the company to remedy a wrong done to the company. It's a rare exception to the rule in Foss v Harbottle, used when the wrongdoers control the company and prevent it from pursuing its own claim. 8. Undischarged bankrupts and minors are prohibited from serving as company directors under the Companies Act 2014. 9. Non-executive directors are external appointments providing an independent perspective to the board. They contribute to leadership and management decisions, ensuring financial probity and compliance with high ethical standards. 10. Accounting records must be kept at the company's registered office or another specified location and accurately document daily financial transactions, assets, liabilities, stock, and services rendered. They must be sufficient to explain the company's transactions and facilitate the preparation of true and fair financial statements. Second short answer quiz: Short-Answer Quiz Instructions: Answer the following questions in 2-3 sentences each. 1. What are the key differences between a private company limited by shares (LTD) and a designated activity company (DAC)? 2. Explain the "indoor management rule" and provide an example of its application. 3. What are the two key elements of the rule in Foss v Harbottle? 4. Outline the circumstances under which a minority shareholder might be able to bring a derivative action. 5. Define "fraud on the minority" in the context of shareholder remedies. 6. What conditions must be met for a company to be considered a "small company" under the Companies Act 2014? 7. Explain the concept of "piercing the corporate veil" and provide an example of when it might be applied. 8. Describe the statutory duties of directors in relation to accounting records. 9. What are the consequences for a director who makes a declaration of solvency without reasonable grounds? 10. What is the statutory definition of a "shadow director"? Short-Answer Quiz Answer Key 1. LTDs have no objects clause and unlimited capacity, may have only one director, and cannot list debt securities. DACs must have an objects clause, must have two directors, and can list debt securities. 2. The indoor management rule protects third parties dealing with a company by assuming internal procedures have been followed. Example: a third party can assume a contract signed by a director is valid, even if the director exceeded their authority. 3. Foss v Harbottle: (1) If a wrong is done to the company, the company is the proper plaintiff. (2) Shareholders cannot bring an action to overturn a decision that could be ratified by the majority. 4. A derivative action allows a minority shareholder to sue on behalf of the company where those in control of the company are committing a wrong against it. It requires court leave and is only available where other remedies are unavailable. 5. Fraud on the minority occurs when the majority shareholders benefit from a wrong committed against the company, making it unratifiable by ordinary resolution. 6. A small company must meet two conditions in the current and previous financial year: (1) turnover not exceeding €12 million, (2) balance sheet total not exceeding €6 million, and (3) average number of employees not exceeding 50. 7. Piercing the corporate veil allows courts to disregard the separate legal personality of a company to hold individuals liable, typically when the company structure is used to commit fraud or evade legal obligations. Example: Using a company to avoid a personal debt. 8. Directors must ensure accounting records are kept, containing records of daily transactions, assets and liabilities, stock, and services provided. Records must be kept for six years and explain transactions to facilitate financial statement preparation. 9. A director making a declaration of solvency without reasonable grounds may be held liable for the company's debts upon application by the liquidator, creditor, member, or ODCE. 10. A shadow director is a person whose directions or instructions the company's directors are accustomed to act upon, excluding professional advice.