Posted: September 9th, 2022

Explain and compare the difference between a limited partnership

All answers should refer to appropriate legal authority i.e. relevant legislation and case law and can be supported with appropriate reference to relevant secondary sources

each mini answer for Section A) should be around 265 words-

Make sure each answer is of broadly equal length and provide reference to primary law (statute and case law) in support of your answers. All questions carry equal marks. Answer THREE (3) questions only in Section A)

(a) Explain and compare the difference between a limited partnership under the Limited Partnership Act 1907 and the Limited Liability Partnership Act 2000 on the issue of liability only. Give reference to primary law (statute, case law) to support your answer.

(b) Explain the difference between how the Companies Act 2006 regulates business names and how the law of passing off provides a legal basis for disputes concerning business names. Give reference to statute and primary law (statute, case law) to support your answer.

(c) To what extent do you agree or disagree that pre-incorporation contracts should be avoided? Give reference to primary law (statute, case law) to support your answer.

Section B)

Question 4

Answer BOTH (a) and (b). In doing so, answer part (a) and then apply the principles discussed there in part (b).
(a) Explain the steps required regarding for a company to issue its own shares, pay dividends to shareholders and re-acquiring its own shares. (50 marks)
AND
(b) Shiny Tech Co Plc have been trading since 2016. The company has proved successful in the alternative legal services market. Whilst the company directors are all highly experienced in technology, none of them are qualified lawyers. For the last two years the directors invested in bitcoin and paid an extra, bonus dividend to all the company’s shareholders. However, it has now come to the directors’ attention that all of the company’s bitcoin assets are very low in value. The extra, bonus dividend payments should not have been paid out as the company had no profits. As soon as they realise this, the company directors resolve to acquire some of the company’s own shares back. Advise Shiny Tech Co Plc and the shareholders. (50 marks).

Question 5
Answer BOTH (a) and (b). In doing so, answer part (a) and then apply the principles discussed there in part (b).
(a) Compare and contrast the advantages and disadvantages of the statutory derivative action (ss.265-269 Companies Act 2006) with the unfair prejudice petition (ss.994-999 Companies Act 2006), from the perspective of protecting the interests of members of a company. (50 marks).
AND
(b) Bonnie Tartan Plc supplies wool clothing. However, a group of minority shareholders of Bonnie Tartan Plc are not happy with recent board decisions. The board of directors agreed to contract with Luxe Laine Sarl, a French limited company, to import French wool from France at a significantly higher price per kilogram in comparison to the market price for Scottish wool. This contract caused the company significant losses. One of Bonnie Tartan’s directors is a shadow director of Luxe Laine Sarl and negotiated the contract to import the French wool. To help the company during the pandemic, in 2021 the directors of Bonnie Tartan agreed to allot more shares of the company, which had the effect of diluting the minority shareholding further. Continued over page/
Continued from previous page/
5
The group of minority shareholders have been told by another firm of solicitors that the cost of legal proceedings would be much greater than the value of any legal claim they might have as members.
Advise the minority shareholders of Bonnie Tartan Plc of any rights and remedies available to them. (50 marks).
Total 100 marks. End of Paper

Law Questions

Name
Course
Tutor
City and State
Date
Section A
(a) Explain and compare the difference between a limited partnership under the Limited Partnership Act 1907 and the Limited Liability Partnership Act 2000 on the issue of liability only.
The Limited Partnership under the Limited Partnership Act 1907 is not a separate legal personality from its partners. All of the general partners in this partnership have unlimited liability while all limited partners have limited liability (Department for Business, Energy & Industrial Strategy, 2018, 14). The Limited partners are mandated to contribute capital or property to the limited partnership. The limited partners do not get involved in the management of the limited partnership and if one gets involved in the active management, they lose their limited liability status.
Conversely, the limited liability partnership under the Limited Liability Partnership Act 2000 is considered a separate legal entity from its members. Thus, the members of this LLP will not be liable for the debts and obligations to the extent of their stake in the entity. Members are also not generally liable simply by virtue of being a member of the LLP or for the actions or defaults of the other members. The member’s assets are protected from financial consequences of the general business failures in the actions of other members or employees (Department for Business, Energy & Industrial Strategy, 2018, 15). Nevertheless, a member will be personally liable for their actions in certain circumstances specifically when the members will owe common law duties to the LLP for particular circumstances. The second instance is when the memert assumes or is deemed toi assume personal liability to a client of the LLP with regards to their actions.

(b) Explain the difference between how the Companies Act 2006 regulates business names and how the law of passing off provides a legal basis for disputes concerning business names.
The Companies Act 2006 provided legal guidelines related to company names, specifically the limits on the choice of company name, the procedures followed while making changes to a company name, the trading disclosures and the regulation of business names. Notably, the Companies House is allowed to reject the application to register a particular company name. These circumstances include when the proposed name is similar to an existing name in the public register unless the cother company has given its consent. The second instance is when the registration would constitute an offense or is offensive. The Company’s House on behalf of the Secretary of State needs to give formal approval prior to registering a name that may suggest a connection with government or a public holiday or a public authority or which includes a sensitive word specific in the regulations.
Considering the law of passing off under the Companies Act 2006, any individual could object to an organization’s registered name on the basis that it is similar to a name with which the objector has goodwill (Epoq Group Ltd, 2022). The objections need to be made by application by application of the company nam,es. Nevertheless, the applicant will need to prove that they have good will on the name as demonstrated in the Erwen Warnink B V v J Townend & Sons (Hull) Ltd [1979] AC 731 (Law Explorer, 2016). Lord Fraser noted that the claimant needs to prove that they have good will which could have been damaged by the misrepresentations. Good will refers to the business attributes that would attract and retain customers which are not accounted for elsewhere.
(c) To what extent do you agree or disagree that pre-incorporation contracts should be avoided?
Pre-incorporation contracts as per Section 51 of the Companies Act 2006 have been defined as the contractual agreements purported to be made by or on behalf of a company that has not been incorporated at the time of signing (Saracens Solicitors, 2017). The promoter is to be held personally liable for this contract which was evident in the Royal Mail Estates v Maples Teesdale [2015] EWHC 1890 (Ch) (Saracens Solicitors, 2017). The court noted risks associated with entering into a pre-incorporation contract which primarily included the fact that the party signing or entering into the agreement on behalf of the company should be certain that the subject company is validly incorporated and it has remained so prior to the agreement being made.
Thus, it would be advisable that the pre-incorporation contracts are fully avoided unless they are fully aware of the threshold for being covered by the exclusion phrase “any agreement to the contrary,” under s.51 of the Companies Act 2006. Without a proper exclusion of Section 51, the agents or the signatories acting on behalf of this company are risking being personally liable for any obligations. It is vital that one obtains legal advice which includes verifying if the company purporting to enter the agreement has in fact been incorporated.
Section B
Question 4
(a) Explain the steps required for a company to issue its own shares, pay dividends to shareholders and re-acquiring its own shares.
The Companies Act 2013 prescribes three steps to be followed in the issue of new shares starting with the issue of the prospectus. The prospectus entails inviting the public to subscribe to the company’s shares. It contains all information relating to the company including its financial structure, the past years’ balance sheets, the profit and loss statements among others (Toppr, 2022). It will state the manner in which capital is to be collected. The second step is the receipt of applications from prospective investors, the investors fill out the application then deposit the required application monet in the scheduled bank. The ap[plication process stays open for a maximum of 120 days and this time lapses without the minimum subscription being reached, then the issue of shares gets canceled. The application money needs to be refunded to the investors within 130 days since the issue of the prospectus (Toppr, 2022). The third step is the allotment of shares once the minimum subscription has been attained. Since there is normally an oversubscription of share, the allotment follows the pro-rata basis. The allotment letters are sent to those that have been allotted their shares. This leads to having a valid contractual agreement between the company and the applicant who becomes a part owner of the company. Letters of regent are sent to the applicants if the applications are rejected.
The steps to be followed in regards to a company paying its dividends to its shareholders starts with directors verifying several issues. These include the fact that the intended dividends are covered by the balance of realized profits in the last annual accounts that are circulated to shareholders, that the realized profits have not been consequently lis, the dividends payment may not leave the company bata position it cannot pay its debts and if the company is to be audited, the legal requirements that apply to the auditor’s report have been qualified (ICAEW, 2022). Then the company’s articles of association will set out the process for paying dividends for instance as per article 30 of the UK’s model articles for private companies limited by shares. The “final” dividends are normally on an annual basis after approval of the annual accounts. The Articles and Model Articles will normally provide the directors to recommend the dividen, the dividend to be declared by ordinary resolution and that the members could vote to pay more than the amount recommended by the directors (ICAEW, 2022). The articles and model Articles could also permit the directors to pay “interim” dividends at any time. Appropriate records relating to the payments of dividends should be kept such as the evidence of the dividend through the relevant accounts and minutes of directors’ or shareholders’ meetings.
Considering the CA 2006, the company seeking to buy back its shares could do so depending on whether it is an off-market purchase or a market purchase. The market purchase entails the purchase of shares on the Stock Exchange. It needs authorization by ordinary resolution which gives it the general authority of purchasing the company’s own shares. It could also be limited to shares of a specific class or description. The authority could be unconditional or conditional and it will not last over 18 months. The standard practice in many PLCs is having this resolution passed during their AGM. For the off market purchase, it starts with obtaining approval from the shareholders, then the buyback contractual agreement is made between the company and the shareholders whose shares are to be bought (Clark, 2022). A resolution of the shareholders is needed for approving the buyback contract. If the company is to carryout the buyback for the purpose or in pursuant to the employees scheme, several the shares will need to be paid after purchase or installments, having a simplified process in which the capital to be bought back involves a special resolution supported by the solvency statement and for the general authority to be granted in advance should specify the date in which it is to expire, this should not be in any case later than 5 years after the date in which the resolution is passed (Clark, 2022).
(b) Shiny Tech Co Plc have been trading since 2016. The company has proved successful in the alternative legal services market. Whilst the company directors are all highly experienced in technology, none of them are qualified lawyers. For the last two years the directors invested in bitcoin and paid an extra bonus dividend to all the company’s shareholders. However, it has now come to the directors’ attention that all of the company’s bitcoin assets are very low in value. The extra bonus dividend payments should not have been paid out as the company had no profits. As soon as they realize this, the company directors resolve to acquire some of the company’s own shares back. Advise Shiny Tech Co Plc and the shareholders.
For the Shiny Tech Co Plc, the buyback of shares will start by approving that the company would repurchase the shares at any price which is ascertained by the Articles of Association. The company’s articles should not restrict or prohibit this repurchase through a written contract or a written memorandum of the main terms. The right shareholders’ resolution will indeed have to be passed for the procedure to proceed. The shareholder resolution relies on whether the buyback is for the purposes or in pursuit of an employees’ share scheme or not (Gannons Solicitors, 2022). Considering that this buyback is not for the purposes or in pursuant to the employees’ share scheme, the purchase contract terms need to be authorized by ordinary resolution of the shareholders. Over 50% of the votes need to be in favor of the resolution but the shareholders to be brought back should not exercise the votes attached to these shares.
After the shareholder approval, there needs to be enough distributable reserves for funding the share buyback. If the Plc is not to pay from the distributable reserves, liabilities could arise. These include the fact that the directors can be held liable for acting in breach of their duties, other shareholders could attack the company share buyback transaction and void the contract and finally the HMRC could deny beneficial tax treatment for the shareholder.after the approval, then the filings with HMRC for stamp duty and Companies House are to be done. The transactions are then funded and all the remaining shareholders need to receive an uplift.
Question 5
(a) Compare and contrast the advantages and disadvantages of the statutory derivative action (ss.265-269 Companies Act 2006) with the unfair prejudice petition (ss.994-999 Companies Act 2006), from the perspective of protecting the interests of members of a company.
The statutory derivative action entails a claim being made by shareholders relating to a cause of action vested in the specific company where the shareholder intends on attaining relief on behalf of the other shareholders in this company regardless of its size (DocPro Legal, 2021). In Burland v. Earle, the court noted that if an entity has the right of action against a director and can use their stance to stop the specific company from taking action, the court would then allow a shareholder to instigate a derivative action on a company that has been heir having been negligent or has breached its duty or trust.. Its advantage is that a company’s shareholder is now allowed to make a claim on behalf of their company if their intention is bringing a bona fide action for benefitting this company if there are no alternative remedies. Its disadvantage is that the claimants cannot have a larger right to relief than the actual company, if it were a plaintiff representing its own interests. The claimant can also not make a complaint relating to specific activities validity in case the majority shareholders approve to the minority’s detriment. Thus, for the cases with minority shareholders maintaining an action are limited to solely where the activities being complained about are considered to either be fraudulent or beyond the given company’s powers. Subsequently, any damages or property received incurred from the process having been instigated will then be taken by the particular company even when the shareholder that brought the action in the circumstances will most likely be obligated to pay the costs incurred.
The unfair prejudice petition is a statutory remedy where a minority shareholder that is a victim of ‘unfairly prejudicial’ conduct could obtain relief from the court (DocPro Legal, 2021). In this claim, every given shareholder of a company is contractually bound to every other shareholder so as to then be bound by the majority shareholders decisions otherwise their companies would fail to function effectively. This remedy has been found to be considerably less problematic if the companies under consideration themselves are smaller such that those affected just choose to walk away. Thus, it is evident that the proper claimant is the company itself so the general rule favors an exclusion of an individual shareholder pursuing such an action. The CA 2006 at section 994 now provides that a shareholder that requires redress prefers making a claim under the unfair prejudice rather than instigating a derivative action under the CA 2006 at Part 11.
(b) Bonnie Tartan Plc supplies wool clothing. However, a group of minority shareholders of Bonnie Tartan Plc are not happy with recent board decisions. The board of directors agreed to contract with Luxe Laine Sarl, a French limited company, to import French wool from France at a significantly higher price per kilogram in comparison to the market price for Scottish wool. This contract caused the company significant losses. One of Bonnie Tartan’s directors is a shadow director of Luxe Laine Sarl and negotiated the contract to import the French wool. To help the company during the pandemic, in 2021 the directors of Bonnie Tartan agreed to allot more shares of the company, which had the effect of diluting the minority shareholding further. The group of minority shareholders have been told by another firm of solicitors that the cost of legal proceedings would be much greater than the value of any legal claim they might have as members. Advise the minority shareholders of Bonnie Tartan Plc of any rights and remedies available to them.
Minority shareholders can depend on different kinds of contractual or legal remedies to address wrongdoing by the company’s controllers. In this case, the main statutory remedy that will aid these minority shareholders is the unfair prejudice petition. This remedy gives the court wide discretion of granting relief if any company shareholder could prove the entity’s affairs were unfair and prejudicial towards them. The minority shareholders at Bonnie Tartan Plc will need to prove that one of the company’s directors was a shadow director of Luxe Laine Sarl which had a great impact on the contract negotiations. The possible orders that the court will make include requiring the company to refrain from or continuing with the contract, and imposing regulations on the company’s future conduct.

Reference list
Clark, O., 2022. Buyback of Shares. [online] Ouryclark.com. Available at: [Accessed 5 May 2022].
Department for Business, Energy & Industrial Strategy, 2018. Limited Partnerships:
DocPro Legal, 2021. How to Protect Minority Shareholder Rights (with Examples)? | DocPro. [online] DocPro. Available at: [Accessed 5 May 2022].
Epoq Group Ltd, 2022. Passing off | MyLawyer. [online] Mylawyer.co.uk. Available at: [Accessed 5 May 2022].
Gannons Solicitors, 2022. Company share buyback – Gannons Solicitors. [online] Gannons Solicitors. Available at: [Accessed 5 May 2022].
ICAEW, 2022. Paying dividends the essentials. [online] Icaew.com. Available at: [Accessed 5 May 2022].
Law Explorer, 2016. COMPANY FORMATION AND LINKED ISSUES |. [online] Lawexplores.com. Available at: [Accessed 5 May 2022].
Reform Of Limited Partnership Law. Available at:
Saracens Solicitors, 2017. Should You Risk Signing A Pre-incorporation Contract? – Saracens Solicitors. [online] Saracens Solicitors. Available at: [Accessed 5 May 2022].
Toppr, 2022. Issue of Shares – Equity and Preference Shares. [online] Available at: [Accessed 5 May 2022].

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