Friday 27 October 2023
Your weekly SQE Prep Quiz has arrived
Dear Subscriber,
Hope you have 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:
Cancun Ltd is a travel services company. The company has operated for a number of years but had a very successful run in the last season and the directors are considering distributing a dividend to its newest shareholders, to reward them for investing in the business. Which of the following statements is correct regarding the process for distributing dividends?
- The directors have complete discretion to decide whether to distribute dividends or not.
- Dividends can only be distributed if the company has profits available for distribution, according to the types of shares available.
- Dividends can be distributed regardless of whether the company has profits available for distribution.
- Dividends can be distributed to some shareholders but not others, at the discretion of the directors.
- Dividends can only be distributed if approved by the company’s auditors.
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: The previous question was as follows: Sarah and Mike have decided to start a business together selling handmade jewellery. They have known each-other for a long time and they believe they will collaborate effectively. They have agreed to split profits and losses equally, but are hesitant to take any formal steps without obtaining some legal advice. They have not formed a company, but are in the process of drafting a partnership agreement. Which of the following best characterises the type of organisation their business will operate as, at this stage of their relationship? A. Partnership at will, B. Limited liability partnership, C. Sole proprietorship, D. Limited company, E. Dormant company
Correct Answer is A. Partnership at will. The legal status of Sarah and Mike’s business before they form a company will be a partnership at will, as they have not yet formed a partnership agreement or registered as a limited liability partnership. This means that they will be personally liable for the debts and obligations of the business, and will have equal rights to share in profits and losses. Section 1(1) of the Partnership Act 1890 defines a partnership as “the relation which subsists between persons carrying on a business in common with a view of profit”.
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You will hear from me again soon.
All the best
Dr Ioannis Glinavos
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