Law of Organisations SBAQs Exam
Questions and Complete Solutions
Graded A+
A production company has an issued share capital of 10,000 ordinary £1 shares. Details of the directors
and shareholders of the company are set out below.
A producer (Managing Director and Chairperson) 5,000 ordinary £1 shares
A musician (Finance Director) 4,000 ordinary £1 shares
An artist (Service Director)
A screen writer 500 ordinary £1 shares
A cameraman 250 ordinary £1 shares
A film editor 250 ordinary £1 shares
The directors wish to call a general meeting of the shareholders to change the name of the company.
The producer, the artist and the cameraman agree that the meeting should be held on short notice, but
the others are opposed to this.
Can the meeting be held on short notice?
A Yes, because the producer and the cameraman together hold more than 50%
of the shares.
B Yes, because the majority of the directors agree that the meeting can be held on short notice.
,C No, because as well as the produce - Answer: Option C is correct. For a meeting to be held on short
notice, a majority in number of the shareholders must consent and, as this is a private company,
together those shareholders must hold at least 90% of the voting shares (s.307(5)-(6) CA 2006). The
producer, cameraman and the musician are a majority (3/5) and together hold over 90% of the shares.
Option A is wrong. Neither of the above criteria are met.
Option B is wrong. It is a majority of the shareholders, not the directors which is required.
Option D is wrong. 95% is needed in the case of a public company only.
Option E is wrong. Unanimous consent is not required and, in any event, it is the shareholders' consent
only which is relevant.
U1P1
Two years ago, Aadi had set up in business as a sole trader. He invested all of his savings of £10,000 in
the business. Recently the business has struggled financially, and a major supplier is owed £18,000. Aadi
realises that he will have to sell the business and calculates that if all of its assets were sold, they would
realise £8,000. Aadi himself owns a car worth £5,000. He owns a flat which, if sold, will raise £50,000
once the mortgage is paid off. He has no other substantial assets. The business has no other debts.
Which of the following statements best reflects the position of the supplier in relation to the debt?
A The supplier would only be able to recover £8,000, which is the amount that would be realised from
the sale of the assets of the business.
B The supplier would be able to recover £10,000, as Aadi would be personally liable for the amount that
he originally invested in the business.
C The - Answer: D is the correct answer.
,A sole trader has unlimited liability for the debts of the business. If the business fails and cannot pay the
full amount of the debt, as here, he will have to meet the debts with his own property, including his
home. If he cannot do so he may be declared bankrupt. Here, Aadi seems to have enough assets and can
therefore pay the full amount of the debt. Note that the facts state that Aadi has used all of his savings
for the business and it appears that his only assets are the car and the flat.
This makes A-C wrong.
U1P2
Assume for the purposes of this question that Aadi set up the business in partnership with Liam. Each of
them invested their savings (£5,000 each) in the business. Acting within his authority, Liam entered into
a major supply contract, but following some difficult times, the business has been unable to pay the
debt, and the supplier is owed £18,000. The partners realise that the assets of the business will have to
be sold. Again, the sale would realise £8,000. Aadi has substantial personal assets, including a house and
a car. Liam has no substantial assets of his own. The firm has no other debts.
Which of the following statements best reflects the position of the supplier in relation to the debt?
A The supplier would only be able to recover £4,000 from Aadi personally, as this is the amount of his
share of the business.
B The supplier would be able to recover £5,000 from Aadi, as although he is personally li - Answer: C is
the correct answer.
Partners have unlimited liability and are jointly (and severally) liable for the debts of the business. This
means that a creditor can choose to sue any or all of the partners, so he could sue either Aadi or Liam
for the whole amount of the debt. On the facts, Liam has no funds, so there would not be much point
pursuing him, but the supplier could sue Aadi, who has 'substantial assets' for the full £18,000.
As the business appears to have failed and does not have enough money to pay the debt, Aadi will have
to pay the balance from the sale of his own property, including his home. This makes A and B wrong. D is
wrong as partners are jointly and severally liable, regardless of who concluded the contract.
, U1P3
Assume for the purposes of this question that Aadi, Liam and Jess set up a private limited company. Aadi
was issued with 10,000 shares and Liam was issued with 5,000 shares. Aadi paid for his shares in full
(£10,000) but Liam only paid £2,500, agreeing to pay the balance of £2,500 in two years' time. Aadi and
Liam are the directors of the company together with Jess, who is not a shareholder.
Acting within her authority, Jess entered into a major supply contract, which has turned out to be a very
poor deal and following some difficult times, the company has been unable to pay the supplier, who is
owed £18,000. The directors realise that the business will have to be sold. Again, the sale would realise
£8,000. Both Aadi and Jess have substantial personal assets, including in both cases, a house and a car.
Liam has no substantial assets of his own. The company has no other debts.
Which of the following statements - Answer: B is the correct answer.
As a company is a separate and distinct legal personality, it is liable for its own debts. The shareholders
are only liable up to the amount that they have agreed to invest in the company. Only if the shareholder
has not paid the full amount that he has agreed to invest, i.e. some of the amount of the shares remains
unpaid, can a shareholder be asked to contribute but only up to the unpaid amount on the shares. Liam
can therefore be asked to contribute a further £2,500 which will be paid to the company and which
could go towards paying the debt, but the supplier cannot directly recover the £2,500 from Liam This
makes B correct and A wrong.
This is regardless of whether or not they own a majority of the shares and/or have control of the
company (see Salomon v A Salomon & Co Ltd) . If the company fails, as here, the shares become
worthless. If a shareholder has paid in full for his shares, then he cannot be asked to pay any more, so D
is wrong.
A company has contractual capacity in its own right, so it is irrelevant that Jess concluded the contract.
The contract is between the supplier and the company - a director who has entered into a poor deal will
not be personally liable either to the creditor or the shareholders, so C is wrong.
U1P4
Questions and Complete Solutions
Graded A+
A production company has an issued share capital of 10,000 ordinary £1 shares. Details of the directors
and shareholders of the company are set out below.
A producer (Managing Director and Chairperson) 5,000 ordinary £1 shares
A musician (Finance Director) 4,000 ordinary £1 shares
An artist (Service Director)
A screen writer 500 ordinary £1 shares
A cameraman 250 ordinary £1 shares
A film editor 250 ordinary £1 shares
The directors wish to call a general meeting of the shareholders to change the name of the company.
The producer, the artist and the cameraman agree that the meeting should be held on short notice, but
the others are opposed to this.
Can the meeting be held on short notice?
A Yes, because the producer and the cameraman together hold more than 50%
of the shares.
B Yes, because the majority of the directors agree that the meeting can be held on short notice.
,C No, because as well as the produce - Answer: Option C is correct. For a meeting to be held on short
notice, a majority in number of the shareholders must consent and, as this is a private company,
together those shareholders must hold at least 90% of the voting shares (s.307(5)-(6) CA 2006). The
producer, cameraman and the musician are a majority (3/5) and together hold over 90% of the shares.
Option A is wrong. Neither of the above criteria are met.
Option B is wrong. It is a majority of the shareholders, not the directors which is required.
Option D is wrong. 95% is needed in the case of a public company only.
Option E is wrong. Unanimous consent is not required and, in any event, it is the shareholders' consent
only which is relevant.
U1P1
Two years ago, Aadi had set up in business as a sole trader. He invested all of his savings of £10,000 in
the business. Recently the business has struggled financially, and a major supplier is owed £18,000. Aadi
realises that he will have to sell the business and calculates that if all of its assets were sold, they would
realise £8,000. Aadi himself owns a car worth £5,000. He owns a flat which, if sold, will raise £50,000
once the mortgage is paid off. He has no other substantial assets. The business has no other debts.
Which of the following statements best reflects the position of the supplier in relation to the debt?
A The supplier would only be able to recover £8,000, which is the amount that would be realised from
the sale of the assets of the business.
B The supplier would be able to recover £10,000, as Aadi would be personally liable for the amount that
he originally invested in the business.
C The - Answer: D is the correct answer.
,A sole trader has unlimited liability for the debts of the business. If the business fails and cannot pay the
full amount of the debt, as here, he will have to meet the debts with his own property, including his
home. If he cannot do so he may be declared bankrupt. Here, Aadi seems to have enough assets and can
therefore pay the full amount of the debt. Note that the facts state that Aadi has used all of his savings
for the business and it appears that his only assets are the car and the flat.
This makes A-C wrong.
U1P2
Assume for the purposes of this question that Aadi set up the business in partnership with Liam. Each of
them invested their savings (£5,000 each) in the business. Acting within his authority, Liam entered into
a major supply contract, but following some difficult times, the business has been unable to pay the
debt, and the supplier is owed £18,000. The partners realise that the assets of the business will have to
be sold. Again, the sale would realise £8,000. Aadi has substantial personal assets, including a house and
a car. Liam has no substantial assets of his own. The firm has no other debts.
Which of the following statements best reflects the position of the supplier in relation to the debt?
A The supplier would only be able to recover £4,000 from Aadi personally, as this is the amount of his
share of the business.
B The supplier would be able to recover £5,000 from Aadi, as although he is personally li - Answer: C is
the correct answer.
Partners have unlimited liability and are jointly (and severally) liable for the debts of the business. This
means that a creditor can choose to sue any or all of the partners, so he could sue either Aadi or Liam
for the whole amount of the debt. On the facts, Liam has no funds, so there would not be much point
pursuing him, but the supplier could sue Aadi, who has 'substantial assets' for the full £18,000.
As the business appears to have failed and does not have enough money to pay the debt, Aadi will have
to pay the balance from the sale of his own property, including his home. This makes A and B wrong. D is
wrong as partners are jointly and severally liable, regardless of who concluded the contract.
, U1P3
Assume for the purposes of this question that Aadi, Liam and Jess set up a private limited company. Aadi
was issued with 10,000 shares and Liam was issued with 5,000 shares. Aadi paid for his shares in full
(£10,000) but Liam only paid £2,500, agreeing to pay the balance of £2,500 in two years' time. Aadi and
Liam are the directors of the company together with Jess, who is not a shareholder.
Acting within her authority, Jess entered into a major supply contract, which has turned out to be a very
poor deal and following some difficult times, the company has been unable to pay the supplier, who is
owed £18,000. The directors realise that the business will have to be sold. Again, the sale would realise
£8,000. Both Aadi and Jess have substantial personal assets, including in both cases, a house and a car.
Liam has no substantial assets of his own. The company has no other debts.
Which of the following statements - Answer: B is the correct answer.
As a company is a separate and distinct legal personality, it is liable for its own debts. The shareholders
are only liable up to the amount that they have agreed to invest in the company. Only if the shareholder
has not paid the full amount that he has agreed to invest, i.e. some of the amount of the shares remains
unpaid, can a shareholder be asked to contribute but only up to the unpaid amount on the shares. Liam
can therefore be asked to contribute a further £2,500 which will be paid to the company and which
could go towards paying the debt, but the supplier cannot directly recover the £2,500 from Liam This
makes B correct and A wrong.
This is regardless of whether or not they own a majority of the shares and/or have control of the
company (see Salomon v A Salomon & Co Ltd) . If the company fails, as here, the shares become
worthless. If a shareholder has paid in full for his shares, then he cannot be asked to pay any more, so D
is wrong.
A company has contractual capacity in its own right, so it is irrelevant that Jess concluded the contract.
The contract is between the supplier and the company - a director who has entered into a poor deal will
not be personally liable either to the creditor or the shareholders, so C is wrong.
U1P4
