Monday 4 March 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:
DEF Ltd is a mid-sized private limited company with multiple directors and shareholders. One of the directors, Lisa, has been absent from board meetings and has not actively participated in the company’s affairs for several months. The other directors are concerned about the impact of Lisa’s absence on the company’s operations. Which of the following actions can be taken to address the situation?
- The other directors should wait for Lisa to resume her duties and take necessary actions in the meantime.
- The other directors can appoint a new director to replace Lisa without her consent.
- The shareholders can pass a resolution to remove Lisa as a director.
- The shareholders can discuss the matter with Lisa and encourage her to take a leave of absence.
- The other directors can hire a consultant to fulfil Lisa’s responsibilities until she returns.
Workshop: Would you be interested in a live-stream on YouTube where ioannis can answer live your questions about the SQE and SQE1 prep? Please click here to indicate whether you are interested.
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: 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.
The correct answer is No. 5: The share issuance is invalid because the articles of association require approval from the existing shareholders. In a private limited company, the issuance of new shares typically requires the approval of the existing shareholders unless the company’s articles of association grant specific authority to the directors to issue shares without shareholder approval. A share issue can impact existing shareholders, as the newly issued shares will dilute their shares. However, current shareholders can opt to buy the new share issue as they have first right under sections 561 and 565 of the Companies Act 2006. These are known as statutory pre-emption rights.
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All the best
Dr Ioannis Glinavos
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