SQE Business Law and Practice 3

Question 1

What is the effect of a company's 'veil of incorporation'?

Accepted Answer

The company is a separate legal entity distinct from its shareholders

Answer

Shareholders share unlimited liability for company debts

Answer

Directors are personally liable for all contracts

Answer

The company cannot sue or be sued in its own name

Question 2

In a share purchase, which party typically bears the risk of pre-completion liabilities of the target company?

Accepted Answer

The buyer, because they acquire the shares and everything attached to them

Answer

The seller, because they owned the shares at completion

Answer

The target company only

Answer

The directors of the target

Question 3

What is the purpose of a 'disclosure letter' in a share purchase transaction?

Accepted Answer

To qualify the seller's warranties by disclosing known exceptions

Answer

To list the assets being transferred

Answer

To notify Companies House of the share transfer

Answer

To provide the buyer's financing confirmation

Question 4

Which tax is payable on a transfer of shares in a UK company?

Accepted Answer

Stamp Duty at 0.5%

Answer

SDLT

Answer

VAT

Answer

Capital Gains Tax on the buyer

Question 5

Under the Companies Act 2006, what is the general rule on financial assistance by a private company for the acquisition of its own shares?

Accepted Answer

Financial assistance is no longer prohibited for private companies following the CA 2006

Answer

It remains prohibited without court approval

Answer

It is permitted only with shareholder approval by special resolution

Answer

It is always permitted if approved by directors

Question 6

What is a 'pre-emption right' in a company context?

Accepted Answer

The right of existing shareholders to be offered new shares before they are issued to outsiders

Answer

The right of a director to veto new share issuances

Answer

The right of a creditor to be paid before shareholders

Answer

The right to buy back shares at a fixed price