Multiple Choice Questions
2016-2017 Paper Open Book / 2020-2021 Specimen Paper
QUESTION 1 – Duties of Directors
Which ONE of the following is NOT one of the statutory duties imposed on directors of a
company?
A. To act within their powers.
B. To exercise independent judgement.
C. To act in the company’s best interests.
D. To avoid conflicts of interest with the company.
Directors must act within their powers, exercise independent judgment and avoid conflicts of
interest with the company under sections 171, 173 and 175 Companies Act 2006 (“CA”)
respectively. There is no duty to act in the company’s best interests. Note, however, that
directors are under a duty to promote the success of the company (s172 CA).
QUESTION 2 – Allotment of Shares
Lavelle Demolition Ltd (“LDL”), incorporated in 2015, is a company with the Model Articles for
private companies limited by shares (without amendment) as its articles of association. It has
only one class of share. The directors of LDL propose to allot 1,000 further shares of the same
class. To date, no resolutions concerning the allotment of shares have been passed.
Which ONE of the following statements about the proposed allotment is CORRECT?
A. The directors of LDL need to be given authority to allot the shares by ordinary resolution, but
may then allot them to whomever they decide.
B. The directors of LDL do not need to be given authority to allot the shares by ordinary
resolution, and may allot them to whomever they decide.
C. The directors of LDL do not need to be given authority to allot the shares by ordinary
resolution, but must offer the shares in due proportion to the number of shares held by the
existing shareholders in LDL.
D. The directors of LDL need to be given authority to allot the shares by ordinary resolution, and
must then offer the shares in due proportion to the number of shares held by the existing
shareholders in LDL.
Directors of private companies incorporated under the CA with Model Articles have automatic
authority to allot shares under s550 CA. However, they must comply with the pre-emption
provisions set out in s561 CA and offer the shares to existing shareholders in proportion to their
existing shareholdings first.
QUESTION 3 – Business Structures
, Which ONE of the following statements is WRONG?
A. A partnership is a body corporate.
B. Every partner is an agent of the firm for the purpose of the partnership business.
C. A limited partnership must have at least one general partner.
D. A limited liability partnership has unlimited capacity.
A partnership is not incorporated. The other statements are all correct: every partner is an agent
of the firm for partnership business (s5 Partnership Act 1890); a limited partnership must have at
least one general partner (s4(2) Limited Partnerships Act 1907) and an LLP has unlimited
capacity (s1(3) Limited Liability Partnerships Act 2000).
QUESTION 4 – Transfer of Shares
ACW Productions Ltd (“Productions”) is a wholly owned subsidiary of ACW Films Ltd (“Films”).
Films intends to transfer its entire shareholding in Productions to Digital Transfer Solutions Ltd
(“DTS”).
Productions has the Model Articles for private companies with no amendments.
If Films transfers its shares in Productions to DTS, which ONE of the following is
INCORRECT?
A. Films must complete a stock transfer form in favour of DTS.
B. The directors of Productions must register the transfer of Films’ shares to DTS.
C. Productions will issue a share certificate in favour of DTS within 2 months of registration of
the transfer.
D. Productions will update its register of persons with significant control.
Under Model Article 26(5) the directors of Productions may refuse to register the transfer of
shares to DTS. Model Article 26(1) states that shares may be transferred by means of an
instrument of transfer in any usual form i.e. a stock transfer form. Productions must issue a new
share certificate within 2 months of registration (s771 CA 06). As DTS will hold more than a 25%
shareholding in Productions s790E CA 06 requires companies to keep the information on a PSC
register up to date.
QUESTION 5 – Written Resolution
Which ONE of the following statements set out below is CORRECT in relation to a
company with the Model Articles of Association for private companies limited by shares
(without amendment)?
A. 51% of the total members must agree for a written resolution to be passed.
B. The only people who are ever entitled to receive a copy of a written resolution are the eligible
members of a company and the company’s directors.
2016-2017 Paper Open Book / 2020-2021 Specimen Paper
QUESTION 1 – Duties of Directors
Which ONE of the following is NOT one of the statutory duties imposed on directors of a
company?
A. To act within their powers.
B. To exercise independent judgement.
C. To act in the company’s best interests.
D. To avoid conflicts of interest with the company.
Directors must act within their powers, exercise independent judgment and avoid conflicts of
interest with the company under sections 171, 173 and 175 Companies Act 2006 (“CA”)
respectively. There is no duty to act in the company’s best interests. Note, however, that
directors are under a duty to promote the success of the company (s172 CA).
QUESTION 2 – Allotment of Shares
Lavelle Demolition Ltd (“LDL”), incorporated in 2015, is a company with the Model Articles for
private companies limited by shares (without amendment) as its articles of association. It has
only one class of share. The directors of LDL propose to allot 1,000 further shares of the same
class. To date, no resolutions concerning the allotment of shares have been passed.
Which ONE of the following statements about the proposed allotment is CORRECT?
A. The directors of LDL need to be given authority to allot the shares by ordinary resolution, but
may then allot them to whomever they decide.
B. The directors of LDL do not need to be given authority to allot the shares by ordinary
resolution, and may allot them to whomever they decide.
C. The directors of LDL do not need to be given authority to allot the shares by ordinary
resolution, but must offer the shares in due proportion to the number of shares held by the
existing shareholders in LDL.
D. The directors of LDL need to be given authority to allot the shares by ordinary resolution, and
must then offer the shares in due proportion to the number of shares held by the existing
shareholders in LDL.
Directors of private companies incorporated under the CA with Model Articles have automatic
authority to allot shares under s550 CA. However, they must comply with the pre-emption
provisions set out in s561 CA and offer the shares to existing shareholders in proportion to their
existing shareholdings first.
QUESTION 3 – Business Structures
, Which ONE of the following statements is WRONG?
A. A partnership is a body corporate.
B. Every partner is an agent of the firm for the purpose of the partnership business.
C. A limited partnership must have at least one general partner.
D. A limited liability partnership has unlimited capacity.
A partnership is not incorporated. The other statements are all correct: every partner is an agent
of the firm for partnership business (s5 Partnership Act 1890); a limited partnership must have at
least one general partner (s4(2) Limited Partnerships Act 1907) and an LLP has unlimited
capacity (s1(3) Limited Liability Partnerships Act 2000).
QUESTION 4 – Transfer of Shares
ACW Productions Ltd (“Productions”) is a wholly owned subsidiary of ACW Films Ltd (“Films”).
Films intends to transfer its entire shareholding in Productions to Digital Transfer Solutions Ltd
(“DTS”).
Productions has the Model Articles for private companies with no amendments.
If Films transfers its shares in Productions to DTS, which ONE of the following is
INCORRECT?
A. Films must complete a stock transfer form in favour of DTS.
B. The directors of Productions must register the transfer of Films’ shares to DTS.
C. Productions will issue a share certificate in favour of DTS within 2 months of registration of
the transfer.
D. Productions will update its register of persons with significant control.
Under Model Article 26(5) the directors of Productions may refuse to register the transfer of
shares to DTS. Model Article 26(1) states that shares may be transferred by means of an
instrument of transfer in any usual form i.e. a stock transfer form. Productions must issue a new
share certificate within 2 months of registration (s771 CA 06). As DTS will hold more than a 25%
shareholding in Productions s790E CA 06 requires companies to keep the information on a PSC
register up to date.
QUESTION 5 – Written Resolution
Which ONE of the following statements set out below is CORRECT in relation to a
company with the Model Articles of Association for private companies limited by shares
(without amendment)?
A. 51% of the total members must agree for a written resolution to be passed.
B. The only people who are ever entitled to receive a copy of a written resolution are the eligible
members of a company and the company’s directors.
