Smith and Keenan’s company law cS fi fteenth edition m o Combining clarity and accessibility with detailed coverage of this i t Smith and Keenan’s often complex subject, Smith and Keenan’s Company Law offers a h readable guide to all aspects of company law. The new edition fully m company law incorporates the Companies Act 2006, exploring recent case law a and discussion of areas where the Act has had the most impact. n Your complete learning package d The new edition includes a number of important changes designed p to aid your understanding and study of company law: Visit www.mylawchamber.co.uk/ keenancompany to access a wealth of K  Enhanced end of chapter further reading offers direction in resources to support your studies and teaching. ae Charles Wild where to go next to fi nd out about a key area e  Further detail and context has been added throughout the In addition access all of the self-study n coverage of legal principles ensuring you have the necessary resources: n and Stuart Weinstein level of depth required for a full year course  Practice exam questions with a  Chapters dealing with directors and their duties have been guidance n rewritten to give you a clear picture of the current position  Weblinks y’ under the 2006 Act  Legal newsfeed s  In-depth discussion of the new model articles, along with a  Answers to questions in the book comparison with Table A, ensures that this is one of the most  Legal updates l up-to-date texts on the market  Further reading a In addition, the broad range of end of chapter questions and clear case summaries have been retained from previous editions, as Cover photograph © Adam Gault/Getty Images w have the additional resources in mylawchamber, offering you a company law text with unrivalled study support in the book and online. Charles Wild (PhD, MBA, LLM) is Head of the Law School and the Centre for International Law at the University of fi W H ertfordshire. He teaches company and international commercial law to LLB and non-law students, undertakes f postgraduate research supervision and is widely published in the area. t e i l e d Stuart Weinstein (JD, MBA) is Associate Head (Professional) of the Law School at the University of Hertfordshire. n He teaches LLB, LLM and LPC students as well as regularly lecturing non-lawyers in the UK and on overseas t a h n programmes throughout the world. e d d i W t i o e n i n s t e i n www.pearson-books.com CVR_WILD1491_15_SE_CVR3.indd 1 20/05/2011 16:53 Smith and Keenan’s COMPANY LAW We work with leading authors to develop the strongest educational materials in Law, bringing cutting-edge thinking and best learning practice to a global market. 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To find out more about the complete range of our publishing, please visit us on the World Wide Web at: www.pearsoned.co.uk Smith and Keenan’s Fifteenth Edition COMPANY LAW Charles Wild PhD, MBA, LLM, PCHE, LPC, CPE, BSc (Econ) MCMI Head of the School of Law at the University of Hertfordshire Head of the Centre for International Law, University of Hertfordshire Stuart Weinstein JD, MBA, BA Associate Head (Professional), School of Law, University of Hertfordshire Solicitor, Supreme Court of England and Wales Attorney-at-Law, New York, California, District of Columbia Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoned.co.uk First published under the Pitman imprint in 1966 Second edition published 1970 Third edition published 1976 Fourth edition published 1981 Fifth edition published 1983 Sixth edition published 1986 Seventh edition published 1987 Eighth edition published 1990 Ninth edition published 1993 Tenth edition published 1996 Eleventh edition published 1999 Twelfth edition published 2002 Thirteenth edition published 2005 Fourteenth edition published 2009 Fifteenth edition published 2011 © Kenneth Smith and Denis Keenan 1966 © Denis Keenan and Mrs K Smith 1970, 1986 © Denis Keenan 1987, 2005 © Mary Keenan, Charles Wild and Stuart Weinstein 2009 © Pearson Education 2011 The rights of Charles Wild and Stuart Weinstein to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Crown Copyright material is reproduced with the permission of the Controller of HMSO and the Queen’s Printer for Scotland. Law Commission Reports are reproduced under the terms of the Click-Use Licence. Pearson Education is not responsible for the content of third party internet sites. ISBN: 978-1-4082-6149-1 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Wild, Charles, PhD. Smith and Keenan’s company law / Charles Wild and Stuart Weinstein. – 15th ed. p. cm. ISBN 978-1-4082-6149-1 (pbk.) 1. Corporation law–England. 2. Corporation law–Wales. I. Weinstein, Stuart. II. Title. III. Title: Company law. KD2079.S55 2011 346.42′066–dc22 2011007632 10 9 8 7 6 5 4 3 2 1 14 13 12 11 Typeset in 10/12.5pt Minion by 35 Printed and bound in Great Britain by Ashford Colour Press Ltd, Gosport, Hampshire Brief contents Guided tour xvi Preface to the fifteenth edition xviii Law report abbreviations xx Table of cases xxi Table of statutes xxxvi 1 The nature of a company 1 2 Promotion and incorporation 55 3 The constitution of the company – the memorandum of association 78 4 The constitution of the company – the articles of association 93 5 The constitution of the company – altering the articles 114 6 The company and its contracts 128 7 The capital of a company 143 8 Capital maintenance – generally 161 9 Capital maintenance – company distributions 194 10 Company flotations 211 11 Shares – generally 225 12 Shares – transfer and transmission 242 13 Shares – payment for and insider dealing 258 14 Membership – capacity, registration, director and substantial holdings, annual return 275 15 The statutory derivative action 288 16 The protection of minorities 311 17 Directors and management – generally 333 18 Financial arrangements with, and fair dealing by, directors 359 19 The duties of directors 378 20 Vacation of office, disqualification and personal liability 411 21 Meetings and resolutions 438 22 Debentures and charges 476 23 Accounts and audit 503 24 Amalgamations, reconstructions and takeovers 530 25 Corporate insolvency – company rescue 553 26 Corporate insolvency – procedures other than rescue 577 27 Corporate insolvency – winding-up in context 592 Answers to test your knowledge questions 616 Appendix 1 – Companies (Model Articles) Regulations 2008, SI 2008/3229 618 Appendix 2 – Companies (Tables A to F) Regulations 1985 (SI 1985/805) as amended by SI 2007/2541 and SI 2007/2826 664 Index 682 v Contents Guided tour xvi Preface to the fifteenth edition xviii Law report abbreviations xx Table of cases xxi Table of statutes xxxvi 1 The nature of a company 1 General features 2 Background to limited liability 3 Classification of corporations – the company as a corporation 5 Classification of registered companies 13 Lifting the corporate veil 30 Companies and partnerships compared 42 The ordinary and limited partnership 42 Limited liability partnerships – the Act 44 Limited liability partnerships – the regulations 45 LLP or private limited company? – a checklist 48 Reform – an ordinary partnership with legal personality 49 Advantages and disadvantages of incorporation 50 Companies and human rights 51 Essay questions 52 Test your knowledge 53 Suggested further reading 54 2 Promotion and incorporation 55 The promoter 56 Incorporation 65 Electronic incorporation 69 Effect of incorporation 69 Ready-made companies 70 Publicity in connection with incorporation 71 Post-incorporation procedures for re-registration 71 Essay questions 75 Test your knowledge 76 3 The constitution of the company – the memorandum of association 78 Company names 79 The objects clause 83 vii Contents Capital 87 The registered office 88 Essay questions 90 Test your knowledge 91 Suggested further reading 92 4 The constitution of the company – the articles of association 93 The traditional division of powers under the articles 96 The legal effect of the articles 98 The articles and insider/outsider rights 103 The effect of the Contracts (Rights of Third Parties) Act 1999 107 Shareholders’ agreements 108 Essay questions 111 Test your knowledge 112 Suggested further reading 112 5 The constitution of the company – altering the articles 114 Breaches of contract arising out of alteration of the articles 123 Alteration of the articles by the court 125 Essay questions 126 Suggested further reading 127 6 The company and its contracts 128 Public companies and the s 761 certificate 129 Directors and others as agents 130 Essay questions 140 Test your knowledge 142 7 The capital of a company 143 Ordinary shares 147 Preference shares 147 Variation and abrogation of class rights 151 Alteration of share capital 155 Redeemable shares 156 Essay questions 158 Test your knowledge 159 8 Capital maintenance – generally 161 Reduction of capital 162 Acquisition of own shares – generally 171 Purchase of own shares 173 Financial assistance for the purchase of shares 181 Essay questions 191 Test your knowledge 192 Suggested further reading 193 viii Contents 9 Capital maintenance – company distributions 194 Profits available for distribution – generally 195 What is a distribution? 195 Profits available – public and private companies 196 Realised profits and accounting standards 197 Related statutory rules 198 Special cases 200 Relevant accounts 200 Audit considerations 200 Declaration and payment of dividends 201 Consequences of unlawful distribution 204 Capitalising profits 206 Reserves 207 Essay questions 207 Aid to learning on distributions 208 10 Company flotations 211 The official system for listing securities on an investment exchange 212 Offers of unlisted securities 217 The remedy of rescission 218 Procedures for issuing shares 218 Underwriting 219 Brokerage 220 Reform 220 Essay questions 222 Test your knowledge 223 11 Shares – generally 225 Subscribers’ contract 226 Allotment 227 Return of an allotment 229 Share certificates 230 Share warrants (or bearer shares) 232 Calls 233 Mortgages of shares 234 Lien 236 Forfeiture of shares 237 Surrender of shares 239 Essay questions 240 Test your knowledge 240 12 Shares – transfer and transmission 242 Transfer of unlisted shares 243 Transfer of listed shares 245 Companies whose articles restrict transfer 248 Transmission of shares 254 Trustees 255 ix