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Question Sabita, Theodore, Rohan and Alina are recent design graduates and are planning to set up a business together to design and manufacture botanical print

Question Sabita, Theodore, Rohan and Alina are recent design graduates and are planning to set up a business together to design and manufacture botanical print wallpapers using eco-friendly materials. Theodore and Alina attended a networking event for entrepreneurs last week and heard that it would be advantageous if the business was incorporated as a private limited company, but are not sure why that is the case. Sabita, Rohan and Alina have indicated that if setting up as a private limited company is beneficial, they would each like to initially invest 10,000 by subscribing for 50 ordinary 1 shares in the company each. Theodore recently inherited a large property and some money from his Aunt, so he would like to invest 20,000 by subscribing for 100 ordinary 1 shares in the company. Sabita, Theodore, Rohan and Alina all wish to be appointed as directors of the company. They would also like to ensure that they each have an equal say in the running of the company and as such, they do not want there to be a casting vote at Board Meetings. They all also wish to have a written contract between them, including a list of matters on which all of them as shareholders must agree. As Theodore is investing the most in the business, he wants to ensure that his position is protected by being able to prevent his removal as a director. Sabita and Alina have already made some initial enquiries with Herts Bank plc about the possibility of the company borrowing a lump sum of 50,000, which would be used by the company to fund the purchase of a small industrial unit where the wallpapers will be manufactured. Herts Bank plc mentioned that as the company is new, a range of types of security would need to be provided, as well as the 'usual' loan and security documentation. Sabita, Theodore, Rohan and Alina would like you to explain to them: the advantages of limited liability; how voting will work, both at a board and shareholder level; the function of the Articles, the most appropriate form of Articles in this case as well as any provisions that could be included in the Articles to reflect their specific instructions; the procedures and documents needed to proceed with the company's planned borrowing from Herts Bank plc, including an explanation of the types of security that Herts Bank plc are likely to require in the circumstances; and what type of contractual agreement could be used to set out a list of matters on which the shareholders must agree and how Theodore could use such an agreement to protect his position and prevent his removal as a director.

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