QLTS Exam Preparation Study Materials - Business Law Notes (MCT and OSCE)

QLTS Exam Preparation Study Materials - Business Law Notes (MCT and OSCE)

Here are a set of condensed QLTS Exam Preparation Study Materials for Business Law (suitable for both MCT and OSCE).


  • Basic fundamental principles, in a practical context
  • 180 MCQs in total over 6 hours
  • Approx 16 business law MCQs
  • Basic ‘stem’ scenario; 5 possible answers
  • ‘Best’ of available alternatives

Main Business Structures

Sole Trader


Limited Liability Partnership



Legal status

Relevant Legislation

Liability to third parties


  • Legal status
  • Relevant Legislation
  • Liability to third parties


  • Legal status
  • Relevant Legislation
  • Liability to third parties


  • Legal status
  • Relevant Legislation
  • Liability to third parties

Factors influencing choice of structure

Raising Finance




(a)          No formality to set up

(b)          Fluid internal management

(c)           Sole decision-maker

(d)          All profits belong to the owner                  (a)          Unlimited liability

(b)          Lacks prestige



(a)          No formality to set up

(b)          Fluid internal management

(c)           Support of fellow partners in decisionmaking

(d)          All profits belong to owners (the partners)

(e)          Only small amount of information made public                   (a)          Unlimited liability

(b)          Decision –making may

be difficult

(c)           Lack of written agreement can lead to uncertainty

(d)          Lacks prestige



(a)          Limited liability

(b)          Freedom to run as owners sees fit

(c)           Support of joint decision-making                               (a)          Must register to set up

(b)          Information

(including finances) made public

(c)           Some extra formality and costs to run



(a)          Limited liability

(b)          Greater prestige

(c)           Potentially larger pool of investors

(d)          Grant additional security

(e)          Defined management structure                (a)          Must register to set up

(b)          Extra formality and costs to run

(c)           Extra legal duties and potential liability for directors

(d)          Information (including finances) made public

(e)          Profits earned by company, not owners directly.

The Partnership Act 1890

  • ss.1 - 4 deal with creation of partnerships
  • ss.5 - 18 deal with relationships between partnership and outsiders
  • ss.19 - 31 deal with relations of partners between themselves 'subject to agreement to the contrary'
  • ss.32 - 44 deal with dissolution of partnerships
  • ss.45 - 50 miscellaneous
  • S.1 PA - “The relationship between persons carrying on business in common with a view to profit”

No separate legal personality - a collection of individuals • S.4 PA – “persons who have entered into partnership are for the purposes of this Act called a firm, and the name under which their business is carried on is called the firm-name”

  • it is not necessary that the partners expressly agree or intend to form a partnership. It can be formed accidentally or unknowingly
  • comes into existence automatically from the moment the

s.1 definition is satisfied

  • Guidance in s.2 PA:
  • (1) joint ownership of property – not automatic
  • (2) sharing of gross returns – not automatic
  • (3) sharing of (net) profits is prima facie evidence but not conclusive, and certain payments out of the profits referred to in s.2(3)(a)-(e) do not of themselves make a person a partner (debts, remuneration, or annuities to the dependants of deceased former partners)

Relations Between Partners

  • PA 1890 allows partners to arrange their own internal affairs as they please
  • Partnership Agreement (or ‘partnership deed’) not legally required
  • sets out partners’ rights and liabilities and as such is desirable

Relations Between Partners

  • PA has a set of ‘fall back’ rules if there is no deed
  • Section 24: subject to any agreement to the contrary between the partners

Relations between partners are fiduciary

  • s.28 - duty of honesty and full disclosure
  • s.29(1) - every partner must account for any benefit made without consent using the name of or involving the firm
  • s.30 - any profits made from a competitive business must be paid over to the firm Partnership Act “Fall Back” Provisions

  • s.24(1) - All partners share equally profits, capital and losses
  • s.24(3) - Any advances beyond the amount he has agreed to subscribe is entitled to interest at 5% p.a.
  • s.24(4) - A partner is not entitled to interest on capital subscribed
  • s.24(6) - No entitlement to remuneration

Partnership Act “Fall Back” Provisions

  • s.24(5) - Every partner may take part in management • s.24(7) - New partners need consent of all
  • s.24(8) - Decisions:
  • differences on ordinary matters - majority voting;
  • changes - unanimous decision
  • s.25 - no majority of partners can expel any partner unless the power has been conferred by an express agreement

Partnership Property

s.20(1) - property originally brought into or acquired on account of the firm, or for the purposes is partnership property

S21 – unless the contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm

Relations Between Partners – Dissolution

Dissolution by

agreement         certain supervening

events - ss.33, 34,


- S.32(c)

s.32: “Subject to any agreement between the partners a partnership is dissolved-



(c) If entered into for an undefined time, by any partner giving notice to the other or others of his intention to dissolve the partnership.”


- S.26

S.26(1) “where no fixed term has been agreed upon for the duration of the partnership, any partner may determine the partnership at any time on giving notice of his intention so to do to all the other partners”


Dissolution by the court - S.35

  • partner becomes permanently incapable of performing his part of the partnership contract
  • partner guilty of conduct calculated to prejudicially affect the carrying on of the business
  • partner committing willful or persistent breaches of the agreement, or so conducting himself in partnership matters that it is not reasonably practicable for the other partners to carry on with him

Dissolution by the court - S.35 (cont.)

  • partnership business can only be carried on at a loss
  • circumstances have arisen making it just and equitable to dissolve the partnership
  • Supervening events (s.33, s.34, s.32(a) and (b))

A partnership is dissolved:

  • where it is illegal to carry on the business of the partnership (s.34)
  • And subject to agreement:
  • on death or bankruptcy of a partner (s.33(1))
  • If entered into for a fixed term, by the expiration of that term (s.32(a))
  • If entered into for a single adventure, by the termination of that adventure or undertaking (s.32(b))

Consequences of departure of partner

s.39 - application of funds.  On dissolution every partner is entitled…

  • to have the property of the partnership applied in payment of the debts and liabilities of the firm, and
  • to have the surplus assets after such payment applied in payment of what may be due to the partners respectively after deducting what may be due form them as partners to the firm; and
  • for that purpose any partner….may apply to the Court to wind up the business and affairs of the firm.

Withdrawal of capital and undrawn profits

S.44: In settling accounts between the partners after dissolution of partnership, the following rules shall, subject to any agreement, be observed:

(a)          Losses, including losses and deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits:

(b)          The assets of the firm including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied in the following manner and order:

  1. In paying the DEBTS AND LIABILITIES of the firm to persons who are not partners therein:
  2. In paying to each partner rateably what is due from the firm to him for ADVANCES as distinguished from capital:
  3. In paying to each partner rateably what is due from the firm to him in respect of CAPITAL
  4. The ultimate RESIDUE, if any, shall be divided among the partners in the proportion in which the PROFITS are divisible


Subject to any agreement to the contrary between the partners

s.24(1) - All partners are entitled to share equally in the capital and profits of the business and must contribute equally towards the losses

Profit making firm (shared equally)

Assets                   Liabilities

Land 140,000 Creditors 50,000 Plant  20,000 Capital:  A 50,000

B             20,000

C             10,000

160,000      130,000


Apply s.44

pay creditors

  • repay partners’ capital contributions
  • treat balance as profit - divide equally (£10,000 each)
  • Loss making firm (profit/loss shared equally)

Assets                   Liabilities

Land      40,000 Creditors              50,000

Capital:  A 50,000

B             20,000

C             10,000

40,000                 130,000

Calculate loss

  • 130,000 must be repaid
  • there is 40,000 available
  • loss therefore 90,000
  • Apportion loss among partners
  • profits and losses shared equally

each bears a loss of one third of 90,000, i.e. 30,000

Take into account how much each has contributed.

Then work out what further contributions are required

C put in 10,000, so needs to put in a further 20,000

B put in 20,000, so needs to put in a further 10,000

A put in 50,000, so needs to draw out 20,000

Relations with Outsiders

  • Liability of the partners to outsiders for the firm’s debts and the acts of fellow partners

Contracts binding the firm: section 6 PA

  • “Any act or instrument relating to the business of the firm and done or executed in the firm name, or in any manner showing an intention to bind the firm, by any person thereto authorised, whether a partner or not, is binding on the firm and all the partners.”
  • anyone with actual authority (be they partner or employee) can bind the principal (the partnership)
  • “Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting in fact has no authority to act for the firm in the particular matter and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner”
  • Following s.5 a partner's unauthorised act will bind the firm if, viewed objectively:
  • the act is for carrying on business of the kind carried on by the firm (is this the kind of contract that one would expect to be done in the course of business of this kind?); and
  • the act is for carrying on such a business in the usual way (is this the kind of contract that a sole partner would usually make on the firm's behalf or is it a contract of the kind an outsider would expect all partners in a firm to sign individually)?.

The firm will not be bound, however, if:

  • the third party actually knew that the partner in question was not authorised to enter into the contract on behalf of the firm; or
  • the third party did not know or believe that the partner was a partner.

Contracts binding the firm: section 8 PA

“If it has been agreed between the partners that any restriction shall be placed on the power of any one or more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement.”

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 (s.9).

Tortious Liability

  • S10 wrongful act or omission of any partner acting in ordinary course of business of firm or with authority -loss or injury caused to any person, not being a partner, the firm is liable to the same extent as the partner so acting or omitting to act
  • S12 liability of every partner is joint and several

Liability of new and former partners – s.17

  • s.17(1): “A person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of the firm for anything done before he becomes a partner”
  • s.17(2): “A partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before his retirement”

Liability of former partners – s.36

If a partner leaves, a third party can treat all apparent partners of the firm as it was before the change as jointly liable to pay any new debt incurred by the partnership UNLESS third party has been notified of change either by:

  • actual notice (s.36(1)) - for those who have had actual dealings with the partner before departure; or
  • constructive notice by virtue of publication of the departure in the London Gazette (s.36(2)) - for those who have not had actual dealings with the partner before departure.
  • S.36(3):  Former partner will not be liable for debts to third party who did not know him to be a partner before he left.

Liability of non-partners – “holding out”

s.14(1): “Every one who  spoken or written or by conduct represents himself, or knowingly suffers himself to be represented, as a partner in a particular firm, is liable as a partner to any one who has on the faith of any such representation given credit to the firm ...”

Taxation of partnerships

  • Each partner is liable to tax as an individual on his share of the income or gains of the partnership
  • HMRC requires a partnership to make a single tax return of its profits which must be agreed with HMRC
  • Each partner is personally liable for the tax on his share of the partnership profits. A partner is not liable for the tax on other partners’ profits.
  • On disposal of a capital asset by a partnership, each partner is treated as owning a fractional share of the asset. On disposal by the partnership, each partner is treated as making a disposal of his fractional share and will be taxed on this, subject to the availability of any reliefs available to individuals.


  • Limited Liability Partnership Act 2000
  • Limited Liability Partnership Regulations 2001
  • Limited Liability Partnership (Application of Companies Act 2006) Regulations 2009
  • LLP body corporate – separate legal personality
  • Members
  • Limited liability
  • Taxed as partnership
  • Insolvency - IA 1996

LLP: Formation

  • Incorporated by registering at Companies House – www.companieshouse.gov.uk (LL IN01)
  • Two or more persons – not possible to have a one man LLP
  • Do not need to register any agreement
  • Designated members – min 2

LLP: Financial and other controls

  • Corporate model with limited liability so disclosure and related duties:
  • prepare and file audited accounts
  • appointment of auditors
  • file an annual return (new rules)
  • identify the LLP on correspondence
  • file forms on change of name, change of registered office, change of member, creation of a charge

LLP: Duties to LLP & members

  • Agreement
  • In default by regulations eg
  • Capital and profit share (but not losses)
  • Right to take part in management
  • No entitlement to remuneration
  • Introduction of new members
  • Ordinary matters decided by majority
  • Fiduciary Duties
  • Duty to account etc to LLP

LLP: Liability for contracts

  • Section 6 (1) of the LLPA provides that each member of an LLP is an agent of it.
  • Section 6 (2) provides that the LLP will not be bound by any unauthorised acts of a member, where the third party is either aware of the lack of authority or does not know or believe the member to be a member of the LLP.
  • Section 6 (3) of the LLPA provides that the third party can treat an ex-member of an LLP as still being a member for agency purposes

until he either has actual notice of the cessation of the membership or constructive notice of it.

LLP: Liability for torts

Section 6 (4) of the LLPA applies part of Section 10 of the Partnership Act and imposes vicarious liability on the LLP (rather than the other members) for any wrongful act or omission committed by a member in the course of the business with the LLP or with its authority.

LLP: Cessation

  • By agreement
  • On reasonable notice
  • Unilateral withdrawal does not give right to have share bought out
  • Minority protection

LLP: Taxation

  • Business carried on by an LLP will be treated as being carried on in partnership by the members (not the LLP itself)
  • Assets held by the LLP will be treated as being held by the members as partners for capital gains tax purposes. Accordingly, a disposal of an LLP asset will be regarded by HMRC as a disposal by the members
  • The LLPA gives relief from stamp duty where a partnership is incorporated as an LLP and assets of the partnership business are transferred to the LLP
  • LLP itself may register for VAT, not the members

Companies Act 2006

Key areas of reform:

  1. statutory statement of directors’ duties;
  2. statutory control of directors;
  3. widening of shareholder remedies;
  4. simplification of shareholder meetings and resolutions;
  5. greater use of electronic communications; and
  6. simplification of the rules concerning share capital and its maintenance.

Key concepts of company law

Limited Liability

Requirements – Maintenance of Companies House           Share Capital

Basic Principles of Company Law

  • Separate personality of the company from its owners
  • Shareholders’ liability is limited
  • Distinction between shareholders

(owners) and directors (managers)

Introduction to Shareholders


Constitution (articles)

Voting on resolutions (including appointment and removal of directors – s.168)

Financial Return

Transferability of Shares

Introduction to Directors

  • Financial Reward
  • Agency
  • Directors’ Duties


  • Shares as units of ownership
  • Nominal or par value
  • Issued, allotted, paid-up and called-up shares
  • Different classes of share
  • Types of shareholders
  • Limited Liability

A Limited

B Limited

A Ltd owns all the shares in B Ltd. A Ltd is therefore described (for certain company law purposes) as B Ltd’s ‘parent’ or ‘holding’ company. In turn, B Ltd is A Ltd’s


A Ltd and B Ltd together form a ‘group’ of companies. There is no limit on the number of companies that can form a group, and therefore, subsidiary companies may have their own subsidiaries too. This means that B Ltd could have its own subsidiary. In addition, there is no limit on the number of subsidiaries that a company may have, so it would be possible for either A Ltd or B Ltd to have more than one subsidiary.

Articles of Association (introduction)

Examples of provisions in the articles of association of a company include:

  • the number of directors required to transact business;
  • the method of appointment of directors;
  • the powers of directors;
  • how board meetings are to be conducted;
  • any special rights attaching to shares;

how shareholder meetings are to be conducted; and

how and to whom shareholders may transfer their shares.

Memorandum of Association

  • Prior to CA 2006 the memorandum was part of the company’s constitution
  • S.17 memorandum no longer forms part of the company’s constitution
  • Content in s.8
  • S. 28 - any provisions in a memorandum which exceed content of s. 8 treated as provisions of the articles. This includes the objects and authorised share capital clauses of CA 1985 incorporated companies
  • Objects clauses and ultra vires


Memorandum of association of

[insert name of company]

Each subscriber to this memorandum of association wishes to form a company under the Companies Act 2006 and agrees to become a member of the company and to take at least one share each.

Name of each subscriber                         Authentication by each subscriber

Dated [date]

Incorporating a company from scratch

S.9 – deliver following documents to CH:

  • memorandum;
  • application for registration stating name, location of registered office, whether the liability is limited and whether the company is to be private or public. Application must contain a statement of capital and initial shareholdings (s. 10 CA 2006) and a statement of the company’s proposed officers (s. 12 CA 2006);
  • statement of compliance (s. 13 CA 2006);
  • articles (if company does not intend to use Model Articles); and
  • The fee

Registrar delivers certificate of incorporation – company is a legal entity from the date of incorporation set out in the certificate of incorporation (ss. 15(2) and (4))

Purchasing a shelf company

  • Company set up in advance by a company registration agent/law stationer/firm of solicitors
  • Favoured route before on-line incorporation as was quicker – now difference is negligible
  • Make changes, e.g:
  • Name
  • Articles
  • Members/Directors/Company Secretary
  • Registered Office

Private, Public and Listed Companies

s. 4 (1) 'a private company is any company that is not a public company.' All private companies names end with “Limited” or “Ltd”

s. 4(2) ‘a public company is a company…whose

certificate of incorporation states that it is a public company'. All public companies names end with “public limited company” or “plc”

Only public companies can offer their shares to the public – e.g. through public listing on LSE

Public versus private companies


Annual General Meetings

Articles of Association

  • Relationship between CA 2006 and the Articles
  • Choice of Articles:
  • Model Articles/Table A
  • Amended Model Articles
  • Tailor-made Articles

Alteration of the Articles – s.21 SR to amend (consider also s.22 – entrenchment)

Legal effect of Articles – s.33 contract

Articles as a contract

  • S. 33(1) “The provisions of a company’s constitution bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe those provisions”
  • Contract between the company and its members – Eley v

Positive Government Security Life Assurance Company (1876)

  • Contract between the members themselves

Officers of a Company

  • Directors (ss.154/155/157)
  • Executive Directors (MA 5)
  • Non-Executive Directors (s.250)
  • Shadow Directors (s.251)
  • Alternate Directors (MA silent)
  • Appointment of Directors (MA 17)
  • Directors Service Contracts (MA 19/s.188)
  • Company Secretary (ss.270/271)

Directors’ Authority

  • MA 3: “Subject to the articles, the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company.”
  • S.40: “In favour of a person dealing with a company in good faith, the power of the directors to bind the company or authorise others to do so, is deemed to be free of any limitation under the company’s constitution”.

The articles of association of Abco Ltd contain a restriction to the effect that the directors may not commit Abco Ltd to the purchase of any new equipment having a value in excess of £30,000 without the prior approval of the shareholders. In breach of this restriction the directors enter into a contract with Equip Ltd for the purchase of new equipment costing £35,000.

Types of Authority

  • Actual express authority
  • Actual implied authority
  • Authority of a Managing Director

Brownlands Ltd ("Brownlands") is a company specialising in property sale and development. Oliver, whilst never formally appointed, acts as managing director. He is, however, referred to as the managing director on the Brownlands website. Oliver employs a team of architects to develop a site. Brownlands has now refused to pay the architects’ fees on the basis that Oliver had no authority to engage the architects on the company’s behalf.

Is Brownlands liable?

Lack of Authority

  • Ratification under CA 2006 – S.239
  • S.239(7): so following cannot be ratified by an ordinary resolution:
  • an act involving a lack of bona fides;

an illegal act;

an act done in breach of a specific procedure laid out in the company’s articles, e.g. an act requiring a special resolution (which will have to be ratified by a special resolution); and

an act involving a fraud on the minority.

Breach of duty or want of authority

A director’s general duties

  • Who are duties owed by?
  • Directors as defined, see s. 250 CA 2006
  • Shadow directors, see s. 170(5) CA 2006

Former directors for some purposes, s. 170(2) CA 2006 • Who are duties owed to?

The company, see s. 170(1) CA 2006

  • General duties of directors ss. 171 – 177
  • To act within powers • To avoid conflicts of

To promote the success of the interest

company             • Not to accept benefits

To exercise independent from third parties

judgement         • To declare interest in

  • To exercise reasonable care, proposed transaction or skill and diligence            arrangement

Duty to act within powers – s.171

“A director must –

(a)          act in accordance with the company’s constitution, and

(b)          only exercise powers for the purposes for which they are conferred.”

Duty to promote success of company – s.172

“(1)        A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to [list of specified factors]”

Duty to promote success of company –s.172

  • Likely consequences of any decision in the long term
  • Interests of company’s employees
  • Need to foster company’s business relationships, with suppliers, customers and others
  • Impact of company’s operations on community and environment
  • Desirability of company maintaining reputation for high standards of business conduct
  • Need to act fairly as between members

Duty to exercise independent judgement: s.173

“(1)        A director of a company must use independent judgement.

(2)          This duty is not infringed by his acting –

(a)          in accordance with an agreement duly entered into by the company that restricts the future exercise of discretion by its directors, or

(b)          in a way authorised by the company’s constitution.”

Duty to exercise independent judgement: s.173

Lord Goldsmith (2006):

“... The clause does not mean that a director has to form his judgement totally independently from anyone or anything. It does not actually mean that the director has to be independent himself. He can have an interest in the matter ... It is the exercise of the judgement of a director that must be independent in the sense of it being his own judgement ... The duty does not prevent a director from relying on the advice of others, but the final judgement must be his responsibility. He clearly cannot be expected to do everything himself. Indeed, in certain circumstances directors may be in breach of duty if they fail to take appropriate advice – for example, legal advice. As with all advice, slavish reliance is not acceptable, and the obtaining of outside advice does not absolve directors from exercising their judgement on the basis of such advice.”

Duty of reasonable care, skill & diligence: s.174

“(1) A director of a company must exercise reasonable care, skill and diligence.

(2) This means the care, skill and diligence that would be exercised by a reasonably diligent person with

(a)          the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and

(b)          the general knowledge, skill and experience that the director has.”

Duty to avoid conflicts of interest – s.175

“(1)        A director of a company must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.

(2)          This applies in particular to the exploitation of any property, information or opportunity (and it is

immaterial whether the company could take advantage of the property, information or opportunity)

(3)          – (7) ...”

Authorisation – s.175

  • S. 175(5) CA 2006: “Authorisation may be given by the directors – (a) where the company is a private company and nothing in the company’s constitution invalidates such authorisation, by the matter being proposed to and authorised by the directors...”
  • S. 175(6) CA 2006: “ The authorisation is effective only if – (a) any requirement as to the quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director, and (b) the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.”

Duty to avoid conflicts of interest – s.175

  • Lord Goldsmith (2006):

“... the law already recognises that potential conflicts in certain circumstances are to be avoided ... there is currently no absolute rule prohibiting directors from holding multiple directorships or even from engaging in business that competes with the company of which they are a director, but obviously a tension results ... The solution to it is ... there is no prohibition of a conflict or potential  conflict as long as it has been authorised by the directors in accordance with the requirements set out in [the Act]”.

Duty not to accept benefits from third parties


“(1) A director of a company must not accept a benefit from a third party conferred by

reason of –

(a)          his being a director, or

(b)          his doing (or not doing) anything as director.

(2) – (5) ...”

Duty to declare interest in proposed transaction


“(1)        If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, he must declare the nature and extent of that interest to the other directors.

(2)          – 6) ...”

Declaration of interest in existing transaction

  • S. 182(1) CA 2006: “Where a director ... is in any way, directly or indirectly, interested in a transaction or arrangement that has been entered into by the company, he must declare the nature and extent of the interest ... This section does not apply if or to the extent that the interest has been declared under s. 177
  • S. 183 (Offence of failure to declare interest)

Effect of codification

  • S. 170(3) CA 2006: general duties are based on common law rules/ equitable principles and have effect in their place
  • S. 170(4) CA 2006: general duties to be interpreted and applied in the same way as common law rules/ equitable principles and regard shall be had to corresponding rules/ principles
  • S. 178(1) CA 2006: civil consequences of breach of general duties to be the same as if corresponding common law rules/ equitable principles applied


Directors’ Authority

  • MA 3: “Subject to the articles, the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company.”

Matters to be referred to shareholders

A referral to the shareholders of the company is needed in the following situations:

  • where a matter is outside the powers of the directors and must be effected by a resolution of the shareholders (e.g. S.21 – amendments to articles to be made by SR); or
  • where a matter is within the powers of the directors but statute or the articles require the prior approval of the shareholders before the directors can be authorised to act (e.g. S.197 - a company may not make a loan to a director without the prior approval of a resolution of the shareholders)

Sequence of meetings

Procedure Summary

  • Who decides? (directors or shareholders)
  • For each meeting (BM or GM):
  • Who calls?
  • Notice period
  • Quorum
  • Agenda
  • Voting
  • Post-Meeting matters

Calling a board meeting

  • MA 9 - any director may call a board meeting or require the company secretary (if the company has one) to do so at any time.
  • Browne v La Trinidad (1887) 37 ChD 1, the court held that reasonable notice of the board meeting was necessary, and that this would be whatever notice is usual for the directors to give.

Board Resolutions - quorum

  • MA11(2): the quorum for a directors’ meeting may be fixed from time to time by a decision of the directors but it must never be less than two and, unless otherwise fixed, it is two
  • MA 7(2): sole director can take decisions on his own

Board Resolutions - voting

  • MA 7(1): any decision of the directors must be either an unanimous decision under MA 8 or a majority decision at a meeting of the directors
  • Show of hands – each director has one vote
  • MA 13: in the event of a deadlock the chairman will have a casting vote

Calling a general meeting

  • private companies - 14 clear days’ notice (s. 307(1) CA 2006)
  • public companies - notice depends on whether the meeting is an AGM or a GM (s. 307(2) CA 2006) - 14 clear days for a GM and 21 clear days for an AGM.
  • S. 307 CA 2006 - these are minimum notice periods which may be extended by the company’s articles.
  • clear days – s.360
  • postal rule – s.1147
  • Short notice – s.307(5) - a majority in number of the members who together hold shares with a nominal value of not less than 90% (may be increased to up to 95% in the articles)

- quorum

  • s.318(2) – quorum is two qualifying persons (includes proxies and representatives of corporate shareholders s.323 CA 2006)
  • S.318(1) – where a company only has one member, one qualifying person present is sufficient

– voting

  • Where CA 2006 does not specify type of resolution then an ordinary resolution is sufficient unless articles require a higher majority (s.281(3))
  • ORDINARY RESOLUTION: a resolution that is passed by a simple majority (more than 50% of votes are cast in favour of the resolution) (s.282(1))
  • SPECIAL RESOLUTION: requires a majority of not less than 75% (S.283(1))
  • Can no longer give Chairman a casting vote
  • Right to demand a proxy (s.324)

– voting (cont.)

  • Shareholders vote at a general meeting on a show of hands or on a poll
  • Right to demand a poll (s.321/MA44)
  • Show of hands - each shareholder who is present entitled to one vote, regardless of the number of shares held
  • Voting on a poll - every shareholder has one vote in respect of each share held by him (s.284 CA 2006)

EXAMPLE (assuming all of the shareholders are present and voting at the meeting)

BLP Publications Ltd

Shareholder’s Name       No. of shares held

Anne     55

Ben        20

Cate       10

Darren  15

Total No. of shares issued             100

Sequence of meetings

Bernard is a director of Ready Rentals Ltd (“RRL”). He wishes RRL to contract to purchase a new fleet of rental cars. RRL’s board of directors has power to enter into such a contract without reference to RRL’s shareholders.

Bernard therefore calls a board meeting of RRL, at which RRL’s directors review the terms of the proposed contract, resolve that RRL should enter into the contract, and authorise Bernard to sign the contract on behalf of RRL. No shareholder meeting is necessary.

RRL’s directors consider that RRL should change its articles. The directors have no power to do this by themselves – it can only be done by shareholders (s. 21(1) CA 2006).

A GM is therefore necessary, for a shareholder vote.

Before the GM can take place, RRL’s directors must call the GM. RRL’s directors will take this step at a board meeting (BM).

Therefore a BM will take place.

Then a GM will then take place.

After the GM, another board meeting will be necessary, to ensure that the shareholders’ decision is implemented (and for example that the new articles are registered at Companies House).

Overall sequence of meetings: board, GM, board.

Written Resolutions

  • Board – unanimity - MA 8(2)
  • Shareholders OR - S. 282(2) - simple majority of the total voting rights of eligible members
  • Shareholders SR - not less than 75% of the total voting rights of eligible members
  • S.281 – only private companies
  • S. 288(2) - resolutions to remove a director or auditor from office may not be passed by way of written resolution

Post-Meeting Matters

  • Filings
  • Company Books

Procedure Summary

Who decides?

  • Calling
  • Notice
  • Quorum
  • Agenda
  • Voting
  • Post-Meeting