ACCA AS Corporate and Business Law (LW) 2 — Questions and Answers
Question 1: Which of the following statements about a private company limited by shares is correct under the Companies Act 2006?
- It must hold an annual general meeting every year
- It is not required to have a company secretary (Correct answer)
- It must have a minimum issued share capital of £50,000
- It cannot pass written resolutions
Correct answer: It is not required to have a company secretary
Under the Companies Act 2006, a private company is not required to appoint a company secretary (s270), nor is it required to hold an AGM (s336 applies only to public companies). The £50,000 minimum share capital applies to public companies only.
Question 2: In partnership law, under the Partnership Act 1890, which statement is correct regarding the liability of partners?
- Partners have limited liability for partnership debts
- Partners are jointly and severally liable for tortious acts of the firm (Correct answer)
- Partners can never be liable for the acts of other partners
- A new partner automatically assumes liability for debts incurred before they joined
Correct answer: Partners are jointly and severally liable for tortious acts of the firm
Under the Partnership Act 1890, partners are jointly and severally liable for torts and wrongful acts committed by any partner acting in the ordinary course of business (s12). For contract debts, liability is joint. A new partner is not liable for pre-existing debts unless they agree to assume them.
Question 3: What is the effect of a exclusion clause that fails the 'reasonableness test' under the Unfair Contract Terms Act 1977?
- It remains valid but can be challenged in court
- It is void and unenforceable (Correct answer)
- It is enforceable only between businesses
- It becomes a warranty rather than a condition
Correct answer: It is void and unenforceable
Under UCTA 1977, certain exclusion clauses are subject to the reasonableness test (s11). If a clause fails the test, it is void and cannot be relied upon. The burden of proving reasonableness falls on the party seeking to rely on the clause.
Question 4: Under the Companies Act 2006, a special resolution requires what majority of votes?
- Simple majority (more than 50%)
- At least 75% of votes cast (Correct answer)
- At least 90% of votes cast
- Unanimous agreement of all shareholders
Correct answer: At least 75% of votes cast
Section 283 of the Companies Act 2006 defines a special resolution as one passed by a majority of not less than 75% of the votes cast. Special resolutions are required for significant matters such as changing the company's articles or changing the company name.
Question 5: Which of the following correctly describes the doctrine of 'lifting the corporate veil'?
- It allows directors to avoid personal liability in all circumstances
- It permits courts to disregard the separate legal personality of a company in exceptional circumstances (Correct answer)
- It is a statutory right available to all creditors
- It automatically applies when a company becomes insolvent
Correct answer: It permits courts to disregard the separate legal personality of a company in exceptional circumstances
Lifting the corporate veil is an exception to the Salomon v Salomon principle of separate legal personality. Courts may look behind the company to its members/controllers in exceptional cases, such as fraud, evasion of legal obligations, or where the company is a mere façade (Prest v Petrodel Resources).
Question 6: A director's duty to exercise reasonable care, skill and diligence under s174 Companies Act 2006 is measured against which standard?
- A purely subjective standard based on the individual director's knowledge
- A purely objective standard of a reasonably diligent person
- A dual objective/subjective standard — whichever is higher (Correct answer)
- The standard expected of a qualified accountant
Correct answer: A dual objective/subjective standard — whichever is higher
Section 174 applies a dual test: the general knowledge, skill and experience reasonably expected of a person in that role (objective), AND the actual knowledge, skill and experience of the specific director (subjective). The higher standard applies, so a director with specialist expertise is held to that higher standard.
ACCA AS Corporate and Business Law (LW) 2
Which of the following statements about a private company limited by shares is correct under the Companies Act 2006?