SGS 1 – Introduction to BLP Module
Liability of investors of different business mediums
o Sole trader – unlimited personal liability
o Partnership – unlimited personal liability either joint or joint/several basis
o LLP – Limited liability – not personally liable over and above their capital share in LLP
o Limited company – limited liability – shareholders only liable to pay any amount unpaid on their shares s(3)
(2) CA 2006.
Legal status
Sole trader – not a separate legal entity, sole trader is individually responsible
Partnership – not a separate legal entity, partners are individually responsible
LLP – separate legal entity
Limited company – separate legal entity
Number of persons needed to set up the business
Sole trader – one
Partnership – minimum of two
LLP – minimum of two.
(Note – grace period of 6 months. If business is carried on when LLP down to one member- member will lose benefit
of limited liability and become jointly/severally liable with the LLP)
Limited company – s7(1) – minimum of 1
,EQUITY FINANCE (ISSUE AND ALLOTMENT OF SHARES)
, Step 1 – Any cap on number of shares that may be issued?
Check:
Company’s articles
Resolutions passed
Register of members
Most recent Confirmation Statement
Form filed on allotments of shares (SH01) under s555 CA 06
CA 1985 – ASC (Memorandum)
S121 CA 1985 – companies can increase ASC by OR
Deemed restriction they have when registered will continue to have cap unless removed
Deemed restriction will fall away if company adopted new articles (MA) which do not have a cap (applying
section 21(1)CA 2006)
SI 2008/2860 schedule 2, paragraph 42(2)(b) – Shareholder wishing to remove / amend deemed restriction
may by OR
Transitional provision (s28 CA 2006) – Cap specified in MOA is transferred to AA
CA 06 (AA)
No ASC however may need to amend articles to increase / remove cap if specified in articles
Step 2 – Do company directors need authority to allot shares?
Section 549(1) CA 06 – directors must not exercise power to allot shares unless:
s551 Authority (authorisation by company) or
s5550 Automatic Authority (private company with one class of shares)
Section 551 CA 06
551(1) Require authority by provision in company’s articles / resolution of the company
Pass SR to amend articles using s21(1) CA 06)
Ordinary resolution is used when resolution not specified s281(3)
S551(3) (a) authorisation must state the maximum number of shares that may be allotted under it and b) specify
date on which it will expire
Expiry – must not be more than 5 years from (b)(i) the date of incorporation of company (if found in articles)
or (b)(ii) the date on which the resolution is passed
S551(7) – The directors may allot shares after authorisation has expired if
(a) – the shares are allotted in pursuant of an offer / agreement made by company before authorisation expired and,
(b) - Authorisation allowed company to make offer/agreement which might / would require shares to be allotted
after authorisation had expired.
Note – if company has already authorised director with power under s551 – must check to see if it is still valid. If a
cap exists – authority to allot can only be given up to the amount of cap. (amend / remove through s21(1) CA 06)
, Step 3 – Must pre-emption rights be disapplied?
“Right of first refusal” offered on a pro rata basis to existing shareholders before new investors. S561 protects
shareholders from having their ownership diluted through the issuing of new shares. (Dividends and voting rights
diluted)
S561 – Existing shareholders right of pre-emption
561(1) – Company must not allot equity securities to a person unless (a) made an offer to existing shareholders who
hold ordinary shares, to allot him a proportion that is as practicable equal to the proportion in nominal value held
by him.
Note - pre-emption rights ONLY apply to equity securities
560(1) – Equity securities are ordinary shares that dividend and capital rights are NOT capped
NOTE - Shares with dividend and capital rights that are both capped are NOT equity securities/ ordinary shares
within the meaning of 560(1)
NOTE - If one is capped – they are equity securities
562(1) – Communication of s561 pre-emption offers to shareholders
562(2) – offer may be made in hard copy or electronic form
562 (5) – offer period must be a period of at least 14 days beginning a) hard copy form – date on which offer is
sent / supplied (b) electronic form – date on which offer is sent (c) publication in Gazette – date of publication
S565 – Exception to pre-emption right: issue for non-cash consideration
s561 does not apply to allotment of shares (equity securities) if they are to be paid, wholly or partly, paid up
otherwise in cash.
General disapplication of pre-emption rights
570(1) – director authorised by s551 may be given power by articles or by special resolution to allot equity securities
as if section 561 did not apply
570(3) – power ceases to have effect when authorisation is (a) revoked or (b) would (if not renewed) expire.
570(4) – if authorisation has expired, director may allot shares in pursuance of offer/agreement previously made by
company if power enabled company to allot shares after it had expired. (Director could still allot shares (disapplying
pre-emption rights) after authority had expired.
Note – this is not a permanent disapplication as it attaches to the s551 pre-existing authority
Disapplication of pre-emption rights: private company with one class of share
569(1) – Directors of private company with one class of share may be given power by the articles or by SR to allot
equity securities (a) as if section 561 did not apply.
Note – Presupposes directors’ authority to allot shares automatically under s550. Can apply for as long as company
has in issue and allots one class of share.
Specific disapplication of pre-emption rights
571(1) – Director authorised under s551 the company may by SR resolve that s561 does not apply
Liability of investors of different business mediums
o Sole trader – unlimited personal liability
o Partnership – unlimited personal liability either joint or joint/several basis
o LLP – Limited liability – not personally liable over and above their capital share in LLP
o Limited company – limited liability – shareholders only liable to pay any amount unpaid on their shares s(3)
(2) CA 2006.
Legal status
Sole trader – not a separate legal entity, sole trader is individually responsible
Partnership – not a separate legal entity, partners are individually responsible
LLP – separate legal entity
Limited company – separate legal entity
Number of persons needed to set up the business
Sole trader – one
Partnership – minimum of two
LLP – minimum of two.
(Note – grace period of 6 months. If business is carried on when LLP down to one member- member will lose benefit
of limited liability and become jointly/severally liable with the LLP)
Limited company – s7(1) – minimum of 1
,EQUITY FINANCE (ISSUE AND ALLOTMENT OF SHARES)
, Step 1 – Any cap on number of shares that may be issued?
Check:
Company’s articles
Resolutions passed
Register of members
Most recent Confirmation Statement
Form filed on allotments of shares (SH01) under s555 CA 06
CA 1985 – ASC (Memorandum)
S121 CA 1985 – companies can increase ASC by OR
Deemed restriction they have when registered will continue to have cap unless removed
Deemed restriction will fall away if company adopted new articles (MA) which do not have a cap (applying
section 21(1)CA 2006)
SI 2008/2860 schedule 2, paragraph 42(2)(b) – Shareholder wishing to remove / amend deemed restriction
may by OR
Transitional provision (s28 CA 2006) – Cap specified in MOA is transferred to AA
CA 06 (AA)
No ASC however may need to amend articles to increase / remove cap if specified in articles
Step 2 – Do company directors need authority to allot shares?
Section 549(1) CA 06 – directors must not exercise power to allot shares unless:
s551 Authority (authorisation by company) or
s5550 Automatic Authority (private company with one class of shares)
Section 551 CA 06
551(1) Require authority by provision in company’s articles / resolution of the company
Pass SR to amend articles using s21(1) CA 06)
Ordinary resolution is used when resolution not specified s281(3)
S551(3) (a) authorisation must state the maximum number of shares that may be allotted under it and b) specify
date on which it will expire
Expiry – must not be more than 5 years from (b)(i) the date of incorporation of company (if found in articles)
or (b)(ii) the date on which the resolution is passed
S551(7) – The directors may allot shares after authorisation has expired if
(a) – the shares are allotted in pursuant of an offer / agreement made by company before authorisation expired and,
(b) - Authorisation allowed company to make offer/agreement which might / would require shares to be allotted
after authorisation had expired.
Note – if company has already authorised director with power under s551 – must check to see if it is still valid. If a
cap exists – authority to allot can only be given up to the amount of cap. (amend / remove through s21(1) CA 06)
, Step 3 – Must pre-emption rights be disapplied?
“Right of first refusal” offered on a pro rata basis to existing shareholders before new investors. S561 protects
shareholders from having their ownership diluted through the issuing of new shares. (Dividends and voting rights
diluted)
S561 – Existing shareholders right of pre-emption
561(1) – Company must not allot equity securities to a person unless (a) made an offer to existing shareholders who
hold ordinary shares, to allot him a proportion that is as practicable equal to the proportion in nominal value held
by him.
Note - pre-emption rights ONLY apply to equity securities
560(1) – Equity securities are ordinary shares that dividend and capital rights are NOT capped
NOTE - Shares with dividend and capital rights that are both capped are NOT equity securities/ ordinary shares
within the meaning of 560(1)
NOTE - If one is capped – they are equity securities
562(1) – Communication of s561 pre-emption offers to shareholders
562(2) – offer may be made in hard copy or electronic form
562 (5) – offer period must be a period of at least 14 days beginning a) hard copy form – date on which offer is
sent / supplied (b) electronic form – date on which offer is sent (c) publication in Gazette – date of publication
S565 – Exception to pre-emption right: issue for non-cash consideration
s561 does not apply to allotment of shares (equity securities) if they are to be paid, wholly or partly, paid up
otherwise in cash.
General disapplication of pre-emption rights
570(1) – director authorised by s551 may be given power by articles or by special resolution to allot equity securities
as if section 561 did not apply
570(3) – power ceases to have effect when authorisation is (a) revoked or (b) would (if not renewed) expire.
570(4) – if authorisation has expired, director may allot shares in pursuance of offer/agreement previously made by
company if power enabled company to allot shares after it had expired. (Director could still allot shares (disapplying
pre-emption rights) after authority had expired.
Note – this is not a permanent disapplication as it attaches to the s551 pre-existing authority
Disapplication of pre-emption rights: private company with one class of share
569(1) – Directors of private company with one class of share may be given power by the articles or by SR to allot
equity securities (a) as if section 561 did not apply.
Note – Presupposes directors’ authority to allot shares automatically under s550. Can apply for as long as company
has in issue and allots one class of share.
Specific disapplication of pre-emption rights
571(1) – Director authorised under s551 the company may by SR resolve that s561 does not apply
