Study guides
Company Law
2 guides for this subject — how to prepare, what to practise, and how to know it has gone in.
A written answer, marked
A question from a company law mock paper, answered and marked. From Company Law Practice Questions: 10 Worked Examples.
The directors of a company issue shares chiefly to dilute the voting power of shareholders who support a takeover bid. Advise whether the issue may be challenged.
3/4The directors have power to issue shares, but they must use that power for a proper purpose. They appear to have issued the shares to affect voting control rather than to raise capital. A shareholder may challenge the decision.
The answer identifies the proper-purpose issue and applies it to the stated motive. It would be stronger if it explained that the existence of the power does not validate an improper use, and qualified the remedy by reference to the applicable law and facts.
Missed
−Explain why the purpose of the power matters, not just the directors’ general duty
−Avoid implying that the same challenger or remedy is available in every jurisdiction
Model answerThe directors have a power to issue shares, but that power must be exercised for a proper purpose. If the chief purpose was to dilute voting power and frustrate the takeover, rather than to raise capital, the issue may be open to challenge. The fact that the directors believed the outcome beneficial does not by itself answer the proper-purpose question. The challenger, procedure and remedy depend on the governing statute and the company’s circumstances.
A spoken answer, marked
An examiner's question, answered out loud and marked criterion by criterion. From Company Law Viva Questions: Practise Clear, Careful Answers.
Examiner
A shareholder owns all the shares in a small company. The company signs a supply contract, cannot pay, and the supplier asks the shareholder to pay personally. Explain the starting point and what further facts you would need.
The answer identifies the company as a distinct legal person and starts from the company’s contractual liability.
ImproveExplain that incorporation generally gives the company its own rights and liabilities, rather than merely saying the shareholder is separate.
It connects the contract to the company, but does not ask whether the shareholder separately guaranteed the debt.
ImproveDistinguish liability under the company contract from a personal guarantee or other independent obligation.
The answer notes that exceptions may exist but does not identify what must be checked.
ImproveRefer to the governing statute and the jurisdiction’s approach to exceptional disregard of separate personality; do not assume the result.
A strong answerThe starting point is that an incorporated company has a legal personality distinct from its shareholders, so a contract made by the company ordinarily makes the company liable. Ownership of all the shares does not, by itself, make the shareholder a party to the contract or the owner of the company’s assets. I would check whether the shareholder gave a personal guarantee, entered a separate contract, or incurred liability through some other legally recognised route. I would also check the governing company legislation and local authorities before discussing any exceptional basis for attributing the company’s conduct or obligations to a member. On the facts given, inability to pay alone does not establish personal liability.
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Guides
- Company Law Practice Questions: 10 Worked ExamplesTest core company law principles with 10 worked multiple-choice questions, a sample written answer and a method for reviewing mistakes.
- Company Law Viva Questions: Practise Clear, Careful AnswersPractise company law viva questions on separate personality, directors’ duties and shareholder remedies, with model answers and a repeatable method.
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