Company Law

Multiply Choice - Choose A,B,C or D

1. Mark is planning to form a private company and he decides to send out a prospectus and invite the public to subscribe for shares. Which of the following would be your advice to Mark?

a. He cannot proceed as planned because he needs at least three directors

b. He can proceed as planned as long as he files a statutory declaration

c. He is on good grounds because a prospectus is needed in order to provide information to prospective investors

d. He cannot invite the public to subscribe for shares given the type of company he is forming

2. The best way to define limited liability is:

a.one where the liability of its members is limited by the articles to the amount, if any, unpaid on the shares respectively held by them and one where the liability of the members is limited by its articles to such amount as the members undertake to contribute to the assets of the company in the event of its being wound up

b. one where the liability of its members is not limited by the articles to the amount, if any, unpaid on the shares respectively held by them and one where the liability of the members is not limited by its articles to such amount as the members undertake to contribute to the assets of the company in the event of its being wound up.

C. one where the liability of its members is not limited by the articles to the amount, if any, unpaid on the shares respectively held by them but one where the liability of the members is limited by its articles to such amount as the members undertake to contribute to the assets of the company in the event of its being wound up

d. one where the liability of its members is limited by the articles to the amount, if any, unpaid on the shares respectively held by them but one where the liability of the members is not limited by its articles to such amount as the members undertake to contribute to the assets of the company in the event of its being wound up.

3. The Articles of Incorporation is an 'unusual contract' because:

a. It can be varied without the consent of all the parties to it

b. It does not have the element of consideration

c. It is made between two or more people

d. There is no offer or acceptance

4. How can a promoter limit his pre-incorporation exposure and when would this not be effective?

a. - With an express provision in the contract stating that the promoter is not in any event bound by the contract or entitled to its benefits. This would not be effective if the company pays for the goods that were ordered

b.

With an express provision in the contract stating that the promoter is not in any event bound by the contract or entitled to its benefits. This would not be effective if the company does not adopt the contract

c.

With an express provision in the contract stating that the promoter is bound by the contract but not entitled to its benefits. This would not be effective if the company declares that it is entitled to the benefits of the contract

d.

With an express provision in the contract stating that the promoter is bound by the contract and entitled to its benefits. This would not be effective if the company adopts the contract

5. Under the Companies Act 2004, in order to incorporate a business we must file the following documents:

a.

Articles of Incorporation

b.

Articles of Incorporation and Articles of Association

c.

Memorandum of Association

d.

Articles of Association and Memorandum of Association

6. A personal guarantee given to a bank by a member of a company may affect limited liability in the following way:

a.

The member will be personally responsible for the bank loan if the company fails to pay

b.

The member would be personally responsible to all the company's trade creditors

c.

The member will have unlimited liability if the company is sued for negligence following a slip and fall at the company's premises

d.

The member will be protected from the bank because of the company is a separate legal entity

7. Does the existence of corporate personality automatically mean there is limited liability?

a. - No, a company can have legal personality without limited liability because the law allows a company to be registered as an unlimited company

b.

Yes, because partnerships and sole traders do not have limited liability

c.

Yes, because all companies are set up that way

d.

No, because companies were not granted limited liability

8. John was employed to Big Wheels Auto Ltd as the Senior Director for Servicing and Repairs. His employment contract had stipulated that if he resigns he should not solicit the clients of Big Wheels for at least 1 year. John resigned from Big Wheels and formed a company Better Wheels Auto within one month and asked the marketing manager at Better Wheels to solicit the Big Wheels clients. Big Wheels threaten to sue John for breach of the covenant and he responded that he is confident that he will be successful because, as he said, "I am not soliciting the clients, my company is, and I am a separate legal entity from my company". Big Wheels come to you for advice. What is the correct advice to give to them?

a. - They will not be successful because the court will lift the veil only in very limited circumstances as seen inAdams v Cape Industries plc(1990)

b.

They will not be successful because John is right, based on the separate legal personality principle found inSalomon v Salomon & Co.(1897)

c.

They will be successful under the heading of fraud as seen inGilford Motor Co. Ltd v Horne(1933)

d.

They will be successful because John used a name for his company that was too similar to their name as seen inEwing v Buttercup Margarine Co. Ltd.(1917)

9. Jane, Jill and Mary are partners in the firm, Sweet Treats. They decided to incorporate the business as a private company and invited their family and friends to become shareholders. In total, there were 18 shareholders. The company has been doing well and 4 employees of the company wanted to buy shares in the company. Jane stated that they can only allow 2 employees to buy shares because the limit for the private company under the Companies Act 2004 is 20. Jill and Mary are disappointed because they wanted the other 2 employees to get the opportunity to own shares in the company. What would be your best advice to them?

a.

They should open up a public company so that they can have more than 20 shareholders

b.

They should ask the employees to pair up so that 2 will be as one

c.

They just have to abide by the rules and allow only 2 employees to buy shares

d.

They can go ahead and allow all 4 to be shareholders because the Companies Act 2004 will allow more than 20 in these circumstances

10. The articles of a Silent Ltd contained a clause stating that James Murray, who was a shareholder of the company, was to be appointed as the company's accountant. Months have passed and James was not so appointed. James is extremely upset and decides to sue Silent Ltd for breach of contract. What would be your advice to James?

a.

James would be successful because this is a personal right as seen inRayfield v Hands(1960)

b.

James would not be successful because he would be seen as an outsider as inEley v The Positive Government Security Life Assurance Co. Ltd.(1876)

c. - James would be successful because the court would lift the veil as inSalomon v Salomon & Co.(1897)

d. - James would not be successful because he was the one who breached the contract as seen inSwabey v Port Darwin Gold Mining Co.(1889)