Newsletter 6

Monday 16 October 2023

Your weekly SQE Prep Quiz has arrived

Question:

Anna has inherited some money from a distant relative and is keen to use it to invest in a new business venture. She has located a startup, set up as an Ltd that seems worth investing in. The business is offering shares in return for her investment. Which of the following statements best describes what it will mean for Anna to become a shareholder in a private limited company?

1. She will be consulted on key decisions and be paid a salary.
2. She will be consulted on all key decisions and potentially receive dividends.
3. She will be involved in the day to day running of the company and be paid a salary.
4. She will be involved in certain key decisions and potentially receive dividends.
5. She will be one of the owners of the company and potentially receive dividends, but without the ability to influence the day to day running of the company.

Top Tip: If you are looking for a quick refresher of FLK Contract Law, I have put together a recorded lecture that takes you through the entire FLK in less than an hour. Click here to access the video.

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: Last week’s question was as follows: Fiona wanted to carry out some building work in her holiday cottage to provide extra training facilities for her horses. She decided to build a large, fenced area for them to run in. Fiona entered into a contract with Granger Ltd to build the training facilities for £20,000. The contract provided for completion of the work by 1st March. When work commenced on the training facilities, Granger encountered a network of pipes immediate under the surface, which need to be diverted. Granger demanded an extra £5,000 to cover their increased costs. Fiona could not find any other builder with the expertise to complete the contract on time and so agreed to pay the extra charge, without protest, so that the grounds would be completed on time for the horses to start training in the spring. On completion of the training facilities on 1st March Fiona refused to pay Granger any more than £20,000. Should Fiona:

1. Pay Granger £25,000 as the promise to pay extra was supported by consideration
2. Pay Granger £20,000 as the promise to pay extra was procured by duress
3. Do not pay Granger anything as the contract was frustrated
4. Pay Granger only for work done, up till the point that the pipes were discovered
5. Pay Granger £25,000 on the basis of promissory estoppel

Correct Answer is 1: Pay Granger £25,000 as the promise to pay extra was supported by consideration. This is because it is likely that the promise to pay extra will be considered a practical benefit (see Williams v Roffey) or simply, it is extra payment for additional work carried out. It is not likely that the promise to pay extra was procured by duress, therefore 2 is a less likely answer. Equally, on the facts presented, it is unlikely that the contract was frustrated, which makes 3 and 4 the wrong answer. Promissory estoppel (5) is not relevant as the claimant (Granger) cannot use it to demand payment.

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You will hear from us again next week.

All the best

Dr Ioannis Glinavos