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SETTING UP IN BUSINESS
Must cover the following matters with new clients:
1
...
Conflict of interest check
3
...

4
...
Open a matter

•

Legislation:
1
...
LLPs Regulations 2001 Default provisions on capital and profit
share between members
...
LLPs (Accounts & Audit) (Application of Companies Act 2006)
Regulations 2008 Set out accounting requirements
...
LLPs (Application of CA 2006) Regulations 2009 apply the CA 2006
to LLPs, e
...
must have a register of charges and file an annual
confirmation statement
...
Similar disclosure to companies:
1
...
Details of members
LLPs can, for a fee, keep registers of members, directors,
secretaries and charges at Comp
...

3
...
LLPs need to keep a PSC Register disclosing all persons of
significant control
...
Disclosing details of certain invoices and payment practices

•

May trade immediately? No, as LLPs must be registered
...
1 person but cannot form
sole trader business for more than 1
...
Flexibility but pressure if sole trader has no
support
...

Expenses when setting up: No formalities so no setting up costs
On-going expenses after the business is set up: None necessary,
although usually accountants will be involved in keeping accounts
Methods of financing: No quick options
...

Profits: All profits go to the owner
...

May trade immediately? Yes
...
The company
may therefore own property, enter into contracts, sue and be sued in its own
name
...

•
•
•

•

Partnership

s
...
– May form a partnership irrespective of contrary intention
...
The partnership is unable to own property or enter
into contracts
...
If partnership goes insolvent, creditors
can enforce debt against the partners personally
...
2 persons
Expenses when setting up: None necessary, although it beneficial to
have a Partnership Agreement drawn up by lawyers (more expensive)
...

Methods of financing: Partners can borrow but cannot create floating
charges
...

Liability: Not limited - Partners have unlimited personal liability
...
No disclosure required
May trade immediately? Yes
...
– Common for Law firms
...
But for tax purposes, it
is treated as a partnership and the members will be taxed as partners, each
being liable to pay tax on his share of the income of the LLP
...

Expenses when setting up: Low costs, but must pay legal fees for
Partnership Agreement
...

Registration fee + Incorporation document
2
...

Printing of LLP stationery

•

On-going expenses after the business is set up:
2008 Regs Accounts must be prepared by accountants annually
...

SBEEA 2015 File a Confirmation Statement min
...

Higher costs due to regulation and disclosure rules
...
There is therefore nothing about
calling of (or procedure at) meetings
...

Methods of financing: LLP can borrow and create floating charges
...
Cannot raise finance by issuing shares
...
7(1) CA 2006 Min
...
, as well as incorporation fees due to Companies House
...
High on-going administrative costs
(More than LLPs) because of the greater regulation and disclosure
rules
...
Companies can adopt their own tailor made
articles instead of the model articles
...

Again, of members give personal guarantees, limited liability is lost
...
e
...


•

Liability to third parties: s
...

Legislation: CA 2006 + all other relevant legislation and common law
...

s86 CA 2006 Registered office
2
...

Information on directors (and secretary if the company has
one) and members
...
House as an alternative to internal registers
...

need to keep a PSC Register disclosing all persons of significant
control
...

Disclosing details of certain invoices and payment practices

•
•

PARTNERSHIPS:
Key characteristics of a partnership:
tax transparent
allows for a high degree of confidentiality
min 2 people
PA 1890 does not distinguish between actual and legal persons,
so a company could be a partner
...
Default provisions are
disadvantageous and must set up a Partnership Agreement
...
5 PA 1890 Each partner is an agent of the firm, and will bind
the firm and other partners by contracting with third parties
...
6 PA 1890 The firm will be bound by the actions of anyone
authorised to act on the firm’s behalf
...
30 PA 1890 All partners share a fiduciary relationship and have
a duty not to compete with the firm by carrying out a similar
business without the permission of the other partners
Advantages:
× it costs nothing to create a partnership
...

× Cheaper administrative costs as no need to file profits
× Tax transparency – taxes flow through to the partners
BLP – All chapters – Revision notes | Page 1 of 28

Existence of partnerships:
s
...

s
...


• 1 person or more? No, min
...


Min number of
shareholders
Min amount of
share capital

ss
...
24(1) Profit-sharing Ratio: partners are to share equally to the
profits even if the partners have not contributed equally
...
Maybe they will want a unanimous decision
for expenditure
•
s25 Cannot expel a partner without a Part
...


Min number of
directors
Company
secretary

s
...

Personal liability for partnership debts:
Each partner is personally bound under the firm’s contracts
...
In some circumstances, non-partners can also become
personally liable
...
9 Contractual Liability: Every partner in a firm is liable jointly with the
other partners for all the debts and obligations of the firm incurred
whilst he is a partner
...
10 and 12 Tortious Liability: joint and several
...
17(1) a new partner will not automatically be liable in relation to any
debts incurred by the partnership before he joined
...
17(2) a partner will still be liable after he retires in respect of debts
incurred by the partnership whilst he was a partner
...
17(3) unless:
1) The creditor agrees
2) You specifically absolve them
3) You novate the contract
Dissolution of partnership:
If no Partnership Agreement, use default provisions in PA 1890:
s
...

expiry of fixed term
2
...
33 death or bankruptcy of partner or
3
...
34 if the partnership business becomes unlawful
-

ss
...
e
...

Dominic might not want this to happen
...

Make an agreement so that the remaining partners can get their money
back and the partnership stays as it is (Buy-out)
...
44(b)(3) Subject to a partnership agreement, where a partnership is
wound up, once all debts and liabilities have been paid, any
money/assets left will be distributed so that each partner is paid back
his/her original capital first
...
This is called the asset surplus ratio (ASR)
...
44(b)(4) If there is no agreed ASR then surplus assets are shared in
accordance with the agreed profit sharing ratio (PSR)
...
24(1) If there is no PSR then they are shared equally
...
755 CA 2006 Only public companies can offer shares to public
...
756 Offer to the public is defined
...
e
...

Public company:
• Limited Liability? Yes
...

• Privacy? No privacy due to filing requirements

Public company

ss
...
7(1) and 8(1) 1

No minimum share capital,
so it could be incorporated
with just 1 share of 1p
...
8(1)(b) Must have at least
1 share
s
...
586 and s
...

£50,000, of which at least
1/4 must be paid up
...
154(2) 2

s
...


s
...


s
...
270(3)(b) There is no
company secretary, the
directors (or any person the
directors authorise) may do
anything that the secretary
is authorised to do
...
19 PA 1890 The partners’ mutual rights and obligations can be varied
at any time by their unanimous consent
...

Partnership Property:
Each partner owns a share in the partnership property
...


Private company

s
...


s
...


Certificate
required
before start of
trading

s
...


s
...


Can commence business as
soon as incorporated
...

s
...

Shares can be issued
without immediate
payment
...
761(1)(2) Cannot
commence business until a
trading certificate is issued
by Registrar showing that
the company allotted
share capital is not less
than the minimum
...
336 Must have min 1
annual general meeting
each year
...
593(1) Payments in cash
only or where
consideration has been
independently valued
...
586(1) 25% of nominal
value must be paid on
allotment plus the whole
of any premium
Public companies are able
to offer their shares to the
public so they are subject
to a higher level of
regulation than private
companies
...
755(1) Prohibited

FSMA imposes
considerable other
restrictions

CONFIRMATION STATEMENT:
Min
...
H
...

ss112A and Part 2A CA 2006 (ss
...
167A-E, 274A, ss
...
H
...


PEOPLE WITH SIGNIFICANT CONTROL:
Part 21A CA 2006 PSC regime: applies to all companies except listed
companies
...

Part 1, Sched 1A CA 2006 A PSC over a company is an individual who
meets at least one of the following:
1
...
The person holds the right, directly or indirectly, to appoint or
remove a majority of the board of directors of the company;
3
...

s
...
Failure to do so is a criminal offence
...

BLP – All chapters – Revision notes | Page 2 of 28

REGULATION OF FINANCIAL SERVICES:
General prohibition:
s
...
23 FSMA 2000 The maximum penalty for breaching this prohibition is
2 years in prison and/or an unlimited fine
...
21 FSMA 2000 Criminal offence to communicate an invitation or
inducement to engage in investment activity in the course of business
...
This
provision aims to ensure that investors, particularly vulnerable and
inexperienced investors, are not exposed to misleading sales pitches
...
21 FSMA 2000 Criteria to avoid criminal offence:
1
...
an investment bank which is authorised and
regulated by the FCA
...

2
...
21 FSMA 2000
...
, covers promotions which are made only to
investment professionals, who are less likely to be deceived by a
clever but misleading promotion
...
89-90 FSA 2012 Further criminal offences:
1
...
recklessly making a misleading statement;
3
...
engaging in a course of conduct which creates a false or
misleading impression
...

Insider dealing:
s
...
It is a criminal offence
to deal in price-affected securities based on inside information
...

incorporation online and/or using hard-copy documents can
only take place during Companies House opening hours
...

traditionally been regarded as the cheaper way to form a
company (Companies House fees + legal fees) however, once
legal fees are factored in, the costs of the two methods are
not materially different
...


NEW NAME FOR THE COMPANY:
Choosing a company name:
s
...
53 name cannot be offensive
s
...
55 name cannot use sensitive words
...

s
...
59 A private company’s name must end with limited or ltd
...
16(2)-(3) The company becomes a legal entity when registered at CH
s
...

Post-registration:
s
...
392 The directors may change the accounting reference date

APPOINTING OFFICERS OF A COMPANY:
s
...
270(3)(b) If no cosec, the directors act as a cosec
s
...

s
...

s
...

s
...

MA 5 Directors may delegate powers
...
H
...
Form IN01 The application form
2
...
9(5)(b) Articles of association:
ss
...
22-24 Company may entrench articles: notify the
registrar and submit a statement of compliance
...
26(2) A company may choose to alter the articles
3
...


s
...
86 Registered office
•
s
...
10 a statement of capital setting out the following:
1
...
10(2)(a) Total number of shares for the subscribers
2
...
10(2)(b) Aggregate nominal value of the shares
3
...
10(2)(c) Total number of shares in each class
4
...
10(2)(d) the amount to be paid up on each share
5
...
10(4) Details of all subscribers
•
•
•

s
...
11 If company limited by guarantee, details of the guarantee
...
13 Statement of compliance

Applications may take the Registrar of Companies up to five days to
process, but you can pay a higher fee for same-day incorporation
...
the name of the company
2
...

3
...

Pre-incorporation rules:
Can a company enter into contracts pre-incorporation?
s16(3) No
...

Pre-incorporation contracts:
s51(1) Director is personally liable - execute a Novation to release her
from liabilities under the contract
Director of a holding company: Under the principle of apparent
authority, the child company is bound
...

When the company is incorporated, Margaret can sign the contract and
it would be on behalf of the company
...
43 A contract signed on behalf of a company, by a person acting under
its authority, express or implied
...
66 Name should not be the same as another company’s name:
s
...
67 SoS may require change of a similar name

BLP – All chapters – Revision notes | Page 3 of 28

SHAREHOLDERS’ AGREEMENT
You must set up a Shareholders’ Agreement when:
* Setting up a new business
* Joint-venture arrangement (= Any arrangement where two or
more people decide to do business together
...

Russell v Northern Bank In a Shareholders’ Agreement, the
shareholders can agree not to change the Articles of the
company and not to remove any director unless they are all in
agreement
...
168
...


Common provisions:
Ensure that any provisions contained both in the Articles and in the
Shareholders’ Agreement are consistent
...

Financing the Company:
Provisions may be included which set out how the company is going to
be financed
...
The Agreement will
describe these contributions and
what will happen to them on
termination or if a party exits
...


Pre-emption rights on transfer:
In order to protect the interest of the rest of the shareholders, a preemption rights clause can be inserted into the SA
...

tag-along provisions: majority shareholder selling to a third
party must procure an offer by the third party to buy the
minority shareholders’ shares – the smaller shareholder can tag
along with the sale
...

Dividend policy:
A Shareholders’ Agreement will always set out a policy on whether to
declare dividends or not and in what proportions those dividends will be
paid
...

Restrictive covenants:
Restrictive covenants exist to protect legitimate business interests which
include trade secrets, confidential information
...

because a party wants to sell its shares and leave the company
and the other shareholders are not willing to buy its shares
when there are two parties both owning 50% of the shares
...

“Russian Roulette” mechanism:
A shareholder (A) can serve notice on another shareholder (B) offering
to buy all of B’s shares or sell all of their shares at a price specified by A
...


“Mexican/Texas shoot-out”:
Either party can serve notice on the other party to buy the other’s shares
or to sell its own shares to the other party
...

These procedures are not the only remedy in all deadlock situations
...

Termination other than by Deadlock:
A shareholders agreement would need to account for termination if
specific events arise:
Termination by default:
1
...
the company or a shareholder becoming insolvent;
3
...
the expiry of a definite term or completion of or failure
of a particular project undertaken by the company; or
5
...


Where termination by default occurs, the Shareholders’ Agreement
will usually specify a mechanism by which:
(1) the other party is put on notice that such a breach has
occurred;
(2) the breach is verified by a third party;
(3) the infringing party has had an opportunity to remedy the
breach; and
(4) the infringing party’s shares are purchased by the other
innocent party
...

Provisions dealing with termination (including termination by deadlock)
must provide for how the company assets are to be allocated
...
The fault clause: In case of a material breach the venture is
going to terminate
...

2
...
Eg
...
In this case you are going to make sure
that each party is getting fair value for their shares
...
Legality test: are the articles are consistent with the CA 2006?
2
...

Analyse each paragraph separately
...

Legality test:
Legally possible? Yes – CA is silent as to the notice period for BM
...

Para – Type 2: Removed casting vote
Prevents the chairperson of a board meeting having a casting vote if
the votes are equal
...


BLP – All chapters – Revision notes | Page 4 of 28

Commerciality test:
If a company has 2 directors so having a casting vote is not
commercially suitable
...
The senior director would
always have the final say and the junior director would have no
role in decision-making
...
Solve this by referring the
issue for the shareholder resolution of the holding company
...
If quorum is 5, then there must be min 3
directors voting in favour for a resolution to pass
...

Conclude: In a company where the shareholders and directors
are different, if there is deadlock then the issue can be referred
to the shareholders
...

Para – Type 3: Controlling expenditure of the board:
Prevents the board collectively from spending more than £100,000
without express shareholder approval
...
This paragraph modifies MA 3
Legality test:
Legally possible? Yes – CA is silent on spending without GM approval
...
The parent company
may want to be sure that it can approve large amounts of
expenditure
...

No if all directors are shareholders and vice versa
...

Alternative way to achieve the same effect? Consider a
shareholders’ agreement
...

Be wary that this paragraph would freeze the spending limit
...
To
raise spending ceilings, articles would have to be amended
...

MA 5(1) Directors may delegate elements of their general powers
MA 5(2) those delegated powers can be sub-delegated (if the board says
they can)
...

Legality test:
Legally possible? Yes – CA is silent on the matter
...
e
...

Alternative way? Restrictions by passing a board resolution to that effect
rather than including a provision in the articles
...

Para – Type 5: Directors may change the company name:
Legality test:
Legally possible? Yes – this falls within the scope of s
...
If the Company ever acts upon this Article, it must also
take steps to comply with s
...

Para – Type 6: Directors may amend the articles:
Legality test:
Legally possible? No – s
...
This means a resolution of the shareholders, not of the
directors
...

Para – Type 7: Requirement of unanimity (100%) from shareholders to
remove a director:
Legality test:
Legally possible? No – this is different from s
...

s
...

Para – Type 8: Quorum:
The quorum for shareholders’ meetings should be fixed to the number
of shareholders that the company has
...
318
...
318(2) Quorum = 2, ‘subject to the articles’ so
may stipulate a different number in the articles
...

If 1 member – use s
...

Para – Type 9: No written resolutions:
All resolutions must be passed at shareholders’ meetings
...
300, which states that any article preventing
the use of written resolutions is void
...
168(1) Director may be removed by ordinary resolution
MA 14 Consider show of hands over a poll vote
...
168(2) The shareholders must Special notice
s
...

ss
...

If Tim and his supporters control 50% or more of the votes between
them then the threat to remove Tim is groundless
...
288(2)(a) Written resolution cannot be used to remove a director
...

Bushell v Faith It is possible for the articles to provide enhanced voting
rights to a director at his removal resolution
...

Pedley v Inland Waterways Upon receipt of special notice, the board is
not obliged to place the removal resolution on the agenda for the next
GM
...

They agree:
If they agree, the board will
place the resolution on the
GM
agenda
and
the
shareholders will vote on the
resolution
...
312(2) Give notice of the
removal resolution the same
way at the same time as the
next general meeting
...
307(1) and 360(1)-(2)
Notice: 14 clear days
...
312(3) and 360(1)-(2) If
notice of the GM is already
sent out: notice must be given
by a newspaper ad or as per
the articles 14 clear days
before the GM
...
303 If they refuse, the unhappy
shareholders would require the
directors to call a GM
...
303 request
- s
...
303
request fails
...
303(1)-(2) Shareholders must hold
min
...
303 request on the board
...
304(1)(a)-(b) Upon the s
...

s
...
305(4)-(3) Notice: 14 clear days and GM must be held within 3 months
s
...

Steps a director can take to protect himself:
s
...

s
...
169(3) Make written representations in response
...
169(4) Send this to the shareholders or read out at the GM personally
...
If he
is also a shareholder, it must be decided who gets his shares
...

BLP – All chapters – Revision notes | Page 5 of 28

PAYMENT FOR LOSS OF OFFICE:

2
...
215(1)(a)-(c) Payment for loss of office defined
...
215(2) Compensation = includes both cash and non-cash benefits
...


s
...
221 the payment is max
...
220 the payment is made in good faith, eg
...
217(2) Approval needed from holding company as well
...
217(4) No approval is required for a wholly-owned subsidiary
...
217(3) A memorandum must be made available to shareholders
s
...

Shareholder approval is also required for:
s
...
219 a transfer of shares in the company resulting from a takeover bid
...
219(4) Neither the offeror nor their associates will be allowed to vote
...
180(2) Shareholder approval is required
...

that he was not in an excluded category (e
...
police)
...

Fair reasons for dismissal:
1
...

2
...

3
...
Statutory illegality - if their work permit expires
...
Some other substantial reason
Was the dismissal fair in all the circumstances?
In order for the dismissal not to be declared unfair, the procedures
followed in carrying out the dismissal must also be fair:
Employers must: investigate, hold a meeting with the employee, decide
on appropriate action; and provide an opportunity to appeal
...
If he would reach 25%, that would be a significant
shareholding whereby he could block a special resolution
...


Compensation:

Employment implications:

immediate loss of wages between the date of termination and the
hearing + loss of other fringe benefits (bonus payments, pension rights)

Determine whether he is an employee:
1
...
Fulltime employees with a contract service contract
...


Non-executive directors:
s
...


3
...
251 Shadow director = a person in accordance with whose
instructions the company’s directors are accustomed to act
...
Who is an Employee?
s
...


Basic award: [AGE FACTOR] x [SERVICE] x [WEEK’S PAY]
+
Compensatory award: (actual loss suffered)

The employee must mitigate his loss by looking for another job
...

Restrictive covenants:
Types of restrictive covenants:
1
...
working for a competitor; or
2
...

2
...


3
...
of customers (prevents the ex-employee soliciting
business of customers);or
2
...


Non-disclosure

Look at the substance and not the form of the contract
...
the personal service test – does he perform work personally?
2
...
mutuality of obligation test – employer has a duty to provide
work, employee must accept when given
...
other factors – economic reality and integration tests
...
Wrongful dismissal – for non-executive directors:
Wrongful dismissal arises where the employer has dismissed the
employee in breach of the terms of the employment contract by eg
...

The amount of notice which is required will be determined by the
employee’s contract but this is subject to a statutory minimum
...
Employees employed for 2
years or more are entitled to one week’s notice for every completed
year of service up to 12 weeks’ notice
...

The remedy for wrongful dismissal is damages
...
If the ex-employee finds a
new job, or makes no attempt, then damages are reduced
...

STEP 3
...
protect a legitimate interest of the business (e
...
customer
connections, stable workforce, trade secrets); and
2
...

Blue pencil test:
The court will strike out the unenforceable part of a restrictive covenant
clause and will only enforce the remainder of the clause if it makes
independent sense
...
Reasonableness factors, what
is necessary to protect the employer’s legitimate interests?
If the employee has a successful claim for wrongful dismissal then any
restrictive covenants are unlikely to be enforceable
...
that he was dismissed: dismissal includes constructive
dismissal where the employee leaves the job because he is
compelled to do so by the conduct of the employer
...
Against director - Derivative claim:
Derivative claims – s
...
261(1) Grounds = negligence, default, breach of duty
s
...
shadow directors and former directors
...
260(3) s
...
170-177)
This derivative claim may end up with a removal resolution being called
– in this case the director can protect himself as stated above
...
If advising a removed director – also sue for unfair prejudice:
s
...

Director will claim two conducts:
I
...

Ebrahimi v Westbourne Galleries Quasi-partnerships:
Shareholders may have a legitimate expectation that they be
involved in the management of the company
...
996(1) Court can award relief – for AI or the other shareholders to buy
Tim’s shares
...
A negotiated settlement is the preferred option
...
Membership rights:
s
...
33 if their membership rights
are infringed
...

Eley v Positive Government Shareholders should set out any of their
rights which are not membership rights in a shareholders’ agreement
...
Breach of shareholders’ agreement:
If a shareholders’ agreement is breached – claim breach of contract
...
If this is
breached and removed by an ordinary resolution, the resolution would
still be valid and the director would be removed but the director would
have a claim for breach
...

Settlement agreement step-by-step:
DIRECTOR’S FATE:
DIRECTOR OF COMPANY
Director is being removed by OR
(Shareholder’s agreement is not
available)
EMPLOYEE (DIRECTOR)
Dismissal
SHAREHOLDER – Transfer of
shares
He makes claims for unfair and
wrongful dismissal (employee),
unfair prejudice claim
(shareholder)

SETTLEMENT AGREEMENT
RESIGNS MA 18(f)
RESIGNS
BUY BACK
GOOD REFERENCE
PAYMENT:
- PILON
- EX GRATIA
He should waive any claims for
the money in return
...
170–177 CA 2006 The director’s general duties
s
...

Foss v Harbottle If the company breaches his duty under any of s
...

If the director threatens to breach his duty in the future, the company
can seek an injunction to prevent him from doing so
...
termination of an executive director’s service contract or
2
...
Fraud Act 2006 the general offence of fraud,
2
...
FSMA 2000 Market abuse, making misleading statements or
carrying on regulated activities without authorisation;
4
...
Bribery Act 2010 Bribery offences
Derivative claims (as mentioned above) – s
...
260(5) Director = incl
...


s
...
In particular the employee must have received
advice as to the effect on his ability to pursue a claim in the
Tribunal
• ensure that the adviser is covered by professional indemnity
insurance
• state that the conditions regulating settlement agreements
are satisfied
...
However, it will still bind the employee in respect of
the waiver of any contractual claims
...
, will want to
ensure that the payment in the settlement agreement settles all claims
for wrongful and unfair dismissal, discrimination and claims outstanding
...
g
...

The agreement cannot prevent an employee from bringing a claim which
was not known at the time
...
If the employment
contract contains a PILON clause and the employer dismisses the
employee and pays him/her in accordance with the PILON clause instead of employing him/her until the end of his/her notice period there will be no breach of contract and no claim for wrongful dismissal
...

•
Where authority is given formally (board resolution) it is actual
express authority
...
43 A contract may be made on behalf of a company, by a
person acting under its authority, express or implied
...

•
s
...
239(4) The director’s and any connected person’s votes cannot count
s
...
253 Connected persons = includes the spouse, children
and parents of a director as well as connected companies
...
177(1) Directors must declare an interest in a proposed transaction
s
...
182(1) And declare any interests in existing transactions
s
...

Re British American Corp Direct or indirect interest is enough
STEP 2: Do any of the s
...
182(6) factors apply?
ss
...

STEP 3: The director must declare his interest:
s
...
177 or
s
...

The director can give declare his interest:
s
...
182(2)(a) Orally at a BM
s
...
185(3) If a long-term interest, the director can give general
notice stating the nature and extent of their interest
...


STEP 5: What if the director fails to obtain approval?
Shareholder approval in advance reduces the risk of breach
s
...
196 allows for affirmation by the shareholders of the company
by ordinary resolution within a reasonable period
...
195(3)-(4) Directors who authorized transaction would be jointly and
severally liable to account for any loss/pay damages
...

STEP 6: Duties triggered?
S175 – conflict of interest
S177 – declare that interest
s
...
21 Removal: the company removes MA 14 altogether by spec
...
(s
...


STEP 1
...
256(b) Being a subsidiary of a plc means being associated with it
...
197(1) Ordinary resolution is required before a company can: make a
loan (or quasi-loan or credit transaction) or give a guarantee

Consider each transaction separately
...
190:
s
...
s
...
190(1)(b) or a company buys from a director /con
...
the asset is a non-cash asset
3
...
190(5) Where there are a series of transactions involving multiple noncash assets, they only need to be approved by members once
...
190(6) Anything to which a director is entitled under his service
contract is excluded from being a substantial property transaction
...
1163 Non-cash asset defined
...
191 Substantial non-cash asset =
An asset worth £0 < x < £5,000 is not a substantial asset
...

For multiple assets, use their aggregate value
...

s
...

s
...

STEP 3: Is the transaction with a director or a connected person?
s
...
253(2) a member of the director’s family: can be a spouse,
partner, child, step child, parent (not nephew or siblings)
ss
...
195(6) he took all reasonable steps to ensure compliance
s
...
192(b) wholly-owned subsidiary of another company
...
197
Private companies
Not associated with plc
...
197(1)(a), 198, 200 and 201
Plc/ private company
associated with plc
...
198 – 200 Relevant provisions for Quasi-loans
s
...

ss
...
190(1) Ordinary resolution can be obtained either:
before the transaction is entered into, or
after the transaction has been agreed
STEP 3: Is shareholder approval required? By which company?
Is the loan to a director or person connected to a director of the holding
company? Is the company requiring shareholder approval of a wholly
owned subsidiary?
STEP 4: Do any of the exceptions apply?
s
...
197(5) and s
...

- s
...
Max
...

- s
...
This figure rises to £15,000 for credit transactions
...
209 A money-lending company
s
...

STEP 5
...
213 The transaction will be voidable
...
214 allows for the arrangement to be affirmed by the shareholders of
the company and the holding company (where relevant) by ord
...

within a reasonable period
...
213(3)-(4) Must account for any gain made directly or indirectly from
the transaction and indemnify the company for any loss or damage
resulting from the transaction
...
Statutory duties?
Directors must always comply with their duties - ss
...


BLP – All chapters – Revision notes | Page 8 of 28

Step 7: Close companies: Taxation effect:

loan agreement: undertakings not to incur further debt and/or
not to create security (negative pledge)
...


–

Regulation and procedure: No specific regulation when setting
up a loan s
...
H
...
Shareholders are participators
...


–

“Control” means, amongst other things, the ability to exercise control
over the company by voting rights, for example, holding more than 50%
of the voting shares
...
Secured assets can’t be disposed of freely
...


(If one of the tests is satisfied, it is enough)

The fact that Edward and Jeremy Lewis between them hold more than
50% of the shares in MP means that MP satisfies both of the above tests
and is therefore a close company
...
The loan would be
caught by the relevant legislative provisions as it is for an amount in
excess of £15,000
...
5% of the amount
of the loan to HMRC
...

As the accounting period ends on 31 December of each year (see the MP
Client Portfolio) and assuming that the loan is made within the current
accounting period the tax must be paid on or before 1 October next year
...

If the loan is written off for the director:
There is no tax effect on the participator to whom the loan is made
unless the loan is written off or waived
...
Edward will therefore have to account to
HMRC for any income tax payable on that deemed dividend
...
Gearing will decrease
so Company will become more attractive to banks
...
Board can
postpone declaring a dividend if insufficient distributable profits
...

s
...
- Limited investor
base for private company shares
...
Opposing shareholders could obstruct
new investment
...


–

Degree of scrutiny of Company affairs: Key decisions requiring
shareholder approval
...
g
...


–

Building up reserves: Profits can be “locked away” as a reserve
...


Debt:
– Effect on the balance sheet and future ability to raise money:
New loan will increase Non-current liabilities on balance sheet
...
Possibly harder to raise debt finance in future
–

Funding costs: Interest payments will be due to bank regardless
of profitability of the Company
...
Loan interest
payments are tax deductible for corporation tax
...
Restrictions in

Risks for Company if experiences financial difficulties: Banks can call
event of default for payment defaults or breach of any representation or
undertaking
...


DEBT VS EQUITY (INVESTOR’S, CREDITOR’S VIEW):
Factors

Equity

Debt

Dividends, if the company is
making a profit
...

Interest
...
If the
company is paying regular
company making profits
...

On winding up

When does
the sale of the shares
...

amount
invested? If the company redeems or
buys back its own shares
...


Control

Other
factors

As agreed between the parties in
the loan agreement
...

On sale: Bonds and Loans can be
sold
...

Creditors can improve their priority
by taking security for the debt
...
The number of the
to do, certain things during
shares held will also influence not
control (e
...
holding over 50% the life of the loan or bond
...

resolutions)
...

company is too highly geared
...


Interest is a deductible expense
for tax purposes
...


×

include provisions in the loan agreement enabling the bank to
demand immediate repayment of the principal amount lent plus
interest outstanding upon the occurrence of various other ‘Events
of Default’ besides non-payment), e
...
if the borrower:
1
...
breaches any obligation in the loan agreement, or
3
...
is subject to an insolvency procedure or suffers a material
adverse change;

BLP – All chapters – Revision notes | Page 9 of 28

×

include an undertaking in the loan agreement under which the
borrower promises not to give security to any other lender (a
‘negative pledge’) or not to incur further financial indebtedness
...
The terms of
such security would be set out in a separate document (see
Security Document):
×
Security gives proprietary rights (legal or equitable)
×
It gives you privacy on insolvency but only in relation to
the assets that were held under the security
...

×
Enforcing a security against the bank loan is basically an
event of default
...
It is not good for lenders
to call default because then it would mean that they
might lose out on the payment that the company would
have paid if they did not go insolvent
...
Mortgage: The security provider retains possession of
the asset but transfers ownership to the creditor
...
Charge: The Lender gets an equitable interest in the sale
proceeds of an asset
...
to appoint
a receiver or administrator to take possession of it and
sell it, if the debt is not paid back
...
a machinery)
Floating charge: a charge taken over a class of
assets (typically assets such as stock that are
frequently changing) which, upon crystallisation,
becomes fixed on the assets and is enforceable
as a fixed charge
...


STEPS OF A LOAN TRANSACTION:
Pre-contract:
1
...


2
...


3
...
The credit committee decides whether the bank is
overexposed in certain industry sector and the interest rates
...

See s
...

Post-completion:
11
...

See the schedule to the loan agreement
...
g
...

12
...
859A(2) The bank’s solicitors register the security at
Companies House
...
The bank’s solicitors also register the security
at any other applicable registry (e
...
Land Registry) during the
priority period
...

13
...
859P The borrower keeps a copy of the security document and
any related documents at its offices available for inspection
...
s
...

15
...

16
...

17
...

Alternatively, if the loan is unsecured, after the borrower has
defaulted on the loan, the lender could apply to the court to
wind up the borrower
...
830(1) Make a distribution
...
836 Before paying a dividend (interim or final) a company must check
its relevant accounts to establish it has sufficient distributable profits
...
interim dividends - can be declared without shareholder
approval and can be cancelled by the directors prior to payment
...
final dividends - paid following the end of a company’s
accounting year and require shareholder approval
...


4
...

The term sheet sets out the main terms and forms the basis on
which the bank has agreed to provide finance
...

MA 30(1) Decision to pay an interim dividend rests with the directors
...


Both parties instruct solicitors
...


The borrower’s solicitors check that the borrower has no
provision in its constitution restricting its power to borrow
money and/or grant security
...
MA 30(2) the amount of a final dividend must be recommended
by the board of directors
2
...

Shareholders may decide to pay less but not more
...
31(1) In the absence of any specific restriction in the articles,
the company will have unlimited objects
...


The borrower’s solicitors check that there are no restrictions on
the directors in the articles and that they have authority to act
...


The loan agreement and separate security document are
negotiated
...
If a loan/bond is secured, a separate security
document will be negotiated and entered into
...


The directors convene a board meeting, review the
documentation and resolve to enter into the loan agreement
and the security document
...


Payment of Dividends:
Shareholders entitled receive the dividend will be those appearing in
the Register of Members at the time of declaration
...
If a
company decides to pay dividend, it must pay to all shareholders holding
the same class of share
...

Consequences of Breach:
s
...
171 to 177 Directors’ duties
Scrip dividends:
Option: issue script dividends: a company could offer a dividend in the
form of additional shares to its shareholders instead of a cash payment
...
Disadvantage to any
shareholders who do not take up the scrip issue – dilution
...

10
...

BLP – All chapters – Revision notes | Page 10 of 28

REDEMPTION:

EQUITY FINANCE (SHARES)

Distributable profits/fresh issue of shares:
1
...
s
...
Update Register of Members
4
...
688 Cancel/reissue share certificates

CLASSES OF SHARES – EXAMPLE QUESTION:

Capital:
1
...

3
...


8
...


Shares must be issued as redeemable
s
...
709(1) Articles must not restrict or prohibit use of capital
s
...
714(6) Auditors’ report annexed

6
...
718(1) DS + AR must be made available at GM or,
s
...
720(1)-(2) be available for inspection at the registered office

7
...

9
...

11
...


s
...
719 Notify creditors (Gazette) and file DS and AR at CH
s
...
689(1)-(2) Send notice to CH within 1 month
Update Register of Members
s
...

Precedent Article A:
(a) The Company shall, before application of any distributable profits
for any other purpose, pay the holders of the Preference Shares a
fixed dividend (the ‘Preference Dividend’) at an annual rate of
£0
...
1(a) above;
(c) If insufficient distributable profits are available to the Company on
the due date to permit payment of the Preference Dividend in full,
the Company shall pay the Preference Dividend on that date to the
extent that it is lawfully able to do so;
(d) To the extent that a Preference Dividend is not paid on the due
date, it shall immediately become a debt due by the Company and
shall be payable in priority to any other dividend;

An investor invests £1,000 in Red Lion Limited by buying 1,000 ordinary
shares of £1 each issued by the company
...


(f) The holder of the Preference Shares shall have no entitlement to
share in any surplus assets of the Company on a winding-up; and

Gearing is calculated by the formula:

(g) For the avoidance of doubt, the Preference Shares shall carry a right
to vote on resolutions of the Company
...

Cons of being highly geared: the company might fail
...

Balance sheet for taking out a loan:

Questions:
1
...
8
...
Art
...
1(b): no further dividend
...
8
...
Dividend is therefore capped at 2p per
share in any given accounting period (i
...
year)
...
In the event of winding up with sufficient surplus assets available,
how much money would be paid to the holder of each share?
Art
...
1(e): Nominal value of each share (i
...
£1)
...
1(f) no further payment is due
...


Balance sheet for issuing shares:

3
...
560 CA 2006?
s
...

Ordinary shares = share carrying the right to participate only up to a
specified amount regarding both dividends and capital
...

Therefore these are not ‘ordinary shares’
...
Describe these shares:
£1, 2% Cumulative Non-participating Preference Shares
× Nominal value: £1
× Ordinary or Preference: Preference: see Art
...
1(a) and 8
...
1(a)
× Voting? No
...
8
...

8(b) (as regards dividends) and Article 8(f) (as regards return on
capital on a winding up)
...
1 Income
(a) Subject to Article 9
...

(b) The holders of the Preference Shares shall have the right to one
fixed cumulative preferential dividend per annum at a rate of 5%
of the Paid Up Amount in respect of each Preference Share in
priority to any payment to the holders of any other shares (the
‘Preference Dividend’)
...


CA 2006:
New companies will not have a cap
...

STEP 1 Conclude

9
...


a) first, in paying to the holder of any Preference Share, in priority to
the holders of any other classes of shares, an amount equal to the
Paid Up Amount of such share;

CAP
CA 1985 Company:
Transitional Provisions + s
...
21(1) Amend articles by
Special Resolution

b) second, in paying the holder of each Ordinary Share an amount
equal to the Paid Up Amount of such share; and

STEP 2: Do the directors need authority to allot shares?

c) third, in distributing the balance, if any, of such assets amongst all
the shareholders pro rata the number of shares held as if they
constituted one and the same class
...
80 CA 1985 Directors will need authority to allot
...
550 CA 2006
...
3 Definitions
‘Available Profits’ means profits available for distribution within the
meaning of Part 23 of the Companies Act 2006
...
How much money will be paid as a dividend in respect of each share?
Art
...
1(b)(i) Preference Dividend: 5p per Preference share
...
9
...
Art
...
1(a): Participation in surplus profits on an
equal footing with the holders of Ordinary Shares
...
Therefore we cannot specify, in advance, the
total amount of dividend payable in a given year
...
In the event of winding up with sufficient surplus assets available,
how much money would be paid to the holder of each share?
Art
...
2(a): Paid Up Amount of each share, defined as nominal value (i
...

£1) plus any premium (i
...
£0), totalling £1 per Preference share
...
9
...
This cannot be quantified yet because the amount
payable on each share depends on the value of the Company’s assets
and liabilities at the time of winding up, and on how many shares it has
in issue at that time
...
s
...
s
...
551(1) Directors may be given authority by the articles or
by shareholder resolution
...
281(3) Shareholder resolution here means Ordinary
Resolution unless articles require higher majority
...

× s
...

STEP 2 Conclude
HAS AUTHORITY
No action needed for this step
...

3
...
560 CA 2006?
s
...

Ordinary shares = share carrying the right to participate only up to a
specified amount regarding both dividends and capital
...

4
...
9
...
2(a)
× Dividend? 5%: amount of preference dividend – see Art 9
...

× Cumulative? Yes, cumulative see Art
...
1(b)(ii)
× Participating? Yes, participating, (both as to dividends and
capital): see Art
...
1(a) and 9
...
Go through 5 Steps to assess what is needed for your
procedure plan
2
...

5-Step assessment for issuing shares:
STEP 1: Is there a cap on the number of shares which can be issued?
CA 1985:
ASC cap in the Memorandum was the norm
...

s
...
These companies continue to have a cap automatically
...
551(1) Grant authority by
Ordinary Resolution
s
...


STEP 3: Need to disapply pre-emption rights?
Are the pre-emption rights excluded under e
...
s
...
567?
Check articles to see whether we have a general disapplication of preemption rights and whether we have passed any Special Resolutions
...
560-561
s
...

s560(1) Equity securities = all shares except those with fixed rights to
dividends + capital that also give the right to participate in a distribution
...


IF, EQUITY SECURITY
Is the proposed allotment an
offer to existing shareholders in
proportion to shareholdings as
per ss
...
s569 s550 authority: Spec
...

If not, grant s551 authority:
s570 s551 authority: Spec
...


BLP – All chapters – Revision notes | Page 12 of 28

STEP 4: Does the company need to create new class of shares?
NO
No action needed for this step
...
Special resolution
1
...
570(1) to disapply the rights of pre-emption in
respect of the Ordinary Shares
...
561(1), as an Ordinary Share is an
“equity security” as defined by s
...
The
Preference Shares have a right to participate only
up to a specified amount (as respects both
dividends and capital) in this case and therefore
are not “equity securities” under the definition in
s
...

2
...
21(1) To remove the cap on shares and to
amend the articles of association to create new
class rights
...
Res
...
21(1)

STEP 5: Conclusion:
BM Agenda:
Directors allot new shares by Board Resolution
...
Res
...
21(1) – No,
CA 2006 company with unamended MA
- STEP 2 Authority to allot?
* s
...
Res
...
551(1)
- STEP 3 Disapply Pre-emption rights? – Spec
...
s
...
Res
...
21(1) - No,
only ordinary shares
Procedure plan:
Study the logic behind procedure plans which are on the last couple of
pages of these notes
...

Pick out the things you need for the procedure plan from the conclusion
of 5-step analysis
...
If you need to remove a cap from the articles by
amending them by special resolution, then you will add this to the
agenda
...
Also, talk about short notice
...


-

Board Meeting II:
Reconvened (assuming consent to short notice obtained)
...
Who calls?
2
...
Disclosure:
s
...

MA 14(4)(b) He may vote and count in the quorum since the
issue of shares is a permitted cause
...


Agenda:
1
...
Propose board resolutions to:
1
...
direct the company secretary (Mark Berry)
to deal with the post meeting matters
listed below
...


Close board meeting
...

2
...


Who calls?
Notice period
...


Agenda:
Propose board resolutions to:
1
...

2
...
call a GM to move the following shareholder
resolutions:
- s
...
570(1) a special resolution to disapply the
rights of pre-emption in respect of the
Ordinary Shares
...
Direct the company secretary to give notice of the
GM in accordance with s
...
Direct the company secretary (name them) to deal
with the post-meeting matters listed below
...

6
...


Voting:
MA 7(1) Board must agree by majority decision on the agenda
items set out above
...

Post meeting matters:
s
...
502(2) auditors
...


Post- meeting matters:
1
...
s
...
29(1)(e) and s
...
s
...
30(1) Special Resolution disapplying
pre-emption rights within 15 days;
3
...
26(1) SR (articles) plus copy of the new articles
4
...
555(2) Form SH01 - return of allotment
s
...
s
...

6
...
790VA(2) Form PSC01: Amanda has significant
control

2
...


3
...
162 The company will also have to update the Register of
Directors
ss
...
554
two months
s
...
769(1) issue new share certificates

Post-meeting matters (additional that didn’t apply here):
-

Notice period
Quorum
Agenda:
Propose and pass the following resolutions:
1
...
551(1) to give the directors power to allot 100,000
Ordinary Shares of £1 each and 50,000 5% Preference
Shares of £1 each
...
281(3) A shareholder resolution is an ordinary
resolution unless stated otherwise
...
550, a
private company with one class of shares does not need
shareholder approval to issue that same class of shares
but this does not apply here as MTUL has both Ordinary
Shares and Preference Shares in issue
...
26(1) file new articles;
× for CA 2006 companies, file resolution (SR to amend articles s
...
30(1)); and /or
× SI 2008/2860, Schedule 2, paragraph 42(3); ss
...
30(1) CA 2006 for CA 1985 companies, file OR to remove cap
...
551:
s
...
29(1)(e) and s
...
House
within 15 days
...
550:
SI 2008/2860, Schedule 2, paragraph 43(3), s
...
30(1)CA 2006 A CA 1985 company must file any OR granting
BLP – All chapters – Revision notes | Page 13 of 28

directors authority to rely on s
...
House
within 15 days
...

If disapplying pre-emption rights:
s
...
30(1) A company must file the SR disapplying preemption rights at Comp
...

If creating class rights:
A company must file the following at Comp
...
30(1) SR amending articles of association within 15 days after
it is passed; and
× s
...

Allotment of shares by board resolution:
A company must:
• s
...
555(3)(b) file a statement of capital
• ss
...
554
two months
• s
...


ISSUING SHARES - BALANCE SHEET:
The share capital of Red Lion Limited is £200, issued to its shareholders
as follows: Amy: 30 (ord) shares of £1, Bill: 170 (pref) shares of £1
Amy and Bill want to issue 100 new ordinary shares to Coleen for £2
per share
...
) will stay behind with seller
* Buyer can pick and choose which assets it wants (‘cherry picking’)
Buyer Disadvantages:
* Disruption to business
* Each asset must be transferred separately – more complex and more
documentation will be needed (more time and administrative costs)
* Consents are likely to be required (e
...
assignments, novations, etc
...
e
...
That money must then
be passed up to the shareholders (here, Ronnie and Shane) by way
of dividend or winding up the shell company that is left after the sale
Buyers prefer asset sales
Sellers prefer share sales

NEGOTIATING THE SPA:
Contractual protection for the buyer:
The buyer prepares the first draft of the Share Purchase Agreement
...
There are a
number of solutions that can be employed to deal with due diligence
issues such as the following list:

CONDUCT CONSIDERATIONS:
s
...

s
...
This latter exclusion covers offers made to existing
shareholders, employees of the company (Employee’s share scheme)
and certain family members of those persons
...
’ - Check all
communication

ACQUISITIONS
PROS AND CONS OF SHARE SALE VS ASSET SALE:
Share Sale:
Buyer Advantages:
* Less disruption to the business
* Simpler and potentially quicker as there is only one asset to
transfer, the shares
* Tax advantages (stamp duty on shares may be lower than on an
asset sale)
Buyer Disadvantages:
* Buyer will acquire the target along with all of the liabilities and any
problems
* Increased level of due diligence required due to acquisition of
entire company

Warranties:
A warranty is a binding statement of fact made by a seller about the
target company in the Acquisition Agreement
...

Indemnities:
An indemnity is a promise from the seller to the buyer to reimburse the
buyer in respect of any liability arising after completion by reference to
pre-completion events i
...
the liability is connected to the seller’s period
of ownership so the seller is expected to cover any such liability
...
If the litigation is resolved in the
target company’s favour (so the target company does not have to pay
out for the litigation), the retention account monies can be paid to the
seller
...

Entire agreement clause:
If effective, such a clause will expressly exclude misrep claims for any
pre-contractual representations not included in the SPA
...

The clause must also be reasonable, should be part of a fair market
practice, both sides should take legal advice
...


BLP – All chapters – Revision notes | Page 14 of 28

Reduction in the purchase price:
If there is a known and quantifiable liability that the target has to pay
after completion, the buyer may request a reduction in the purchase
price to cover the liability
...
The seller will not be liable for a breach of the warranties
if they had disclosed the information to the buyer prior to entering the
agreement such as in a Disclosure Letter
...

An acquisition agreement on a share sale contains a warranty that the
company is not involved in any litigation
...
In order for the seller to ensure
that it is not in breach of warranty it will need to disclose the details of
the litigation in the disclosure letter
...


FINANCIAL ASSISTANCE:
For acquisition: Relevant on a share sale but not on an asset sale and
relevant to public companies and private companies in groups which
contain public companies
...

Example: (Share Sale)
A loan given by I Plc to J
Ltd to enable J Ltd to fund
the purchase of shares in
H Ltd would amount to FA
under s
...

Example: (Share Issue)
Guarantees given by the
target company, L Plc, and
its subsidiary, M Ltd, in
relation to money lent to N
Ltd by the bank to fund the
acquisition would both
constitute
FA
under
s
...


There are two types of disclosure in a disclosure letter:
1
...
specific disclosures
...
General
disclosures relate to searches of public registers that the buyer should
do prior to completion
...

Specific disclosures are the ‘back-end’ of the disclosure letter
...

Time limits:
The vendor will seek to limit the time in which the buyer can bring a
claim for breach of warranty to less than the statutory limitation period
...


De minimis:
In order to bring a claim for breach of warranty, the claim must be more
than a minimum value
...


HEADS OF TERMS:
The Heads of Terms set out the key terms of the transaction
...
– helpful for advisers
...

The HoT are largely non-binding but contain some binding provisions
...

At what stage in the transaction do you think it will have been agreed?
The HoT will have been agreed at the beginning of the transaction, once
the parties have agreed preliminary terms but before definitive
agreements have been drafted and before significant costs have been
incurred
...
It is designed to protect the
buyer against wasted time and costs
...

A ‘lock-in’ compelling the seller to only negotiate with the buyer
would be unenforceable, while a ‘lock-out’ (agreeing not to
negotiate with third parties) is enforceable, if sufficiently certain
...


Example: (Share Sale)

A loan made by the seller, S
Plc to the buyer, U Ltd, to
enable U Ltd to purchase
the shares in T Ltd, would
not constitute financial
assistance
...
Eliot who then buys shares
in Auden
...
Yeats does not fall
within the prohibition because
it is the seller of the target and
not a public limited subsidiary
of Auden
...

It would have been possible to “whitewash” the transaction for private
companies which was used to make FA lawful under CA 1985
...

s
...


The other main (non-boilerplate) clauses relate to things that the parties
have agreed will (or will not) happen during negotiations
...

If the HoT contains things which will have already happened by the time
of exchange, these will not feature in the SPA
...


BLP – All chapters – Revision notes | Page 15 of 28

BUYBACKS
BUYBACKS - BALANCE SHEET:
Consider the position of XYZ Ltd
...
The purchase is to be funded out
of distributable profits
...
836 to establish it has
sufficient distributable profits to make the distribution pursuant to
s
...

The relevant accounts will usually be the company’s last annual accounts
as filed with Companies House
...
interim dividends which can be declared without shareholder
approval and can be cancelled by the directors at any time prior
to payment, and
4
...

Interim and Final Dividends – the procedure:
It is important to check the articles before making any dividend
payment
...


1
...

3
...


5
...

There was no reserve before the purchase, but one was created
following the purchase, the balance sheet shows the reduction
in the share capital after the purchase
...
It has not changed
...

Shareholder Funds is the sum of total capital and undistributable
reserves AND undistributed profits
...
19 Financial Services and Markets Act 2000 (FSMA) no person may
carry on a regulated activity without authorisation
...

2
...
76 Regulated Activities Order 2001 (RAO) Is the investment
‘specified’ under FSMA? Yes
...

Giving advice on whether Edward should purchase shares in
another company is ‘advising on the merits’ of the shares
...
Art
...
if advising is a
necessary part of giving advice
...
Generic advice is fine
(eg
...

4
...
33 RAO Exclusion for Arranging: Introduction to third party:
if the person has gone to a third party and you are just putting a
deal together, that is excluded
...
Art
...
Advising Edward on whether to invest
the money in another company does not form a necessary part
Stage 2:
s
...
the work doesn’t normally advertise themselves as
giving advice on regulated activities
...

If all the conditions are satisfied then this is an exempt regulated
authority
...

The firm could only give this advice if someone in the firm were directly
authorised by the FCA and complied with the FCA Rules in giving the
advice
...


The decision as to whether a company should pay an interim dividend
rests solely with the board of directors under MA 30(1)
...

In respect of final dividends, a two-stage process applies:
3
...
secondly, it must be declared by the shareholders of the
company in a general meeting (often at an AGM) by way of an
ordinary resolution
...

In terms of timing, a final dividend would normally be recommended by
the directors and put to the shareholders at the general meeting at
which the relevant accounts are to be approved
...
This is in
contrast to interim dividends which can be cancelled once declared at
any time prior to payment
...

Payment of Dividends:
Shareholders entitled to receive the dividend will be those appearing in
the company’s Register of Members at the time of the declaration
(unless the relevant resolution specifies another date)
...

Normally the company’s articles determine how any dividend is to be
distributed as between the shareholders
...

In distributing a dividend the rights attaching to preference shares and
any other special shares have to be considered
...
847 if a company makes a distribution contravenes the provisions of
CA 2006 then any shareholder receiving the dividend will be liable to
repay it to the company if, at the time of the distribution, he knew or
had reasonable grounds for believing that there was such a
contravention
...
171 to 177
...
This is known as a scrip dividend and may be
better for a company because it enables it to retain cash for use in its
business
...


BLP – All chapters – Revision notes | Page 16 of 28

BUYBACK PROCEDURES
IF SHARES ISSUED AS
REDEEMABLE:
Redeem shares

creditors) and file directors’ statement and
auditors’ report at Companies House
s
...

Verify
distributable
profits (as
applicable)

Check
articles
...

Accounts no
more than 3
months old
...

Contract +
Ord Res to
approve
contract
...

Contract +
Ord Res to
approve
contract
...

Contract +
Ord Res +
directors’
statement +
auditors’
report
...

SR to approve
payment out
of capita
inspection at the registered
office
s
...
716(1) Spec Res to approve
payment out of capital
s
...
721(1)-(2) Creditors have a
right to object within 5
weeks of the date of the SR
to approve payment out of
capital

Detail of procedures for share buyback – Redemption

Distributable profits
Check that shares were issued
as redeemable shares

s
...
707(1) and 708(2)
Returns must be sent to
Companies House
together with a
statement of capital
within 28 days of the
purchase
...
707(1) and 708(2)
Returns must be sent to
Companies House
together with a
statement of capital
within 28 days of the
purchase
...
707(1) and 708(2) Returns
must be sent to Companies
House together with a
statement of capital within
28 days of the purchase
...
706 Cancel/reissue
share certificates
s
...
706 Cancel/reissue
share certificates
s
...
706 Cancel/reissue share
certificates
s
...
716(1) SR to approve payment out of capital
s
...


Coradon will become a significant shareholder as they can block a Spec
Res, because 100,000 is roughly 9% so his shareholding would go up to
29%
...

If the shares are not redeemable, it will be a purchase
...


Post Meeting Matters?
* Filings at Companies House
s
...
708(1) and a notice of cancellation of the shares
together with
s
...

Note that there is no employee share scheme in this
scenario so s
...

File Form PSC01 within 14 days after updating the
register of people with significant control (‘PSC register’)
to give notice of JL being an individual person with
significant control
...
)
1
...
Notice period?
3
...
Agenda?
•
Disclosure of interest:
s
...
JL should also declare
his (indirect) interest in the contract
...


×

Propose board resolutions to:
1
...
s
...
direct the company secretary to give notice of the
GM in accordance with s
...


×
2
...

4
...
e
...
e
...
e

---