Company Law: Formation, Capital and Corporate Governance
Company law questions test whether you can apply the Companies Act framework to a fact pattern. Begin with the consequences of incorporation: separate legal personality, limited liability, perpetual succession and the company's capacity to own property and sue in its own name. Understand the distinction between a private company (restricted transfer of shares, member limits, no offer to the public) and a public company, and the documents that create the company - the memorandum (objects, liability, capital clause) and articles (internal rules).
A frequent trap is confusing share capital terminology: authorized/nominal capital versus issued capital, called-up versus paid-up, and the meaning of a bonus issue (capitalising reserves, no cash inflow) against a rights issue (cash raised, offered pro rata to existing members). Another trap is ultra vires and the indoor management rule - a third party dealing in good faith is generally protected even where internal procedures were breached.
Know the directors' duties: act in good faith in the company's interest, exercise care and skill, avoid conflicts, and not misuse company property or information. Understand minority protection - the fraud-on-the-minority exception to the rule in Foss v Harbottle, and the statutory remedy for unfairly prejudicial conduct. Also revise meetings, resolutions (ordinary versus special, typically a three-quarters majority), and the role of the auditor and company secretary.
Worked rule of thumb: For any fact pattern, ask three questions in order: (1) Who is the legal person? (2) What is the source of the power being exercised? (3) Who has standing to challenge it? This sequencing usually reveals the correct answer.