Monday 26 February 2024
Dear Subscriber,
I 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 this newsletter.
Question:
ABC Ltd is a private limited company engaged in retail sales. The directors decide to issue new shares to raise additional capital. They have decided to do this without obtaining approval from the existing shareholders. The articles of association require existing shareholders consent to any issue of new shares. Which of the following statements best describes the validity of the share issuance?
- The share issuance is valid as long as the directors believe it is in the best interests of the company.
- The share issuance is invalid because it was done without obtaining approval from the existing shareholders, as the law requires.
- The share issuance is valid if the directors notify the existing shareholders within a specified time frame.
- The share issuance is valid if the company’s auditors provide written confirmation of its financial health.
- The share issuance is invalid because the articles of association require approval from the existing shareholders.
Top Tip: For more on shares and the rights of shareholders watch this podcast.
Relevant Reading: For a relevant text to this week’s question see ReviseSQE Business Law and Practice. You can obtain* the text by following this link.
Answer and feedback to last week’s question: DEF Ltd is a private limited company with multiple shareholders. Amy, a shareholder of DEF Ltd, passes away. Which of the following statements best describes the impact of Amy’s death on her shares in DEF Ltd?
- Amy’s shares will be transferred to her next of kin automatically upon her death.
- Amy’s shares will be transferred to DEF Ltd, and the company will cancel them.
- Amy’s shares will be distributed according to her will or the laws of succession.
- Amy’s shares will be offered for sale to the other existing shareholders at a discounted price.
- Amy’s shares will be transferred to DEF Ltd and allocated to the remaining directors.
The correct answer is 3: Amy’s shares will be distributed according to her will and the laws of succession. When a shareholder of a private limited company passes away, their shares become part of their estate. The distribution of these shares will be determined either by the shareholder’s will or by the laws of intestacy if there is no valid will in place. The deceased shareholder’s next of kin or beneficiaries, as specified in the will or determined by the laws of succession, will inherit Amy’s shares in DEF Ltd. It is essential for shareholders to have a clear succession plan in place to address the transfer of their shares in the event of their passing. This can help avoid uncertainties and potential disputes over the ownership and control of the shares.
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
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