Company Law Exam Questions

Question 1

Analyse whether the Companies Act 2006 achieves the aims of the DTI’s Company Law Reform (White Paper, Cm 6456, 2005).

Question 2

Critically analyse the statement that shareholder primacy is a myth.

Question 3

Part (a)

You are a lawyer at Arden LLP and represent Brecken Water Ltd (‘BWL’) a private limited company registered in England and Wales, which specialises in bottling mountain mineral water fresh from the Brecken Mountains.

BWL was incorporated in March 2013 and has issued 50,000 ordinary shares with a nominal value of £1 each.

The shares are owned as follows:

 Shareholder Role in company Shares owned
Joe Director / shareholder 10,000
Cramer Director / shareholder 10,000
Lincoln Shareholder 18,000
8 x Private investors Shareholder 1,500 each

The bottled mineral water industry is very profitable. However, BWL has not made a profit since it was incorporated in 2013. Lincoln is convinced that BWL has not made a profit because it is being mismanaged by the directors Joe and Cramer.

Lincoln believes that if BWL was run by other directors it would make a profit commensurate with other affordable recordings businesses. Lincoln decides that the best way forward is to vote Cramer and Joe out of office as directors and appoint directors more capable of running the company at a profit. To put his plan into action Lincoln starts to buy up shares from the private investors.

Joe and Cramer are approached by one the private investors who explains that Lincoln has offered to purchase his shares and is planning to vote Joe and Cramer out of office.

Joe and Cramer think the best response is to issue and allot 12,000 extra ordinary shares. They offer to sell the shares to Olive. Unfortunately, Olive does not have sufficient money to purchase the shares. Olive has £5,000 which she offers in part payment for the shares. BWL loans Olive an additional £3,000 towards purchase of the shares. Joe and Cramer then issue the shares at a discount and allot to Olive.

Olive uses her voting rights under the shares to block the vote to remove Joe and Cramer from office as directors.

After defeat at the vote Lincoln decides he no longer wants to be a shareholder in BWL and decides to sell his shares. Lincoln has accumulated an extra 4,000 shares giving him 22,000 shares in total.

BWL purchases the shares back from Lincoln and the shares are then cancelled.

Joe and Cramer decide that now Lincoln is no longer with the company they will recommend a dividend at a rate of 20 percent per share. Olive is delighted with the return on her investment and agrees. The dividend is declared and paid out.

Advise the BWL.

Part (b)

Lincoln decides that he has learnt sufficient about the pitfalls of the bottled water market to set up bottled water distribution business in direct competition with BWL. Following his experience with BWL, Lincoln is reluctant to set the business up as a company as he is worried that too much power is given to the directors. Lincoln is considering setting up the business as a sole trader.

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