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ACCA F4 English 1
Content
1.
2.
Courts
3.
Statute Law
15
4.
Contract Law
21
5.
Common Law
39
6.
Law of Tort
43
7.
Employment Law
49
8.
Agency Law
57
9.
Partnership
61
10.
Company Law
67
11.
85
12.
101
13.
109
14.
115
15.
123
16.
Capital Maintenance
133
17.
Test Answers
141
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ACCA F4 English
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ACCA F4 English 3
Chapter 1
STRUCTURE OF THE LEGAL SYSTEM
Civil Law
Private law
No concept of punishment
Sued in court
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ACCA F4 English
Criminal Law
Public law
Prosecuted in court
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ACCA F4 English 5
Common Law
Common Law courts were separate from court of equity until the late nineteenth century
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ACCA F4 English
Equity Law
If a monetary award of damages was not appropriate, there was nothing else to oer
Chancellors court
Main remedies :
Specific performance
Injunction
Rescission
Rectification
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Ratio Decidendi
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ACCA F4 English 7
ACCA F4 English
Test
Q UESTION 1
There are three main sources of English law. Which of the following is not one of those three sources?
A
B
C
D
legislation / statute
case law
jude law
custom
(1 mark)
Q UESTION 2
Which part of a Courts decision is binding on later similar cases?
A
B
C
D
obiter dicta
ratio decidendi
ultra vires
stare decisis
(1 mark)
Q UESTION 3
In a criminal case being tried in Court, what is the standard of proof required to be shown by the
prosecution?
A
B
C
D
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Chapter 2
COURTS
Hierarchy of the Courts
Bound by ECJ
Court of Appeal ( C of A )
..unless
..unless
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ACCA F4 English 9
ACCA F4 English
High Court ( HC )
3 divisions
And itself
Criminal cases
Civil cases
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10
Magistrates Courts ( MC )
Quicker
Can appeal to .
Equal status as HC
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ACCA F4 English 11
ACCA F4 English
Tracking
Quick
Informal
Fast Track
Multi Track
Full court hearing, but management conference held to encourage alternative dispute
resolution
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12
ACCA F4 English 13
Test
Q UESTION 1
In the context of the English Legal System, which of the following Courts has only criminal jurisdiction
A
B
C
D
High
Ecclesiastical
Crown
Magistrates
(1 mark)
Q UESTION 2
Coretta claims that Mubita owes her $1,000 as a result of breach of contract. In which Court will Coretta
commence her action against Mubita?
A
B
C
D
Magistrates
International Court of Justice
County
Supreme
(1 mark)
Q UESTION 3
In the context of judicial precedent, which of the following statements is correct when referring to obiter
dictum
A
B
C
D
Q UESTION 4
Is the following statement true or is it false? Magistrates must have a qualification in law
A
B
true
false
(1 mark)
Q UESTION 5
Which of the following is not one of the three divisions of the High Court?
A
B
C
D
Third Division
Family Division
Queens Bench Division
Chancery Division
(1 mark)
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ACCA F4 English
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14
ACCA F4 English 15
Chapter 3
STATUTE LAW
Statute Law
Parliament passes laws ( statutes ), and only parliament can change / repeal those laws
Green paper
White paper
First reading
Second reading
Committee stage
Report stage
Third reading
Royal Assent
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ACCA F4 English
re Sigsworth
Whitely v Chappell
Gardner v Sevenoaks
Gorris v Scott
Ejusdem generis
Evans v Cross
Noscitur a sociis
In pari materia
Cannot interpret statute which would lead to conflict with European Law
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16
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ACCA F4 English 17
ACCA F4 English
Aids to Interpretation
Intrinsic
The preamble the introduction to the statute at the start of the document
Margin notes
Extrinsic
Reports of committees
Hansard
Dictionary
Books of authority
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18
ACCA F4 English 19
Delegated Legislation
ADVANTAGES / IMPORTANCE
Greater flexibility
Allows general principles to be written into statute, with fine detail added later by minister
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ACCA F4 English
Test
Q UESTION 1
In the context of interpretation of statute, which of the following is not a rule?
A
B
C
D
mischief rule
golden rule
innocent-until-proved-guilty rule
purposive rule
(2 marks)
Q UESTION 2
The Courts will always follow the literal rule. Is that statement
A
B
true
false
(1 mark)
Q UESTION 3
In the context of the statutory rules of interpretation, which of the following is not seen to be part of the
purposive rule (also referred to as the plain meaning rule)?
A
B
C
D
in pari delicto
noscitur a sociis
expressio unius est exclusio alterius
ejusdem generis
(2 marks)
Q UESTION 4
In the context of interpretation of statute, which of the following rules requires judges to consider the wrong
that the statute was intending to prevent?
A
B
C
D
golden
mischief
majority
literal
(1 mark)
Q UESTION 5
Which of the following is not an example of delegated legislation?
A
B
C
D
statutory instruments
orders in council
bye-laws
case stated
(2 marks)
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ACCA F4 English 21
Chapter 4
CONTRACT LAW
A contract is an agreement, supported by consideration, made with intention to create legal relations.
The process of an auction sale constitutes the auctioneer inviting oers to be made
An advert oering a reward is an oer, not an invitation (Williams v Carwardine, R v Clark, Carlill v
Carbolic )
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ACCA F4 English
Termination of Offer
Notice of revocation may be communicated through a reliable third party ( Dickinson v Dodds )
Counter oer
Acceptance
Refusal
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22
Offers
May be made to the world at large ( R v Clark, Williams v Carwardine, Carlill v Carbolic )
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ACCA F4 English 23
ACCA F4 English
Acceptance
Acceptance cannot vary the original oer. That would be a counter-oer ( Northland Airlines v Dennis
Ferranti Meters )
The oer must still be open at the time of acceptance ( Hyde v Wrench )
Acceptance must be communicated to the oeror, but oeror may waive the right of communication
( Carlill v Carbolic )
Once youve started the acts of acceptance the oeror cannot revoke the oer ( Errington v Errington )
Acceptance must be made within a reasonable time ( Ramsgate Victoria Hotel v Montefiori )
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24
ACCA F4 English 25
Consideration
Consideration is a two-way thing in simple/parol contracts ( only one way is necessary in specialty
contracts/deeds )
Currie v Misa
Dunlop v Selfridges
Courts may imply an implied promise to pay a reasonable sum ( Lampleigh v Braithwait )
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ACCA F4 English
Not sucient if in accordance with a natural duty already owed ( White v Bluett )
Not sucient if in accordance with a legal duty already owed ( Collins v Godefroy )
Not sucient if in accordance with a contractual duty already owed ( Stilk v Myrick )
Williams v Roey
Thomas v Thomas
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ACCA F4 English 27
Privity of Contract
Only a party to a contract may sue to enforce it, but there are exceptions
A person entitled to benefit under third party motor insurance can sue the insurer
Where a special relationship exists; for example, an executor may sue to enforce a contract entered
into by the deceased ( Beswick v Beswick )
An employer may be sued for the negligent acts ( tort, not contract ) of its employees ( Mersey Docks v
Coggins )
In collateral contracts, an injured party can sue even though the other party is not a party to the
contract ( Shanklin Pier v Detel Products )
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ACCA F4 English
General principle part payment of a debt does not achieve full settlement ( Pinnells case )
Arrangement with creditors generally that collectively they agree to accept only part payment
Combe v Combe
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28
Balfour v Balfour
Spellman v Spellman
Simpkin v Pays
Jones v Padavatton
Parker v Clark
Commercial agreements
Merritt v Merritt
Appleson v Littlewoods
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ACCA F4 English 29
ACCA F4 English
Representations
Pre-contractual statements of some known or provable fact made with the intention of inducing
another person to enter a contract
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ACCA F4 English 31
Contractual Terms
Breach of a term which is a condition allows the injured party to treat the contract as discharged and
sue for damages
Bettini v Gye
Innominate terms are those where it is not clear, until breached, whether they are fundamental or
merely superficial
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ACCA F4 English
Contractual Terms
Express terms are those agreed by the parties and may be written into the contract or simply agreed
orally
Judicially implied terms -business ecacy ( The Moorcock ) ( Express Newspapers v Silverstone )
Title
Satisfactory quality
Sample
Description
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32
ACCA F4 English 33
Exclusion Clauses
Used in contracts in an attempt to eliminate or limit the extent of a breaching partys liability
Must be communicated to the other party at the time the contract is entered into ( Olley v
Marlborough Court Hotel ) ( Thornton v Shoe Lane Parking )
Should be brought to the attention of the other party ( Chapelton v Barry UDC ) ( Thompson v LMS
Railway )
Where a document apparently has a legal aect, should make sure before you sign it ( LEstrange v
Graucob )
Oral statements by an employee can destroy the eectiveness of an exclusion clause ( Curtis v
Chemical Cleaning Co )
Where parties have a history of trade, other party may be deemed to be aware of the exclusion clause
( Spurling v Bradshaw )
But this course of trade should be more than 3 or 4 occasions in the previous 5 years ( Hollier v
Rambler Motors )
Any ambiguity will be read strictly against the party seeking to rely on it ( Andrews v Singer )
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ACCA F4 English
Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contract Regulations 1999
Cannot have a term which binds the consumer but allows seller to avoid the contract
A consumer is a natural person who is acting for purposes outside his business
An unfair term is any term which causes a significant imbalance in the parties rights and obligations
to the detriment of the consumer
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ACCA F4 English 35
Breach of Contract
injured party may treat the contract as discharged ( if a breach of condition ) and sue for damages
immediately
Anticipatory - one party gives notice, before the contract start date, that they will not go ahead with
their obligations
or ignore, go ahead with their obligations, and then sue ( White and Carter Councils v MacGregor )
or wait, and hope the other party will change their minds
but if they choose to wait, they could lose their right to sue ( Avery v Bowden )
to be able to achieve full compensation, the injured party must have been in a position to complete
their obligation at the date the contract was due to start
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ACCA F4 English
Damages
Remoteness only awarded if the damage suered should have been in the reasonable
contemplation of the ordinary man
the breacher was aware of the special circumstances of the injured party
Hadley v Baxendale
Re The Heron II
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ACCA F4 English 37
Damages Measurement
Courts determine how much award is necessary to put the injured party into the position they would
have achieved if there had been no breach
if the cost of repair far outweighs the loss suered, courts may make an award based on loss of
amenity
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ACCA F4 English
Test
Q UESTION 1
Which words most appropriately complete the following definition? An exclusion clause is a clause in a
contract which purports to .......... liability altogether or to ......... it by limiting damages
A
B
C
D
negate, amend
restrict, amend
exclude, restrict
amend, exclude
(2 marks)
Q UESTION 2
Which of the following is not an oer capable of acceptance in English law?
A
B
C
D
an oer to pay an additional 100 for the purchase of a pet animal if the animal is lucky
an oer to no-one in particular to pay 100 for the safe return of your lost dog
an advert in a newspaper to pay 100 to the first person to swim across the Bosphorus
an oer made by a duly-appointed agent on behalf of a principal
(2 marks)
Q UESTION 3
A contract is a legally enforceable agreement.
Which of the following statements relating to contractual agreements is true?
A
B
C
D
Q UESTION 4
With reference to the word consideration the Courts have established what principle?
A
B
C
D
Q UESTION 5
Of which of the following terms does breach not allow the possibility of the aggrieved party terminating the
contract?
A
B
C
warranty
innominate
condition
(1 mark)
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ACCA F4 English 39
Chapter 5
COMMON LAW
Remedies for Breach
Damages ( CL )
Specific performance ( E )
Injunction ( E )
Rescission ( E )
Rectification ( E )
Mareva injunction ( E )
Liquidated damages genuine attempt to quantify potential loss ( Dunlop v New Garage ) if a
penalty, courts will not allow it ( Interfoto v Stiletto, Ford v Armstrong )
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ACCA F4 English
Will never act in personam against the breacher (Warner Bros v Nelson )
Rescission will not be awarded if it is not possible to restore the parties to their original precontractual position
Equitable remedies will not be awarded if the injured party has not acted fairly ( clean hands )
Equitable remedies will not be awarded if some innocent third party would be adversely aected
.6 years from the date the breach could have been discovered ( Lynn v Bamber )
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40
ACCA F4 English 41
Test
Q UESTION 1
Which of the following remedies is a common law remedy?
A
B
C
D
damages
rescission
specific performance
injunction
(1 mark)
Q UESTION 2
The main objective of an award of damages in a case of breach of contract is which of the following?
A
B
C
D
Q UESTION 3
Breach of which of the following terms in a contract will allow the injured party to claim damages, but the
contract will still survive?
A
B
C
D
condition
michaelmas
warranty
half
(1 mark)
Q UESTION 4
Which of the following is not a common law remedy in the event of breach of contract?
A
B
C
D
Q UESTION 5
The expression remoteness of damage is applied where a defendant is seeking to restrict the extent of
damages for which they may be liable. The Courts will limit an award of damages to an amount which could
have been in the ........... of ... .............. man
Complete the sentence in the most appropriate way.
A
B
C
D
foresight, an ordinary
contemplation, a reasonable
contemplation, an ordinary
foresight, a reasonable
(2 marks)
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ACCA F4 English
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42
ACCA F4 English 43
Chapter 6
LAW OF TORT
Types of Tort
Battery
Assault
Defamation slander ridicule of another in oral ( not permanent ) form ( civil wrong )
Passing-o use of a similar name in a similar business such that confusion results in the minds of the
public
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ACCA F4 English
Negligence Generally
3 things to establish
Those people so directly aected by our acts that we should have them in mind as likely to be aected
when we commit those acts ( Donohue v Stevenson )
Reasonable foreseeability
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44
Glasgow v Taylor
Take into account the practicality and cost of risk avoidance ( Latimer v AEC )
Take into account the social benefit eg accident caused by emergency ambulance
Professions ( e.g the medical profession ) establish their own levels of care
Mahon v Osborne
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ACCA F4 English 45
ACCA F4 English
The but for test ( Barnett v Chelsea and Kensington Hospital )( Wilsher v Essex )
Defences
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46
Negligence Accountants
Ultramares v Touche
Caparo v Dickman
ADT v BDO
NRG v EY
Barings v Coopers
BCCI v EY
Incorporate
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ACCA F4 English 47
ACCA F4 English
Test
Q UESTION 1
In a situation of the Court establishing that a plainti has contributed by their actions to the damage which
they have suered (contributory negligence) the maximum amount by which the Court may reduce the
extent of the award of damages is ..
A
B
C
D
10%
50%
75%
100%
(2 marks)
Q UESTION 2
In a case of alleged negligence, an auditor has been found to owe a duty of care to whom?
A
B
C
D
Q UESTION 3
In relation to the law of negligence, a finding of volenti non fit injuria arises from the action of which of the
following?
A
B
C
D
the respondent
the Court
an unforeseen external event unrelated to the specific case
the claimant
(2 marks)
Q UESTION 4
When Annabel was trapped in a public toilet facility because the lock mechanism was faulty, rather than wait
for help to arrive instead she tried to climb out of the window. Unfortunately, she slipped and broke her leg.
This injury is cited as an example of which of the following?
A
B
C
D
mens rea
ejusdem generis
contributory negligence
gross incompetence
(2 marks)
Q UESTION 5
In an incident at work, an employee sustained an eye injury from a welding spark. He was not wearing
safety glasses even though this was required by his contract of employment. Which of the following best
describes this incident?
A
B
C
D
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48
Chapter 7
EMPLOYMENT LAW
Employment Law
Sales tax
Vicarious liability
Liquidation
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ACCA F4 English 49
ACCA F4 English
Employment Law
Ability to delegate
And it doesnt matter what the employer / worker have agreed between them its the economic
reality which is important
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50
Dismissal
4 types
Constructive
Wrongful
Unfair
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ACCA F4 English 51
ACCA F4 English
Wrongful Dismissal
Justified if :
Disobedience
Dishonesty
Incompetence / negligence
Immorality
Drunkenness
Misconduct
Accepting money
Assault
Disclosure of information
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52
Unfair Dismissal
Automatically unfair
Whistle blowing
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ACCA F4 English 53
ACCA F4 English
Unfair Dismissal
Automatically fair
Potentially fair
Incapable
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ACCA F4 English 55
Redundancy
A form of dismissal from employment caused by the employer needing to reduce the workforce
Reasons include:-
the need to reduce the labour costs means sta numbers must be reduced
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ACCA F4 English
Test
Q UESTION 1
In the context of employment law, which of the following is an automatically fair ground for dismissing an
employee?
A
B
C
D
Q UESTION 2
If my contract of employment states that I am employed in Belfast and my employer tells me that I shall have
to relocate to London, I believe this to be an example of....
A
B
C
D
unfair dismissal
wrongful dismissal
constructive dismissal
summary dismissal
(1 mark)
Q UESTION 3
Which of the following is not used by the Courts as a test for establishing whether a person is an employee
or an independent contractor?
A
B
C
D
control test
integration test
subordination test
economic reality test
(2 marks)
Q UESTION 4
The Employment Rights Act (ERA) 1996 identifies various remedies in relation to unfair dismissals. Which of
the following is not a potential remedy for unfair dismissal under the Act?
A
B
C
re-instatement
re-engagement
re-employment
(1 mark)
Q UESTION 5
When determining whether a person is an employee or an independent sub-contractor, which factor will the
Court not take into account?
A
B
C
D
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56
Chapter 8
AGENCY LAW
Formation and Authority
Formation maybe :
Implied
By subsequent ratification
Authority maybe :
Express
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ACCA F4 English 57
ACCA F4 English
Liability
So long as acting within authority, agent has no liability under contract, nor can he enforce a
contract
Where agent is acting on his own behalf, even though claiming to act on behalf of the
principal
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ACCA F4 English 59
Test
Q UESTION 1
In the context of the law of agency, an agent will not be liable for a contract in which of the following
situations?
A
B
C
D
where the agent fails to disclose that they are acting as agent
where the agent intends to take the benefit of the contract for himself and fails to disclose that they
are acting as agent
where the agent acts on his own behalf but does identify that he is an agent
where an agents authority has been terminated but the third party does not know of that termination
(2 marks)
Q UESTION 2
An agency relationship may be formed in which of the following ways?
A
B
C
D
remediation
ratification
reprobation
restitution
(2 marks)
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ACCA F4 English
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60
ACCA F4 English 61
Chapter 9
PARTNERSHIP
Partnership Law
A partnership is defined as the relationship which subsists between two or more people carrying on
business in common with a view to profit
Partners may agree amongst themselves how their firm is to operate, so long as their arrangement is
legal ( Evert v Williams )
The business must be being carried on. It should be more than a one-o transaction, and must be
continuing
It must be with a view to profit and is more than the simple sharing of gross revenues
If a business relationship satisfies the definition, the courts may well determine that a partnership
exists, regardless of any written documentation ( or intention of the parties ) to the contrary
As a general rule, partners in a firm are jointly and severally liable for partnership debts
Every partner is an agent of the firm and the other partners for the purpose of the business of the firm
The acts of every partner done in the course of the firms business bind the firm and the partners
unless the partner was exceeding his authority and
... the other party knew that fact, or was not aware that the person was a partner
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ACCA F4 English
The Agreement
Partnerships are formed by agreement, and the internal arrangements are a matter for agreement
amongst the partners
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ACCA F4 English 63
1890 Act
In the event that partners fail to make an arrangement about some matter which is later disputed, then the
1890 Act establishes what should happen.The main provisions are :
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ACCA F4 English
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64
ACCA F4 English 65
At least one general partner ( with unlimited liability ) and one limited partner ( with limited
liability )
If the firm becomes bankrupt, only the general partners are liable for the firms debts
As a separate legal entity, the partners are not liable for the firms debts, thereby protecting
themselves from personal disasters. However, the provisions relating to wrongful and fraudulent
trading apply.
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ACCA F4 English
Test
Q UESTION 1
In partnership with her civil partner Justina, Jasmine runs a shoe shop Jasmines Shoes. Which answer best
describes the extent of Jasmines liability in the event of the business having to close by reason of its debts?
A
B
C
D
Q UESTION 2
What words are missing from the following statement? --- ----------- is the relationship that subsists between
two or more people carrying on business in common with a view of profit
A
B
C
D
a marriage
an agency
a partnership
an agency
(1 mark)
Q UESTION 3
In a business carried on as a partnership, which of the following is an automatic ground for the dissolution of
the firm?
A
B
C
D
death
insanity
inability to continue at a profit
inability to perform a partners share of the duties
(2 marks)
Q UESTION 4
The expression partnership at will describes the situation where a partnership is dissolvable by
A
B
C
D
Q UESTION 5
In the context of a limited liability partnership, which of the following statements is false?
A
B
C
D
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ACCA F4 English 67
Chapter 10
COMPANY LAW
Types of Corporation and Ways of Formation
Corporation sole a public oce occupied by a natural person. Death of the person does not aect
the continuing survival of the corporation. The Mayor of London is a corporation sole.
Corporation aggregate a collection of like-minded people who combine to form an artificial person
the corporation aggregate. Death of individual members has no eect on the existence of the
corporation.
Royal Charter
Statute
Registration
Since 2004 a new form of company, the Community Interest Company ( CIC ) is available for
organisations created for the benefit of the community/society rather than for the pursuit of profit
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ACCA F4 English
Types of Company
Public quoted
Public unquoted
Private unlimited
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ACCA F4 English 69
Public Companies
The name ends with the words public limited company or plc
Any company which does not satisfy the definition is a private company
Although a public company exists from the date on its certificate of incorporation, it cannot
commence to trade until it acquires a trading certificate
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ACCA F4 English
Trading Certificates
Public companies cannot commence to trade until after they have received a trading certificate
That the nominal value of allotted shares is not less than 50,000
If a public company does in fact commence trading before the receipt of the trading certificate, an
innocent third party is protected
If a public company fails to obtain a trading certificate within 12 months of incorporation, the court on
application may grant a liquidation order against the company
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70
Limited liability
Perpetual existence
Raising finance
Ownership of property
Number of members
Transfer of interest
Legal implications
Expense
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ACCA F4 English 71
ACCA F4 English
Disadvantages ( Expanded )
Legal implications
Formation
Audit
Share issues
Liquidation
Expense
Publicity
Business details
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ACCA F4 English 73
The court will look behind the veil of incorporation where justice requires it to prevent fraud, illegality
or oppression:
R v Oll
Re F G Films
Fraudulent trading
Wrongful trading
Other situations:
Tax law
Personal guarantees
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ACCA F4 English
Formation
Documents to be filed :
Memorandum
Articles
Statement of compliance
Registration fee
Certified translation
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ACCA F4 English 75
Roles
this involves:
finding people who will sign the memorandum and articles of association, and act as the
companys first directors
Duties
breach of duty - ie non-disclosure - allows the company to rescind the contract and recover the
purchase price ( Erlanger v New Sombrero Phosphate Mining Co )
the company may require the promoter to pay over to the company any undisclosed profits
( Gluckstein v Barnes ) (Whaley Bridge v Green )
the company may sue the promoter and claim damages for breach of fiduciary duty ( Leeds v
Harley )
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ACCA F4 English
Formation ( continued )
Proposed name
Public or private
Certificate of incorporation
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76
Articles
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ACCA F4 English 77
ACCA F4 English
When a person becomes a member of a company, it is as though they have separately entered a
contract with the company and with all the other members individually
Pender v Lushington
Clarke v Dunraven
But the articles do not create a contract between the company and third parties
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ACCA F4 English 79
Articles Alterability
Basic rule can only alter if for the benefit of the company as a whole
No outside contract shall prevent a change, but company may become liable for breach of that
contract ( Southern Foundries v Shirlaw )
Even if proposed alteration adversely aects only one member, it may still be valid ( Allen v Gold Reefs
of West Africa )
Alterations allowing compulsory purchase of minoritys shares will be ( normally ) disallowed ( Dafen
Tinplate v Llanelli Steel )
Bushell v Faith
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ACCA F4 English
Special resolution
75% majority
14 days notice
articles may say that, for a meeting proposing an alteration, the aected member must be present
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80
ACCA F4 English 81
Company Names
Registrar may refuse to register a company with a name which is misleading or oensive
ANZAC
The word limited ( or plc ) shall not appear anywhere except at the end of the name
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ACCA F4 English
Name Change
Compulsory or voluntary
.within 12 months if the company has been, by mistake, registered with a name too similar to an
existing company
At any time if the use of the name is likely to cause harm to the public
Special resolution
75% majority
14 days notice
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ACCA F4 English 83
Objects
The validity of a transaction shall not be called into question on the grounds of lack of capacity
In favour of a third party acting in good faith, the power of the directors to bind the company shall be
deemed to be free of any limitation under the companys constitution
So third parties are protected, but company cannot sue to enforce an ultra vires transaction
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ACCA F4 English
Test
Q UESTION 1
Jasmine runs her own shoe shop Jasmines Shoes Limited. Which answer best describes the extent of
Jasmines liability in the event of the business having to close by reason of its debts?
A
B
C
D
Q UESTION 2
The abbreviation Ltd at the end of a business name indicates that the business is which of the following
types of organisation?
A
B
C
D
a limited partnership
a limited liability partnership
a private company
a public company
(2 marks)
Q UESTION 3
Which of the following options is true? A public company is allowed to oer to the public for subscription or
purchase
A
B
C
D
Q UESTION 4
When a company has in issue some partly paid equity shares, the amount unpaid is a reserve liability of
which of the following?
A
B
C
D
Q UESTION 5
The case Salomon v Salomon & Co Ltd is the case that firmly established the principle of
A
B
C
D
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ACCA F4 English 85
Chapter 11
COMPANY LAW: DIRECTORS AND
OFFICERS
General Points
A shadow director is a person in accordance with whose instructions the directors are accustomed to
act
De facto director a person who purports to act as though they were a director
Alternate director a person appointed by a director who is unable to attend a board meeting
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ACCA F4 English
Must be over 16
Should not be absent, without permission, from board meetings for a period in excess of 6 months
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ACCA F4 English 87
On application to the Court, a director may be disqualified by court order on a number of grounds:
up to 2 years in prison
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ACCA F4 English
Directors Appointment
Registrar notified
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88
ACCA F4 English 89
Directors Removal
Ordinary resolution
Special notice
Opportunity to make written representations of reasonable length and not defamatory in nature
Reasonable length
Must also satisfy legal restrictions 100 members holding 100 share capital on average
Notice to registrar
Bushell v Faith
Company may have to pay substantial compensation to a removed director ( Southern Foundries v
Shirlaw )
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ACCA F4 English
2006 Act put into statute many of the established common law principles
7 duties
Independent judgement
Common law cases which the courts will follow in interpreting these statutory duties follow
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Cook v Deeks
IDC v Cooley
Bamford v Bamford
Hogg v Cramphorn
Clemens v Clemens
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ACCA F4 English 91
ACCA F4 English
Employees interests
Good reputation
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ACCA F4 English 93
Directors Controls
No company may lend money, provide security nor guarantee a loan to a director of itself, nor of its
holding company unless approved by members
... relevant companies cannot approve credit transactions ( unless < 10,000 ) unless approved by
members
Loans by money lending companies allowed for purchase or improvement of main or only residence
up to 100,000
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ACCA F4 English
Directors Remedies
Make them indemnify the company against loss caused by their negligence ( see below )
May be held liable by the court looking behind the veil of incorporation
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ACCA F4 English 95
Company Secretary
Duties, determined by the directors, are administrative in nature ( Panorama Developments v Fidelis
Furnishing Fabrics )
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ACCA F4 English
every company must maintain certain records required by statute the statutory books
these records must be kept at the companys registered oce, unless ...
... the register of members is maintained by an independent organisation the companys registrars
in this situation, certain other books may be kept also at the oces of the companys registrars
registers include:
members
directors
secretary
debenture holders
directors interests
substantial shareholders
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96
Auditors
Appointed by:
Cannot be :-
Undischarged bankrupt
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ACCA F4 English 97
ACCA F4 English
Rights
Duties
( For quoted companies ) report on certain elements of the directors remuneration report
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ACCA F4 English 99
Test
Q UESTION 1
Which expression describes the situation where the Courts declare that the actions of a director lie beyond
that directors powers
A
in extremis deo
B
ultra vires
C
in pari delicto
D
quocunque jeceris stabit
(2 marks)
Q UESTION 2
Which of the following options is not an appropriate qualification for the secretary of a public company
A
B
C
D
Q UESTION 3
Which of the following is not a right enjoyed by a public companys auditor?
A
B
C
D
Q UESTION 4
When fulfilling their statutory duty to promote the success of their company, directors should consider many
matters. Which in the following list is a matter not specifically referred to in legislation?
A
B
C
D
Q UESTION 5
The duties of a private company secretary are prescribed by which authority?
A
B
C
D
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ACCA F4 English
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100
Chapter 12
COMPANY LAW: MEETINGS AND
RESOLUTIONS
Annual General Meeting
21 days notice
Ordinary business:
Reappointment of directors
Reappointment of auditors
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ACCA F4 English
Resolutions
Ordinary
simple majority
14 days notice
Special
75%
14 days notice
Written
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102
to remove a director
to remove an auditor
to confirm in appointment an auditor appointed by the directors in the mid-term to fill a casual
vacancy
Director / auditor may write written representations of reasonable length and not defamatory in
nature
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ACCA F4 English
Resolutions
be not less than 100 members holding on average not less than 100 each in paid up share capital
The request must be delivered not less than 6 weeks before the general meeting
The requisitionists may request that a statement of reasonable length be circulated together with the
notice of the meeting
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104
Proxies
A proxy is a written statement authorising another person to vote on behalf of an absent shareholder
The person appointed need not be a member of the company it can be anyone
The word proxy is used to describe both the form and the person appointed by the form
Companies will provide two-way proxy forms so that the absent member can indicate which way the
proxy should vote for or against each resolution
Proxy forms should be delivered to the company not less than 48 hours before the meeting
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ACCA F4 English
Quorum
A quorum is the minimum number of members who shall be present at a meeting before the meeting
may validly pass resolutions
But the word meeting implies that there should be at least 2 persons
So one member in person who also holds a proxy for another member cannot, normally, be a quorum
In the situation of a class meeting, where all the shares of that class are owned by a single
person
If a meeting is inquorate at the scheduled start time it will normally be adjourned to same time, same
place, next week
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Voting
Following discussion about a resolution, the chair will call for a vote
Each member, no matter how many shares they hold, therefore has only one vote
But members holding many shares may ask, following a show of hands, for a vote count a poll
Members holding not less than 10% of the total voting rights
The chair
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ACCA F4 English
Test
Q UESTION 1
What type of resolution is required to remove an auditor from oce between general meetings of a private
company?
A
B
C
D
special
written
ordinary with special notice
none of the above private companies need neither auditors nor general meetings
(2 marks)
Q UESTION 2
An annual general meeting of a public company may be held with less than the required number of days
notice so long as the required percentage of members vote in favour of short notice. What percentage of
members votes shall be cast in favour in order that an annual general meeting shall be validly held even
without the normal notice period?
A
B
C
D
>50%
75%
95%
100%
(2 marks)
Q UESTION 3
In the context of a general meeting of a company, which of the following resolutions always needs a
majority of not less than 75% voting in favour to be passed?
A
B
C
D
Q UESTION 4
What is the latest date that a public company, incorporated on 1 May 2010, could hold its second annual
general meeting?
A
B
C
D
31 October, 2011
31 January, 2013
31 December, 2012
30 April, 2012
(1 mark)
Q UESTION 5
Within what period of time must a public company hold an annual general meeting after the previous
annual general meeting
A
B
C
D
18 months
15 months
12 months
no time limit
(1 mark)
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108
Chapter 13
COMPANY LAW: LOAN CAPITAL
Loan Capital
If there are 2 charges over the same property, a fixed charge will take precedence over a floating
charge
If there are 2 fixed charges ( or 2 floating charges ) over the same property, the earlier one will take
precedence
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ACCA F4 English
Fixed Charges
Fixed charge created within the 6 months immediately prior to a company commencing liquidation
may be invalid
In the event of a liquidation, the fixed charge debenture holder ranks number one in the sequence of
asset distribution
Where a floating charge exists over an asset, there may be a negative pledge clause
The eect is to ensure that a floating charge debenture holder has to be notified of any proposed fixed
charge over the same asset
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110
Floating Charges
Where the class changes from time to time in the ordinary course of business
And the company may deal with these assets until the charge crystallises
Whether a charge is fixed or floating is a matter of commercial reality rather than how it has been
named
In re Tunbridge a fixed charge was held by the court to be floating because all three Yorkshire criteria
were met
In re Cimex a floating charge was held to be fixed because the assets did not change from time to
time in the ordinary course of business
A floating charge will be invalid if created within the 12 months immediately prior to the
commencement of a liquidation
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ACCA F4 English
No votes
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112
Test
Q UESTION 1
Which expression describes the fact that debentures in a series rank equally amongst themselves?
A
B
C
D
Q UESTION 2
A clause within an agreement to borrow money secured by way of floating charge is sometimes used and
has the eect of protecting the lender from the adverse eects of a subsequent debenture secured by way
of fixed charge gaining a preferential entitlement to the secured assets. Such a protective clause is called
what?
A
B
C
D
Q UESTION 3
In order of repayment in a liquidation situation, rank the following in sequence starting with the first in
priority down to the last. The liquidation commenced on 8 February, 2014
1
2
3
4
A
B
C
D
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ACCA F4 English
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114
Chapter 14
COMPANY LAW: LIQUIDATIONS
Liquidation
Compulsory or voluntary
Special resolution
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ACCA F4 English
Compulsory Liquidation
Need to show the court that the company has owed the petitioning creditor more than 750 for
more than 21 days
Failure of substratum
Re Yenidji Tobacco
Quasi-partnership situation
But just and equitable only given in the absence of alternative remedy ( re A Company )
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116
Eect of an order
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ACCA F4 English
Duties of an Administrator
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118
Floating charge debenture holders can appoint without reference to the court
Directors could avoid acquiring the reputation of having been involved in an insolvent company
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ACCA F4 English
Automatically ends:
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120
Test
Q UESTION 1
A creditors voluntary winding-up is commenced typically because the company is unable to pay its debts.
Which type of resolution starts such a liquidation process for a public company?
A
B
C
D
a board resolution
an ordinary resolution passed by the members
a special resolution passed by the members
a resolution passed by the creditors
(2 marks)
Q UESTION 2
In a creditors voluntary winding-up, the liquidator is appointed by which of the following?
A
B
C
D
Q UESTION 3
Which of the following is not a ground for the Court to grant a compulsory winding-up order of a private
company?
A
B
C
D
Q UESTION 4
In a liquidation, the holder of partly paid shares will have to pay the amount as yet unpaid on those shares.
To whom is that money payable?
A
B
C
D
the Court
the liquidator
the company
the bank
(2 marks)
Q UESTION 5
There are many ways in which an investor can hold an interest in a company. Which of the following
investments in a company will normally participate in the surplus remaining in a liquidation?
A
B
C
D
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ACCA F4 English
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122
Chapter 15
COMPANY LAW: ILLEGALITIES
Wrongful Trading
Previously, directors could only be liable for companys debts where they were guilty of fraudulent
trading dicult to prove
Directors may escape liability if they can show the court that they took every step necessary to
mitigate / minimise the creditors potential loss
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ACCA F4 English
Fraudulent Trading
the criminal oence applies to the situation where an entity has been set up
where it becomes apparent that an entity has continued trading with the intention of defrauding
creditors, the liquidator can take action against anyone who was knowingly a party
if found liable, the Court may direct that those persons liable shall contribute to the shortfall in the
entitys assets in such amounts as the Court thinks fit
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124
Money Laundering
A process whereby the proceeds of criminal activity are converted into assets appearing to have a
legitimate origin
Transfer of money from business to business ( or place to place ) to conceal its original source
Integration the money takes on the appearance of having come from a legitimate source
Proceeds of Crime Act 2002 seeks to control money laundering by the creation of 3 categories of
criminal activity
The oence of failure to report relates only to individuals acting in the course of business for
example, accountants
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ACCA F4 English
Insider Dealing
Insider a person who has a business connection with a company as a result of which they may
acquire relevant information
Unpublished price sensitive information is information about the company which is not in the public
domain..
.is, on publication, likely to have a material impact on the market price of the companys shares
A person dealing as a result of that encouragement, and believing the source to be an insider, is also
committing an oence
Disclosure of inside information, other than in the proper course of employment to an authorised
person, is also an oence
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Bribery
4 oences
receiving a bribe
bribing = oering financial or other advantage to perform a relevant function or activity improperly
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ACCA F4 English
Bribing an FPO
oence to oer, directly or indirectly, a financial or other advantage to an FPO intending to influence
them in gaining business or an advantage in connection with business
Defence - if a company can show that it had adequate procedures in place, appropriate to the level of
risk
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128
proportionate procedures
commitment by management
management should assess the nature and extent of risks faced and develop appropriate
procedures to manage that risk
due diligence
the company should apply due diligence procedures in respect of company personnel who are
at greater risk of oering bribes
communication
to ensure all employees / connected persons are aware of the companys culture and attitude
NB hospitality that is reasonable and proportionate is acceptable, ie is it not prohibited by the Act.
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ACCA F4 English
Penalties
... and potentially, civil claims against the directors for failing to implement adequate procedures
First conviction
Munir Patel found guilty of accepting 500 to suppress a driving conviction from court records.
Serving a 3 year prison sentence
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130
Test
Q UESTION 1
Under the Bribery Act 2010 which of the following is not an oence?
A
B
C
D
accepting a bribe
paying a bribe
failing to apply appropriate procedures to protect employees from temptation
failing to respond to an email oering a bribe
(2 marks)
Q UESTION 2
Which of the following is not an appropriate description of information used in the context of insider
dealing?
A
B
C
D
Q UESTION 3
Which of the following is not an oence under the Proceeds of Crime Act 2002 in the context of money
laundering?
A
B
C
D
laundering
placement
integration
layering
(2 marks)
Q UESTION 4
Money laundering involves a number of phases in the overall procedure. Which two of the following are
recognised as phases in the money laundering procedure?
1
repatriation
2
integration
3
distribution
4
layering
A
B
C
D
1 and 2
1 and 3
2 and 4
3 and 4
(2 marks)
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ACCA F4 English
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132
Chapter 16
CAPITAL MAINTENANCE
Capital Maintenance
Called shareholders equity and comprises share capital plus undistributable reserves
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ACCA F4 English
Members do not have an automatic right to receive a dividend ( they approve one at the companys
general meeting but cannot vote to increase the dividend proposed by the directors )
Dividends are normally paid based on the paid-up capital of the company
Dividends may be in the form of a cash payment ( normal ) or in another form ( for example, a scrip
dividend )
A dividend is a company debt only from the date it is declared and due for payment
Dividends may only be declared out of profits available for the purpose
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A company may reduce its capital, but only under the strictest control
Special resolution
The companys capital is no longer represented by available assets ( it has been suering losses )
The company wishes to extinguish / cancel the liability of a class of share - for example a 1
share, 70p paid could become a 70p share fully paid
The company wishes to restructure its capital funding and may, for instance, now wish to
replace some of its shares by way of loan capital
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ACCA F4 English
Share Capital
It is illegal to issue shares for an amount which is lower than the nominal value of the share
Where shares are issued, whether for cash or otherwise, for an amount in excess of their nominal
value, an amount equal to that excess shall be credited to the Share Premium Account
The share premium account is an undistributable reserve and has very limited uses:
Write o the expenses of, discounts allowed on or commissions paid on any issue of shares or
debentures
But the combination of discounts allowed on and issue of shares is an illegal combination
Despite the principle that shares may not be issued at a discount, private companies are able to issue
shares in consideration for non-cash goods or services received
The true / fair value of these goods or services could be lower than the nominal value of the shares
issued.This is not illegal but only applies to private companies
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Share Capital
voting rights
entitlement to dividends
If the variation of rights is specified by the constitution, then follow the constitution
Note, if constitution provides for the variation, it could require merely an ordinary resolution or
could even require some greater majority than 75%
These provisions apply even for companies without a share capital, for example a company
limited by guarantee
Treasury shares
For many years within English Law it was illegal for a company to hold shares in itself or in its holding
company. As a natural pre-cursor it was illegal for a company to purchase its own shares.
But then, towards the end of the last century, the law was changed and companies were allowed to
purchase their own shares and cancel them.
There is a lot of commercial sense in this basic concept. If the board of directors have confidence in the
companys prospects, and if the company has available funds, what better target for their investment
than the companys own shares? Subsequent cancellation would reduce the number of shares in issue
and potentially strengthen earnings per share.
A basic rule established from the start of this allowable activity was that the acquisition should be
financed from distributable profits. The reasoning behind this particular requirement is to protect the
interests of the companys creditors. The practicalities of the rule are that an amount equal to the
nominal value of the purchased shares should be transferred to a non-distributable element of equity
out of profits which would otherwise have been available for distribution more commonly referred
to as distributable profits.
The eect of this is to maintain the buer fund or creditors buer fund, statutorily described as
share capital plus undistributable reserves. Historically, these purchased shares had to be cancelled.
Most recently, a public company is now allowed to purchase its own shares and, instead of cancelling
them, it may now choose to hold them in treasury until such time as it chooses either to cancel the
shares or to sell them eectively to re-issue them.
These are called Treasury Shares and here are some one-liners about them.
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ACCA F4 English
are available for re-issue without the normal formalities associated with a share issue
when sold, shall cause any consideration received to be treated as a realized profit
when cancelled, shall cause the company to send a return to the Registrar within 28 days
detailing the cancellation and the number and nominal value of the cancelled shares
may be held from initial issue by a company holding back a proportion of its shares for
the purposes of a subsequent issue
When treasury shares are cancelled the company must send a return to the Registrar a Statement of
Capital eectively confirming that the company continues to satisfy the minimum share capital
requirements for a public company.
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138
Test
Q UESTION 1
Which of the following reserves is classed as non-distributable in English company law?
A
B
C
D
Q UESTION 2
According to English company law, the amount as yet unpaid on shares issued by a company is called a
reserve liability. Is this liability a liability of
A
B
C
D
the shareholders
the company
the directors
none of the above
(1 mark)
Q UESTION 3
Which of the following reserves is classed as a distributable reserve in English company law?
A
B
C
D
Q UESTION 4
Which of the following is not an allowable use of the share premium account?
A
B
C
D
provide for the premium payable on the redemption of 3% cumulative redeemable participating
preference shares
provide for the premium payable on the redemption of 4% unsecured convertible debentures
write o the preliminary and formation expenses of a company
finance the issue of 1 bonus shares credited as 95 pence paid to existing shareholders
(2 marks)
Q UESTION 5
Which of the following statements is correct when discussing the declaration of dividends on cumulative
preference shares?
A
B
C
D
no preference dividend is payable until all ordinary dividends have been paid
cumulative dividends are paid when there are profits available for distribution
arrears of cumulative dividends are paid out of capital with only the dividend relating to this year paid
out of profits
no preference dividend is paid until profit after tax reaches a percentage as specified within the
companys articles
(2 marks)
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ACCA F4 English
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TEST ANSWERS
Chapter 1
1
C
2
C
3
B
4
B
Chapter 2
1
C
2
C
3
D
4
B
5
A
Chapter 3
1
C
2
B
3
A
4
B
5
D
Chapter 4
1
C
2
A
3
B
4
B
5
A
Chapter 5
1
A
2
C
3
C
4
D
5
C
Chapter 6
1
D
2
A
3
D
4
C
5
A
Chapter 7
1
A
2
C
3
C
4
C
5
B
Chapter 8
1
A
2
B
Chapter 9
1
D
2
C
3
A
4
C
5
D
Chapter 10
1
C
2
C
3
D
4
C
5
A
Chapter 15
1
D
2
B
3
A
4
C
Chapter 16
1
B
2
B
3
D
4
D
5
B
Chapter 11
1
B
2
D
3
A
4
C
5
B
Chapter 12
1
C
2
D
3
D
4
C
5
B
Chapter 13
1
C
2
D
3
B
Chapter 14
1
C
2
B
3
C
4
B
5
D
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ACCA F4 English
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142