Monday 13 November 2023
Your weekly SQE Prep Quiz has arrived
Dear Subscriber,
Hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of the newsletter.
Question:
A company has a provision in its articles of association which allows the board to issue new shares, subject to the approval of the shareholders. The board decides to issue new shares to a group of investors without seeking the approval of the shareholders. Which of the following statements best describes the legal position of the company?
A. The company is not required to obtain shareholder approval because the provision in the articles of association is discretionary.
B. The company is not required to obtain shareholder approval because the board has the authority to issue new shares.
C. The company is required to obtain shareholder approval for the issuance of new shares, and the board is in breach of its duty for not doing so.
D. The company is required to obtain shareholder approval for the issuance of new shares, but the board is not in breach of its duty for not doing so.
E. The company is not required to obtain shareholder approval for the issuance of new shares, but the board is in breach of its duty for not doing so.
Top Tip: The more you practice MCQs, the better you get at it. You can find the newsletter questions in the form of short videos on this link.
Relevant Reading: Watch the video linked here for a presentation of shareholder rights. For relevant sections in a text see ReviseSQE Business Law and Practice, Chapter 4. You can obtain the text by following this link.
Answer and feedback to last week’s question: The previous question was as follows: Ambrac Ltd is a private limited company, which has just two shareholders and two directors. John owns 51% of the shares. Jane owns 49% of the shares. They are both directors. John wishes to make a significant loan to Ambrac Ltd. Which of the following statements is correct?
- John cannot make a loan to Ambrac Ltd because it is a private company and he is a director.
- John can make a loan to ABC Ltd because he owns 51% of the shares.
- John can make a loan to Ambrac Ltd but he must get the consent of Jane.
- John can make a loan to Ambrac Ltd but he must get the consent of all the shareholders.
- John can make a loan to Ambrac Ltd but he must first obtain approval from the company’s auditors.
The correct answer is 3. The correct answer is “John can make a loan to ABC Ltd but he must get the consent of Jane”. Under the Companies Act 2006, a director of a company, whether public or private, must not do anything which places him in a position of conflict with the interests of the company. As such, directors are prohibited from making a personal profit from transactions involving the company, unless they have the consent of the other directors or members of the company. In this case, John wishes to make a loan to ABC Ltd, in which he is a director and shareholder. Therefore, he must obtain the consent of Jane, the other director and shareholder, in order to avoid placing himself in a position of conflict with the interests of the company (s.175 CA 2006). 4 looks also correct, but John will not be able to vote his shares in a matter where he has a personal interest, therefore, saying all the shareholders makes the answer less suitable.
Thank you for subscribing and let me know how you are getting on in your preparation through our Facebook Group. Feel free to forward this email to anyone you think will benefit.
You will hear from me again soon.
All the best
Dr Ioannis Glinavos
Leave a Reply