THE LANGUAGE OF COMPANY LAW WHO RUNS A COMPANY? Exercise 1 Jessica Ryder is a law student at the University of Chatsworth. She must write a short paper about the people who are connected with a company. The most important words are in the key vocabulary below. Read the text and answer the questions below using a full sentence. Key vocabulary shareholders employees company accountant secretary When the founders of a new company register the company at Companies House, the company exists ‘as a separate legal entity. This is important as it means that the company is separate from its ‘owners, who are the shareholders of the company. Shareholders are also known as the members of the company. The people who work for the company are the employees. ‘The people who have the power to run the company are the directors. The company’s anticles of association give the directors this power. Together, the directors are called the Board of Directors. They make all the decisions about the ‘management of the company. There is a lot of paperwork in connection with 2 company. Some of this is financial paperwork, for ‘example dealing wth the payroll, which means caloulating salaries and wages for the employees. It also involves sending invoices to people who buy 800d or services from the company, and paying Example: Who are the shareholders? directors auditor creditors debtors invoices from suppliers. Companies usually employ an accountant to deal with all this financial paperwork. Other paperwork is in connection with the legal administrative duties of a company. This includes the duty to send an annual retum each year to Companies House, containing up- to-date information about the company, together with annual financial accounts. Its the duty of the ‘company secretary to make sure that these legal requirements are followed. If this person fails to send the correct documents to Companies House at the correct time, then he or she may have to pay a fine. Each year, a qualified accountant, called an auditor, must inspect all the financial records of @ company. The auditor has to look at the creditors and the debtors of a company. Creditors are the people, including banks and other companies, who the company owes money to. Debtors are all the: people who owe money to the company. The auditor must be satisfied that the annual financial records are accurate. Answer: The shareholders, also known as the members, are the owners of the company. a Who are the employees? b What do the directors of a company do? © What does an accountant do? What does a company secretary do? Catherine Mason & Rosemary Akins 20 continued 327Unit 98/Foundation ‘What does an auditor do? f What are creditors? & What are debtors? Exercise 2 Look at the following statements. All of the statements are made by people or organisations that have a ‘connection with a company called Foxtrot Ltd. Complete each statement by using the correct word from the hey vocabulary in Exercise 1. a Kerry Knight invested £5000 in Foxtrot Ltd by buying shares in the company. | am a the company. | am also known as a member of the company. b_ The manager of the Royal Chatsworth Bank Foxtrot Ltd took out a loan from us six months ago. They owe us £4200. We are a of Foxtrot Ltd. © Harry Orm lama of of Foxtrot Ltd, together with two others, Mary Parker and Josh Copeland, Maty and I are also shareholders, but Josh does not own any shares in the company. Together we make ail the decisions about the company and we are responsible for running the company. d Mary Parker am a director of Foxtrot Ltd and | am also the company in addition to my duties as a director, | have the important task of making sure that | follow all the . This means that statutory requirements connected with a company, for example, sending notices of meetings to shareholders and sending documents to Companies House. Samuel Dickenson am an accountant and | work for a firm called AB Chartry & Co, Most of my clients are medium-size Private limited companies. One of my clients is Foxtrot Ltd. | have to check the company’s financial ‘accounts and make sure that they are accurate and show the true financial position of the company. lam Foxtrot id's Eliza Taylor | work for Foxtrot Ltd as their . I deal with all the financial transactions of the ‘company. For example, | send invoices to people and pay our suppliers. | also deal with the payroll ‘each month to make sure that all of our employees receive their correct monthly salary. Ron Baxter bought some goods from Foxtrot Ltd three weeks ago. The cost of the goods is £795.20. | have an invoice for these goods, which | must pay next week. | am a h Jane Wilkinson 328 lam one of Foxtrot’s receive a good salary and | also receive a commission on any new sales. of Foxtrot Ltd. | I Work in the sales department. | like working hare. | |What do these words mean? suppliers ~ people or companies that provide _an invoice ~ a piece of paper that shows what goods or services to other people or companies, you are buying and how much you must pay. often on a regular basis. AREAS OF COMPANY LAW Exercise 1 Elson Garwood law firm want to recruit a lawyer to work in their company and commercial department. They put the following advertisement in a legal magazine. The most important words or phrases are in the key vocabulary. Read the advertisement and put the correct words or phrases from the key vocabulary into each sentence below to complete the definition. Key vocabulary » Restructuring compar Shareholders’ agreements. Insolvency © Raising finance © Directors’ duties Directors’ service © Acquisitions Incorporating companies agreements © Joint ventures © Mergers Ellson Garwood LLP Chatsworth law firm seeks dynamic company lawyer with at least two years’ PQE. You will be advising our corporate clients in the following areas: © Company incorporation ‘Joint ventures * Raising nance ‘* Shareholders’ agreements * Company restructuring ** Directors’ service agreements # Mergers * Directors’ duties ‘= Acquisitions * Insolvency Apply with C.V. and covering letter to Ms Fiona Bailey, Ellson Garwood LLP, The Parade, Chatsworth, CH GFP or email Fiona at f.bailey@ellsongarwood.co.uk a are contracts of work between a company and a director. They are similar to contracts of employment. The agreement contains all of the details of the director's position, for example his or her remuneration, obligations, any restrictive covenant that applies, and a confidentiality clause. b is a situation where a company does not have enough money to pay its debts, ° take place when two companies join together to form one company. _ Obtaining money from banks, private individuals, or investment institutions is known more formally as e ‘occur when one company buys another company. They are also led takeo sale iaheavets continued 329 &t is all of the legal work involved in setting up a new company. g is changing the existing structure of companies with the aim of improving their performance, fh Situations where two or more companies work together on a particular project for a limited period of time are called Each company remains independent from each other. 1 Agreements between the members of a company are called They are important as they contain the members’ obligations to the company and to each other. For example, they state what happens when a shareholder wants to sell his or her shares J Allof the obligations and requirements of a director are called Exercise 2 Peter Hapworth saw the advertisement and wrote a letter to Fiona Bailey. Peter's letter is mixed up. ut the parts of the letter in the correct order by writing your answers in the boxes numbered 2-9 below. There is an example at the beginning, which is the start of the letter. 14 Gilbert Street Chatsworth CHT SKL. Ms Fiona Bailey 24 July 20% Elison Garwood LLP The Parade Chatsworth CHA GFP (@) Upon qualification, Hedgsons offered me a position in the company law department. | now have eighteen months’ PQE, specialising in this area. I have an excellent working relationship both with clients and other members of the company department team. (b) Position of Company Lawyer (©) look forward to hearing from you. (d) Following successful completion of the Legal Practice Course at Oxton, | undertook my training contract with Hedgsons LLP. | gained experience in civil litigation, banking, property, and company law. (@) Dear Ms Bailey (f) Peter Hapworth (@) | read your advertisement for a company lawyer in the Legal Gazette (20 July 200%) with interest. | would like to apply for this position (h) Yours sincerely (Whilst | enjoy my current position, | believe that Elison Garwood would offer a wider client base and that | could acquire further skills and experience. | enclose my C.V. for your information and would welcome the opportunity to meet you. | am able to attend an interview next month, me |@ 8 4) 6) (© am @ @ 330 ‘athena & Roseman ers 2007Help desk What do these words mean? PQE — an abbreviation for post qualification experience. That means how many years a lawyer has worked following the date of his or her Qualification as a lawyer. PQE is used frequently in job advertisements for lawyers. undertook ~ in this context, it means ‘did’ DIRECTORS Exercise 1 to acquire further skills — to get more practice In doing something so that you become better at doing that thing. client base — the number and type of people and companies that a lavr firm provides a service to. David Merriman is talking about his job as a director of a company. The most important words are highlighted in the text. Read what David says and then complete the sentences on the next page by ‘matching the first half of each sentence with the correct ending. “My name is David Merriman. I'm one of the directors of Halloway & Riggs Ltd. Our company produces mobility equipment for people who ‘cannot walk properly. Halloway & Riggs Ltd has a board of five directors. Four of us are executive directors. That means that we are the people who make all of the day-to-day decisions about running the company. We also have one non-executive director, called Jack Drury. As a non-executive director, he is not involved in the daily running of the company, but he gives us advice on new designs for our equipment. When the shareholders of Halloway & Riggs Ltd appointed me as a director of the company six years ago, the rules about the duties of directors ‘were not really very clear. There wasn't a statute dealing with the duties of directors. The law came from the common law. The main duties of a director were the cuty to act with care and skil, and the fiduciary duty of good faith. Because a director knows so much about a company, the shareholders must trust the director always to act in the best interests of the company. For example, \we, as directors, aren't allowed to make a secret, profit by using our knowledge of the company for our ovn benefit However, since the Companies Act 2006 came into force, the law about the duties of directors is a litte clearer. The Act includes some provisions about directors. It talks about executive directors and ‘non-executive directors, which | mentioned earlier. It also talks about shadow directors. Basically, 3 © catharne iseon & Roser Aine 2007 shadow director is a person who Is not officially a director of the company, because the shareholders, did not appoint him or her as a director, but this person gives instructions to the other directors. Executive directors, non-executive directors and shadow directors all have the same duties and responsibilities to the company. Directors have a uly to avoid a conflict of interest. In other words, we're not allowed to be in a position where ur personal interest may tempt us to do something that would not be in the best interests of the company. Ifa director has a personal interest ‘that may conflict with the interests of the company, then the director must tell the other directors about it. In other words the director must disclose that interest so that everyone knows about it. | hope to remain in my position of director of Halloway & Riggs Ltd for many years. My service agreement with the company expires in two years, but | hope that the shareholders will reappoint me, | can remember only one occasion, which was three years ago, when the directors and shareholders were so dissatisfied with the Performance of one of the directors, that the shareholders had to remove that director. That means they dismissed him. | would be devastated if that happened to me. I'm very proud of the company and its products and | firmly believe that this company has a great future. | will do my very best to ensure that | exercise my powers as a irector to the best of my ability. 31Unit 98/ Foundation a Executive directors. b_ Non-executive directors.. © Appointed means. d_ Afiduciary duty is... @ Ashadow director is. f Acontflict of interest is. To disclose information means to. h To remove a director means to. i To exercise @ power means to. Exercise 2 a situation in which you are in a position of ‘trust for more than one person and if you take a Particular action, this will give good results to one person while at the same time giving bad results to the other person. (1) advise the company about particular matters, but they do not take part in the daily decision-making, (2) - use that power. (3) .+ elected of chosen for a particular position. (4) +» dismiss that person from his or her position as a director. (5) +. fn the company and make all the decisions about the company. (6) ive that information to someone or tell someone about it. (7) a duty to act in the best interests of someone because that person trusts you. (8) someone who, even though he or she has no official position of authority, gives instructions to the official directors. (9) Read what David Merriman says again and decide if the following statements are true or false. a David Merriman is a member of the board of directors of Halloway True False & Riggs Ltd. b Jack Drury is a member of the board of directors of Halloway & Riggs Lid. True _—‘Fallse © David Merriman has been a director of Halloway & Riggs Ltd for six years, Tue False d__ The directors are allowed to make a profit from their position but they Tue False ‘must not tell anyone about it. @ David Merriman wants to retire in two years. Tue False f Three years ago, the shareholders removed David Merriman from his, position as a director. Tue False Help desk What do these words mean? ‘mobility equipment — this is equipment which helps people to move. For example, wheelchairs, crutches and walking sticks. 00d faith — honesty and sincerity, loyalty. 332 the best of my ability ~ to do something to the best of your abilty, is to do it as well as you possibly can. devastated ~ extremely upset.COMPANY MEETINGS Exercise 1 Christine Martin works at the Chatsworth Business Advice Bureau. This is an office that gives advice and information to people who want to start a new business. Christine is writing an information sheet about company meetings. The most important words or phrases are in the key vocabulary below. Read the first page of the information sheet and answer the questions that follow using a full sentence. | page 1 a Who attends board meetings? Answer: b Who attends company meetings? Answer: continued Key vocabulary » company annual general meetings meeting board meetings. chairperson © minutes convene extraordinary Proxy general meeting ‘show of hands quorum poll © adjourn Chatsworth Business Advice Bureau Company meetings Ifyou want to set up a private limited company or a public limited company you eed to know about company meetings. ‘There are board meetings and company meetings. Board meetings are meetings of the directors of the company. Company meetings are meetings of the shareholders of the company. The company must hold regular meetings. ‘The directors make all the decisions about the company so they need to meet often. You need to keep a written record of each meeting. The written record of each meeting 's called the minutes of the meeting. The person who controls a meeting is called the chairperson. ‘The shareholders meet at the company’s annual general meeting. This meeting ‘takes place once each year. It is usually called the AGM. If it is necessary for the shareholders to meet again, the company will Convene an extraordinary general meeting, which is called an EGM. To convene a meeting simply means to call a meeting, In other words, the company sends a notice to all the shareholders telling them when and where the meeting will take piace. ‘There must be a quorum at a meeting, A quorum is the minimum number of people who have to be at the meeting in order to make an official decision. Each company decides how many people will constitute the quorum. If the quorum is not present, then the meeting cannot continue. You will have 10 stop the meeting and arrange a new date forit. In other words, you must adjourn the ‘meeting, which means to postpone it. Ifa shareholder cannot go to the meeting, maybe because he or she is on holiday, he or she can ask someone else to go the meeting and vote for him or her. That person is called the shareholder’s proxy. People vote at a company meeting either by raising their hands, or by making their vote on paper. The first method of voting is more formally called a show of hands and the second method of voting is called a poll Catherine Mazon & Rosemary Akins 2007 a3 vonepunea/ye wnit 9A Foundation © What are the minutes of a meeting? Answer: d_ What does the chairperson do at a meeting? Answer: eHow often does an annual general meeting take place? Answer: What does the abbreviation EGM mean? Answer: g There must be a minimum number of people attending @ meeting before that meeting can continue. What is this minimum number of people called? Answer: ‘h What are the two methods of voting at a company meeting? Answer: Exercise 2 Use the correct words or phrases from the key vocabulary in Exercise 1 to complete the following sentences. a We need at least five people to attend the meeting before we can make any decisions. There are only four people here, so we do not have a __ present. 'b Ifyou want to read what happened at a meeting, you should look at the of the meeting. © The company’s takes place in March of every year. d_ Meetings of the shareholders are generally known as @ I'm afraid there is not a quorum at this meeting, We will ‘the meeting now and hold it again next week. f The AGM of Great Finance ple will take place next month. One of the shareholders, Daphne Mercier, will be in France when the meeting takes place. Daphne asked her friend, Teresa, to be her and vote on her behalf at the meeting. One method of voting that is very often used at company meetings is where each shareholder raises his ‘or her hand, in other words, voting by a fh Granger Lid held its AGM last month. Now it is necessary to hold another meeting. This time it will be an 1 The directors hold regular ‘at which they discuss the position of the company and make decisions about the company. J. There are a number of matters that we must discuss. We need to a company meeting as soon as possible, a4 {© catherine Mason & Rsemscy Akins 2007 $a 9 eek All the shareholders voted by completing the voting form. This written vote is called a 1 Two of the shareholders became very angry during the meeting and started to shout at each other. The had to ask them to be quiet. Exercise 3 Here is the second page of the information sheet about company meetings. The most important words or phrases are in the key vocabulary below. Read the information sheet and decide if the statements on the ext page are true or false. Key vocabulary © resolutions © cary © unanimously © special resolutions © motion pass © written resolutions © ordinary « notice resolutions Chatsworth Business Advice Bureau Company meetings Both the directors and the shareholders | make their decisions at meetings. These decisions are called resolutions. If someone has a proposal that they want to discuss at a meeting, this proposal is called ‘a motion or a proposed resolution. The | shareholders discuss each motion and then vote to decide whether or not to accept that proposal. When the shareholders accept or agree to a motion, we say that the | shareholders ‘pass a resolution’ or ‘earry a resolution’. This is another way of saying to approve of, or agree to, the decision. There must be enough people voting in favour ofa resolution in order to formally accept tf everyone agrees to the motion, then the resolution is passed unanimously. Unanimously means that everyone who is present at the meeting isin complete agreement. However, you do not need everyone to agree. It depends on what you are voting about. Some motions need a simple mjorty of over 50% of people who are voting to agree in order to pass them. These decisions are called ordinary resolutions. Other motions need a majority of 75% of people who are voting to agree in order to pass them. These decisions are called special resolutions. ee Mason & Rosemary Akers 2007 You do not always have to convene a meeting In order to pass a resolution. Shareholders. can make lots of decisions by using written resolutions, especially if the company is @ private limited company. This saves the time and cost of holding formal meetings. There are a lot of rules about holding company meetings. Some of these rules are statutory, which means the Companies Act 2006 requires companies to have these rues. n addition to these statutory rules, each individual company imposes its own rules. The rules of each individual company are in that compary’s articles of association. For example, ifyou are a director, you cannot just announce that you will hold @ company meeting today! The company has to send a formal notice of the meeting to the shareholders. That means you have to officially ‘announce to the shareholders that a company meeting wil tke place. You also have to make sure you give the shareholders the conect umber of days’ notice. You must study a company’s articles of association very carefully ‘to make sure that you follow ll these ries. Our advice is to ask a solicitor to explain ‘your company’s articles of association to ‘you so that you fully understand all of the procedures concerning meetings. pace 2 335Unit 9A/Foundation ‘A proposed resolution is called 2 motion. True False b_ Inorder to pass a resolution, all the shareholders must always agree tunanimousty Tue False © Ordinary resolutions need at least 51% of people voting in favour of them. True ‘False Shareholders can only pass resolutions at a formal meeting Tue False ‘@ Allofthe rules about company meetings are in the Companies Act 2006. True —‘Fallse Exercise 4 Rewrite each of the sentences below, using the correct word or phrase from the key vocabutary in Exercise 3 to replace the underlined word or words. Example: The shareholders passed a decision to issue 100 new shares. ‘The shareholders passed a resolution to issue 100 new shares. ‘a We will now discuss the following proposed resolution, proposed by Jane Edwards. We will now discuss the following . proposed by Jane Edwards. b The shareholders accented a resolution to change the name of the company. The shareholders 1 resolution to change the name of the company. © This resolution is a This resolution is an _ The company sent a formal announcement to all ofits shareholders informing them that the company is convening an EGM, which will take place on 12 June. ‘The company sent a to all ofits shareholders informing them that the ‘company is convening an EGM, which will take place on 12 June. @ This resolution is a decision whi in favour of it in order for it to-succeed. This resolution is a The shareholders passed the resolution with complete agreement. ‘The shareholders passed the resolution For most matters, the shareholders of Restart Ltd do not need to meet, as they are happy to use decisions in writing. For most matters, the shareholders of Restart Ltd do not need to meet, as they are happy to use Help desk What do these words mean? a voting form — a paper that sets out the possible to raise your hand ~ to put one of your hands choices. You decide which of these choices you high into the air above your head. want, then write a cross (X) next to your choice. 336 € Catnerine Maton & Rosemary Ain 200COMPANY FINANCE - A CASE STUDY Exercise 1 Look at this case study of a private limited company. Some of the words are highlighted. Without using a dictionary try to decide whether the highlighted words are verbs or nouns. Farmfoods Ltd is a private limited company which supplies animal food to farms for sheep, cows and other animals. The company traded successfully for the past four years. The company's most valuable asset is its factory where the company manufactures the animal food. The directors decicied to expand the business. Farmfoods Ltd needed to borrow a lot of money to finance this, | expansion. The directors applied for a large loan from the Royal Chatsworth Bank, The bank ‘considered the application and agreed to lend the company the money. However, the bank wanted @ guarantee from Farmfoods Ltd that the company would repay the loan. The bank demanded a fixed charge over Farmfood Ltd's assets. The directors agreed to grant a mortgage to the bank ‘over Farmfoods Ltd's factory. The bank now has security over the factory. If Farmfoods Ltd defaults on the loan repayments, the bank can take the factory from Farmfoods Ltd, Verb Noun Exercise 2 Here are the highlighted words again. Fill each gap in the following sentences with the correct word from the blue box below to complete the definitions that fotfow. asset loan repay mortgage borrow lend © charge ‘security finance ‘guarantee grant defaults a To. money means to take money from someone else for an agreed period of time and then pay it back. b To money means to give money to someone else for an agreed period of time. ‘That person must then give the money back to you. © Catherine Mason & Rosemary Atkins 200; 337 wonepunos/v6 wun,i 3 i cA is @ sum of money that you borrow from another person. You must pay back that money, usually with interest. d To money is to pay back the money that you borrowed from someone, @ An Is something that you own which has a value. It can have a very low value, for example @ CD, or a very high value, for example a house. f To a project means to obtain money in order to be able to pay for that project. eA is a promise to do something. h is a guarantee that you will pay back to someone the money that you owe to them. Itis often ‘fixed’ to a particular asset, which means that if you don’t pay back the money, that person will take the asset that you used to guarantee payment. TA is one example of security. Itis a legal document which gwves a house or a building as security for a loan. If the owner of the house does not pay the loan back, then the person ‘who lent the money can take the house and sell it in order to get his or her money back. J Ifsomeone ‘on payment it means that he or she fails to make that payment. kA '5.a type of security. A fed charge is attached to a particular asset and gues the chargeholder the right to take that asset if the borrower does not pay the money that it owes. An example of a fixed charge is a mortgage. There are other types of charge, which are less important than fixed charges. 1 To. ‘a mortgage over your property is to use that property as security for a loan. Exercise 3 Look at the second part of the case study. Decide in each case which is the correct proposition from the two possibilities. Unfortunately, Farmfoods Ltd experienced a very bad year (+) offin trading last year. (a) UntiVAfter ‘a period of terrible weather which ruined the crops, Farmfoods Ltd had to increase its prices (b) withiby 15% and its customers found other more competitive suppliers. The company's plans {€) forito expansion dic not receive approval (d) from/to the planning authonties. The company cannot pay the instalments (e) for/on the loan from the Royal Chatsworth Bank and last month the Dank demanded full repayment (f)offte the loan. Farmfoods Ltd is insolvent. The company is unable to pay its debts. Answers. Example (#) of a bb ec doe at 338 © catrenne Mason & Rosemary Ans 2007Exercise 4 The directors of Farmfoods Ltd are looking at the list of its creditors. Creaitors are either secured creditors or unsecured creditors. Secured creditors have some sort of security or guarantee of repayment, while unsecured cregitors have no guarantee of payment. Read the information about Farmfoods Lid’s creditors and decide if each creditor is a secured creditor or an unsecured creditor. Print It Ltd. This is a company that supplies printing services to Farmfoods Ltd. Farmfoods Ltd did not give any guarantee for payment of any amount. Answer: b Chatsworth Royal Bank. The bank has a mortgage over Farmfoods Ltd’s factory to guarantee repayment of this loan, Answer: ¢ HGFT Bank. Farmfoods Ltd also took out a loan from this bank, HGFT Bank holds a charge over some of Farmfoods Ltd's assets, Answer: d_ Spin Electric ple. This company provides Farmfoods Ltd with electricity. Farmfoods Ltd has not paid any of its electricity bills for five months. Farmfoods Ltd did not give any guarantee for payment of any amount. Answer: e Grotell & Co. This is a partnership that supplies packaging to Farmfoods Ltd. There are two invoices from Grotell & Co that are waiting to be paid. There is no guarantee for payment of any amount. Answer: CLOSING A COMPANY Exercise 1 ‘Sam Clark is a Jaw student at the University of Chatsworth. He must write a short summary about closing a company. Here is Sam's summary. The most important words or phrases are in the key vocabulary below. Read the information and answer the questions that follow using a full sentence. Key vocabulary strike off solvent members’ voluntary © realise solved wind up liquidation insolvent liquidate » liquidator Insolvency practitioner Closing a company Because a company Is a legal entity, the directors cannot simply stop business and close the company. There are rules in connection with closing a company. The directors must ‘ollow the correct procedures, which vary depending on the reason why the company is closing. There are a number of reasons why a company closes: © The company is no longer trading. The Registrar of Companies House has the power to remove, or ‘strike off, a company from the central register of companies if the Registrar believes that the company is not cartying on business. This will happen if, for example, continued Catherine Mason & Roser Atkins 2007 339 roUnit 98/Foundation the company does not submit any annual accounts or annual returns to Companies House and fails to reply to any letters from Companies House. When the Registrar strikes off a company, that company no longer exists. We say that the company is dissolved. « The shareholders wish to close the company. Maybe, for example, the company was a family business and the family no longer wishes to carry on that business. Or maybe the shareholders set up the company for a particular project, which is now finished. In these situations, the shareholders must liquidate the company. To liquidate a company means to formally close the company. Ifthe directors believe that the company is solvent, in ‘other words the company has enough money to pay all its debts, the shareholders can follow a process called a members’ voluntary liquidation. The liquidation starts when the shareholders pass a resolution to wind up the company voluntarily. To wind up a company means the same as to liquidate or to close a company. ‘A person is then appointed to liquidate the company. He or she is called the liquidator of the company. This person is a qualified insolvency practitioner, which means that he or she has the necessary qualifications to deal with closing companies. The job of the liquidator is to wind up the company. The liquidator must realise the assets of the ‘company. This means that he or she must sel all the assets of the company. The liquidator then has to give the money from the sale of the assets to the creditors of the ‘company. If any money remains, the liquidator distributes it among the shareholders of the company. At the end of this process, the Registrar dissolves the company. @ The company has no money. The other reason for closing a company is because it does not have enough money to pay its debts. In other words the company is insolvent. Again, there are many rules to follow if a company is insolvent. However, itis important to remember that not all insolvent companies must close. a What does to strike off a company mean? newer: b_ What does to liquidate a company mean? Answer: © What adjective describes a company which is able to pay al of ts debts? Answer: d_ Which phrasal verb has the samie meaning as to liquidate? Answer: © Who has the task of winding up a company? Answer: £ What does to realise assets mean? Answer: What is an insolent company? Answer: 40 © cofrerne Mason & Rosernary Aine 2007Exercise 2 Use the correct words or phrases from the Key vocabulary in Exercise 1 to complete the following sentences. a Ifyou want to be an ___ you must have special qualifications which allow you to deal with the process of closing companies. b_ 1am pleased to report that after a very difficult year of trading, this company is now __ and we are in a position where we are able to pay all of our debts. cA 1s a procedure where the shareholders of a solvent company decide to close the company. When lawyers talk about closing a campany they either use the verb “to a ‘company or the phrasal verb ‘to a. company, These verbs have the same meaning. ‘@ As Hawkseng Lid failed to respond to any letters or demands from Companies House, the Registrar is going to Hawksend Ltd from the register of companies. f Following a terrible year of trading during which Klanx Lid made massive losses, Klar Ltd announced that the company is ‘and does not have the money to pay all ofits creditors. € When a company isin liquidation, the is the person who has to wind up the company. h To ‘an asset means to sell that asset in order to raise some money. i At the end of the process of liquidating a company, the company is, and does not exist any more. Help desk What do these words mean? to vary — to change, to alter. to carry on business ~ to trade. massive — extremely big, © Camere Mason & Rosemary Atins 2007 an oepunea/ve 310THE LANGUAGE OF COMPANY LAW PEOPLE CONNECTED WITH A COMPANY Exercise 1 Look at this list of people. They are all connected with a company. Match each person in the list with the conect description below. directors (1) shareholders (2) company secretary (3) auditor (4) a Allof the people who are employed by a company, The people or companies that a company owes money to. © The owners of a company. They are also called the members of a company. d Aperson who checks the financial records of a company to verify that the accounts ate a true reflection of the company’s financial position. Exercise 2 accountant (5) ‘employees (6) creditors (7) debtors (8) The people who run and manage a company. ‘Aperson who deals with a company’s finances. This person usually has professional qualifications in accountancy. The people or companies who owe a ‘company some money, The person who is responsible for making sure that a company's statutory obligations are complied with. Use the correct words from Exercise 1 to fill the gaps in the following text. ‘My name is Louise Nichols. | own 40% of the issued shares in Sanders & Nichols Ltd. The other f@) are Dennis Sanders and Kit Neilson. As well as being members of the company, we are responsible for running the company, as we are the (b) _ Neilson has an additional responsibilty as he isthe (e) Of the company. Kit He has to make sure that all the legal requirements in connection with fling documents at Companies House are complied with, We have three (d) Iho work in our shop in Chatsworth. We use the services of an () {0 keep our financial records up-to-date. We have regular meetings with her and ‘each month we look at the list of people who haven't paid our invoices. Of these (f) _ : ‘we look to see if there is a good reason why they haven't paid us. If there is no reason, we contact ther to ‘ask them to pay us immediately. In the same way, we look at the people that we owe money to. These are our (g) We pay most of these, but if we have a query we will raise that with them. Once a year itis necessary for an (h) to check the financial records and accounts of ‘our company. This is an independent check, to make sure that our annual accounts show the true financial position of Sanders & Nichols Ltd.” 39Unit 9B/tHiher WORKING IN COMPANY LAW Exercise 1 Greg Harrison is a partner in the law firm Taylor Wallis. He works in the company and commercial department. Today Greg Harrison is speaking to a group of trainee lawyers and giving them his opinion ‘about working as a solicitor in company law. Fill he gaps in the text with the words from the blue box below. © statutory © raising © formations © incorporating © resolutions © insolvency © employment © dispute © acquisitions have always wanted to workin the area of company law because it is So interesting and there is so much variety. You have to deal with non-contentious work, such as (a) ‘anew company, land contentious work, such as acting for a company which is in (b) with its suppliers. We work closely with the other departments within the law firm. For example, ifa company needs a service agreement for a new director, we will ask the (c) department for assistance. If the matter involves @ company which is experiencing financial difficulties, we will ask for advice from one of our lawyers in the banking and (d) department. if we are dealing with a situation where ‘one company is taking over another company, then we will involve a tax lawyer. | have been with this firm for 14 years and in that time | have dealt many aspects of company law. These include: «© Dealing with company (e) ‘and restructuring a company «Drawing up and advising on shareholders’ agreements «© Drafting directors’ service agreements «Advising on methods of (9 finance © Giving advice on complying with new legislation © Dealing with mergers and (g) «© Giving advice on voting procedures at meetings and drafting (h) «© Advising on company insolvency procedures «© Dealing with joint ventures. So as you see, company law is a huge area of law, with many varied aspects. Some of the law regulating companies is () and some comes from the common law. In 2006 a new Act of Pariiament was passed, called the Companies Act 2006. This new legislation affects existing and new companies and all company lawyers have a lat of work to do in becoming familiar with the legislation and ‘advising their corporate clients on complying with it Exercise 2 In Exercise 1, Greg Harrison gave a list of different aspects of company law that he has dealt with during his 1.4 years at his law firm. Look at the following statements and match each statement with the correct aspect of company law mentioned by Greg. Example statement: ‘A new statute has been passed which wil fully come into force in 2008. This will have a huge effect on company law and we must make sure that our clients are aware of the changes in the law and how it affects their company.’ Aspect of law: Giving advice on complying with new legislation, a ‘Ifa company needs money, there are a number of ways the company can obtain It. However, itis important to consider both the short-term and long-term effects of each option and choose the one that best suits the purpose and needs of the company. ‘Aspect of law 350 © Cather Mason & Rosemary tins 2007| | | | | b ‘You have instructed me in connection with the sale of your shares in Happy Times Ltd children’s nursery. | need to see a copy of the contract that you signed, which deals with the arrangements between all the members of Happy Times Ltd.” Aspect of law: © ‘During the lifetime of a company, many decisions will be made and lots of formalities must be followed when taking those decisions.” Aspect of law: d_ “You would like to appoint Janice Longman as your new Financial Director and you have instructed me 10 draw up a document clearly setting out the terms and conditions of this appointment. ‘Aspect of law: e ‘Sadly, many companies do not succeed in tracing profitably and they make substantial losses. Some of these companies have to close down, others may benefit from an experienced person taking control of the company. There are a number of ways to help a company which is in financial difficulties.’ Aspect of law: f ‘1am often involved in situations where two companies are joining together or where one company wants to gain control of another company.’ Aspect of law: g ‘At the moment | am working on a project which involves two Independent companies working closely together on a particular project for a specified period of time.’ Aspect of lav ‘h ‘ttis very important, when setting up a new company or changing the structure of an existing company, to think about the consequences, both in terms of finance and the balance ot power between the shareholders.” Aspect of law: Collocation bank © to work closely © to raise finance: © to make a decision © to experience difficulties © a long-term effect. © to take a decision L_ oo So — ° | © to be in dispute with someone © to work on 2 project, | | -Ourclients have been in dispute for a ‘Sally and Jacob are going to work on the | | long time.” NewStar project tomorrow." | © to advise on something » to think about something | |“ vameinenysiengon est pod | ritunkabut at nd he ys an are | jin Manchester.’ on Tuesday. in connection with something ® t0 be familar with something | “Please call mein connection withthe "started work here two Weeks ago and I'm proposed transaction. Just beginning to be fariar with the ‘company’s computer system.’ to succeed in doing something "Good news. We have succeeded in raising £500,000 for the project.” © Catexne Mason & Rosemary Ans 2007 351 sowt/as wnUnit 98, igher DIRECTORS Exercise 1 Greg Harrison, one of the partners of Taylor Wallis, is preparing a seminar on the role and duties of directors. Greg has written the following notes, which wil be given to al clients who attend the seminar. Find the words in the notes that match each of the meanings gven below. Taylor Wallis The role and duties of directors Greg Harrison, Company and Commercial department The owners ofa limited company are the shareholders. However, the shareholders do not run the company. The dtectors do this. Al private limited companies must have at least | one director. A public limited company must have atleast two dlrectors. ‘Shareholders can choose who they want to appoint as a director. You will find the rules | concerning directors in the company’s articles of association. The articles may say how many directors there should be, how long they can serve as a director and what happens at the end of their term. In many companies directors are required to retire after a specific period of time, for example, three years, although the directors can be reappointed. If the ‘company is dissatisfied with the performance of a director, it can remove a director before the period of his or her office has expired. However, the company may still be liable to pay the removed director compensation or damages in respect of the termination of the appointment as director. In the Companies Act director is defined as including ‘any person occupying the position of director, by whatever name called.’ If you have been appointed as a director and you are involved in the day-to-day decision making, you are called an executive director. If you have been appointed as a director, but you do not have any involvement in the day-to-day running of the company, you are called a non-executive director. As @ non-executive director, you will have the same legal responsibilities as other directors. If you have never been appointed as a director, you may still be classed as a shadow director. A shadow director is defined in the Companies Act as a ‘person in accordance with whose directions | or instructions the directors of the company are accustomed to act’. As a shadow ditector you will have the same legal responsibilities as other directors. | Asa director, you have many business responsibilities for ensuring the success of your | company, in areas such as health and safety, employment law and tax. In all your actions you are expected to exercise a degree of skill and care. The term ‘fiduciary duty’ is used a | lot when talking about directors. This means that you, as a director, are in a position of trust ‘and you must act in good faith and in the interests of the company as 4 whole. Ifa director acts improperly, this may lead to a fine, disqualification from being a director, personal lability for the company’s debts, or a criminal conviction. To formally choose someone for a particular job or position. The word is b Tobe in the position of a director and to perform the duties required by that position. The word is 382€ To dismiss a director from his or her job or position The word is Regarded as belonging to a particular group. The word is To have become used to something. ‘The word is f Tose, to put something into effect. The word is & Dishonesty or illegal The word is hh The state of being stopped from being in a particular job, or from taking part in a particular activity. The word is Exercise 2 Greg has invited the participants at the seminar to ask any questions that they have. Read the notes in Exercise 1 again and answer the participants’ questions below using a full sentence. a ‘We're thinking about setting up a private limited company. How many directors must we have? Answer: b ‘Our company is unhappy with one of our directors and we want to fire him. Will the company have to pay him any money?" Answer: © ‘My father is a director of a company. He doesn’t make decisions for the company, or have any say in the running of the company, but he does give advice. He's more like a consultant, really. What sort of director is he, and does he have any legal responsibilities to the company?" Answer: d_‘Tve gota friend called Fred. He isn’t officially a director of a company, but he tells the official directors what to do and basically he's the person that runs the company. Is he a sort of director?" Answer: e ‘Can you please explain again what fiduciary duty means?" Answer: (© Caters Mason & Rosemary Ati 2007 353 sora /a6 wen,