Julian Harris your client is going to follow your advice as his accountant and set up a new company to take over the activities that he previously ran as a sole trader. In your discussions with him he has the following questions relating to the establishment of the company.

1. In a company constitution there is a pre-emptive clause. Can you explain the purpose of this clause, what type of companies it applies to and why it was introduced? (5 marks)
2. Why do companies sometimes want to reduce their share capital and how can they do it?(5 marks)