BA4: Company administration

Answer: D. Salomon v Salomon established that a properly incorporated company is a separate legal person, distinct from its shareholders and directors — the principle of separate legal personality. As a result, the company (not its members) owns its assets and owes its debts. Directors are not generally personally liable for company debts, the company can own property in its own name, and shareholders do not manage it directly.

Answer: A. In a company limited by shares, a shareholder's liability is limited to any amount still unpaid on the shares they hold; once the shares are fully paid, they have no further liability for the company's debts. They are not liable for all the company's debts or their personal assets generally — that protection is the essence of limited liability. It flows directly from the company's separate legal personality.

Answer: C. A company has a separate legal personality, meaning it exists in law independently of its owners and can own assets, owe debts and contract in its own name — unlike a sole trader, who is legally the same person as the business. Companies can employ staff, sole traders do not have limited liability, and companies do pay tax. Separate legal personality is the defining distinction.

Answer: D. A public limited company may offer its shares to the public and may have them listed on a stock exchange, whereas a private company cannot offer shares to the public. Both types have shareholders, both are separate legal entities, and both can be limited by shares. The ability to raise capital from the public is the key distinction, and it comes with stricter regulatory requirements.

Answer: A. The articles of association are the company's internal rulebook, governing matters such as the rights of shareholders, the conduct of meetings, and the powers and appointment of directors. They are not a transaction listing, prepared by the auditors, or a cash record. Together with the company's constitution, the articles regulate the relationship between the company, its members and its directors.

Answer: D. Preference shares usually carry a fixed rate of dividend that ranks ahead of the ordinary dividend, and they often carry limited or no voting rights. They do not guarantee a share of all profits (their dividend is normally fixed), and they need not be repaid within a year. They sit between debt and ordinary equity in terms of risk and return, offering more predictable income but less upside than ordinary shares.

Answer: B. A debenture is a written acknowledgement of a debt owed by the company, usually carrying a fixed rate of interest and often secured by a charge over the company's assets. It is loan capital, not share capital, so debenture holders are creditors rather than owners and receive interest, not dividends. It is not a dividend or a service contract. Debentures are a common form of long-term borrowing for companies.

Answer: C. The company secretary is an officer of the company responsible for ensuring it complies with its statutory and regulatory obligations — such as maintaining statutory registers, filing documents, and arranging board and general meetings. The role is administrative and compliance-focused, not concerned with setting sales targets, auditing the accounts (the auditor's role), or running production. A competent company secretary supports good governance.

Answer: D. A special resolution requires a majority of at least 75% of the votes cast and is used for more significant matters, such as changing the company's name or articles. An ordinary resolution needs only a simple majority of over 50%. Unanimity is not generally required, and shareholder resolutions are decisions of the members, not the directors alone. The higher threshold reflects the importance of the matters concerned.

Answer: A. The external auditor is normally appointed by the shareholders, usually at the general meeting, reflecting that the auditor reports to the members on the stewardship of the directors. Allowing the finance director or management to appoint and remove the auditor would undermine the auditor's independence. The auditor cannot self-appoint, and the bank has no such role. Member appointment reinforces the auditor's accountability to shareholders.

Answer: A. A limited liability partnership is a separate legal entity, distinct from its members, in which the partners (members) generally have limited liability for the LLP's debts — combining features of a partnership and a company. It is therefore unlike a traditional general partnership, where partners have unlimited liability. An LLP can contract in its own name and is quite different from a sole trader. The LLP form is popular among professional firms.

Answer: B. Called-up share capital is the portion of the issued share capital that the company has required shareholders to pay (whether or not it has yet been received). It differs from issued capital (the shares allotted), paid-up capital (the amount actually received), and any historic notion of authorised capital. It is not the company's total assets or its dividends. Understanding these share-capital terms is important in reading a company's equity.

Answer: A. An ordinary resolution requires a simple majority — more than 50% of the votes cast — and is used for most routine company decisions, such as appointing directors or approving certain matters. A special resolution needs at least 75%, used for more significant decisions. Unanimity is not generally required, and these are decisions of the shareholders, not the directors alone. The voting threshold reflects the importance of the decision.

Answer: B. Under the principle of capital maintenance, a company may pay dividends only out of distributable profits — broadly its accumulated realised profits less accumulated realised losses — to protect creditors by preserving the company's capital. Dividends may not be paid out of share capital, an unrealised revaluation reserve, or borrowings. This rule prevents companies returning to shareholders the capital that creditors rely upon.

Answer: D. A company is formed and acquires its separate legal personality when the Registrar of Companies, having received the required documents, issues a certificate of incorporation — the company's 'birth certificate'. Making a sale, appointing a director, or opening a bank account do not, by themselves, bring the company into existence. From the date of incorporation, the company exists in law as a distinct legal person capable of contracting in its own name.