Law, Ethic, Corp Governance
Law, Ethic, Corp Governance
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The main purpose of corporate governance is:
To separate ownership and management control of organisations.
To maximise shareholder value
To separate ownership and management control of organisations and to make organisations more visibly accountable to a wider range of stakeholders
To ensure that regulatory frameworks are adhered to
Question 1 Explanation:
Answer A is only partly correct. The practical need to separate ownership and management control of organisations has made corporate governance more necessary. However it has also developed in response to the requirement for increased accountability to stakeholder groups. Answer C is correct. Refer to section 4.2.1
Which of the following is NOT an influence on organisational purposes?
The organisational mission
Question 2 Explanation:
Answer B is incorrect. Business ethics is an important influence on organisational purposes. The ethical agenda is strongly culturally driven and is concerned with corporate social responsibility towards the various stakeholders. It is also concerned with the ethical standards and behaviour of individuals. Refer to section 4.4. The correct answer is D. The organisational mission is an expression of the purposes of the organisation, not an influence upon those purposes. Refer to section 4.6.1 on Organisational Values
The desire for more accountability of public sector organisations has resulted in:
Pressure on all public sector organisations to be operated on a profit making basis.
Public sector managers to become more professional.
Public sector organisations to develop plans for their strategic development.
An increased proportion of independent members on governing bodies
Question 3 Explanation:
Answer C is only partly correct. One spin-off of increased public sector accountability has been the government's requirement that most, if not all, public sector organisations develop plans for strategic development. However it is arguable whether this is a bureaucratic requirement or a real attempt to engender strategic management principles into the public sector. Answer D is correct. There has been an increased proportion of independent members on governing bodies. The independent members are the nearest equivalent of the non-executive director in the private sector. Refer to section 4.2.3.
Stakeholders are the individuals or groups who:
Depend on the organisation to fulfil their own goals and on whom the organisation depend.
Are shareholders in key competitors.
Dominate the strategy development process in an organisation.
Determine operational issues.
Question 4 Explanation:
Answer B is incorrect. Shareholders in a key competitor may be interested in the performance of a rival organisation, however an organisation's performance will not normally depend on their rival's shareholders. Answer A is correct. Stakeholders are the individuals or groups who depend on the organisation to fulfil their own goals and on whom the organisation depend. Refer to section 4.3
A difference between corporate and unit objectives is:
Multiple objectives might well be more common at the unit rather than the corporate level.
Unit level objectives will be more financially focused
Corporate level objectives will be less financial
Unit level objectives will be set by corporate managers
Question 5 Explanation:
Answer C is only partly correct. Increasingly corporate objectives might be stated in non-financial terms, however this is not always the case. A difference between corporate and unit objectives is multiple objectives might well be more common at the unit rather than the corporate level. This is likely to be the case if objectives are conceived of in operational terms, since the operations of a business are multifaceted. Answer A is correct. Refer to section 4.6.3
A mission statement is:
A statement of the overriding direction and purpose of the organisation.
A specific statement of the overriding strategy of the organisation.
A description of the organisation's main activities and the position it wishes to attain in its industry or sector.
An expression of the desired sales or profit levels.
Question 6 Explanation:
Answer A is correct. A mission statement is a statement of the overriding direction and purpose of the organisation. It can be thought of as an expression of its 'raison d'etre'. Refer to section 4.6.2
The purpose of stakeholder mapping is to:
Outline policies on stakeholder relationships.
Geographically locate different stakeholders.
Identify stakeholder power.
Identify stakeholder interest and power.
Question 7 Explanation:
Answer A is only partly correct. Stakeholder mapping can be used to outline the policies on future stakeholder relationships for an organisation. However, this is only one consideration when undertaking this process. Answer D is correct. The primary purpose of stakeholder mapping is to identify stakeholder interest and power. Refer to section 4.3.1.
Before being permitted to trade, a public company must have:
Obtained a Certificate of Incorporation only
Been listed on the London Stock Exchange
Obtained a Trading Certificate and Certificate of Incorporation
Issued a prospectus
A public company limited by shares must have:
At least two directors, and one shareholder
At least one director, one company secretary and two shareholders
At least two directors, one company secretary and two shareholders
At least two directors, one company secretary and one shareholder
The case of Salomon v Salomon 1897 confirmed which important principle of company law?
A company and its members are separate legal persons.
A director cannot take a decision to employ himself and later make a claim against the company as an employee
When a company is wound up, directors who knowingly carried on the business with intent to defraud creditors may be made personally liable for the company's liabilities.
The sale of a business to a company owned by the vendor of the business will be a legal nullity if the sale made no change in the business's commercial position
Question 10 Explanation:
Option B is untrue; a director can do this (and has: Lee v Lee's Air Farming). Option C is a true statement, but is governed by the Insolvency Act 1986, not Salomon's case. Option D is untrue – this is essentially what Mr Salomon had done, and the transaction was valid
How can a company restrict its objects?
By ordinary resolution
By special resolution
By extraordinary resolution
It cannot restrict its objects
Question 11 Explanation:
A special resolution is required per s 21. Extraordinary resolutions do not exist under the Companies Act 2006
Mr X owns shares in Y Ltd. This means that Mr X (i) Is a part-owner of Y Ltd (ii) Is a part-owner of Y Ltd's property Which of the above is/are correct?
Both (i) and (ii)
Neither (i) nor (ii)
Which of the following is not a situation in which the court will 'lift the veil of incorporation'?
Where the members or directors are using the veil to evade their legal obligations
Where the directors are in breach of the regulations governing the giving of financial assistance for the purchase of the company's own shares.
Where the corporate structure is being used as a sham.
Where it is in the public interest
Question 13 Explanation:
The other options are all situations where a court will ‘lift the veil
Which of the following is incorrect?
Directors are agents of a company
If the board of directors exceeds its powers, the company cannot be held liable on a contract with a third party.
Individual directors are not permitted to contract on behalf of the company unless authorised by the company.
The board of directors may delegate authority to a managing director who may contract on behalf of the company
Which of the following cannot be achieved by ordinary resolution?
The approval of company accounts
The dismissal of a director
An alteration of a company's articles of association
The dismissal of an auditor
Question 15 Explanation:
special resolution is required to alter the articles
Which three of the following are situations in which a meeting may be validly held that is only attended by one person?
Where the articles provide a quorum of one for a general meeting, and the company is not a single member company
A board meeting of a private company Where a meeting is held by order of the court
A class meeting where all the shares are held by one member Where a meeting of five members is convened but only one turns up
Question 16 Explanation:
The articles cannot override the principle that a meeting cannot consist of only one person, though the court can. A private company's board may only consist of a single director and the shareholder class may only consist of a single member, so in both cases one would be a valid quorum.
Tisco Ltd has an issued share capital of £100 in ordinary shares of £1, each carrying one vote. Cary is a shareholder in the company. He has received notice of a general meeting at which a resolution is proposed to alter the company's articles. Cary does not agree with the proposed alteration. How many votes must Cary cast against the resolution to ensure that he defeats it at the meeting, assuming all members entitled to do so attend the meeting and vote?
Question 17 Explanation:
A special resolution is needed to change the articles, requiring 75 votes at least, not more than 75 votes. Thus 25 votes (Option A) will not be enough to defeat the resolution. 50 votes (Option C) would be needed to defeat an ordinary resolution (where the vote needed in favour is more than 50%.)
Companies limited by shares are subject to the 'maintenance of capital' rule. Which of the following statements regarding the rule is incorrect?
A company cannot simply return share capital to its shareholders.
Share capital must be set aside and used to pay creditors in the event of the company becoming insolvent.
Share capital should be used to further a company's lawful objectives.
Share capital may be returned to the shareholders following an approved reduction of capital scheme
Question 18 Explanation:
A company can use the money it receives from share issues to trade and perhaps make losses and become insolvent
In relation to company charges, which of the following is correct?
A private company cannot create fixed charges.
A public company cannot create floating charges.
Both private and public companies may create fixed and floating charges.
All business organisations can create fixed and floating charges
Question 19 Explanation:
Option D is incorrect since unincorporated organisations cannot create floating charges as they have no separate legal existence
An application to the court under s 994 Companies Act 2006 for a petition that a company's affairs have been conducted in an unfairly prejudicial manner can be made by:
Members holding not less than 15% in number of the issued shares of the company
A creditor of the company
Any member of the company
Question 20 Explanation:
Any one member, regardless of their shareholding, can apply.
Which of the following is the correct period within which company charges must be registered with the Registrar of companies?
7 days following the issue of the charge
14 days following the issue of the charge
21 days following the issue of the charge
28 days following the issue of the charge
Question 21 Explanation:
Registration must occur within 21 days.
Paul, a promoter, is in the process of incorporating Vendor Ltd, and has ordered goods to be used by the company. He has signed the order form 'Paul, for and on behalf of Vendor Ltd'. Who is liable if the goods are not paid for?
Paul and Vendor Ltd jointly
Neither Paul nor Vendor Ltd as there is no contract
Question 22 Explanation:
A company cannot be liable on a pre-incorporation contract as the company does not exist at the time the contract is made
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