ACCA Paper F4 (GLO) : Notes

Notes
ACCA Paper F4 (GLO)

Corporate and Business Law
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ACCA F4 (GLO) Corporate and Business Law
Contents
Page | 2
About ExPress Notes
1.
Different Legal Systems
2.
International Organisations
11
3.
International Commercial Arbitration
16
4.
Contracts for International Sale of Goods
18
5.
Agency
24
6.
Partnerships
27
7.
Company Formation and Financing
30
8.
Company Administration
39
9.
Company Liquidation
47
10.
Fraudulent Behaviour
52
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Chapter 1
Different Legal Systems
START
The Big Picture
Exam questions in this area tend to be of the pure knowledge type often requiring a
compare and contrast type approach. Although you are doing the global variant of the
paper, it is perhaps worth bearing in mind that your examiner is also the examiner for the
UK variant and is of course himself UK based. In the past, therefore, more marks have
tended to be allocated to the UK details.
The three main systems which you need to be aware of are:
1. Common Law eg. UK
2. Civil Law eg. France
3. Sharia Law eg. Iran
Over the years, a popular question area has been to consider the role of judges under the
different legal systems, sometimes working into the question the concept of judicial
precedence.
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Questions have also appeared occasionally requiring you to contrast legal proceedings under
criminal law as opposed to civil law, where UK is taken as the example.
KEY KNOWLEDGE
CRIMINAL LAW V CIVIL LAW
Under UK law the key differences are summarised in the table below.
CRIMINAL
CIVIL
Action brought by
Crown Prosecution Service
Claimant
Action brought against
Accused
Defendant
Burden of proof required
Beyond reasonable doubt
Balance of probabilities
Determination of
guilt/liability
Minor offences = Magistrates
Judge (in rare instances

Jury)
Sentence/award determined
by
Minor offences = Magistrates
Case described as
Regina v Jones
Serious offences = Jury
Judge
Serious offences = Judge

Smith v Jones
KEY KNOWLEDGE
JUDICIAL PRECEDENCE
This is primarily associated with common law systems and explains why in such systems
judges are said to create law, as well as applying and interpreting the laws created by the
legislative body.
Judicial precedent brings a highly desirable consistency to the hearing of cases, in that
provided the circumstances of a later case are essentially the same as an earlier one, the
decision will be the same.
Before applying an earlier case as a precedent, it will be necessary to have a positive
response to the following questions:
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Was it based on a proposition of law?

Was it part of the ratio decidendi?
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Were the material facts of the case the same?

Was the decision made in a court of equal or (more commonly) superior status?
KEY KNOWLEDGE
COMMON LAW
Primarily associated with UK, but because of Englands historical influence also to be found
in many other countries, most notably perhaps in USA.
Significant sources of law currently in UK are:
Common law and equity which stem from the records of case law over many
hundreds of years
Statutory law which results from the passing of Acts of Parliament
EU law applicable to UK as a member state
In countries such as USA there are procedures for judicial review to ensure that no laws are
passed which would be in breach of that countrys written constitution (not applicable in UK
as no written constitution).
In UK there are various presumptions in relation to statutory law and guides and rules as to
its interpretation that you should be familiar with.
KEY KNOWLEDGE
CIVIL LAW
Main contrast with UK system is that civil law systems tend to use codification by means of
legislation in order to try to bring understanding and certainty to the law. Countries adopting
a civil law approach most normally have a written constitution.
Significant sources of law currently in France are:
Constitution
Statutory law
Administrative Regulations
EU law
In civil law systems, the role of judges is to apply the law and so there is much less
guidance on interpretation of statutes and there is no formalised system of judicial
precedent.
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KEY KNOWLEDGE
SHARIA LAW
Major contrast with common and civil law systems, which are essentially secular, is the fact
that Sharia law is specifically related to and founded upon the Islamic religion.
The main sources of law are:
1. The Quran which is a record of the divine revelations of Allah to his Prophet
Muhammad
2. The Sunnah which is derived from the sayings of the Prophet
Under the traditions of Sharia law, judges are usually clerics (Imam).
Secondary sources of law, known as Madhab, are based on the works of major jurists in the
years immediately after the death of the Prophet.
Like many Muslim countries, Iran has a written constitution which upholds the traditions of
Sharia law.
The role of judges is apply the law and where interpretation is required this must be in
accordance with strict and fairly complex Islamic traditions.
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Chapter 2
International Organisations
START
The Big Picture
Questions in this area tend to be purely of the knowledge type. You are usually asked to
explain the role and activities of two or three organisations which are usually just indicated
by an acronym eg. UN stands for United Nations.
It is important to appreciate that you can start the mark earning process simply by stating
what the letters stand for. Past examiner marking schemes suggest that marks will also be
awarded for briefly displaying some knowledge of the history and membership of the given
organisation.
KEY KNOWLEDGE
The European Union (EU)
The EU as we now know it was established by the Treaty of Maastricht in 1993, continuing
on from the previous European Economic Community first established by the Treaty of
Rome in 1957.
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Currently the EU is an economic and political union with a membership of 27 sovereign

states.
EU has aimed to develop a single market by means of a standardised system of laws which
apply to all member states and which are designed to provide freedom of movement of
goods, services, people and capital.
Important institutions of the EU include:
European Commission
European Court of Justice
European Parliament
KEY KNOWLEDGE
World Trade Organisation (WTO)
Replacing the General Agreement on Tariffs and Trade set up in 1947, WTO was established
by the Marrakesh Agreement in 1995.
With its headquarters in Geneva, WTO currently has 153 members representing in excess of
95% of world trade.
The WTO is designed to supervise and liberalise international trade between participating
countries by providing a framework for both the negotiation and formalisation of
international trade agreements, as well as a dispute resolution process designed to enforce
adherence to WTO agreements.
Co-operating closely with the IMF and the World Bank, the WTO also does much important
work in providing technical assistance to developing countries.
KEY KNOWLEDGE
International Chamber of Commerce (ICC)
Based in Paris, the ICC was established in 1919 to serve world business by promoting trade
and investment, open markets for goods and services, and the free flow of capital.
With representation in 130 countries worldwide, the ICC has interests covering the vast
majority of private sector enterprises and frequently provides expert views to organisations
such as the UN and WTO as well as individual national governments.
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Amongst its most significant work has been the establishment of the ICC International Court
of Arbitration in 1923 and the development of incoterms.
Incoterms (international contract terms) are standard terms widely used in contracts for
international sale of goods and have often been the source of knowledge based questions in
their own right.
KEY KNOWLEDGE
The United Nations (UN)
Begun in 1945 after the Second World War, currently almost every independent country in
the world is a member of the UN. Under its charter the main objectives of the UN are
facilitating co-operation in:
International law
International security
Economic and social development
Promotion of human rights and the maintenance of world peace
In relation to legal matters, important bodies of the UN should be seen as:

1. International Court of Justice
2. International Law Commission
3. UN Commission on International Trade Law (UNCITRAL)
KEY KNOWLEDGE
UN Commission on International Trade Law (UNCITRAL)
Formed in 1966 in order to to promote the progressive harmonisation and unification of
international trade law.
Representatives of 60 member states are elected to the Commission for a period of 6 years.
Elections are made by the UN General Assembly with the intention that the Commission
should be representative of the worlds different regions and economic and legal systems.
Important outcomes of the Commissions work so far as our studies are concerned have
been the production of various Conventions and Model Laws.
Conventions include:
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Convention on Contracts for the International Sale of Goods

Convention on the Carriage of Goods by Sea
Convention on International Bills of Exchange and International Promissory Notes
Model Laws include:
Model Law on International Commercial Arbitration

Model Law on International Credit Transfers
Model Law on Cross-border Insolvency
KEY KNOWLEDGE
The Council of Europe (CoE)
Perhaps one of the most important things to note from an exam point of view, is that the
CoE should NOT be confused with the EU.
Based in Strasbourg CoE was founded in 1949 and now covers most of the European
continent, with 47 member states.
The stated objectives of the CoE are ... to create a common democratic and legal area
throughout the whole of the continent, ensuring respect for its fundamental values, human
rights, democracy and the rule of law.
The CoE issues Conventions which are legally binding once adopted by member states and
also publishes recommendations which act as guidelines for use by member states in the
development of their own national laws.
KEY KNOWLEDGE
International Institute for the Unification of Private Law
(UNIDROIT)
Based in Rome, UNIDROIT was established in 1926 and currently has 63 member states
drawn from all parts of the world and representing a variety of political, economic and legal
systems.
UNIDROIT is an independent intergovernmental organisation whose stated purpose is to
study needs and methods for modernising, harmonising and co-ordinating private and in
particular commercial law as between States and groups of States.
Traditionally, UNIDROIT has tended to concentrate on production of conventions, but more
recently has shown a preference for production of:
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General principles
Legal guidance
Model Laws
KEY KNOWLEDGE
Others
In your studies some consideration should also be given to the following:
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ICJ International Court of Justice

OECD Organisation for Economic Co-operation and Development
ICA International Court of Arbitration
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Chapter 3
International Commercial Arbitration
START
The Big Picture
Whilst not necessarily prompting a question in every examination sitting, as one of the areas
where there is an UNCITRAL Model Law, it is a topic which has and can be expected to be
examined on a regular basis.
Questions have most commonly been of the pure knowledge type, but application questions
are not unheard of.
What is arbitration?
Put simply, it is an alternative form of resolving disputes where an independent party
provides a ruling which will be legally binding upon those parties who have agreed to submit
to the arbitration process.
Why go to arbitration rather than the courts?
Amongst the advantages frequently claimed for the arbitration approach to dispute
resolution are:
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May be cheaper
May be faster
Less adversarial
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Less formalised
Greater variety of outcomes possible
KEY KNOWLEDGE
UNICITRAL Model Law on International Commercial
Arbitration
As you have probably realised only too well by now, F4 is a paper which requires you to do
a great deal of hard slog learning. After all the law is the law and you either know what it
says or you dont. Spending time with your more detailed study materials is therefore
essential if you are to be successful in this subject.
Key points to note in your studies are:
Page | 17
Parties may basically agree whatever they wish in relation to an arbitration

agreement, but in the absence of agreement the Model Law will apply
Whether arbitration is international is related to where parties places of business are

located or where obligations of contract are carried out
Arbitration is commercial in effect if it relates to any normal legal trading activity
Generally speaking Model Law says that courts should not be involved in arbitration
proceedings
Arbitration agreement is required to be in writing (3 possibilities)
Under Model Law will be 3 arbitrators (1 appointed by each party with these 2 then
appointing 3rd)
Model law lays down grounds and procedure for challenging an arbitrator basically
on grounds of lack of independence and/or qualification
Model Law provides various general rules in relation to the conduct of arbitral
proceedings specifically in relation to location, timing, language and use of experts
and court assistance
Finally the Model Law gives direction on award enforcement and grounds for seeking
recourse against such award eg. incorrect composition of tribunal
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Chapter 4
Contracts for International Sale of

Goods
START
The Big Picture
The UN Convention on Contracts for International Sale of Goods (CISG) and related topics
such as transportation (including incoterms) and payment in relation to such contracts are
an absolutely vital part of your studies.
In the Pilot Paper and all real exams to date there have always been at least 2 knowledge
type questions and 1 application question drawn from these sections of the syllabus and you
should anticipate this trend continuing.
You must learn and be prepared to give definitions of key terms. In relation to CISG you
must also learn and be prepared to apply your knowledge of the rights and obligations of
both buyers and sellers.
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You should note carefully that the Convention on CISG only applies to the sale of goods
(subject to certain exemptions) and does not apply to:
1. Supply of services
2. Contracts where buyer provides majority of materials so that in essence the main
obligation of the seller is the provision of labour
A CISG is formed when there is proper acceptance of a valid offer. An offer should not be
confused with an invitation to treat, which is any other proposal which does not meet the
requirements of a valid offer as indicated below.
KEY KNOWLEDGE
Offer
An offer is a proposal for concluding a contract addressed to one or more specific persons
that is sufficiently definite and that indicates the intention of the offeror to be bound by
acceptance.
In this context, sufficiently definite means that it covers the following:
Goods
Quantity
Price
Offer, which does not need to be in writing becomes effective when it reaches the offeree
and may be ended in the following ways:
Withdrawal
Revocation
Rejection
KEY KNOWLEDGE
Acceptance
Acceptance may be indicated by word or action and becomes effective once the offeror
becomes aware of it. Acceptance may be withdrawn but only if it reaches the offeror before
or at the same time as the acceptance would otherwise have been effective.
If offeree makes any amendments to offer then this is a counter-offer.
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Minor amendments can be effectively acceptance subject to the offerors right to reject
within a reasonable time.
Major amendments constitute a counter-offer which is effectively rejection of the original
offer.
KEY KNOWLEDGE
Incoterms
As referred to in an earlier section, incoterms are standard contract terms developed by the
ICC. The examiner has frequently set questions where you have simply been asked to briefly
explain the significance of 2 or 3 incoterms.
The examiner has simply given an acronym, so you start the mark earning process by simply
indicating correctly what the letters stand for. It is vital therefore that you learn the
following and are able to briefly describe the meaning of each of them.
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EXW = ex works
FCA = free carrier (named place)
FAS = free alongside ship
FOB = free on board
CFR = cost and freight
CIF = cost, insurance and freight
CPT = carriage paid to
CIP = carriage and insurance paid to
DAF = delivered at frontier
DES = delivered ex ship (named port of destination)
DEQ = delivered ex quay (duty paid)
DDU = delivery duty unpaid
DDP = delivered duty paid
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KEY KNOWLEDGE
CISG Main Rights and Obligations of Buyers and Sellers
BUYERS RIGHTS
If the seller is in breach of contract, then under the convention the buyer may, depending
on the circumstances, have right(s) to:
require performance
have the contract avoided
obtain a price reduction due to non-conformity of the goods
obtain damages (need to mitigate loss)
BUYERS OBLIGATIONS
The main obligations of the buyer are to:
where possible, to check the goods for conformity as soon as possible after delivery
accept delivery of the goods
make payment for the goods
where necessary, preserve the goods
SELLERS RIGHTS
If the buyer is in breach of contract, then under the convention the seller may, depending
on the circumstances, have right(s) to:
require payment and acceptance of goods

have the contract avoided
obtain damages (need to mitigate loss)
SELLERS OBLIGATIONS
The main obligations of the seller are to:
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effect delivery of the goods either to the specified place (under contract) or in
accordance with the Convention (dependent on whether or not contract includes
carriage or goods specifically identifiable to contract)
ensure quality and conformity (quantity, quality and description) of goods
ensure goods free of any undisclosed third party claims/rights
where necessary, preserve the goods
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KEY KNOWLEDGE
The Passing of Risk
This is often a significant point within an application type question and also links in with
incoterms. It impacts on which party would be responsible for insurance of the goods as
ownership will have passed from seller to buyer
The key points to note are:
1. If the contract involves carriage then, unless specified otherwise, risk passes when
the goods are handed to the first carrier
2. If the contract does not involve carriage, unless specified otherwise, risk passes
when the goods are taken over by the buyer
KEY KNOWLEDGE
Transportation Documentation
An important aspect of CISG is carriage as we have seen mentioned above. A bill of lading is
the documentary evidence that the goods have passed to the carrier.
Usually the bill of lading (may be negotiable/non-negotiable) acts as a document of title to
the goods and evidences the following:
goods received by carrier

contract of carriage and its terms
There are 4 types of bill of lading:

1.
2.
3.
4.
inland
ocean
through (mix of overland and marine)
airway (always non-negotiable)
KEY KNOWLEDGE
Payment
Payment for CISG may be effected in a number of ways, principally:
1. International bills of exchange
2. International bank transfer
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3. Letters of credit (not to be confused with a Letter of Comfort)

International Bills of Exchange
These are the subject of an UNCITRAL Convention under which an international bill of
exchange is defined as a written instrument which:
Contains an unconditional order whereby the drawer (the buyer) directs the drawee
(usually the buyers bank) to pay a definite sum of money to the payee (the seller)
or to his order (viz the bill may be endorsed to a third party)
Is payable on demand or at a definite time
Is dated
Is signed by the drawer
International Bank Transfer

These are the subject of an UNCITRAL Model Law which provides the terms (rights and
liabilities) under which the buyer transfers funds to the seller by means of the international
banking system.
Letters of Credit
Letters of credit, which may take a variety of forms, essentially provide the seller with a
guarantee of payment. Those involved in a letter of credit are usually a beneficiary (the
seller), the issuing bank (the buyers bank) and the advising bank (the sellers bank).
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Chapter 5
Agency
START
The Big Picture
Agency law could be a question in its own right, but it is also important to appreciate that
the underlying principles of this law could also appear in the context of a partnership or
company question.
Questions may be either pure knowledge, with easy marks available if you have learned
definitions of key terms, or of a more practical nature where you have to apply your
knowledge of the law to a given scenario.
KEY KNOWLEDGE
Formation of an Agency
An agency relationship may be created in a number of ways by:
1. Agreement (consent)
2. Ratification (subject to various conditions)
3. Operation of law eg. agent of necessity
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4. Implication (estoppel)
KEY KNOWLEDGE
Authority of Agents
The authority of agents to enter into legally binding contracts with third parties on behalf of
their principal can be recognised in the following ways:
1. ACTUAL AUTHORITY
May arise in one of two ways:
(i)
(ii)
Express eg. under terms of appointment

Implied eg. by nature of activities Watteau v Fenwick NB implied authority
may be restricted but only effective if communicated to TP
2. APPARENT (OSTENSIBLE) AUTHORITY

This most commonly arises as a result of agent having been held out as such by the
principal.
KEY KNOWLEDGE
Duties of Agents
Common law duties of agents are normally seen as being:
Page | 25
Obedience
Non-delegation
Acting within authority
Avoid conflicts of interest
No secret profit
Act with due skill and care
Disclose all material facts
Confidentiality
Account for principals property
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KEY KNOWLEDGE
Termination of Agency
May be by agreement or because of (in relation to principal or agent):
Death
Insanity
Bankruptcy
KEY KNOWLEDGE
UN Model Law on Agency
Given the tri-partite situation which is agency (principal, agent and third party) there is great
potential for conflict of laws in the event of dispute arising.
Under the model law mutual agreement may always dictate which national law should apply
in the event of dispute, but in the absence of such agreement the Model Law will be applied.
The one exception to the above would be if any country connected with the agency
relationship has relevant mandatory rules then these should be applied.
Model law - agent v principal
Basic rule = law of country where agent had place of business at start of relationship.
Exception = law of country where principal has place of business if agent acting in that
country.
NB if no place of business (POB), then POB treated as habitual residence. If more than one
POB, use one most closely connected.
Model law agent v third party
Basic rule = law of country where agent had POB at time of acts. This also applies where
agent does not deal face to face with third party.
Exceptions = law of country where agent has acted if:
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Acting at exchange or auction

Agent has no POB of own
Acting in name of principal in country where principal has POB
Acting in any country where principal has POB
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ExPress Notes
Chapter 6
Partnerships
START
The Big Picture
Partnerships are the traditional business form of accounting firms and other professionals
such as lawyers and doctors. Exam questions can either be knowledge based or practical.
From an exam point of view, pure knowledge type questions have tended to ask for
distinctions between the different types of partnership. A common failing of many
candidates in the past has been to confuse limited partnerships with limited liability
partnerships (LLP) so make sure that you are totally happy with the difference between
these two partnership forms in particular. Knowledge of non-UK partnerships is likely to
require little more than an ability to recognise the terms and relate to their UK nearest
equivalent.
Practical questions have tended to concentrate on partners duties (relate to agency law)
and their potential liability for the firms debts.
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KEY KNOWLEDGE
General Partnership (aka Traditional Partnership)
Key points to note are as follows:
All partners are agents for firm

Firm is a separate accounting entity but NOT a separate legal entity
All partners may participate in firms management
All partners generally have unlimited joint and several liability for firms debts
New partners not normally liable for firms debts incurred prior to admission
Retired partners not normally liable for firms debts incurred after retirement
No requirement for registration, audit or filing of accounting returns
Main UK legislation Partnership Act 1890
Examples of nearest non-UK equivalents:

1. France = Socit en nom collectif
2. Muslim = Musharakah
KEY KNOWLEDGE
Limited Partnership
Key points to notes are as follows:
Must be at least one general partner with unlimited liability for debts of firm
Limited partner liability restricted to agreed capital contribution which may not be
withdrawn
Limited partner may not participate in management of firm
Limited partner may not act as agent for firm
Firm must be registered with Companies House
Main UK legislation Limited Partnership Act 1907
Examples of nearest non-UK equivalents:

1. France = Socit en commandite simple
2. Muslim = Mudaraba
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KEY KNOWLEDGE
Limited Liability Partnership (LLP)
Key points to note are as follows:
Is a separate legal entity

Has audit and filing requirements
Liability of members (partners) for firm debts normally limited to agreed capital
contribution
Each member (partner) treated as agent for the firm
Main UK legislation Limited Liability Partnership Act 2000
Many other countries have similar legislation to that in UK.
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Chapter 7
Company Formation and Financing
START
The Big Picture
Although you are taking the Global variant of F4, when it comes to Company Law the
syllabus is primarily based on the UK Companies Act 2006, together with other UK
legislation.
In this section, we shall look at a number of important topics, many of which eg what
documents have to be filed on incorporation of a company traditionally have been the
subject of knowledge based questions although there are some eg priority of secured
charges which could equally well require the practical application of knowledge.
From an exam point of view, your main concern is with limited liability companies, where the
liability of the members for the debts of the company is normally limited by shares. In
particular, it is limited to any amount unpaid on the value of the shares issued to them. You
should also be aware that it is possible to have unlimited companies and companies where
the liability of the members is limited by guarantee.
When dealing with this section of the syllabus, it is also important to note the distinction
between private companies (where name ends with Limited or Ltd) and public companies
(where name ends with Public Limited Company or PLC), as the rules for public companies
are usually more stringent eg greater restriction on distributable profits.
Note also that a listed company (viz a company whose shares are quoted on a recognised
stock exchange) must be a public company, but that a public company is not necessarily a
listed company.
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ExPress Notes
You will also need to think back to your studies of agency law, as a director of a company
would normally be seen as an agent for that company and also the promoter of a company
will effectively be treated as an agent as well.
A very important concept to grasp is that a company as an incorporated body is a separate
legal entity as first established by the case of Salomon v Salomon & Co Ltd. Exam questions
frequently ask in this context about occasions where the veil of incorporation may be lifted.
Most other countries have incorporated bodies similar to those in UK.
KEY KNOWLEDGE
Key Distinctions Between Private and Public Companies
The table below shows some of the most noteworthy distinctions between private and public
companies.
DETAIL
Trading certificate required
Minimum capital
Public issue allowed
Minimum members
Minimum directors
Company Secretary
AGM required
Audit required
Distribution rules
Full Accounts required
Accounts filing
PRIVATE
No
No
No
1
1
Optional
Optional
Possible exemption
Basic
Modified possible
9 months
PUBLIC
Yes
Yes
Yes
1
2
Compulsory
Compulsory
Compulsory
Additional restriction
Yes
6 months
KEY KNOWLEDGE
Lifting the Veil of Incorporation
As indicated above, a company is regarded as a separate legal entity, so that under normal
circumstances the members and officers of the company are protected behind what is
known as the veil of incorporation. However, you need to be aware that this veil may on
occasions be lifted, as shown by the following table.
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LAW ENFORCEMENT
Unacceptable company name
Lack of trading certificate
Disqualified director(s)
GROUP SCENARIOS
Group regarded as single
entity
Group structure being used
for fraudulent purposes
Subsidiary regarded as agent
of parent company
Wrongful trading
Fraudulent trading
OTHER
Public interest
Company treated as quasipartnership
Tax evasion
Legal obligations evasion
Liabilities evasion
KEY KNOWLEDGE
Company Promoters
Any person involved in the formation of a company, other than when acting in their normal
professional capacity (eg lawyer), is deemed to be a promoter.
Promoters have a general duty to exercise reasonable skill and care.
Unless the promoter will wholly own newly formed company he has agents responsibilities
to others subscribing for shares and in particular must:
avoid conflicts of interest

fully account for all benefits received
not make secret profits
You should note carefully that pre-incorporation contracts entered into on behalf of the
company cannot be ratified, because at the time of their creation the company did not
exist, nor have contractual capacity.
KEY KNOWLEDGE
Company Formation
Company formation is achieved when the Registrar of Companies issues a Certificate of
Incorporation having been satisfied that the necessary registration documents have been
filed (may be done on-line), together with the appropriate fee (currently 20).
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Required documents are:
registration application giving details of proposed name, location and address of

registered office, company type and members liability
Memorandum of Association which basically gives details of those who have agreed
to be first members of the company
Articles of Association whose content will be covered separately later (only required if
company chooses not to adopt Model Articles provided by statute
Statement of proposed company officers (director(s)/company secretary)
Statement of capital and initial shareholdings (not required for companies limited by
guarantee)
Statement of compliance with Companies Act provisions
A private company may begin its business activities as soon as it has received its Certificate
of Incorporation.
Before a public company may legally begin its business activities, it must in addition to its
Certificate of Incorporation, obtain from the Registrar of Companies a Trading Certificate. In
applying for such certificate, the following must be submitted:
Statement that nominal value of allotted share capital is not less than 50,000
Details of formation expenses, including those made to promoters
Statement of compliance
KEY KNOWLEDGE
Company Constitution
Traditionally, a companys constitution was comprised of 2 documents:
1. Memorandum of Association
2. Articles of Association
This was changed significantly by the Companies Act 2006, such that the constitution is
now comprised of:
1. Articles of Association
2. Subsequent resolutions and agreements forming amendments to the original Articles
The Memorandum of Association is now essentially an historical document produced at the
time of registration of the company giving details of its original founders.
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The Articles of Association now contains a number of important clauses which were
previously contained in the Memorandum and are essentially a set of internal rules (eg
directors powers) relating to the running of the company.
Alteration of the Articles is possible by the passing of a special resolution (75% majority).
Whilst there are provisions to protect minorities the general rule applied by the courts has
always been that if it is in the best interests of the company as a whole, then the will of the
majority should prevail.
Articles as a Contract
It has been held that the Articles form a contract which will be legally binding on the parties
involved, when one of those parties is a member and the issue relates to membership, as
follows:
1. Members to company - Case: Hickman v Kent or Romney Marsh Sheepbreeders
Association
2. Company to members Case: Pender v Lushington
3. Members to members Case: Rayfield v Hands
The Articles do not form a contract between company and third parties. Case: Eley v
Positive Government Life Assurance Co.
Objects Clause
This clause traditionally set out the activities which the company was permitted to be
involved in, but under the Companies Act 2006 a company will have unrestricted objects
unless it decides otherwise.
If a company acts outside of its objects, such action is said to be ultra vires (outside the
powers of). Normally, ultra vires acts by a company or one of its directors will not be
voidable so far as third parties are concerned, but the members could take action against
the directors for breach of authority.
Name Clause
All companies are required by law to have a unique name which must normally end (some
exceptions basically for charities) with the word(s) Limited or Public Limited Company or the
accepted abbreviations Ltd or PLC.
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ExPress Notes
Name chosen must also comply with certain rules and may be rejected on application for
registration or subsequently be ordered to change if:
Offensive
Suggest unauthorised/inappropriate connection
Sensitive
Criminal offence
Court upholds passing off action
KEY KNOWLEDGE
Share Capital
A share has been defined as the interest of a shareholder in the company measured by a
sum of money, for the purpose of a liability in the first place, and of interest in the second,
but also consisting of a series of mutual covenants entered into by all the shareholders.
You should note carefully the following types of capital, which you should be familiar with
from earlier financial accounting studies:
Issued and allotted share capital

Called up share capital
Paid up share capital
You should likewise be familiar with and note carefully the distinction between ordinary
(equity) and preference shares as summarised in the following table:
Voting rights
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ORDINARY
Normally unrestricted
Entitlement to dividend
Not payable until after

preference dividend but then
not normally subject to any
restriction
Repayment of capital on
liquidation
last in the queue after all

third parties and preference
shareholders
PREFERENCE
Normally restricted to
matters affecting own class
rights
Paid before ordinary
dividends and if cumulative
(normal) any arrears will
have to be paid before any
distribution to ordinary
shareholders
Rank after third parties, but
before ordinary shareholders
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ExPress Notes
In your studies you should also give some consideration to the following issues relating to
share capital:
Issuing and allotment of shares

Redeemable shares
Variation of class rights
KEY KNOWLEDGE
Loan Capital
A key point to note is that the holders of loan capital are creditors of the company and not
members.
In looking to raise long-term loan capital a company will often issue what is called a
debenture.
A debenture is a written acknowledgement of a debt which normally contains details of the
conditions of the loan eg interest rates and repayment terms.
There are 3 main types of debenture:
1. Single debenture
2. Debenture issued as a series
3. Debenture stock
Debentures are most commonly seen as being secured, in that they create a legal charge
over one or more of the companys assets.
Charges
The effect of creating a legal charge over a companys asset(s) is to give the holder of the
charge a prior claim over unsecured creditors to the proceeds of sale of said asset(s).
There are 2 main types of charge and you need to note carefully the distinctions between
them and their ranking in terms of priority for payment in the event of the security being
enforced:
1. Fixed charge
2. Floating charge
With a fixed charge, the security relates to a specific asset (eg mortgage on a freehold
factory) and until the loan is repaid, the company in effect loses the beneficial ownership of
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the asset and cannot dispose of the asset without the lenders permission and repayment or
transfer to the new owner of the liability.
With a floating charge, the security relates to a group of assets (eg inventory) and so long
as the terms of the loan are complied with, the company may freely trade in the assets. If
the conditions of the loan are breached, the charge is said to crystalise and then effectively
becomes a fixed charge.
If there is more than one charge on the same asset(s) then the general rule to note is that
charges will normally rank in the order in which they are created, provided they are
registered in time (within 21 days) and that fixed charges will normally rank before floating
charges, even if a floating charge was created first.
As an exception to the above, a floating charge which contains a negative pledge clause
may rank before a fixed charge created subsequently, provided its existence is
communicated to the holder of the later fixed charge.
Charges may be registered with the Registrar of Companies either by the company or the
charge holder and details must be held also in one of the companys statutory books known
as the Register of Charges.
KEY KNOWLEDGE
Maintenance of a Companys Capital
There is a general assumption in company law that companies should not be allowed to
make payments out of capital if this would be detrimental to the companys third party
creditors.
The most important provisions so far as potential examination questions are concerned
relate to:
1. Reduction of share capital
2. Distribution of dividends
Reduction of share capital
There are a number of reasons why a company might wish to reduce its capital such as:
Page | 37
To eliminate retained losses

To eliminate liability on partly paid shares
To return capital no longer required
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ExPress Notes
The necessary requirements for reduction are:
Authority to do so in Articles
Passing of a special resolution
Obtaining court sanction (not necessary for a private company if produces a
declaration of solvency)
Distribution of dividends
The basic rule is that no company may pay dividends otherwise than out of profits available
for the purpose (PAP).
For a private company PAP are taken as any excess of accumulated realised profits over
accumulated realised losses.
For PLCs there is a further restriction in that they may not make any distribution unless at
the time the companys net assets are not less than the aggregate of its called-up share
capital and undistributable reserves. The net effect of this is that the PAP (calculated as for
a private company) of a PLC will be restricted by the amount of any accumulated unrealised
losses.
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ExPress Notes
Chapter 8
START
The Big Picture
Questions from this part of the syllabus have predominantly been knowledge based.
It is important that you become familiar with the main provisions relating to those seen as
being the officers of the company, namely:
Directors
Company Secretary
Company auditors (external)
Remember that directors and company secretary would normally be seen as agents
for the company, so some of the basic provisions of agency law considered earlier
may apply.
So far as the companys auditors are concerned, you do not need to consider any audit
procedures (that will come later in Paper F8 Audit and Assurance), but simply the provisions
relating to:
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Appointment
Removal
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ExPress Notes
Resignation
Rights and duties
Questions, particularly perhaps relating to directors may, as has happened in the past, be
put in the context of corporate governance considerations.
KEY KNOWLEDGE
Directors
Minimum number of directors
Private company = 1
Public company = 2
There is no statutory maximum
Age requirements
Minimum age is 16 years.
Maximum age, there is no statutory limit but Articles may provide otherwise.
Qualification
Somewhat surprisingly perhaps, there are no formal qualifications required in law to act as a
company director, unlike auditors and company secretary (PLC).
Disqualification of directors
Whilst there are no statutory qualification provisions, there are some relating to
disqualification from acting as a director and directors may also be disqualified under specific
provisions contained in the companys Articles.
The Model Articles for a PLC state that a director should leave office if they:
Are barred by the Companies Act or any rule of law

Become bankrupt or make an arrangement with their creditors
Become insane
Are absent without consent for a period of 3 consecutive months from board
meetings and the other directors determine that they should
They give written notice of resignation
Under the provisions of the Company Directors Disqualification Act (CDDA) 1986, an
individual may be disqualified by the court on the following grounds for up to 15 years:
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Persistently in breach of company legislation provisions

Involvement in fraudulent trading
Deemed to be in public interest
Participation in wrongful trading
Involvement certain competition violations
Conviction relating to company promotion, formation, management or liquidation
Under CDDA court must make disqualification order for minimum of 2 years if satisfied:
Director of insolvent company

Deemed unfit for company management
Different types of directors

You should note carefully that there are various terms used to describe directors and that
somebody may in law be regarded as a director, even if they have not been formally
appointed as such and do not actually attend board meetings. The key terms are:
Executive director usually full-time and involved with company management on a

day-to-day basis
Non-executive director part-time and involved with companys corporate
governance procedures, rather than having a specific management function. Should
be independent.
Managing director (CEO) has greater implied powers and has overall responsibility
for executive management of the company
Shadow director not formally appointed as a company director, but board
commonly follows their requests
Alternate director in effect a replacement for another director during enforced
periods of absence
Appointment of directors
Details of companys first directors are provided as part of registration process.
It is the companys Articles which lay down the rules relating to directors, but normally,
subsequent appointments may be made:
1. By the board
2. By the company in general meeting (ordinary resolution)
Retirement/re-election of directors
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Under Model Articles for PLC:
First AGM all retire, but may stand for re-election

Subsequent AGMs nearest number to one third retire, but may stand for re-election
Publicity regarding directors

The main points to note are as follows:
Details of directors and any changes must be filed with Registrar of Companies
Details must be maintained in Register of Directors (statutory book)
Copies of directors service contracts must be available for inspection by members
Listed companies must produce a Directors Remuneration Report as part of their
Annual Report
Removal of directors
Special notice (28 days) must be given to company of resolution

Copy of resolution must be given by company to director
Director has right, at companys expense, to make reasonable length representations
to members before meeting
Director has right at the meeting to address members before vote takes place
Removal requires passing of an ordinary resolution
Removed director may be entitled to compensation for loss of office
Duties of directors
The Companies Act 2006 has codified 7 general duties of directors, these may be added to
by the Articles, but the Articles generally cannot reduce these statutory responsibilities which
are to:
1.
2.
3.
4.
5.
6.
7.
Act within their powers (under Act and/or Articles)

Promote the success of the company
Exercise independent judgment
Exercise reasonable skill, care and diligence
Avoid conflicts of interest
Not accept benefits from third parties
Declare any interest in a proposed transaction or arrangement
Powers of directors
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Generally, the powers of directors will be outlined in the companys Articles, but you should
also remember the general rules of Agency Law with regard to directors who will be treated
as agents of the company under normal circumstances, namely:
Actual authority (express or implied)

Ostensible authority
KEY KNOWLEDGE
Company Secretary
Private companies are not required to have a company secretary.
All PLCs must have a company secretary who should be suitably qualified either on the
grounds of experience or through the holding of a recognised professional qualification.
Duties of Company Secretary
The specific duties will be determined by the companys directors, but as an officer of the
company they are held to be primarily responsible for the companys compliance with
statutory obligations, including:
Maintenance of companys statutory books

Organising and minuting board meetings
Organising and minuting company meetings
Ensuring proper accounting records maintained
Ensuring financial statements are properly prepared
Filing of company accounts and returns
Signing company documents as required by law
KEY KNOWLEDGE
Auditors
Appointment of Auditors
Key points to note are:
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Normally made by members at companys AGM

Often provision made for initial appointment to be made by directors, who may also
fill a casual vacancy.
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Rights of auditors
Statutory rights of auditors are concerned with auditors ability to approach work in an
independent way and include the rights to:
have access to all company books, records etc at all times

obtain all information and explanations considered necessary from company
management and staff
receive notice of, to attend and be heard at all general meetings of the company on
matters relating to the financial statements and/or their own appointment
to resign and request directors to convene GM of company where there are
surrounding circumstances connected with the resignation
to make representations to shareholders where there is attempt to remove them
from office with which they do not concur
Duties of auditors
Under Companies Act main duties and responsibilities are:
to report opinion to shareholders whether financial statements give a true and fair
view and have been properly prepared in accordance with Act
to consider implications for audit reporting on financial statements of consistency of
other financial information published together with the financial statements
to qualify audit opinion where necessary
to provide proper notice on resignation
Resignation of auditors
The main concern here is that auditors should not be able to just fade away quietly in
order to avoid an awkward situation, leaving shareholders and others who place reliance
upon their work, in the dark about important issues of which the auditors are aware.
The key points are:
auditors must deposit formal written notice of their resignation at the companys
registered office
such notice must be accompanied by a positive/negative statement as to whether in
their opinion there are any surrounding circumstances requiring communication to
the members or loan creditors of the company
where there are surrounding circumstances, the auditors may request the directors
to convene a GM so that the members may have the opportunity of questioning
them further
Removal of auditors
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The Companies Act provisions here follow closely the rules with regard to removal of
directors considered earlier:
special notice must be given of the resolution proposing a change in auditors

auditors must be notified of resolution and, if they wish to contest, have the right, at
the companys expense, to pre-circularise their representations to the members as to
why they should remain in office
at the meeting auditors may again put forward their position before the vote takes
place
removal will require the passing of an ordinary resolution (simple majority)
KEY KNOWLEDGE
Company Meetings and Resolutions
The table below summarises the main details you need to learn in relation to company and
shareholders class meetings.
Frequency
Minimum notice
required
Agenda
Page | 45
AGM
PLC must hold within
6 months of year
end and not more
than 15 months from
previous AGM.
Private companies
not mandatory.
21 days unless all
members entitled to
attend and vote
agree shorter notice.
Normal business
would cover
acceptance of
accounts,
acceptance of
directors
recommendation for
dividend,
appointment of
auditors and
directors and AOB.
GM
As necessary
CLASS
As necessary
14 days
14 days
Set by requisitioner
of meeting.
Usually to consider
some variation of class
rights.
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ExPress Notes
Meeting requested
by
Directors
Quorum
May be determined
by Articles otherwise
normally 2 persons.
Directors under
power in Articles.
Directors at request
of resigning auditor.
Directors of PLC at
request of members
holding 10% of
voting capital.
Directors of private
company at request
of members holding
10% of voting
capital (5% if more
than 12 months
since last meeting).
Court where
deemed necessary.
May be determined
by Articles
otherwise normally
2 persons.
Basically as for GM.
2 persons
holding/representing
minimum of one third of
nominal value of shares
of that class
The table below summarises the main details you need to learn in relation to resolutions at
meetings.
Minimum support
required
Purpose of resolution
Filing requirement
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ORDINARY
51%
Anything that does
not require special
resolution
Only as required by
the Act
SPECIAL
75%
Alteration of
company name,
objects or any other
part of Articles
Always within 15
days
WRITTEN (private
companies only)
Same as required in
GM
May be anything
EXCEPT resolutions
requiring special
notice
Only if 75% majority
required
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Chapter 9
Company Liquidation
START
The Big Picture
Given the current world wide economic situation this is certainly a very topical area of the
syllabus.
A problem identified in the past by the examiner, has been the fact that many candidates
make the mistake of assuming that if a company is in liquidation then it must be insolvent.
This not true as can be seen by the following diagram.
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COMPANY LIQUIDATION
VOLUNTARY
LIQUIDATION
COMPULSORY
LIQUIDATION
2 Types
Company may or
may not be
solvent
MEMBERS
VOLUNTARY
CREDITORS
VOLUNTARY
Company must be
solvent
Company will be
insolvent
Practical questions might ask you to determine order of priority for payment in the event of
liquidation.
Questions are also possible in relation to administration as an alternative to liquidation ( in
US Chapter 11).
KEY KNOWLEDGE
Members Voluntary Liquidation
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Directors must make a declaration of solvency

Normally requires passing of special resolution
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Liquidator appointed by members

Liquidator realises company assets
Liquidator reports to final members meeting
Liquidator reports to Registrar of Companies
Registrar registers report and company is dissolved
KEY KNOWLEDGE
Creditors Voluntary Liquidation
Liquidation begins with passing of appropriate resolution

Creditors meeting held and statement of affairs produced
Liquidator appointed with will of creditors prevailing
Liquidator realises company assets
Liquidator reports to final members and creditors meeting
Liquidator reports to Registrar of Companies
Registrar registers report and company is dissolved
KEY KNOWLEDGE
Compulsory Liquidation
Reasons for liquidation
As already indicated, with a compulsory liquidation, the company may or may not be
solvent. Having said that, insolvency is the most common cause in practice for winding up of
a company. The main reasons for instigating proceedings to wind up a company are:
Company is not able to meet its liabilities

Company has not started business within 12 months from incorporation
PLC has failed to obtain a Trading Certificate within 12 months from incorporation
By order of the court that it would be just and equitable
Key points to note once proceedings to wind up the company have commenced are:
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Official Receiver is appointed as liquidator

Company employees are automatically dismissed
Ongoing legal actions against the company are halted
Liquidator takes over power to run company from directors
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KEY KNOWLEDGE
Priority for Application of Assets on Liquidation
You need to learn this list, as it could well appear either as a knowledge or application
question:
Secured creditor with fixed charge

Liquidators fees and expenses
Preferential creditors (wages etc within statutory limits)
Secured creditors with floating charge
Unsecured creditors (pari passu)
Post liquidation interest
Declared but unpaid dividends
Shareholders capital
Any surplus to shareholders
KEY KNOWLEDGE
Objective
To provide a breathing space to a company which is in financial difficulty but can see a
realistic prospect of recovery.
Appointment of Administrator
Depending on circumstances, may be made by:
Directors
Secured creditor with floating charge
Court
Impact of Administration
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Administrator (qualified insolvency practitioner) takes over running of company

Suspension of creditors rights to seek enforcement of debts
Any petition for winding up is dismissed and no new petitions will be heard
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All documentation of company must clearly state that it is in administration and

name the administrator
Conduct of Administration
The main procedures are as follows:
Administrator prepares his proposals and sends these to all members and creditors
A creditors meeting is held to seek approval of the proposals
If approved the administrator goes ahead with them, if not the court will decide what
to do next
The administrator has 12 months to complete his administration, although this period
may be extended with the permission of the court and creditors
At any time within the 12 month period, the administrator may apply to the court for
discharge either because he has completed his task or is of the opinion that it is not
achievable
KEY KNOWLEDGE
US Chapter 11 Bankruptcy
This is the American equivalent of administration in the UK. It gives the company a 120 day
period to formulate and file a plan of reorganisation which will have to be approved by the
companys creditors.
During this period, there is in effect a moratorium on the companys existing debts and any
litigation against it will be suspended.
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ExPress Notes
Chapter 10
Fraudulent Behaviour
START
The Big Picture
Main concerns here are in relation to what are criminal offences in most countries namely:
1. Insider Dealing
2. Money laundering
Since these topics were first brought into the syllabus they have proved to be a favourite
with the examiner. Questions may be knowledge based or more usually in the case of
insider dealing they have been application type questions based on given scenario.
Also in this area of your studies consideration should be given to the criminal offences under
UK law of:
1. Fraudulent trading
2. Wrongful trading
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ExPress Notes
KEY KNOWLEDGE
Insider Dealing
In the UK this offence is covered by Criminal Justice Act 1993
What is insider dealing?
Dealing in securities while in possession of inside information as an insider, the securities
being price affected by the information.
What is dealing?
Acquiring or disposing of or agreeing to acquire or dispose of relevant securities whether
directly or through an agent or nominee or a person acting according to direction. It is also
an offence to encourage others to deal.
What is inside information?
Price sensitive information relating to a particular issuer of securities that are price affected
and not to securities generally.
Who are insiders?
A primary insider would be somebody directly employed by the issuer of the securities eg
company director or has access to the inside information because of their position eg.
company s external auditor.
A secondary insider would be somebody who knowingly received information from a
primary insider.
Are there any general defences?
Yes, several, eg. they did not expect there to be a profit on the dealing. It should also be
remembered that as this is a criminal offence, the burden of proof must be beyond
reasonable doubt.
What are the penalties?
Imprisonment for up to 7 years and/or a fine without limit.
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ExPress Notes
KEY KNOWLEDGE
Money Laundering
In the UK money laundering is a feature of a number of different Statutes but is perhaps
principally considered in Proceeds of Crime Act (PCA) 2002.
What is money laundering?
Put very simply, it is any attempt to make the proceeds of crime appear as legitimate
money.
What are the offences?
Under the PCA there are 3 main offences:
1. Money laundering or assisting others in money laundering
2. Failing to report knowledge or suspicion of money laundering activities
3. Tipping off those involved in money laundering in any way which might prejudice
criminal investigations
What are the penalties?
If convicted the following maximum penalties may be applied in the UK:
1. Money laundering up to 14 years imprisonment and/or a fine
2. Failing to report up to 5 years imprisonment
3. Tipping off up to 5 years imprisonment
KEY KNOWLEDGE
Fraudulent Trading
This arises where a company is carried on with intent to gain unfair advantage over others
or for any fraudulent reason. Those responsible (eg directors or possibly shareholders) may
be held personally liable for the debts of the company and could also be imprisoned for up
to 7 years.
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ExPress Notes
KEY KNOWLEDGE
Wrongful Trading
Under these provisions directors may be held personally liable for the debts of an insolvent
company if it can be established that they knowingly allowed the company to continue to
trade knowing that it was not a going concern and had made no attempt to minimise the
losses sustained by the companys creditors.
(end of ExPress Notes)
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ACCA Paper F4 (GLO) : Notes

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Different Legal Systems

International Commercial Arbitration

Contracts for International Sale of Goods

Company Formation and Financing

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Different Legal Systems

Crown Prosecution Service

Action brought against

Burden of proof required

Beyond reasonable doubt

Minor offences = Magistrates

Judge (in rare instances

Minor offences = Magistrates

Serious offences = Jury

Serious offences = Judge

Was it based on a proposition of law?

Were the material facts of the case the same?

Currently the EU is an economic and political union with a membership of 27 sovereign

In relation to legal matters, important bodies of the UN should be seen as:

Convention on Contracts for the International Sale of Goods

Model Laws include:

Model Law on International Commercial Arbitration

ICJ International Court of Justice

International Commercial Arbitration

Parties may basically agree whatever they wish in relation to an arbitration

Whether arbitration is international is related to where parties places of business are

Arbitration is commercial in effect if it relates to any normal legal trading activity

Arbitration agreement is required to be in writing (3 possibilities)

Contracts for International Sale of

require payment and acceptance of goods

goods received by carrier

There are 4 types of bill of lading:

3. Letters of credit (not to be confused with a Letter of Comfort)

International Bank Transfer

Express eg. under terms of appointment

2. APPARENT (OSTENSIBLE) AUTHORITY

Acting at exchange or auction

All partners are agents for firm

Examples of nearest non-UK equivalents:

Examples of nearest non-UK equivalents:

Is a separate legal entity

Many other countries have similar legislation to that in UK.

Company Formation and Financing

avoid conflicts of interest

Required documents are:

registration application giving details of proposed name, location and address of

Issued and allotted share capital

Not payable until after

last in the queue after all