Law In A Business Context

Front 1

Terms of Partnerships

Back 1

•Partnership is a contractual relationship

•The partners make a contract with each other as regards their relationship

•Partners are generally free to agree whatever terms they wish

•In the absence of an agreement the Partnership Act 1890 section 24 sets out nine terms which are implied into the contract which the partners make

•The number of partners must be a minimum of two – but there is no upper limit on the number of partners any firm may have

•Partners personally share responsibility for the business including any losses.

•Partners share the profits and each partner pays tax on their share.

Front 2

Terms of Sole Trader

Back 2

•As a sole trader the individual runs their own business and is self-employed

•A sole trader keeps their own business profits after they have paid tax on them

•A sole trader is personally responsible for any losses the business makes

•Sole traders must register with HM Revenue and Customs and follow certain rules on running and naming their business.

Front 3

What is thedifference between ordinary shares and preference shares?

Back 3

Ordinary shares have a lower priority for company assets and only receive dividends at the discretion of the corporation's management. Ordinary shares are generally entitled to one vote per share.

Preference shares often do not have voting rights and can be converted into common shares. Preferential right to a dividend of fixedamount or fixed percentage per share

Front 4

What is a fixed charge?

Back 4

A fixed charge is a mortgage on certain assets to the creditor. The company will not be able to dispose of or change the nature of, the property charged without the permission of the creditor

Front 5

Define a floating charge?

Back 5

A creditor who takes a floating charge takes a company’s existing and future assets as security.

A floating charge does not attach to any particular items of property until it crystallises , so it does not prevent the company from selling the assets over which it is granted.

Front 6

Crystallisation

Back 6

Crystallisation is the process by which a floating charge becomes a fixed charge attaching to the assets of the company which are charged at that time. When crystallisation occurs the company is no longer free to dispose of the assets.

Front 7

List three differences between debentures and shares

Back 7

Debenture is a written agreement between a lender and a borrower

Debentures are typically loans that are repayable on a fixed date

Most debentures also pay a fixed rate of interest

Share is an item of intangible personal property

Share represents the size of the shareholder’s interest in the company

Front 8

Types of directors

Back 8

A de jure director

A de facto director

A shadow director

An executive director

A non-executive director

Front 9

•Dejure Director

Back 9

– someone who is:

–Properly appointed

–Agrees to act

–Not disqualified from acting

Front 10

•“De facto” director

Back 10

A person “…who claims to act and purports to act as a director, although not validly appointed as such…” Millet J in Re Hydrodam (Corby) Ltd

Front 11

•Shadow director

Back 11

Person in accordance with whose directions or instructions the directors of the company are accustomed to act (s.251 CA 2006)

Front 12

•Executive Director

Back 12

– likely to be an employee and charged with some specific role e.g. finance director, sales director

Front 13

•Non-Executive Director

Back 13

– part-time director who does not have a specific role and generally just attends board meetings. Role is to bring outside expertise and provide control over executive directors

Front 14

Managing Director

Back 14

– articles usually allow board to delegate powers to one or more of their number. Managing director will carry out day to day management functions

Front 15

•AlternateDirector

Back 15

– appointed by a director to attend and vote at a board meeting they are unable to attend.

Front 16

Appointment, vacation and removal of directors

Back 16

•Appointment – usually appointed byexisting directors or by members passing ordinary resolution

•Publiccompanies need a minimum of two, private companies one

Front 17

Duty to act within powers s171

Back 17

•Must act in accordance with company’sconstitution

•Only use powers for purpose for whichthey were given

•Hogg v Cramphorn (1967)one or more

Front 18

Duty to promote success of company s172

Back 18

•Must act in good faith in a way whichpromotes the success of the company and for the benefit of the members as awhole

•Interests of company–MutualLife Insurance v Rank [1985]–

•Interests of members–ParamountCommunications v Time Inc (1989)

Front 19

Duty to exercise independentjudgment s173

Back 19

•Noteposition of shareholder agreements–FulhamFootball Club v CabraEstates Plc (1994)ent-->

Front 20

Foss v Harbottle (1843)

Members:Majority Rule

Back 20

Two members of a company sued five directors who had sold land to the company for more than it was worth.

Held; The shareholders had no right to sue. If the directors had wronged the company then only the company could sue in respect of that wrong. (The company was most unlikely to do this because it was controlled by the very directors who had cheated it!)

Front 21

OrdinaryShares

Back 21

•Normally one vote per share(articles can provide otherwise)

•Canattend and vote at annual general meetings (AGM) and other general meetings (GM)

•Right to return of capital afterpreference shares

•Right to share in distribution of surplus assets•Dividend depends on companyprofits, paid after preference shares, and no automatic right to a dividend

Front 22

PreferenceShares

Back 22

•Preferential right to a dividend of fixedamount or fixed percentage per share (paid before anything is paid to ordinaryshareholders but must be paid out of distributable profits)•

•Right to dividend cumulative unlessotherwise stated•

•Preferential right to repayment of capital onwinding up•

•Noright to share in distribution ofsurplus assets with ordinary shareholders unless expressly stated

Front 23

Winding up

Back 23

The legal personality of a company is ended by a process known as liquidation or windingup. After the company is wound up it will cease to exist.

Front 24

Preferential creditors

Back 24

Preferential creditors are owed money in relation to the following types of debts:

■ contributions to occupational pension schemes;

■ unpaid wages of up to £800 per employee;

■ unpaid holiday pay;

■ loans used to pay wages or holiday pay.