I85PREP
⌘ K
FE-1 Company Law study materials
FE-1 Company Law study resources

FE-1 Company Law practice questions

One question at a time. Build your FE-1 Company Law understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Company Law

Under the Companies Act 2006, what is the minimum number of subscribers required to form a private limited company?

  1. One Correct answer.
  2. Three
  3. Five
  4. Two

Explanation

Section 7 of the Companies Act 2006 permits a company to be formed by one or more persons subscribing their names to a memorandum of association. There is no upper limit on subscribers, and a single individual may incorporate a private limited company.

Question 2Company Law

A company's articles of association contain a provision requiring shareholders to offer shares to existing members before transferring them to outsiders. What is this provision called?

  1. A compulsory acquisition clause
  2. A pre-emption clause on allotment
  3. A drag-along clause
  4. A pre-emption clause on transfer Correct answer.

Explanation

Restrictions on transfer in the articles that require a selling member to offer shares first to existing members are known as pre-emption rights on transfer. They are distinct from statutory pre-emption rights on allotment of new shares under section 561.

Question 3Company Law

Which document must a company deliver to Companies House in order to create a charge over its assets?

  1. A statement of capital
  2. A copy of the instrument creating the charge together with prescribed particulars Correct answer.
  3. A special resolution of the members
  4. A director's service contract

Explanation

Under Part 25 of the Companies Act 2006, charges must be registered by delivering the instrument (or a certified copy) and the prescribed particulars within 21 days of creation. Registration perfects the charge against third parties and liquidators.

Question 4Company Law

Which of the following is a statutory duty of a director under the Companies Act 2006?

  1. To maximise shareholder profit in every transaction
  2. To follow the instructions of the largest shareholder
  3. To guarantee the company's debts personally
  4. To act in the way the director considers most likely to promote the success of the company Correct answer.

Explanation

Section 172 requires a director to act in good faith in the way most likely to promote the success of the company for the benefit of members as a whole. The duty is subjective and includes regard to stakeholders such as employees and creditors.

Question 5Company Law

What is the statutory period within which a company must hold its first annual general meeting after incorporation?

  1. Twelve months
  2. Twenty-four months
  3. Six months
  4. Eighteen months Correct answer.

Explanation

Where a company is required to hold annual general meetings, the first must be held within 18 months of incorporation. Subsequent meetings must be held within 15 months of the previous one.

Question 6Company Law

A private company limited by shares has 100 issued £1 shares. A member holds 10 shares. What is the member's maximum liability if the company is wound up insolvent?

  1. The amount of unpaid dividends
  2. £100
  3. £10 Correct answer.
  4. Unlimited as to the company's debts

Explanation

In a company limited by shares, a member's liability is capped at the amount unpaid on their shares. With fully paid £1 shares, the member's exposure is limited to the nominal value of the shares held, here £10.

Question 7Company Law

Who is responsible for filing a company's annual accounts at Companies House?

  1. The directors Correct answer.
  2. The company secretary alone
  3. The auditors
  4. The shareholders in general meeting

Explanation

Section 441 of the Companies Act 2006 places the duty to deliver accounts on the directors. They must file within the statutory period after the end of the financial year, though auditors and secretaries may assist practically.

Question 8Company Law

Which of the following best describes the doctrine of separate legal personality established in Salomon v A Salomon & Co Ltd?

  1. A company's liabilities automatically attach to its directors
  2. A company is a legal person distinct from its members and directors Correct answer.
  3. A company exists only while its members are unanimous
  4. A company is an agent of its controlling shareholder

Explanation

Salomon confirmed that a registered company is a legal entity separate from its shareholders, so debts and contracts belong to the company rather than to members. The principle underpins limited liability and perpetual succession.

Question 9Company Law

A company wishes to reduce its share capital without applying to court. Which procedure is available to a private company under the Companies Act 2006?

  1. The solvency statement procedure supported by a special resolution Correct answer.
  2. A board resolution of the directors alone
  3. An ordinary resolution passed by a simple majority
  4. An application to the Registrar for administrative cancellation

Explanation

Private companies may reduce capital using the solvency statement route under sections 641 to 644, requiring a special resolution and a directors' solvency statement. Public companies must generally use the court procedure.

Question 10Company Law

Which statement correctly describes the difference between a fixed charge and a floating charge?

  1. A floating charge ranks ahead of a fixed charge in all circumstances
  2. A fixed charge attaches to a changing pool of assets until crystallisation
  3. A fixed charge attaches to specific assets immediately, while a floating charge hovers over a class of changing assets until crystallisation Correct answer.
  4. A floating charge attaches to specific identified assets from creation

Explanation

A fixed charge is taken over identified assets and restricts the company's dealing with them, whereas a floating charge covers a fluctuating class of assets the company may deal with until crystallisation. On insolvency, preferential creditors and prescribed-part expenses are paid ahead of floating-charge holders.

Question 11Company Law

A director of an insolvent company continues to trade when there is no reasonable prospect of avoiding insolvent liquidation. Which liability arises under section 214 of the Insolvency Act 1986?

  1. Criminal liability for fraudulent trading
  2. Automatic disqualification for fifteen years
  3. Personal liability for all company debts
  4. A contribution to the company's assets for wrongful trading Correct answer.

Explanation

Wrongful trading under section 214 makes a director liable to contribute to the company's assets where they continued trading after the point they knew or ought to have concluded insolvent liquidation was inevitable. The court may order such contribution as it thinks proper.

Question 12Company Law

What majority is required to pass a special resolution at a general meeting?

  1. Not less than 75% of votes cast Correct answer.
  2. Unanimous consent of all members
  3. A simple majority of votes cast
  4. Not less than 51% of total issued shares

Explanation

Section 283 of the Companies Act 2006 defines a special resolution as requiring at least 75% of the votes cast by members entitled to vote. Written resolutions of private companies require the same threshold.

Question 13Company Law

Which of the following transactions requires member approval under the Companies Act 2006 irrespective of its size?

  1. Grant of an indemnity to a director for defending criminal proceedings
  2. Payment of a director's reasonable travelling expenses
  3. A director's purchase of the company's own goods at retail price
  4. A long-term service contract between a director and the company exceeding two years Correct answer.

Explanation

Section 188 requires member approval for a director's service contract with a guaranteed term exceeding two years. Other transactions may require approval only if they exceed the statutory value thresholds.

Question 14Company Law

A shareholder holding 5% of a company's paid-up voting capital wishes to require the directors to include a resolution in the notice of the next AGM. What is the statutory basis?

  1. Section 303 of the Companies Act 2006, requiring a request by members holding at least 5% of total voting rights
  2. Section 338, requiring 5% of total voting rights or 100 members Correct answer.
  3. Section 168, requiring a special notice of 28 days
  4. Section 314, requiring 100 members or 5% of the total voting rights

Explanation

Section 338 permits members representing at least 5% of total voting rights, or at least 100 members, to require the company to include a resolution in the AGM notice. Section 314 concerns the circulation of written statements rather than resolutions.

Question 15Company Law

Which of the following statements about a company's capacity to enter contracts is correct under the Companies Act 2006?

  1. A company cannot contract for any purpose outside its registered business
  2. A company's capacity is unlimited, and acts are valid notwithstanding any restriction in the articles Correct answer.
  3. A company can only contract through its directors acting unanimously
  4. A company's capacity is limited by its objects clause in all cases

Explanation

Section 39 provides that the validity of an act is not affected by any limitation in the company's constitution, and section 31 removes the default objects restriction for companies formed after 2006. Third parties are protected by these capacity rules.

Question 16Company Law

Which of the following is a consequence of failing to register a charge within the statutory period?

  1. The directors become personally liable for the secured debt
  2. The charge is automatically discharged
  3. The charge is void against the liquidator, administrator and creditors Correct answer.
  4. The company is struck off the register

Explanation

Section 859H provides that an unregistered charge is void against the liquidator, administrator and creditors, so the secured debt becomes unsecured in insolvency. The charge remains valid against the company and any guarantor.

Question 17Company Law

A private company wishes to remove a director before the expiry of his term. Which procedure correctly applies?

  1. An ordinary resolution passed at a general meeting after special notice of 28 days Correct answer.
  2. A special resolution of the members with unanimous consent
  3. A board resolution passed by a majority of the remaining directors
  4. An application to the court for an order removing the director

Explanation

Section 168 permits removal by ordinary resolution, but special notice of 28 days is required so the director can make representations. The director's service contract may entitle him to compensation for breach.

Question 18Company Law

Which of the following best describes the 'no conflict' duty under section 175 of the Companies Act 2006?

  1. A director must disclose any interest in a proposed transaction only after it is completed
  2. A director may take a corporate opportunity if the company declines it informally
  3. A director may compete with the company if the articles permit it
  4. A director must avoid situations in which he has a direct or indirect interest that conflicts with the company's interests Correct answer.

Explanation

Section 175 imposes a duty to avoid conflicts of interest, including exploitation of corporate opportunities and competing businesses. The duty may be relaxed only by informed authorisation of the board or by the articles.

Question 19Company Law

Which of the following statements about a company's own shares is correct?

  1. A company may hold its own shares as treasury shares after purchase
  2. A company may acquire its own shares without restriction as an investment
  3. A company may purchase its own shares only with court approval in all cases
  4. A company may purchase its own shares only if authorised by its articles and by member resolution Correct answer.

Explanation

Section 690 permits a company to purchase its own shares only where authorised by its articles and approved by the members, subject to capital rules. Treasury shares may be held after purchase, but the question asks about the authorisation required to purchase.

Question 20Company Law

What is the effect of a company's articles of association on its members?

  1. They bind only the company secretary
  2. They create a contract between the company and its members and between the members themselves Correct answer.
  3. They are merely internal guidance with no legal effect
  4. They create a contract only between the directors and the company

Explanation

Section 33 provides that the articles constitute a contract between the company and its members and among the members. This contractual effect allows members to enforce rights conferred by the articles.

Question 21Company Law

A minority shareholder alleges that the majority have exercised their powers in a manner unfairly prejudicial to her interests. Which remedy is most appropriate?

  1. A petition for the compulsory winding up of the company as the primary remedy
  2. A claim for breach of the articles by the company secretary
  3. An application for judicial review of the directors' decision
  4. A petition under section 994 of the Companies Act 2006 for unfair prejudice Correct answer.

Explanation

Section 994 allows a member to petition the court where the company's affairs are being conducted in a manner unfairly prejudicial to members' interests. The court has broad remedial discretion, including ordering a share purchase.

Question 22Company Law

Which statement correctly describes the liability of a director for a transaction entered into without the required member approval under section 190 of the Companies Act 2006?

  1. The transaction is automatically void in all cases
  2. The transaction is voidable at the instance of the company, and the director may be liable to account and indemnify Correct answer.
  3. The transaction is valid and the director incurs no liability
  4. The transaction is valid but the director is automatically disqualified

Explanation

Under section 195, a transaction requiring member approval that is not approved is voidable at the company's instance. The director and any connected person may be liable to account for gains and to indemnify the company for losses.

Question 23Company Law

A company has created a floating charge over its stock. Before crystallisation, the company sells part of the stock in the ordinary course of business. Which statement is correct?

  1. The sale is void because the charge attaches to all stock from creation
  2. The sale transfers the charge to the buyer's own assets
  3. The sale is valid because a floating charge permits dealings in the ordinary course until crystallisation Correct answer.
  4. The sale is a breach of the charge and the buyer takes subject to it

Explanation

A defining feature of a floating charge is that the company may deal with the charged assets in the ordinary course of business until the charge crystallises. Buyers in good faith take free of the charge in those circumstances.

Question 24Company Law

Which of the following statements about the statutory derivative claim under the Companies Act 2006 is correct?

  1. It may be brought by a member in respect of a cause of action vested in the company Correct answer.
  2. It requires the unanimous consent of the members before it can be commenced
  3. It replaces the company's own right to sue directors for breach of duty
  4. It may be brought by a creditor in respect of a personal loss

Explanation

Sections 260 to 264 permit a member to bring a derivative claim on behalf of the company for a wrong done to it, such as a director's breach of duty. The court applies a two-stage permission test and considers factors including ratification.

Question 25Company Law

A director resigns but continues to participate in board decisions without formal reappointment. What is the director's status under the Companies Act 2006?

  1. He remains a de jure director until the register is updated
  2. He has no legal status and cannot incur liability
  3. He is automatically a shadow director of every company he advises
  4. He may be a de facto director if he performs the functions of a director Correct answer.

Explanation

A person who performs the functions of a director without valid appointment may be a de facto director and is subject to directors' duties and disqualification. A shadow director, by contrast, is one whose directions the board is accustomed to follow.

Question 26Company Law

A company is incorporated under the Companies Act 2006 with the model articles for private companies limited by shares. Which document governs the internal relationship between the company and its members where the model articles are silent?

  1. The company's constitution, comprising the articles and any resolutions and agreements treated as part of the constitution Correct answer.
  2. The directors' service contracts, which bind the members once approved by the board
  3. The certificate of incorporation, which prevails over the articles in the event of inconsistency
  4. The Companies House filing history, which evidences the company's internal rules

Explanation

Section 17 of the Companies Act 2006 defines the company's constitution as its articles plus any resolutions and agreements treated as part of the constitution under section 29. Where model articles apply and are silent, the statutory default rules and any special resolutions fill the gap. The certificate of incorporation is conclusive evidence of incorporation, not an internal rulebook.

Question 27Company Law

A company limited by shares has 1,000 £1 ordinary shares in issue. It wishes to allot 500 further ordinary shares to a new investor. Which statement correctly describes the statutory pre-emption position for a private company with unamended model articles?

  1. Pre-emption can be disapplied only by an ordinary resolution of the members
  2. Pre-emption applies only where the allotment exceeds 10% of the issued share capital
  3. The new shares must first be offered to existing members in proportion to their holdings unless the articles or a special resolution disapply pre-emption Correct answer.
  4. Existing members have no pre-emption rights because the company is private

Explanation

Section 561 of the Companies Act 2006 gives existing holders of ordinary shares a right of first refusal on a proportional basis when new equity shares are allotted. Section 567 allows a private company to disapply that right by provision in its articles or by special resolution. The model articles for private companies do not themselves disapply pre-emption.

Question 28Company Law

Which statement accurately describes the position of a company secretary in a private company under the Companies Act 2006?

  1. The company secretary is automatically a director of the company
  2. Only a solicitor or chartered accountant may act as company secretary
  3. A private company need not appoint a secretary, but if it does, the directors must ensure the appointee appears to have the requisite knowledge and experience Correct answer.
  4. A private company must always appoint a qualified company secretary

Explanation

Section 270 of the Companies Act 2006 provides that a private company is not required to have a secretary. Where one is appointed, section 273 requires the directors to take reasonable steps to ensure the person appears to have the requisite knowledge and experience to discharge the functions. Public companies, by contrast, must have a qualified secretary.

Question 29Company Law

A director wishes to enter into a contract with her own company to supply consultancy services. The board is aware of her interest. Which step is required by the Companies Act 2006 for a private company with unamended model articles?

  1. She must resign her directorship before the contract can be made
  2. She must disclose the interest only in the company's annual accounts
  3. She must declare the nature and extent of her interest to the other directors before the transaction is entered into Correct answer.
  4. She must obtain the approval of the members by ordinary resolution in every case

Explanation

Section 177 requires a director who is in any way, directly or indirectly, interested in a proposed transaction to declare the nature and extent of that interest to the other directors. Member approval under section 190 applies only to substantial property transactions meeting the statutory thresholds. The declaration must be made before the transaction is entered into.

Question 30Company Law

A company's articles contain an entrenched provision that cannot be amended except by a 90% majority. Which statement reflects the law on entrenchment under the Companies Act 2006?

  1. Entrenchment is permitted only in public companies
  2. Entrenchment is permitted only if the articles provide that the specified provision may be amended only by a procedure more restrictive than a special resolution Correct answer.
  3. Entrenchment is void because the statutory special resolution majority cannot be varied
  4. Entrenchment is effective only if approved by the registrar of companies

Explanation

Section 22 of the Companies Act 2006 allows a company's articles to include provision for entrenchment, so that specified provisions may be amended only by a procedure more restrictive than a special resolution or not at all. Such a provision may be included on formation or by unanimous agreement of the members. It does not require registrar approval.

Question 31Company Law

Which of the following best describes the role of the registrar of companies in relation to the registration of documents delivered under the Companies Act 2006?

  1. The registrar registers documents and may reject those that do not comply with the statutory requirements, but does not certify their legal validity Correct answer.
  2. The registrar guarantees the accuracy of every statement in a registered document
  3. The registrar acts as arbitrator in disputes between members about the filing
  4. The registrar verifies the commercial substance of every transaction before registration

Explanation

The registrar's function is administrative: to register documents that comply with statutory requirements and to make them available to the public. Registration does not amount to certification of the underlying legal validity or accuracy of the contents. Section 15 provides that the certificate of incorporation is conclusive evidence of incorporation, not a general warranty of content.

Question 32Company Law

A company proposes to pay a dividend of £200,000. Its relevant accounts show accumulated realised profits of £150,000 and accumulated realised losses of £20,000, with no distribution made previously. What is the maximum lawful distribution under Part 23 of the Companies Act 2006?

  1. £200,000
  2. £150,000
  3. £170,000
  4. £130,000 Correct answer.

Explanation

Section 830 permits a distribution only out of profits available for the purpose, defined as accumulated realised profits not previously distributed less accumulated realised losses not previously written off. Here that is £150,000 minus £20,000, giving £130,000. The proposed £200,000 exceeds the lawful maximum.

Question 33Company Law

Which statement correctly describes the effect of section 33 of the Companies Act 2006 on the company's articles?

  1. The articles are enforceable by third parties against the company as if they were contracts
  2. The articles bind only the directors and not the members
  3. The articles bind the company only after they have been approved by the members by ordinary resolution
  4. The articles bind the company and its members as if they were covenants on the part of the company and each member to observe them Correct answer.

Explanation

Section 33 gives the constitution the effect of a statutory contract between the company and its members and between the members themselves, as if each had covenanted to observe the articles. This does not create enforceable rights for outsiders. It is a statutory contract with special characteristics, not an ordinary commercial contract.

Question 34Company Law

A member holding 12% of a private company's issued voting shares believes the company's affairs are being conducted in a manner unfairly prejudicial to her interests. Which remedy is available to her under Part 30 of the Companies Act 2006?

  1. A petition to the court for an order, which may include regulating the company's affairs or requiring the purchase of her shares Correct answer.
  2. An application to the registrar to wind up the company administratively
  3. A statutory demand requiring the directors to resign
  4. An automatic right to appoint an additional director of her choosing

Explanation

Section 994 allows a member to petition the court where the company's affairs are being or have been conducted in a manner unfairly prejudicial to the interests of members generally or of some part of them. The court has a wide discretion, including regulating the conduct of the company's affairs or ordering the purchase of the petitioner's shares. The remedy is not automatic and requires proof of unfair prejudice.

Question 35Company Law

Which statement about the duty of a director to promote the success of the company under section 172 of the Companies Act 2006 is correct?

  1. The duty is discharged by following the instructions of the majority shareholder
  2. The duty is owed exclusively to the company's creditors at all times
  3. The duty requires the director to act in good faith in the way most likely to promote the success of the company for the benefit of its members as a whole Correct answer.
  4. The duty requires the director to maximise short-term profit for the current shareholders in every decision

Explanation

Section 172 requires a director to act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. In doing so he must have regard to the listed factors, including employees, suppliers, customers, the community and the environment. The duty is subjective but not a licence to ignore those factors.

Question 36Company Law

A director of a company is also a director of a competing business. He has not disclosed the conflict to the board. Which statutory provision is most directly engaged?

  1. Section 174, the duty to exercise reasonable care, skill and diligence
  2. Section 171, the duty to act within powers
  3. Section 175, the duty to avoid conflicts of interest Correct answer.
  4. Section 176, the duty not to accept benefits from third parties

Explanation

Section 175 requires a director to avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the company's interests. Holding office in a competing business is a classic conflict. Authorisation by the independent directors may be available under the section, but non-disclosure engages the duty.

Question 37Company Law

Which statement correctly describes the liability of a person who signs a contract on behalf of a company before the company is incorporated?

  1. The contract is void and cannot be adopted by the company after incorporation
  2. The company is automatically liable from the date of the contract even before incorporation
  3. The person has no liability because the company is treated as having existed from the date of the contract
  4. The person is personally liable on the contract subject to any agreement to the contrary, and the company may become liable by adopting it after incorporation Correct answer.

Explanation

Section 51 of the Companies Act 2006 provides that a contract purporting to be made by a company before incorporation has effect as a contract made by the person acting on its behalf, who is personally liable subject to any agreement to the contrary. The company may afterwards enter into the same contract and become bound by it. This protects the other party where the company never adopts the contract.

Question 38Company Law

Which of the following statements about a company's registered name is correct under the Companies Act 2006?

  1. The registrar may refuse a name only if it is offensive
  2. A private limited company must end its name with 'Limited' or the Welsh equivalent, unless an exemption applies Correct answer.
  3. A company may choose any name provided it is not identical to an existing company's name
  4. A company may change its name only with the consent of the Secretary of State in every case

Explanation

Section 59 requires a private limited company to end its name with 'Limited' or 'Ltd', or the permitted Welsh equivalents, subject to limited exemptions. The registrar also applies the naming rules and may reject names that are the same as an existing name or otherwise prohibited. A change of name is normally by special resolution or by other means permitted by the articles, not by ministerial consent in every case.

Question 39Company Law

A company has granted a charge over its assets. Which statement correctly describes the consequences of failing to deliver particulars of the charge to the registrar within 21 days beginning with the day after the date of creation?

  1. The charge is void against the liquidator, administrator or creditor of the company, and the money secured becomes immediately payable Correct answer.
  2. The charge is automatically converted into a floating charge
  3. The charge is valid but the secured creditor loses the right to enforce it for twelve months
  4. The charge remains fully effective but the company commits a criminal offence only

Explanation

Under section 859H of the Companies Act 2006, if particulars of a charge are not delivered within the 21-day period, the charge is void against the liquidator, administrator or creditor of the company. The money secured by the charge then becomes immediately payable. The charge remains valid against the company itself.

Question 40Company Law

Which statement accurately describes the rule in Foss v Harbottle as now modified by the Companies Act 2006?

  1. The rule applies only to public companies and not to private companies
  2. A wrong to a company is generally remediable only by the company, but a member may bring a derivative claim with the court's permission in the circumstances set out in Part 11 Correct answer.
  3. The rule has been abolished entirely and members may sue freely on the company's behalf
  4. Any member may sue in the company's name whenever the directors have breached a duty

Explanation

The rule in Foss v Harbottle reflects the principle that where a wrong is done to a company, the proper claimant is the company itself. Part 11 of the Companies Act 2006 now provides a statutory derivative procedure under which a member may seek the court's permission to continue a claim in the company's name. The court applies the statutory criteria, including the views of independent members and the importance of the claim.

Question 41Company Law

A company wishes to reduce its share capital by way of a solvency statement procedure. Which condition must be satisfied for a private company to use this route?

  1. All directors must make a solvency statement in the prescribed form no more than 15 days before the special resolution is passed Correct answer.
  2. The company must obtain court approval before the special resolution is passed
  3. The reduction must be approved by the registrar before it takes effect
  4. The company must have positive distributable reserves equal to the amount of the reduction

Explanation

Sections 641 to 644 of the Companies Act 2006 allow a private company to reduce its share capital by special resolution supported by a solvency statement. Each director must make the statement, which must be made no more than 15 days before the resolution is passed. The procedure avoids court approval but requires the statement and publicity filings.

Question 42Company Law

Which statement correctly describes the position of a person who deals with a company in good faith where the company's capacity is limited by its articles?

  1. The act is valid only if the directors ratify it by ordinary resolution
  2. The act is valid only if the third party had read the articles beforehand
  3. The act is void because the articles restrict the company's capacity
  4. The validity of the act cannot be called into question on the ground of lack of capacity because of anything in the company's constitution Correct answer.

Explanation

Section 39 of the Companies Act 2006 provides that the validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company's constitution. This reflects the abolition of the ultra vires doctrine as regards third parties. Restrictions in the articles may give rise to internal liability but do not invalidate the act externally.

Question 43Company Law

A director is appointed by the board to fill a casual vacancy. Which statement correctly describes the position under the Companies Act 2006 and the model articles?

  1. The appointment is automatically permanent until the director resigns
  2. The appointment must be made in accordance with the articles, and the director holds office until the next confirmation by the members as the articles provide Correct answer.
  3. The appointment requires the consent of the registrar
  4. The appointment is void unless approved by the members within seven days

Explanation

Directors may appoint additional directors or fill casual vacancies only if the articles authorise it, and any such appointee typically holds office only until the next annual confirmation or general meeting as the articles provide. The Companies Act 2006 sets minimum age and eligibility rules but leaves the appointment mechanics largely to the articles. Registrar consent is never required.

Question 44Company Law

Which of the following statements about the company's statutory books and registers is correct?

  1. Members have no right to inspect the register of directors' residential addresses
  2. A company need keep a register of members only if it has more than fifty members
  3. A company must keep a register of members and make it available for inspection by members free of charge, subject to the statutory exceptions Correct answer.
  4. The register of members may be kept only at the registrar's office

Explanation

Section 113 requires every company to keep a register of members, and section 116 gives members a right to inspect it free of charge, subject to the limited exceptions in the regulations. The register must be kept at the company's registered office or another permitted place. Certain protected information, such as residential addresses, is restricted from general inspection.

Question 45Company Law

A public company's directors wish to allot equity securities for cash. Which statement correctly describes the position on pre-emption and authority?

  1. Pre-emption for public companies can be disapplied by an ordinary resolution
  2. The directors need authority under section 551 and must observe pre-emption unless disapplied by the articles or a special resolution, with additional restrictions for public companies Correct answer.
  3. Public companies are exempt from pre-emption because their shares are freely traded
  4. The directors may allot without authority if the allotment is below 5% of issued capital

Explanation

Directors of both private and public companies require authority to allot under section 551, and equity securities issued for cash are subject to pre-emption under section 561 unless disapplied. For public companies, section 571 permits disapplication only by special resolution or the articles, and there is no equivalent of the private company's flexibility under section 567. The statutory requirements therefore apply with additional formality.

Question 46Company Law

Which statement correctly describes the liability of a member of a company limited by guarantee?

  1. The member has no liability of any kind in any circumstances
  2. The member is liable for the company's debts without limit
  3. The member's liability is limited to the amount he has undertaken to contribute to the company's assets if it is wound up Correct answer.
  4. The member is liable only for unpaid share capital

Explanation

In a company limited by guarantee, members undertake to contribute a specified amount to the company's assets on winding up, and their liability is limited to that amount. Such companies usually have no share capital. The guarantee amount may be called upon by the liquidator to meet the company's liabilities and the costs of winding up.

Question 47Company Law

A company's articles provide that the quorum for a general meeting is two members. Only one member attends. Which statement correctly describes the position?

  1. The meeting is valid if the sole attendee holds more than 50% of the shares
  2. The meeting is valid but any resolution passed must be ratified within 28 days
  3. The meeting is valid because one member is sufficient for a private company
  4. The meeting is not validly constituted and any business transacted is invalid Correct answer.

Explanation

A general meeting requires a quorum, and the articles usually specify it; the model articles for private companies require two members present. If the quorum is not met, the meeting is not validly constituted and any business conducted is invalid. There is no statutory rule that a single majority shareholder constitutes a valid quorum.

Question 48Company Law

Which statement accurately describes the effect of a company's dissolution on its property and liabilities?

  1. On dissolution the company's liabilities are transferred automatically to its directors
  2. On dissolution the company ceases to exist, and any remaining property vests in the Crown as bona vacantia, subject to the statutory restoration provisions Correct answer.
  3. On dissolution the company's property is distributed to the members automatically
  4. On dissolution the company continues in existence for twelve months to wind up its affairs

Explanation

When a company is dissolved it ceases to exist, and any property not distributed vests in the Crown as bona vacantia under the Companies Act 2006. The Act provides procedures for restoring a dissolved company to the register, for example by court order or administrative restoration. Dissolution does not transfer liabilities to directors or distribute property automatically to members.

Question 49Company Law

A director is disqualified under the Company Directors Disqualification Act 1986. Which statement correctly describes the effect of the disqualification?

  1. The disqualification automatically dissolves any company of which the person is a director
  2. The disqualification applies only to public companies
  3. The person may not act as a director or take part in the management of a company without the court's leave Correct answer.
  4. The person may continue as a director but may not vote at board meetings

Explanation

A disqualification order or undertaking under the Company Directors Disqualification Act 1986 prohibits the person from acting as a director or from being concerned, directly or indirectly, in the promotion, formation or management of a company, without the leave of the court. Breach is a criminal offence and may give rise to personal liability. The disqualification is not limited to public companies.

Question 50Company Law

A company wishes to enter into a long-term service contract with one of its directors for a fixed term of four years. Which approval is required under the Companies Act 2006?

  1. Approval by the registrar is required for any term exceeding one year
  2. No approval is required because the contract is with a director
  3. Member approval by ordinary resolution is required for a guaranteed term exceeding two years Correct answer.
  4. Court approval is required for any term exceeding three years

Explanation

Section 188 of the Companies Act 2006 requires member approval by ordinary resolution before a company enters into an employment contract with a director that guarantees the director employment for more than two years. Without approval the term is void and the contract terminates on reasonable notice. This rule applies to private and public companies alike.