Which ONE of the following statements is
true?
Correct answer:
b) A person can be a shareholder, but may
not necessarily be a member.
Feedback:
A person may purchase shares (hence
becoming a shareholder), but will not
become a member until he agrees to
become a member and his name is entered
on the register of members.
Question 2
Members exercise considerable decision-
making power via the passing of
resolutions. Which ONE of the following is
not a power exercisable by passing a
resolution of the members?
a) Authorizing a private company to enter
into a credit transaction with one of its
directors.
Feedback:
A private company does not need
authorisation to enter into a credit
transaction with one of its directors.
However, a public company would require
authorization.
Page reference: 81 89-90
Question 3
What is an 'ordinary resolution?'
b) A resolution that is passed by a majority
of not less than 75 percent.
Correct answer:
d) A resolution that is passed by a simple
majority.
Feedback:
An ordinary resolution is passed by a simple
majority (that is, over 50 percent). An exact
50 per cent split means that the resolution
is lost (which is why answer A is incorrect).
Question 4
Regarding written resolutions, which ONE of
the following statements in true?
a) The members of a private company can
request a written resolution, providing they
hold a minimum of 10 per cent of the total
voting rights in the company.
Correct answer:
c) The written resolution procedure cannot
be used to remove an auditor before the
expiry of his office.
Feedback:
The written resolution procedure cannot be
used to remove an auditor before the expiry
of his office. The minimum is 5 per cent of
the total voting rights in the company.
Written resolutions require the same
majority as if the resolution took place at a
meeting. Public companies cannot use the
written resolution procedure. If the
company has a share capital, each member
gets one vote per share.
Question 5
Only the directors have the power to call a
general meeting. True or false?
a) True
Correct answer:
b) False
Feedback:
This statement is false. Generally, the
power to call a general meeting is vested in
the directors. The CA 2006, s 303 does,
however, allow the members to request
that the directors call a general meeting,
providing that the request comes from
members representing at least 5 per cent of
the company's paid-up share capital or, in
the case of a company without a share
capital, members representing at least 5 per
cent of the voting rights of the members. If
the directors fail to comply with a valid
request from the members, then those
members, or members representing over
half the total voting rights of the company,
are granted the power to call a meeting
themselves, at the company's expense.
Question 6
What is the notice period for the annual
general meeting of a public company?
b) Twenty-one clear days, unless the
articles provide for a longer period.
Feedback:
The minimum notice period is twenty-one
clear days, but the articles may provide for
a longer (but not shorter) notice period.
Question 7
What is a 'quorum?'
Your answer:
a) The minimum number of 'qualifying
persons' required in order to validly conduct
business.
Feedback:
'Qualifying persons' include a member of
the company, a representative of a
corporate member, or a proxy of the
member. A meeting that lacks a quorum is
said to be inquorate.
Question 8
The general rule is that, at company
meetings, each member has one vote per
share. True or false?
b) False
Feedback:
This statement is false. The general rule is
that resolutions are taken on a show of
hands, so each member has one vote.
However, the model articles allow the
members to require that a vote be taken on
a poll and a vote taken on a poll provides
each member with one vote per share.
Question 9
Are all companies required to hold an
annual general meeting (AGM)?
Your answer:
a) Both public and private companies are
required to hold an AGM.
Correct answer:
d) Only public companies are required to
hold an AGM.
Feedback:
Under the Companies Act 2006, only public
companies are required to hold an AGM.
Private companies are not required to hold
an AGM, but may hold one if they wish.
Under the Companies Act 1985, all
companies were required to hold an AGM,
but private companies could opt out of the
requirement.
Question 10
What is a 'proxy?'
Your answer:
a) A person appointed, on behalf of a
member, to attend, speak and/or vote at a
general meeting on the member's behalf.
Feedback:
The use of proxies is especially important in
large, public companies as only a small
proportion of the members are usually able
to attend the AGM. Private companies are not required by law
Page reference: 94 to hold an AGM although public companies
must hold an AGM.
Question 11
Question 3
The Duomatic principle states that any
decision can be taken without a meeting if Which of the following meetings are all
all of the members agree to it. True or shareholders invited to?
false? 1. annual general meeting.
2. general meeting.
Correct answer: 3. class meeting.
4. board meeting.
b) False
Your answer:
Feedback:
b) 1 and 2 only.
This statement is false. Whilst
the Duomatic principle does indeed state Feedback:
that a unanimous decision of the members
can be valid without a meeting, there are Board meetings are for directors and
certain decisions that the principle does not attendance at class meetings is restricted to
apply to (e.g. decisions that could not have only those shareholders holding a particular
been taken at a general meeting). class of shares.
Page reference: 95-96
Question 4
Decisions passed by shareholders are
known as: What is meant by voting by poll?

Your answer: Correct answer:

a) Resolutions. d) Where each shareholder or their proxies

present at the meeting use as many votes
Feedback: as their shareholding allows them.

Decisions of shareholders are called Feedback:

resolutions and can be passed at the AGM,
or at General Meetings, in addition private
limited companies may pass written
resolutions.
Question 2
Voting by a show of hands is where each
member or his proxy present at the
meeting, votes by raising a hand. Each vote
is only counted once irrespective of the
number of shares a shareholder holds.

Which one of the following statements is Question 5

incorrect?
What percentage of shareholders is needed
Correct answer: to pass special resolution?

b) All companies must hold annual general Correct answer:

meetings.
c) Not less than 75%.
Feedback:
Feedback:
An ordinary resolution is one that is passed
by simple majority (more than 50% of
shareholders).
Question 6
Which one of the following statements is
correct?
d) Public companies cannot pass written
resolutions.
Feedback:
A private company may pass any decision
by a written resolution apart from a decision
to dismiss a director or auditor before the
expiry of their term of office. Written
resolutions may be proposed by directors or
by shareholders (holding at least 5% of the
total voting rights entitled to vote on the
resolution.) A Public company cannot pass
written resolutions.
Question 7
What is a derivative claim?
Correct answer:
c) Where a shareholder, in place of the
company, brings a claim against a director
of the company for negligence, default or
breach of duty or breach of trust.
Feedback:
Companies Act 2006 ss 260 to 264 permits
a shareholder to bring a derivative claim on
behalf of the company. The company itself
may have decided not to take action against
the directors for a number of reasons for
example the directors own the majority of
shares.
Question 8
How is voluntary liquidation of a company
commenced?.
Correct answer:
c) By a special resolution of shareholders.
Feedback:
Compulsory liquidation is commenced by a
court order. There are two types of
voluntary liquidation, members'
(shareholders) voluntary winding up and
creditor' voluntary winding up.
Question 9
Where an individual uses price-sensitive
information, which has not been made
public, relating to the present or future
value of company securities for his own
profit it is called:
Your answer:
b) Fraudulent trading.
Correct answer:
c) Insider dealing.
Feedback:
Insider dealing is a criminal offence which
can only be committed by individuals and
not other companies. It includes both
buying and selling company shares and
other securities and a person deals whether
he himself deals or whether he enables
another person to deal.
Question 10
Where on winding up it is discovered that a
company has been trading and at the time
the director or directors knew or ought to
have known that there was no reasonable
prospect of the company avoiding insolvent
liquidation it is known as:.
Correct answer:
a) Wrongful trading.
Feedback:
Fraudulent trading is a criminal offence and
applies at all times. It is where the business
of a company has been carried on with the
intention of defrauding the creditors of the
company or for some other fraudulent
purpose. Wrongful trading is not a criminal
offence but where a company has been
wrongfully trading the directors may be
liable to make a contribution to the
company's assets.
Every company must appoint at least one
director. True or False?
Correct answer:
b) False
Feedback:
This statement is false - a public company
must appoint at least two directors.
Question 2
The power to manage a company is initially
vested in whom?
Your answer:
b) The majority shareholders
Correct answer:
c) The members
Feedback:
The power to manage the company is
initially vested in the company's members.
However, in all but the smallest private
companies (where the directors and
members are usually the same persons), it
is impractical for the members to exercise
day-to-day control over the company's
affairs. Accordingly, the members' powers
are usually delegated to the company's
directors.
Question 3
In a number of situations, the power to
manage the company can revert from the
directors back to the members. Which ONE
of the following is NOT such a situation?
Your answer:
c) Where the articles provide the members
can direct the directors by passing an
ordinary resolution.
Feedback:
Where the power to manage the company
is granted to the directors by the company's
articles, the court will not permit an
ordinary resolution of the members to affect
the directors' power of management, as this
would allow the members to indirectly alter
the articles by means of an ordinary
resolution (alteration of the articles requires
the passing of a special resolution).
Question 4
Do the general duties apply only to persons
who have been validly appointed to the
office of director?
Your answer:
a) Yes
Correct answer:
b) No
Feedback:
No. Section 250 of the CA 2006 provides
that a director 'includes any person
occupying the position of director, by
whatever name called.' This broad definition
will cover those who have been validly
appointed to the office of director, but will
also cover persons who have not been
validly appointed, but who act as directors
(known as de facto directors). De
facto directors, although not validly
appointed, are therefore directors under the
Act and subject to the relevant provisions,
including the general duties.
Question 5
Which ONE of the following is NOT a
general duty?
Correct answer:
b) To obtain member approval for
substantial property transactions.
Feedback:
The requirement that directors obtain
member approval before entering into a
substantial property transaction is not one
of the general duties.
Question 6
The general duties of a director are owed to
the members.
Correct answer:
b) False
Feedback:
This statement is false. Section 170(1) of
the CA 2006 provides that the directors owe
their duties to the company (although there
are very limited situations where the
directors can owe duties to their members).
Question 7
If the directors exercise their powers for
several purposes, how will the courts
determine if the proper purpose duty has
been breached?
Your answer:
d) If the dominant purpose was improper,
the duty will be breached.
Feedback:
The courts will try to ascertain what was the
substantial or dominant purpose and, if this
purpose was improper, the duty will be
breached. If the dominant purpose was
proper, the duty will most likely not be
breached, even if there were subservient
improper purposes.
Question 8
Regarding the duty to promote the success
of the company, which ONE of the following
statements is true?
Your answer:
a) The directors are required to give equal
weight to the interests of the company, its
shareholders, its employees and any other
relevant interests.
Correct answer:
b) Where the interests of the company and
its shareholders conflict, preference should
be given to the interests of the company.
Feedback:
In many cases, but not all, the interests of
the company and its members will be the
same, but where they are not, preference
should be given to the company's interests.
The company's interests also override the
interests of other parties. The duty is
subjective.
Question 9
The duty to promote the success of the
company for the benefit of its members
requires the directors to have regard to a
list of other factors. Which ONE of the
following is NOT present on this list found in
s 172(1)?
Correct answer:
d) The company's creditors.
Feedback:
The company's creditors are not listed as a
relevant factor under s 172(1).
However, dicta relating to the creditors
interests being taken into account have
been preserved by s 172(3) which states
that s172 'has effect subject to any
enactment or rule of law requiring directors,
in certain circumstances, to consider or act
in the interests of the creditors of the
company.'
Question 10
Directors can never fetter their own
discretion. True or false?
Correct answer:
b) False
Feedback:
This statement is false. Whilst directors are
under a duty to exercise independent
judgement, they can fetter their own
discretion if they do so in the interests of
the company, or if it is in accordance with
the company's constitution.
Question 11
Which ONE of the following most accurately
describes the duty to exercise reasonable
care, skill and diligence?
Correct answer:
c) The objective element applies to all
directors, whereas the subjective element
only applies to directors who have some
special skill or ability.
Feedback:
The objective element of the duty
establishes a minimum standard that
applies to all directors. The subjective
element applies to directors who have some
form of special skill or ability, and will serve
to raise the standard expected of such
directors.
Question 12
Mike is a director of Bluegg plc. While acting
for the company, he becomes aware of a
business opportunity that the company is
unable to exploit. He takes advantage of
this opportunity himself and makes a
considerable profit. Can Mike keep the profit
made?
Correct answer:
a) Yes, providing that the articles allow the
directors to authorize the transaction, and
they do so prior to Mike entering into it.
Feedback:
A director of a public company can enter
into a transaction and keep any resultant
profit if the articles allow the directors to
authorize the transaction, and they do so
prior to the director entering into it.
Authorization will not be effective if the
articles do not permit such authorization,
unless the company is private.
Question 13
Tom is a director of TME Enterprises plc. His
wife, Helen, purchases from the company a
building costing £250,000. Prior to entering
into the transaction, Tom informs the
directors of the transaction who, in line with
the articles, authorize the purchase. Helen
sells the building on for a substantial profit.
Is Helen liable to account for this profit?
Your answer:
a) Yes
Feedback:
Yes she is. While authorization from the
directors will normally allow a director (or
connected person, such as Helen) to keep
any profit made, it will not suffice if the
transaction is a 'substantial property
transaction,' which this one is. In such
cases, member approval is also required.