PART 1
Business law and practice

Company formation
Learning Objectives
By completing the exercises in this chapter you will:
 Acquire knowledge of the legal characteristics and nature of a limited company
 Acquire an appreciation of the vocabulary and grammar relevant to company law
 Become aware of the information required in order to incorporate a company
 Understand and be capable of explaining the legal procedures and documentation
required for company formation
 Be able to prepare the legal documentation necessary in order to create a company
Company law
Characteristics of a company
A company is regarded in law as being a separate legal ‘person’, with a separate legal
personality. This means that it has rights separate from its owners and managers
to enter into contracts, employ people, own property and conduct business. The
creation and management of a company is governed by the Companies Act 1985
(CA ’85) and the Companies Act 1989.
By far the largest number of incorporated companies are incorporated with limited
liability, being limited by shares as defined by section 1(2)(a) CA ’85. The
potential financial liability of a member (in other words shareholder) in such a company
is limited to the amount, if any, remaining unpaid on the shares held by that
particular member. Such a company is known as a limited company and will have
the word ‘Limited’ at the end of its name.
A company can be a private or a public company. A public company must have a
minimum issued share capital of £50,000, as required by sections 11 and 118 CA ’85.
A public company may offer its shares for sale to the public (s. 81 CA ’85), whereas a
private company must not. A public company may also have its shares listed (and
traded) on the Stock Exchange. Information on the current values of such listed
shares is publicly available and can be checked for instance in The Financial Times.
COMPANY FORMATION
There are a number of legal requirements which must be complied with in order to incorporate
(in other words create) a company. In particular, the following documentation will normally be
required.
Memorandum of Association
The Memorandum of Association (known as the ‘a(chǎn)rticles of incorporation’ in the US) contains
the following information:
 Name of the company
 The company’s objects and powers (meaning basically the sphere of activities and nature of
the company)
 The company’s share capital
Articles of Association
The Articles of Association (the articles) are in effect a set of rules governing the conduct of
the members of the company and its officers. The officers of a company are its directors and
company secretary. These rules commonly relate to matters such as the conduct of shareholder
and board meetings, any restriction on the transferability of shares and the powers
bestowed on the directors etc. (In the US the Articles of Association are known as the
bylaws.) Many companies use a standard form of articles known as ‘Table A Articles’.
Form 10
This is a standard form which must be completed with details of the intended officers of the
company, as required by s. 10(2) CA ’85. Every incorporated company must have at least one
director and one company secretary. (If there is to be only one director then that individual
cannot also be the company secretary.) Details of the company’s registered office (at
which formal documents will usually be served upon the company) should also be included in
Form 10.
Form 12
This is another standard form which must be signed by a person applying for incorporation of
the company to certify that the legal requirements for registration have been complied with.
The person signing Form 12 (commonly known as the promoter of the company) can be one of
the directors, the company secretary or a solicitor engaged in the formation of the company.
Once completed, these company documents must then be sent to the Registrar of Companies
(‘the registrar’), along with a fee. The registrar then registers the company and issues a
Certificate of Incorporation. This is when the company comes into existence. There are further
legal requirements which the incorporated company must then continue to comply with, such
as having annual accounts prepared (s. 226 CA ’85), a copy of which must be filed annually at
Companies House (s. 242 CA ’85).
Exercise 1–reading
Part 1  Business law and practice
6
7
Answer the following questions concerning company formation, based on the above information.
1. What is meant by ‘limited liability’?
2. What is the minimum amount of issued share capital which a public company must
maintain?
3. List the four documents normally required in order to form a company.
4. If a client wishes to incorporate a company and be its only director, can s/he also be the
company secretary? If not then explain why not.
5. Name the document issued by the Registrar of Companies which is in effect a ‘birth certificate’
for a new company.
Exercise 2–comprehension
Now assume that you are a lawyer in the Business Law Department of Stringwoods & Evans, a
city law firm located at 18 Bond Street, London, W1 1KR (telephone number 020 7538 2892;
DX number 12432, London 1). You have been instructed by a new client named Thomas
Shapiro (TS) to incorporate a company for him. TS is a successful entrepreneur with business
interests throughout Europe and the Far East. He now wishes to establish a private company
limited by shares to be named ‘Maplink Limited’. Maplink Limited will be run as a business,
publishing various maps and guides for tourists visiting London and other cities around the
world.
Your senior partner has already drafted the Articles of Association for Maplink Limited. You are
now required to complete the further documentation needed to form the company. This consists
of:
 The Memorandum of Association
 Form 10
 Form 12
Taking account of the company details provided on p. 8, complete the following company formation
documentation accordingly by entering the correct details in the shaded spaces.
Exercise 3–drafting
Chapter 1  Company formation

Language practice
Part 1  Business law and practice
8
MAPLINK LIMITED–COMPANY PROFILE
REGISTERED OFFICE 44 Princess Diana Walk, South Kensington, London,
W2 3SL (Telephone no. 020 7429 8137)
DIRECTORS (1) MR THOMAS SHAPIRO of 23 Essex Street,
Hampton Court, Surrey, KT8 1NQ (Barrister – date
of birth 12 February 1968)
(2) PROFESSOR DIMITRIS YAVAPRAPAS of ‘The
Manor’, 2 Queen Elizabeth Street, London, SE1 5NP
(Surgeon - date of birth 3 July 1954)
COMPANY SECRETARY MISS GISELA WIRTH of 15 Robin Hood Way,
Mansfield, Nottingham, NG2 7CX (Accountant,
date of birth 28 November 1973)
AUTHORISED SHARE CAPITAL 250,000 X £1 Ordinary Shares
MEMBERS AND SHAREHOLDINGS THOMAS SHAPIRO 175,000
DIMITRIS YAVAPRAPAS 50,000
GISELA WIRTH 25,000
Chapter 1  Company formation
9

THE COMPANIES ACTS 1985 TO 1989
PRIVATE COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION OF [1]
1. The Company’s name is . [2]
2. The Company’s registered office is to be situated in England and Wales.
3. The object of the Company is to carry on business as a general commercial company.
4. The liability of the Members is . [3]
5. The Company’s share capital is £ [4] divided into 250,000 ordinary
shares of £1 each.
WE the subscribers to this Memorandum of Association wish to form into a Company
pursuant to this Memorandum and we agree to take the number of shares shown opposite
our respective names.
Names and addresses of Subscribers Number of shares taken by each subscriber
THOMAS SHAPIRO
23 ESSEX STREET,
HAMPTON COURT,
SURREY, KT8 1NQ ONE HUNDRED AND SEVENTY-FIVE THOUSAND
1 [5]
FIFTY THOUSAND
2 [6]
3 [7]
Total shares taken : 4 [8]
Dated this 15 th. day of May 20 06
Part 1  Business law and practice
10
Chapter 1  Company formation
11
Part 1  Business law and practice
12
Chapter 1  Company formation
13
Complete the following sentences by entering an appropriate multi-word verb into each blank
space from the selection in the panel below.
1. The Defendant has decided to the judgment.
2. The judgment my client.
3. We are confident that the Judge will our opponent.
4. He wants to discussions with a view to becoming a director of the
company.
5. He intends to the company to purchase some shares.
6. I have been asked to a newly incorporated company.
Exercise 4–multi-word verbs
contract for negotiate with act for
appeal against decide against enter into
Characteristics of a limited liability company
 A limited company has a separate legal personality in law (as established by case of
Salomon v Salomon 1897)
 A company is owned by shareholders, management decisions primarily being made by
directors
 Shareholders (members) and directors have limited liability
 A company must be registered at the Companies Registry (based in Cardiff for companies
incorporated in England and Wales and in Edinburgh for companies incorporated
in Scotland)
 A company comes into existence upon issue of a certificate of incorporation
 Documents required to form a company: Memorandum of Association; Articles of
Association; Form 10; Form 12
 Memorandum of Association indicates: the name of the company; whether it is a
private or public limited company; the objects of the company (which state the purpose
of the company and the scope of its legal capacity to conduct business with outside
parties)
 Articles of Association provide a set of internal company rules
 A shareholder’s personal liability is limited to paying fully for shares held
 A company’s nominal (or authorised) share capital refers to the quantity of shares a company
is authorised to issue (as indicated in the company’s Memorandum of Association)
Law notes
Part 1  Business law and practice
14
 A company’s issued share capital (also known as allotted share capital) refers to the
value of shares actually issued (or allotted) to shareholders
 A company’s paid-up share capital refers to the amount of the total (nominal) value of
the issued share capital actually ‘paid-up’ by shareholders
 There are various types of shares which a company can issue, including:
1. ordinary shares–usually carrying voting rights and a right to any dividend declared
by the company (i.e. share of any profits made by the company)
2. preference shares – which do not carry voting rights (referred to as non-voting
shares) but provide priority (i.e. a preference) to payment of a dividend
 Continuing duty on company to maintain annual accounts and to file annual accounts
with Registrar of Companies
Multi-word verbs
Multi-word verbs consist of a verb and at least one particle. A particle is a word which
would be a preposition or an adverb in a different context. In this chapter you have
encountered several examples of multi-word verbs such as those in:
enter into a contract; comply with the requirements; subscribe their names to.
Multi-word verbs come in four categories:
1. verbs with particles and no object. E.g. Sit down!
2. verbs with two particles. E.g. He gets on with his client.
3. verb  inseperable particle  object. E.g. I’m waiting for the trial.
4. verb  separable particle  object. E.g. He set out the terms / He set the terms out.
List of multi-word verbs
The following is a non-exhaustive list of examples of multi-word verbs used in legal English.
Grammar notes
Chapter 1  Company formation
act for appeal against charge with
contract for decide for / against enter into
file for find against legislate for / against
negotiate with / for prohibit from rule against
settle for swear in withdraw from
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16
Chapter 2 Board meetings
Learning Objectives
By completing the exercises in this chapter you will:
 Understand and be capable of explaining the practice and procedure of board meetings
 Be familiar with board meeting documentation
 Develop your vocabulary in relation to company meetings
 Acquire practice in drafting board meeting documentation
 Develop word skills and vocabulary relevant to company law
 Consider the use of relevant grammar including combining nouns and plural nouns
Introduction
In this chapter and the next one we will consider the practice and procedure of company
meetings. These take two basic forms:
1. Board meetings
2. Shareholders’ meetings
We shall consider shareholders’ meetings in the next chapter. The main characteristics
of a board meeting (also known as a directors’ meeting) are as follows.
Board meetings
Board meetings are attended by the directors of the company. Day to day business
decisions are usually taken at board meetings. Matters to be decided upon are put
to the meeting in the form of ‘resolutions’, each director present casting a vote for
or against each resolution being considered. (Voting is usually by a ‘show of
hands’.) Whether or not a resolution is passed depends on whether the majority of
votes are in favour of or against that resolution. In other words the decision is
made by a simple majority. Multi-national companies with directors located internationally
often stipulate in their articles that board meetings may be validly held
by means of telephone or audio-visual conferencing as well as via the internet.
Chapter 2  Board meetings
17
In Chapter 1 we incorporated a company named Maplink Limited (‘Maplink’). In common with
all companies, Maplink will hold board and shareholders’ meetings. Let us assume therefore
that Maplink is now planning to hold its first board meeting. (You may recall that Maplink
has two directors, namely Thomas Shapiro and Dimitris Yavaprapas.) Continuing to act as
Maplink’s lawyer you are now asked to prepare the minutes for the first board meeting of the
company, taking account of the following specific instructions.
CLIENT INSTRUCTIONS
 Another director is to be appointed, namely Mr Kadir Salleh of 4 Kensington Palace
Gardens, London, W2 4AJ
 The name of the company is to be changed from Maplink Limited to Travelgraph Limited
TASK
Complete the minutes of the company’s first board meeting by selecting the most appropriate
word from the list below to place in each correspondingly numbered space in the draft
minutes on the following page.
Exercise 1 – comprehension
Any director can call a board meeting on reasonable notice to all the other directors.
Board meetings are therefore often convened at short notice. A written record
is made of matters discussed and of resolutions considered at a board meeting.
This record is known as the ‘minutes’ of the meeting.

1. (a) restitution
(b) resolution
(c) resolved
(d) determined
2. (a) employed
(b) appointed
(c) selected
(d) commissioned
3. (a) classified
(b) head
(c) official
(d) registered
4. (a) disclosed
(b) indicated
(c) presented
(d) represented
5. (a) collated
(b) convened
(c) assembled
(d) accumulated
6. (a) given
(b) provided
(c) catered
(d) supplied
7. (a) intentions
(b) proposals
(c) resolve
(d) resolutions
8. (a) declared
(b) proclaimed
(c) affirmed
(d) publicised
Part 1  Business law and practice
18
MAPLINK LIMITED
Minutes of the first meeting of the board of directors of Maplink Limited (‘the company’)
held at 44 Princess Diana Walk, South Kensington, London, W2 3SL on 15 May 2006 at
10.00 a.m.
Present: Thomas Shapiro
Dimitris Yavaprapas
In Attendance: Gisela Wirth
1. Thomas Shapiro and Dimitris Yavaprapas accepted office as directors of the
company. It was resolved that Thomas Shapiro be appointed Chairman of the board.
2. It was [1] that [A] be appointed solicitor to the
company.
3. It was resolved that Gisela Wirth be [2] secretary of the company.
4. It was resolved that the [3] office be at 44 Princess Diana Walk, South
Kensington, London, W2 3SL.
5. It was resolved that the quorum necessary for the transaction of the business of the
directors should be two directors personally present.
6. A draft notice of an extraordinary general meeting of the company was
[4] to the meeting and approved. It was further resolved that such
meeting be [5] and that notice of this be [6] forthwith
to the shareholders.
7. The meeting thereupon adjourned. Upon resumption it was reported that the
[7] set out in the notice of the extraordinary general meeting had
been passed respectively as ordinary and special resolutions of the company.
8. Upon there being no further competent business the meeting was then
[8] closed by the Chairman.
Chairman
Now name yourself as the company’s solicitor by entering your own name in box ‘A’ of
paragraph 2 of the minutes of the board meeting!
Chapter 2  Board meetings
19

Board meetings
 Attended by directors of the company
 Address general managerial decisions of the company
 Each director normally has one vote
 Only directors of the company can vote at board meetings
 Resolutions are passed by simple majority
Law notes
Combining nouns
There are a number of instances in this chapter where two nouns are used together. In
such instances the first of the two nouns usually provides some indication or description
of the type or variety of the second noun. For example:
a directors’ meeting a shareholders’ meeting
(both a directors’ meeting and a shareholders’ meeting being types of meeting).
Further examples are: interview record (a type of record) Magistrates’ Court (a type
of court)
Sometimes when two nouns are placed together in this way they are separated by a
hyphen (-). This often occurs when the two nouns are commonly placed together, as
illustrated for instance with work-place and time-limit. If you are in any doubt as
to whether a hyphen is normally used with any particular combination of nouns you
are advised to use a good dictionary in order to check, such as Dictionary of Law by
Grammar notes
Answer the following questions relating to the above text on board meetings and on the minutes
you have just finalised for Maplink’s first board meeting.
1. What is meant by convening a meeting?
2. What is meant by a simple majority?
3. What is meant by a vote being taken on a show of hands?
4. Why do you think multi-national companies sometimes conduct board meetings by audiovisual
conferencing?
5. Suggest one reason why a director may wish to call a board meeting.
6. Paragraph 5 of the minutes indicates that the quorum for board meetings is two. What is a
quorum?
Exercise 2 – convening a board meeting
L.B. Curzon. Some combinations of nouns have become so synonymous with each other
however that they are written as one-word compound nouns. E.g. wheelchair.
Possessive forms
Possessive ‘s’
A possessive ‘s’ is added to nouns along with an apostrophe to indicate that the word(s)
following are related (i.e. ‘belong’) to the word(s) with a possessive ‘s’. E.g. counsel’s
opinion. The letter ‘s’ is also put at the end of nouns to indicate a range of other relationships.
For example:
Places: Europe’s main legal centres
Time: four days’ trial
Plural nouns
When dealing with regular plural verbs the apostrophe ( ’ ) should be placed after the ‘s’.
You will see for instance that this is where the apostrophe is placed with:
directors’ meetings shareholders’ meetings
Note that the apostrophe is also placed after the possessive ‘s’ when a singular noun
ends in ‘s’. For instance: James’s case.
With singular nouns however the apostrophe should be placed before the possessive ‘s’.
Hence:
the expert’s report Gordon’s witness statement
This is also the correct position for the apostrophe with irregular plural nouns. E.g.
women’s court attire.
20
Part 1  Business law and practice
21
Chapter 3 Shareholders’ meetings
Learning Objectives
By completing the exercises in this chapter you will:
 Acquire practice in drafting company resolutions and further company meeting
documentation
 Understand and be capable of explaining the practice and procedure of shareholders’
meetings
 Be aware of the roles of the officers of a company
 Draft company documentation to appoint a further director to the board
 Draft company documentation to change the name of a company
 Further develop word skills and vocabulary relevant to company law
 Consider the use of relevant grammar including the use of prepositions
Introduction
You will recall that in the last chapter we identified two main types of company
meetings:
1. Board meetings (also known as directors’ meetings)
2. Shareholders’ meetings (also known as members’ meetings)
In this chapter we will look at the practice and procedure of the second of these,
having considered board meetings in the previous chapter. Read the next section on
shareholders’ meetings then try the exercises which follow.
Part 1  Business law and practice
22
Exercise 1 – reading
SHAREHOLDERS’ MEETINGS
Company law dictates that certain business decisions concerning a company need shareholder
approval. In particular, shareholders’ meetings are required when major changes to the
company are being proposed. Proposals for such changes are put to a shareholders’ meeting
in the form of resolutions. Shareholders’ meetings can be attended by the company’s directors
as well as by its shareholders. However, only shareholders have the right to vote. (It is
possible to be a director without being a shareholder, unless a company’s articles of association
provide otherwise.)
A company’s annual general meeting (AGM) is a type of shareholders’ meeting. Other shareholders’
meetings are known as extraordinary general meetings (EGMs). Twenty-one days’ notice
is normally required to be provided to the shareholders before an AGM can be validly held,
14 days’ notice being required for an EGM. A vote on a proposed resolution is usually taken initially
by ‘a(chǎn) show of hands’. In the course of such a vote each shareholder (otherwise known as
a member of the company) normally has one vote, irrespective of the number of shares s/he
possesses. Once the result of the vote on ‘a(chǎn) show of hands’ is declared, any member may demand
what is known as a ‘poll’ (unless the company’s articles specifically provide otherwise).
If a poll is held votes are then counted differently. Rather than each member having one
vote regardless of his or her shareholding, each member has one vote for each share s/he
holds. The chairman of the company will usually have a casting vote in the event that the
number of votes are the same for and against a resolution, in order to enable such a deadlock
to be broken. (Article 50 of Table A Articles provides for this for instance.) Shareholders’
meetings are usually called by the board. If however the board is reluctant to call a shareholders’
meeting then the shareholders can requisition one (as provided by s. 368 CA ’85).
TYPES OF RESOLUTIONS
The types of resolutions and their main characteristics are set out below. The first two
mentioned are the most common types of resolutions proposed at company meetings.
1. Ordinary Resolution (OR) – requires a simple bare majority (i.e. 50% +1 of votes cast) to
be passed. Usual notice required to be provided to members of a proposed ordinary
resolution is 14 days.
2. Special Resolution (SR) – requires 75% of votes cast. Usual notice requirement is 21 days.
(Note that this means therefore that if an SR is being proposed at an EGM then the
required notice for the EGM will normally be 21 days rather than 14 days.)
3. Extraordinary Resolution – similar to a special resolution albeit notice requirement is
14 days (as opposed to 21 days for a special resolution).
4. Elective Resolution – enables private companies to ‘opt out’ of certain company law
formalities by unanimous agreement (e.g. to dispense with need to hold an annual general
meeting each year).
5. Written Resolution – a resolution in writing which can be validly passed without the need
for a meeting provided all those entitled to vote sign the written resolution to signify their
unanimous approval of the resolution.
Chapter 3  Shareholders’ meetings
HOLDING A SHAREHOLDERS’ MEETING
You will recall that in the last chapter you prepared the minutes for the first board meeting
of Maplink Limited (‘Maplink’). Continuing to act as lawyer for Maplink, you are now asked to
prepare the documentation required in order to convene the company’s first shareholders’
meeting. Remember that the company requires to achieve two specific objectives in the
course of that meeting:
 To appoint Kadir Salleh of 4 Kensington Palace Gardens, London, W2 4AJ (date of birth
4th of April 1969) to the board of directors
 To change the name of the company from Maplink Limited to Travelgraph Limited.
The steps now required are therefore as follows.
Step 1 Call the first shareholders’ meeting
Step 2 Prepare the minutes of the first shareholders’ meeting
Step 3 Prepare post-meeting documentation
Complete the following notice of the shareholders’ meeting (EGM), filling in the blanks by
selecting the appropriate words from the list below.
Exercise 2 – preparing the notice of the meeting
resolutions convened passing vote Notice
for the purpose of member appointed special Travelgraph
23
COMPANY NUMBER 3467609
NOTICE OF EXTRAORDINARY GENERAL MEETING
COMPANIES ACT 1985
COMPANY LIMITED BY SHARES
MAPLINK LIMITED
(‘The Company’)
[1] is hereby given that an extraordinary general meeting of the
Company will be held at 44 Princess Diana Walk, South Kensington, London, W2 3SL,
on 15 May 2006 at 11.00 a.m. [2] considering and if thought fit
[3] the following [4] respectively as ordinary and
[5] resolutions of the Company.

Part 1  Business law and practice
24
ORDINARY RESOLUTION
1. That Kadir Salleh be [6] a director of the Company.
SPECIAL RESOLUTION
2. That the name of the Company be changed to [7] Limited
By order of the board
Gisela Wirth
Secretary
Date: 14 April 2006
Registered office: 44 Princess Diana Walk, South Kensington, London, W2 3SL.
Note: A shareholder entitled to attend and vote at the meeting [8] by
the notice set out above is entitled to appoint a proxy to attend and [9]
in his place. A proxy need not be a [10] of the Company.
Now complete the following minutes of the company’s first shareholders’ meeting by deleting
each word in bold and writing alongside each deletion in the spaces provided the proper form
of those words.
Exercise 3 – preparing the minutes
Chapter 3  Shareholders’ meetings
25
MAPLINK LIMITED
Minutes of an extraordinary general meeting of the Company held at 44 Princess Diana Walk,
South Kensington, London, W2 3SL on 15 May 2006 at 11.00 a.m.
Present: Thomas Shapiro
Dimitris Yavaprapas
In Attendance: Gisela Wirth
1. NOTICE AND QUORUM
It was note [1] that due notice of the meeting had been given to
all members and that a quorum was present. The meeting was therefore
declaration [2] open.
2. APPOINTMENT OF FURTHER DIRECTOR OF THE COMPANY
The chairman proposition [3] the following resolution as an ordinarily
[4] resolution.
‘That Kadir Salleh be appointed a directorship [5] of the Company’.
On a show of hands the chairmanship [6] declared the resolution
passed unanimity [7].
3. CHANGE OF COMPANY NAME
The chairman proposed the following resolution as a specially [8]
resolution:
‘That the name of the Company be changed to Travelgraph Limited’.
On a showing [9] of hands, the chairman declared the resolution passed
unanimously.
CLOSE OF MEETING
There being no further business, the chairman declared the meeting closure
[10].
Chairman
Part 1  Business law and practice
26
Answer the following questions relating to shareholders’ meetings.
1. What is meant by a unanimous agreement?
2. Name another term meaning the same as shareholder.
3. In the text above concerning shareholders’ meetings what is meant by a ‘deadlock’?
4. What is a casting vote?
5. What does it mean to requisition a meeting?
6. Is it illegal to be a director of a company without also being a shareholder of the company?
7. What is the minimum notice period normally required in order to convene an extraordinary
general meeting?
8. What minimum notice period will be required to convene the EGM we have considered in
this chapter?
9. At the foot of the notice calling the EGM there is a clause intimating that a shareholder is
entitled to appoint a proxy. What do you think is meant by a proxy?
The following internal memorandum addressed to you from the Head of the Business Law
Department sets out the steps now required to complete your client’s instructions. Eight
prepositions have however been omitted. Fill in these missing prepositions in the numbered
blank spaces.
Exercise 4 – comprehension
Exercise 5 – drafting (i)
STRINGWOOD & EVANS
Memorandum
From : Jacqueline Hanratty (Head of Business Law Dept.)
To : [ ]
TRAVELGRAPH LIMITED (FORMERLY MAPLINK LIMITED)
Thank you for doing such a good job [1] preparing the necessary company
documentation for this client company. In order to complete the job we now need
to think [2] the remaining post-meeting matters requiring to be dealt
[3] . In particular, it is now necessary to:
Chapter 3  Shareholders’ meetings
27
TASK 1
Complete the following Form 288a (referred to in the above memorandum) to provide notice to
the Registrar of Companies of Kadir Salleh’s appointment as a director by filling in the shaded
spaces.
TASK 2
Similarly complete Form N19 (p. 26) to provide notice to the Registrar of the change of
company name by filling in the shaded spaces.
TASK 3
Working in pairs, role-play the board and shareholders’ meetings considered in this chapter
and the previous one. (One person should play the role of the chairman, Thomas Shapiro,
the other person playing the role of the other director, namely Dimitris Yavaprapas.) If you are
working in a group then a third person can play the role of Gisela Wirth, the Company Secretary,
and make notes on what is discussed at the meeting.
Exercise 6 – post-meeting documentation–drafting (ii)

 Update the company’s Register of Directors [4] the appointment of
Kadir Salleh as a director;
 Notify the Registrar of Companies of Kadir Salleh’s appointment to the board
[5] completing a Form 288a and forwarding it to the Registrar of
Companies within 14 days
 Notify the Registrar of Companies of the change of company name
[6] Maplink Limited to Travelgraph Limited by completing and
sending a Form NC 20 before the time-limit of 15 days for doing so expires.
The change of company name will not take effect until the Registrar issues an amended
Certificate of Incorporation showing the change of name [7] Travelgraph
Limited. [8] that date the company will be legally recognised as
Travelgraph Limited.
Jacqueline Hanratty
Part 1  Business law and practice
28
Chapter 3  Shareholders’ meetings
29
Part 1  Business law and practice
Shareholders’ meetings
 Attended by the company’s directors and shareholders
 Convened to pass resolutions affecting the constitution of the company (including for
instance changes in share capital, approving a director’s service contract and changing
the name of the company etc.)
 Only shareholders are entitled to vote (including directors who are also shareholders)
 Majority required to pass a resolution depends on the type of resolution being considered
ordinary resolution (OR) requires 50%  1 of votes cast
special resolution (SR) requires 75% of votes cast
Procedure for convening directors’ and shareholders’ meetings
 Call board (i.e. directors’) meeting – any director can call on reasonable notice
 Ensure quorum present and hold board meeting – propose resolutions required, vote on
resolutions, adjourn meeting and finalise minutes of meeting
 Call extraordinary general meeting – notice required is normally 14 days or 21 days if
SR on agenda
 Ensure quorum present and hold extraordinary general meeting (EGM) – pass
resolutions, close meeting and finalise minutes
 ‘Present’ in the minutes refers to those in attendance and entitled to vote whereas
‘In Attendance’ refers to those present but with no such right to vote
 Re-convene board meeting – report result of voting on resolutions at EGM and close
meeting
 Complete post-meeting documentation
Law notes
Prepositions
Many short words in the English language such as at, in, of and after are prepositions.
Prepositions can also however consist of several words, such as in terms of and in the
event of. The only effective way of becoming truly conversant in using prepositions in legal
English is through familiarisation with their use in a legal context. Getting into the
habit of referring to a good dictionary (such as Dictionary of Law by L.B. Curzon) when you
are uncertain can also assist in this regard.
As a general rule, prepositions are placed before a noun, as in the following examples:
at court the legal proceedings were issued in time
Grammar notes
30
Chapter 3  Shareholders’ meetings
31
Alternatively, when used in connection with a phrase containing a noun, a preposition can
be placed immediately before such a phrase. Hence:
until further order at the locus
Prepositions can also however come after:
1. a noun– Mandy has entered into a contract for service with a large corporation.
2. an adjective– John was delighted with the Judge’s decision
3. a verb– How could the Judge possibly arrive at such a decision?
Lawyers often use formal language. In such circumstances (such as for instance in court)
prepositions can be placed before a ‘question word’ when posing a direct question. For
instance:
At what time did you see the accident?
In other formal contexts prepositions can be used immediately before a relative pronoun:
The Defendant is a company with whom the Claimant would like to maintain a business relationship.
It is therefore hoped that the negotiated settlement is one from which both parties will benefit.
Use of prepositions to indicate place and time
We can see from this chapter that prepositions are used in relation to company meetings
to refer to place and time:
Place:
The shareholders’ meeting was held at the company’s registered office.
The annual general meeting will be in the main hall.
Time:
The extraordinary general meeting took place at 11.00 a.m.
The next board meeting will be sometime during February
The next meeting must be convened before September.
Geographical variation
Note that there is some degree of variation internationally in the manner in which prepositions
are used, particularly in spoken English. For instance, whereas in England it would
be common to state ‘you have until Wednesday to lodge the document at court’, in the US
the word ‘through’ is often used in place of ‘until’. Hence in the US you would be more
likely to hear ‘you have through Wednesday to lodge the document at court’. It is also common
in ‘Americanised’ English to omit the preposition which would otherwise be placed in
a clause immediately before reference to a day in the week. Thus in the US you might
hear ‘we’ll reconvene this meeting first thing Monday’, whereas in England this would be
stated as ‘we’ll reconvene this meeting first thing on Monday’.
32
Chapter 4 Boardroom battle!
Removal of a director from the board
The shareholders of a company can remove a director from the board at any time by
passing an ordinary resolution (as provided by s. 303 of the Companies Act 1985.) A
director can therefore be removed from the board provided over 50% of the votes cast
at the shareholders’ meeting are in favour of the ordinary resolution to remove the director
concerned. That director is entitled to address the meeting with any submissions
s/he may wish to make as to why s/he should not be removed from the board.
The ‘targeted’ director may vote against the ordinary resolution proposing his or
her removal provided s/he is also a shareholder. In the course of such a vote the
‘targeted’ director may have enhanced voting rights (i.e. more than one vote for
each share s/he possesses). This will depend on whether the articles of the company
contain what is known as a ‘Bushell v Faith’ clause. Such a clause will typically
provide for instance that each share that director holds will carry three votes rather
then one when voting takes place on the ordinary resolution seeking his or her
removal. The existence of a Bushell v Faith clause in the articles can therefore make it
very difficult to remove a director from the board.
Learning Objectives
By completing the exercises in this chapter you will:
 Practice and develop relevant drafting and writing skills within the framework of a
boardroom dispute
 Develop vocabulary relevant to a director’s service agreement
 Acquire knowledge of the practice and procedure involved in removing a director from
the board
 Complete a letter of advice concerning the removal of a director from the board
 Plan a negotiated settlement of a dispute between directors
 Negotiate a settlement between parties in dispute within a company
 Consider the use of relevant grammar including conditional sentences
Chapter 4  Boardroom battle!
33
Even if a director is removed, s/he may nevertheless have a cause of action
against the company for breach of contract. The damages payable by the company
in this connection will depend on the terms of any service agreement in existence
between the director and the company. This will become clearer as you work
through the exercises in this chapter.
Client’s instructions
Thomas Shapiro, Managing Director of Travelgraph (formerly Maplink) Limited has
come back into your office. He explains that he and his fellow shareholders now regret
having appointed Kadir Salleh as a director. Kadir has rarely turned up for
work or board meetings. Even when he does he is late.
There have been many arguments between Kadir and the other directors. Last
week Kadir shouted at his fellow directors ‘Travelgraph’s travel guides are rubbish.
It’s time there were better guides on the market!’ Shapiro is particularly annoyed
that Kadir is making similar comments to customers and is worried that this is
adversely affecting sales. One important customer has already reduced its monthly
order. Shapiro also suspects that Kadir is secretly planning to set up his own company
in competition with Travelgraph. He now wants your advice on whether
Kadir can be removed as a director and if so how.
The document on p.31 is Kadir Salleh’s service agreement with Travelgraph Limited. It is important
to consider this carefully before advising Thomas Shapiro further. Read it carefully
then answer the following questions, while also citing the specific clause of the service agreement
providing the source of your answer. By way of illustration the first question is answered
for you.
1. When does Kadir Salleh’s service contract commence? Answer: 10 July 2006
(Clause 2.1)
2. Kadir Salleh’s service agreement is a fixed-term agreement. For what period of time?
3. What if any specific duties does Kadir have under the agreement?
4. What is Kadir’s annual salary?
5. What if any other benefits is Kadir provided with under the terms of the agreement?
6. Will Kadir be in breach of the service agreement if he does establish his own business in
competition to Travelgraph and if so why?
7. Which legal jurisdiction are any disputes between the parties to be resolved under
according to the terms of the agreement?
8. Why would a Bushell v Faith clause not assist Kadir Salleh in seeking to prevent his
removal from the board?
Exercise 1 – reading and comprehension

Part 1  Business law and practice
34
DIRECTOR’S SERVICE AGREEMENT
THIS AGREEMENT IS MADE ON 10 JULY 2006 BETWEEN:
(1) TRAVELGRAPH LIMITED (‘the Company’), whose registered office is at 44
Princess Diana Walk, South Kensington, London, W2 3SL
AND
(2) KADIR SALLEH (‘the Sales Director’) of 4 Kensington Palace Gardens, London,
W2 4AJ.
IT IS HEREBY AGREED that the aforesaid Kadir Salleh will serve as Sales Director of
Travelgraph Limited on the following terms and conditions.
1. DEFINITIONS
In the agreement the following expressions shall have the meanings set out below:
1.1 ‘the Board’ the board of directors of the Company
1.2 ‘intellectual property’ trade marks, copyrights, inventions and confidential
information
2. TERMS OF ENGAGEMENT
2.1 The Sales Director shall be employed by the Company for an initial fixed-term
period of three years commencing from 10 July 2006. This agreement may be
terminated thereafter by either party providing to the other not less than six
months’ notice in writing.
3. DUTIES
3.1 The Sales Director shall during his employment with the Company:
3.1.1. endeavour to promote and develop business on behalf of the Company
4. REMUNERATION
4.1 The Sales Director shall be paid an annual salary of £75,000, payable monthly in
arrears on the 28th of each month by direct credit transfer.
5. COMPANY VEHICLE
5.1 The Company shall provide the Sales Director with a Mercedes 300E motorcar and
will pay all running costs of said vehicle, including insurance and maintenance.
6. PENSION SCHEME
6.1 The Sales Director will throughout his employment with the Company be
eligible to become and remain a member of the Company’s pension scheme. The
Company will pay into the Company’s pension scheme on behalf of the Sales
Director an amount equal to 4% of his annual salary during his employment
with the Company.
35
Chapter 4  Boardroom battle!
7. HOLIDAY ENTITLEMENT
7.1 The Sales Director shall be entitled to 25 working days’ holiday in each calendar
year. This is in addition to normal public holidays.
8. CONFIDENTIALITY
8.1 In order to protect the confidentiality of the Company’s affairs, business and / or
intellectual property rights, the Sales Director hereby agrees not to disclose to
any other party during the course of his employment or thereafter any confidential
information relating to the Company nor to use any such information in any
way for any purpose following termination of employment with the Company.
This restriction is to remain valid for a period of 12 months from termination of
the Sales Director’s employment with the Company.
9. RESTRAINT OF TRADE
9.1 The Sales Director hereby covenants with the Company that he shall not for a
period of 12 months following termination of employment with the Company either
directly or indirectly engage in or be involved in any activity or business in
competition with the Company.
10. LEGAL JURISDICTION
10.1 This agreement shall be governed by English law and the parties hereby submit
to the exclusive jurisdiction of the English courts.
SIGNED BY THOMAS SHAPIRO
For and on behalf of Travelgraph Limited
SIGNED BY KADIR SALLEH
Of 4 Kensington Palace Gardens, London, W2 4AJ
Dated this 10th day of July 2006.
Unscramble the following, re-writing the words (which are all contained in the above agreement)
by placing the letters in the correct order. By way of illustration the first one is done for you.
Exercise 2 – vocabulary (i)
1. civseer naeetregm s e r v i c e a g r e e m e n t
2. merts dan tidinsoonc t _ _ _ _ _ _ _ c _ _ _ _ _ _ _ _ _
3. tinidisfeon _ _ _ _ _ _ _ _ _ _ _

Part 1  Business law and practice
36
4. tonymempel _ _ _ _ _ _ _ _ _ _
5. nuirtonemare _ _ _ _ _ _ _ _ _ _ _ _
6. telnettiemn e _ _ _ _ _ _ _ _ _ _
7. cityfitinonadel c _ _ _ _ _ _ _ _ _ _ _ _ _ _
8. lucenetaillt retropyp i _ _ _ _ _ _ _ _ _ _ _ p _ _ _ _ _ _ _
9. startiner fo dater r _ _ _ _ _ _ _ _ o _ t _ _ _ _
10. sirijconduit _ _ _ _ _ _ _ _ _ _ _ _
The following document is a draft letter of advice to Thomas Shapiro addressing his instructions.
It contains a number of omissions. Complete the letter by filling in the blank spaces
with appropriate words. (The necessary information to complete this exercise can be found
from the information already provided.)
Exercise 3 – letter writing
STRINGWOOD & EVANS
18 BOND STREET
LONDON
W1 1KR
+ 44 020 7538 2892
10 January 2007
T. Shapiro Esq.
Travelgraph Limited
44 Princess Diana Walk
South Kensington
London
W2 3SL
Dear Mr Shapiro,
Re. Removal of Kadir Salleh from the Board of Travelgraph Limited
I now write to advise you on the legal position concerning your wish to remove Mr Salleh
from the board.
Procedure for Removal
[1] of the Companies Act 1985 (CA) enables the [2]
of a company to remove a [3] from office. The procedure required is
basically as follows.
Chapter 4  Boardroom battle!
37
An ordinary [4] will have to be passed by the shareholders, requiring a
simple [5] (i.e. over 50 % of the votes cast). This criterion does not
appear to present a problem since Mr Salleh does not hold any [6] in the
company despite being a director. He does not therefore personally possess any voting
power with which to oppose the [7] proposing his removal.
In addition, your personal [8] amounts to 70% of the company’s
authorised and issued share capital. This means you control over 50% of the votes
available. You are therefore able to [9] the required [10] resolution
regardless of whether the other shareholders [11] for or against the resolution.
Mr Salleh does however have the right to have any written [12] he
may wish to make in his defence distributed to the [13] prior to the
resolution being [14] upon. Twenty-one days [15] is required of the
shareholders’ [16] at which the resolution will be proposed.
Possible Consequences of Removal
I have reviewed the copy of Mr Salleh’s service [17] . It is important to appreciate
that this is a three year [18] - contract and that two and a half years
of this term remains unexpired. While therefore it will be possible to [19]
Mr Salleh from the board by [20] resolution as set out above, this is likely to
prove expensive to the company. In particular, Mr Salleh will have a meritorious claim for
[21] on the basis of [22] of . In addition, there is a
six months’ [23] provision upon culmination of the three-year period. He will
therefore be able to claim damages for monies remaining payable under the agreement
(i.e. three years’ earnings). With a view to seeking to minimise the cost of Mr Kadir’s
[24] from the board I would be pleased to assist you in [25] a
mutually beneficial [26] . I look forward to receiving your further instructions.
Yours sincerely,
Select from the letter of advice you have now completed alternative words or phrases similar
in meaning to each of the following.
Exercise 4 – vocabulary (ii)
1. members of a company s _ _ _ _ _ _ _ _ _ _ _
2. amount of shares a person possesses s _ _ _ _ _ _ _ _ _ _ _
3. submissions r_ _ _ _ _ _ _ _ _ _ _ _ _ _
4. gathering of shareholders s _ _ _ _ _ _ _ _ _ _ _ m _ _ _ _ _ _
5. resolution passed by simple majority o _ _ _ _ _ _ _ r _ _ _ _ _ _ _ _ _
6. contract for a specific period of time f _ _ _ _ - t _ _ _ c _ _ _ _ _ _ _
Part 1  Business law and practice
38
The first parts of complete sentences are listed in the first column below. Complete each of
these sentences by matching each of these parts with its corresponding part in the second
column. By way of illustration the first one is done for you.
Exercise 5 – composition
ADVISING YOUR CLIENT
In pairs, role-play a meeting between Thomas Shapiro and his lawyer for the purpose of providing
Thomas Shapiro with advice on the law and procedure involved in removing Kadir Salleh
from the board. One of you should play the role of the client (Thomas Shapiro) and the other
the role of the lawyer. The person role-playing the client should be prepared to ask relevant
questions. The person playing the lawyer’s role should be prepared to provide relevant advice.
If you are working on your own then imagine that you are the lawyer about to meet with
Thomas Shapiro and make notes of th,e advice you would provide at the meeting.
Exercise 6 – role-play (i)
NEGOTIATION
An ordinary resolution has now been passed to remove Kadir Salleh from the board of directors.
In response, Kadir has appointed a firm of lawyers to represent his interests. This firm has sent a
letter of claim to Travelgraph Limited intimating that they intend to issue legal proceedings on
Kadir’s behalf for breach of contract unless satisfactory proposals for payment of compensation
are made by Travelgraph forthwith. A meeting for a ‘without prejudice’ discussion between the parties
has therefore been scheduled to take place at Stringwood & Evans’ office tomorrow morning.
Task 1
Prepare to negotiate at the meeting on behalf of Travelgraph Limited by completing the negotiation
plan on the next page. When preparing this plan you should take into account the information
already provided in this chapter.
Exercise 7–role-play (ii)
1. If a settlement is reached this will result in by English law
2. A carefully drafted confidentiality clause per s. 303 Companies Act 1985
3. Kadir Salleh’s service contract is governed by another agreement!
4. Removing a director will not prevent can protect a company’s trade
secrets
5. Shareholders can remove a director by ordinary a breach of contract claim
resolution
39
Chapter 4  Boardroom battle!
NEGOTIATION PLAN
Before engaging in negotiation on behalf of your client consider the following:
A. The client’s aims / goals. Set out below the client’s main aims / goals.
B. The opponent’s likely aims / goals. Set out below what you anticipate these will be.
C. Specific strengths in your client’s case. Identify one example.
D. Specific strengths in your opponent’s case. Identify one example.
E. Specific weaknesses in your client’s case. Identify one example.
F. Specific weaknesses in your opponent’s case. Identify one example.
G. Your strategy for achieving your client’s objectives. For instance are you going to
make an opening offer or wait for the other party to make an offer? What is your
opening offer going to be or your response to the other party’s opening offer? What
is the maximum amount you are prepared to offer? What concessions are you prepared
to make in order to achieve a settlement (e.g. will you offer a reference? Or
perhaps let the other party keep the company car?). Set out these details below.

Part 1  Business law and practice
40
Task 2
In pairs, now try role-playing the negotiation between Travelgraph’s lawyer and Kadir Salleh’s
lawyer. One of you should play the role of Travelgraph’s lawyer and the other the role of Kadir
Salleh’s lawyer. Decide between yourselves which role each person will play, then follow the
further instructions below. [If you are working on your own then imagine you are the lawyer for
Telegraph Ltd and about to meet Kadir Salleh’s lawyer to try to negotiate a settlement. Prepare
notes in readiness for the meeting, setting out details of what you intend to say and of
what questions you would ask Kadir’s lawyer. Read the section below headed ‘Further information
for Travelgraph Limited’s representative’, and take account of this further information.]
Further instructions
IF YOU ARE ACTING FOR TRAVELGRAPH LIMITED:
Read the further details below relating to your client (headed ‘Further Information for Travelgraph
Limited’s Representative’) before commencing the negotiation.
IF YOU ARE ACTING FOR KADIR SALLEH:
Read the further details below relating to your client (headed ‘Further Information for Kadir
Salleh’s Representative’) before commencing the negotiation.
DO NOT READ THE FURTHER DETAILS RELATING TO THE OTHER PARTY BEFORE CONDUCTING
THIS EXERCISE –REGARD THE OTHER PARTY’S FURTHER INFORMATION AS PRIVILEGED
INFORMATION BETWEEN THAT PARTY AND HIS/HER LAWYER.
Now try role-playing the negotiation, endeavouring to reach a mutually beneficial settlement
agreement. (You should assume that the date of the negotiation is 11 January 2007.) Take
written notes of the terms of any agreement you reach with your opponent. Compare these
notes with your opponent’s notes when you have completed the negotiation, checking that you
have both accurately recorded the same details of what has been agreed!
Task 3
Choose another colleague to play the role of your client. Report back orally to this colleague
on the outcome of the negotiation, relating clearly the details of the agreement or outcome of
the negotiation.
Task 4
Fill in the ‘Negotiation Feedback Form’ at the end of this chapter. Finally, taking account of the
answers you have provided on this form, discuss constructively with your opponent in the
negotiation your thoughts and opinions about both your own and your opponent’s negotiating
performance. (You will find this feedback exercise helpful in enhancing your skill and effectiveness
in planning and conducting future negotiations.)
Chapter 4  Boardroom battle!
41
FURTHER INFORMATION FOR KADIR SALLEH’S
REPRESENTATIVE
Kadir Salleh is in financial difficulties and is anxious to reach an agreement rather than incur
the time and cost of court action. He is however prepared to pursue litigation if a reasonable
settlement cannot be achieved. Kadir has been in discussion with a competitor since he has
felt insecure for some time at Travelgraph, the other directors having been unfriendly to him recently.
He has not as yet made any firm commitment to join any other company. He accepts
that his work performance has been poor recently due to his financial worries (caused by recent
heavy gambling in London casinos). He is therefore prepared to compromise over the
amount of compensation he will settle for. He is insistent however that the company provides
him with a favourable reference, this being important to him in seeking alternative employment.
He would be prepared to sign a confidentiality clause if Travelgraph insists on this as a
term of settlement.

FURTHER INFORMATION FOR TRAVELGRAPH LIMITED’S
REPRESENTATIVE
The board is anxious to reach an amicable settlement if possible in order to avoid protracted
proceedings in court. In addition to the potential expense of such proceedings, the board is
concerned that a court case will attract unfavourable publicity which would adversely affect
the company’s reputation and sales. Travelgraph’s profit forecast is poor for the coming year.
The shareholders believe that Kadir Salleh is at least to some extent to blame for this. The
company is not therefore prepared to offer compensation amounting to three years’ earnings.
It will nevertheless offer a reasonable amount, the board being keen to avoid a court case if
at all possible for the reasons set out above. The company would however require a confidentiality
clause to be included in any agreement reached, prohibiting Salleh from publicly disclosing
the terms of the settlement. The company would be prepared to provide a favourable reference
if this concession resulted in a satisfactory resolution of the whole matter.
Part 1  Business law and practice
42
NEGOTIATION FEEDBACK FORM
1. On a scale of 1 to 10, how successful do you think you were overall in achieving
your client’s objectives?
2. On a scale of 1 to 10, how successful do you think your opponent was in achieving
his / her client’s objectives?
3. Tick the appropriate box to indicate your opinion on how successful you were
regarding the outcome as far as monetary compensation was concerned:
a) no specific amount of monetary compensation was agreed upon
b) the amount agreed upon was far higher than I anticipated would be agreed
c) the amount agreed upon was slightly higher than I anticipated would be agreed
d) the amount agreed upon was very close to the amount I anticipated would
be agreed
e) the amount agreed upon was slightly lower than the amount I anticipated
would be agreed
f) the amount agreed upon was much lower than the amount I anticipated
would be agreed
4. How would you describe your opponent’s attitude to you in the course of the
negotiation. (For instance was it conciliatory or aggressive etc.?)
5. Which argument did you put forward which proved to be the most effective / persuasive
and why?
6. Which argument did your opponent put forward which proved to be the most
effective / persuasive and why?
7. In what way (if any) would you plan and / or negotiate differently next time?
Chapter 4  Boardroom battle!
43
Removal of a director
 A director can be removed by passing an ordinary resolution (OR) at a shareholders’
meeting, per s. 303 Companies Act 1985 (CA ’85)
 Requires simple majority (i.e. over 50% of votes cast) in favour
 Special notice of OR required (i.e. 21 days), per s. 303(2) and s. 379 CA ’85
 Director concerned is entitled to address the meeting
 If director concerned is also a shareholder then articles of company may provide for
‘weighted’ voting rights, i.e. a Bushell v Faith clause
 Shareholders’ power to remove a director under s. 303 CA ’85 does not deprive director
concerned of right to claim damages for breach of contract
 Articles of a company can also provide for a director becoming disqualified from continuing
as a director in specific circumstances (e.g. upon bankruptcy)
 Any service contract provided to a director for over five years’ duration requires approval
by shareholders (s. 319 CA ’85)
Law notes
Conditional sentences
Conditional sentences are commonly used when negotiating a settlement. For example:
If you pay within 14 days Mr Salleh will accept £100,000 in full and final settlement.
Note that in the first part of this structure we have ‘if’ and present tense followed by ‘will’
in the second clause. In this way the person making the settlement offer (the offeror) can
make it clear that the settlement being proposed is subject to a condition. (I.e. that payment
is made within 14 days.)
Conditional sentences can similarly be used to issue a warning. For instance:
If you do not accept this offer we will proceed to court.
The word should is commonly used in a professional context with this future form of
conditional sentence in place of if. This conveys a more reserved and formal impression
to the reader or listener. Thus:
Should you encounter any further difficulties in the future please inform me.
The word should is also used in a professional context in place of the word would in other
present or future forms of conditional sentences. Thus:
I should also make clear that this offer is conditional upon early acceptance.
Conditional sentences can also be used in a more hypothetical form which is also
encountered in legal negotiations. This involves the use of the word were followed by the
infinitive with ‘to’. Thus:
Grammar notes

If we were to make an offer there would have to be some assurance that this would be kept
secret.
It is also possible to invert were along with the subject and to omit if. Thus:
Were we to make an offer there would have to be some assurance that this would be kept secret.
Legal English also uses conjunctions in conditional sentences, such as:
until; although; provided that; unless; in order that; on condition that etc.
E.g. We wouldn’t make an offer unless there was an assurance that this would be kept secret.
Modal verbs (such as may, can, could, should and ought to) can also be used where a
possibility rather than a certainty is being discussed. Thus:
If you can assure us this will remain confidential we may put forward an offer.
Part 1  Business law and practice
44
45
Chapter 5 Marketing agreements
Learning Objectives
By completing the exercises in this chapter you will:
 Analyse a marketing agreement, taking account of a client’s instructions
 Consider different types of marketing agreements
 Amend a marketing agreement in accordance with a client’s instructions
 Develop vocabulary relevant to marketing agreements
 Develop grammatical and written word skills relevant to drafting legal documentation
 Become familiar with realistic legal precedents and how to use them for drafting
 Acquire practice in drafting commercial documentation and achieving clarity of meaning
in your drafting
Introduction
There are various types of marketing agreements including:
 Agency agreements
 Distribution agreements
 Franchising agreements
 Joint venture agreements
Agency agreement
A traditional sales agency agreement is an agreement whereby a company (known
as the principal) authorises another company or individual (known as the agent) to
sell the principal’s goods on its behalf. The agent thus sells the goods on behalf of
the principal (rather than purchase the goods itself). When a customer purchases
from the agent the contractual relationship (known as ‘privity of contract’) will
thereby legally exist directly between the principal and the purchaser (the agent receiving
commission on such sales).
Part 1  Business law and practice
Distribution agreement
This is an agreement whereby a company (termed the supplier) actually sells its
goods to another company (the distributor). When the distributor then sells the
goods on to its own customer there is no contract created between the supplier and
the final customer (the contract being between the distributor and its customer). The
distributor therefore receives no commission from the supplier, instead earning
profit from the ‘mark-up’ between the price it paid the supplier and the price it sold
the goods on for. (Distribution agreements must be drafted very carefully since
many agreements which restrict competition and therefore consumer choice are
now illegal under European Community law.)
Franchise agreement
A company (the franchisor) can expand its business nationally and internationally
by entering into franchise agreements with other parties (known as franchisees).
This is known as franchising a business. Franchising is appropriate to businesses
with an established brand. A franchise agreement imposes requirements on the
franchisee to operate the business in accordance with a uniform business model (for
instance by stipulating the colour scheme and interior layout of the franchisee’s
premises). The franchisee benefits however by being associated with a well recognised
brand-name. Many well-known high street brands are franchises, such as
fast-food restaurants.
Joint venture agreement
This is an arrangement in which two or more businesses agree to co-operate or in
other words ‘join forces’ on a particular business venture or project. This enables
companies to undertake initiatives which they may not have the resources to undertake
individually, sharing risks while also combining their financial and skills
resources. Care is again required in drafting joint venture agreements in order to
avoid contravening European Community law competition rules and/or US competition
law (known as ‘a(chǎn)nti-trust’ law).
TASK 1
Answer true or false to each of the following questions based on the text above.
1. An agent purchases goods directly from a principal.
2. Under an agency agreement a contract exists between the principal and ultimate customer.
3. Under a distribution agreement the distributor purchases goods directly from a supplier.
4. An entirely unknown company would usually be a suitable business to franchise.
Exercise 1 – comprehension
46
TASK 2
Answer the following questions.
1. Name one company or brand-name you can think of which is a franchise.
2. What is an agent’s income from sales known as?
3. How does a distributor earn income on sales?
4. State one benefit to a company of entering into a joint venture agreement.
Chapter 5  Marketing agreements
47
Drafting agreements
Drafting is an important skill for a lawyer. Drafting in the legal sense means to compose
legal documentation (including for instance legal correspondence, court
orders, contracts and legislation). Precision is essential when drafting legal agreements;
otherwise there may be scope for ambiguity in the course of interpreting the
intended meaning of the terms of the agreement. This in turn can lead to subsequent
dispute between the parties to the agreement. Drafting practice provides the
opportunity to develop your skill in the use of legal English.
The following agreement relates to the appointment of an agent by an aircraft manufacturer
called Cadmium Aerospace Limited. Complete this sales agency agreement on behalf of Cadmium
Aerospace Limited by selecting the appropriate word to enter in each blank space from
the alternatives in brackets.
Exercise 2 – document completion

AGENCY AGREEMENT
THIS AGREEMENT is made on the 19th day of July 2007
BETWEEN:
(1) CADMIUM AEROSPACE LIMITED, whose registered office is at 168 Hanover
Square, London, W1 (‘the Principal’)
AND
(2) MACFADYEN AVIATION LIMITED, whose registered office is at 115 Duxford
Road, Cambridge, CM3 (‘the Agent’).
Part 1  Business law and practice
48
1. APPOINTMENT
The Principal [1] [hereby / thus / thereafter] appoints the Agent and
the Agent agrees to act as the Agent of the Principal for the purpose of promoting and
selling the Principal’s aircraft throughout Europe and North America (‘the Territory’). It
is [2] [nevertheless / whereby / further] agreed that this agreement shall be
valid for a period of two years. [3] [Hereunder / Moreover / Whereby]
the Principal agrees not to appoint any other agent in the territory and [4]
[hereof / conversely / furthermore] agrees not to seek nor enter into
sales itself within the Territory during the period of the Agreement.
2. AGENT’S OBLIGATIONS
2.1 The Agent [5] [hereunder / hereof / hereby] undertakes to use
its best endeavours to market and achieve sales of the Principal’s aircraft in the
Territory. The Agent is also [6] [henceforth / subsequently /
hereinafter] authorised to enter into contracts for the sale of the Principal’s aircraft
for and on behalf of the Principal.
2.2 [7] [Herein / Alternatively / In addition], the Agent undertakes
to provide the Principal with market reports on monthly sales and competitors’
activities.
2.3 The Agent shall make appropriate credit checks on potential customers in order
to ensure their credit-worthiness.
3. PRINCIPAL’S OBLIGATIONS
3.1 The Principal hereby agrees that [8] [hereto / during / meanwhile]
the continuance of the Agreement it will:
3.1.1 provide the Agent with training on the Principal’s aircraft;
3.1.2 provide customers with technical and servicing report;
3.1.3 provide the Agent with marketing and publicity material to assist the
Agent with marketing the Principal’s aircraft [9] [within /
nevertheless / hereafter] the Territory.
4. REMUNERATION
4.1 The Agent shall receive from the Principal in consideration of its services
hereunder commission as follows:
4.1.1 at a rate of 5% of the Net Selling Price for each single engined ‘Strato-Line’
airplane sold;
4.1.2 at a rate of 7% of the Net Selling Price for each twin engined ‘Skymaster’
airplane sold.
EXECUTED BY (Sales Director)
For and on behalf of CADMIUM AEROSPACE LIMITED
EXECUTED BY (Chief Executive Officer)
For and on behalf of MACFADYEN AVIATION LIMITED
Chapter 5  Marketing agreements
49
TASK 1
Cadmium Aerospace has now notified you that it wishes to include a further clause in the
agreement providing either party with the right to terminate the agreement at any time with
three months’ notice. Re-arrange the following clauses in the correct order to produce an
appropriate sentence which fulfils this purpose.
This agreement shall continue in force / three calendar months notice in writing / be terminated
by either party providing to the other / for a period of two years save and except
that it may
TASK 2
It has now been agreed between the two parties to the agreement that Cadmium Aerospace
may terminate the agreement at the end of the first year in the event that MacFadyen Aviation
Limited does not achieve sales of at least £750,000 by that time. Re-arrange the following
clauses in the correct order to produce an appropriate sentence which fulfils this purpose.
£750,000 within / the Principal shall be entitled / by notifying the Agent in writing accordingly
/ In the event that / to terminate this Agreement / the Agent fails to achieve a minimum total
sales amount of / twelve months of the commencement of this Agreement
Exercise 3 – sentence structure
The parties to the agreement have further agreed that the agent is to receive a bonus in addition
to the commission already agreed if the agent achieves sales exceeding £1,250,000 by
the end of the first year of the agency agreement. This bonus will be 1% of total net sales
made by the agent within this first year of the agreement.
(a) Draft a suitable clause which complies with these further instructions.
(b) Which paragraph number would be a suitable place to locate this additional clause within
the agreement?
NOTE TO READERS WORKING IN A GROUP: Compare your draft of the clause in Exercise 4(a) above with a
colleague. Consider which draft is clearest, structured best and best meets the client’s wishes. Then try
to agree a final version of the clause between you. Write out this re-drafted clause. You can then present
this re-drafted clause to the rest of your group for constructive discussion and feedback on clarity of
meaning.
NOTE TO READERS WORKING INDIVIDUALLY: Re-read your draft of the clause in Exercise 4(a) above. Be
critical of your draft, considering how you could possibly improve the structure and content. E.g. could you
make your sentences shorter? Is your wording clear in meaning? Does it fully set out what your client
intends?
Exercise 4 – drafting
Part 1  Business law and practice
Interviewing and advising
Interviewing is an important means of communication between a lawyer and client.
Effective interviewing involves a combination of general skills including those of listening,
questioning, note taking, fact gathering and assimilation. Many complaints
by clients against their lawyers relate to insufficient communication. Competence in
interviewing and advising is therefore a prerequisite to proper client care.
A properly conducted interview usually involves the following stages:
Interviewing and Advising Checklist
1. INTRODUCTION
Set the client at ease initially, exchanging ‘pleasantries’ and establishing a good rapport
with the client. (Sometimes known as the ‘meet, greet and seat’ stage.)
2. INFORMATION GATHERING
At this stage the lawyer invites the client to explain his/her problems and concerns with a
view to ascertaining the client’s aims and goals. This is primarily a listening stage.
3. ADVISING
At this stage the lawyer provides advice, addressing the client’s specific questions and
concerns. This advice should be explained clearly and accurately.
4. CONCLUSION
At this juncture the lawyer should ensure that the client understands clearly what has
been discussed and the advice which has been provided. This can often be achieved by
the lawyer providing a short ‘recap’ of his/her advice.
TASK 1
Read the following memorandum from your secretary at Stringwood & Evans.
Exercise 5 – interviewing and advising
50
Chapter 5  Marketing agreements
STRINGWOOD & EVANS
Solicitors
Client: Cadmium Aerospace Limited Date: 30 July 2007
File Reference: CA 001
Matter: Agency Agreement with MacFadyen Aviation Ltd.
The Sales Director of Cadmium Aerospace Limited, Frederick Johannsen, telephoned
this afternoon. I have made an appointment for him to see you in your office tomorrow
morning at 11.00 a.m. He wants to discuss the above mentioned agency agreement
with you. In particular, he wants you to advise him concerning:
 Whether Cadmium Aerospace can appoint other agents within Europe and North
America during the course of the agency agreement
 Whether the Principal can sell directly to customers within Europe and North
America as well as through MacFadyen Aviation Ltd while the agreement remains in
force
 Details of how the Principal is required under the agreement to assist the agent to
achieve sales
 An explanation of how the agent’s commission is to be calculated in accordance with
the agreement.
Regards,
Tracey

51
TASK 2
If you are working in a group then undertake the ‘Group exercise’ below.
If you are working on your own then undertake the ‘Individual exercise’ below.
Group exercise
Role-play the interview with Frederick Johannsen as follows. Pair up with a colleague. One of
you should play the role of the client, Frederick Johannsen, the other person playing the role
of the lawyer. The client should explain to the lawyer the matters he seeks advice on, based
on the information in the memorandum above. Take notes of the advice provided. The lawyer
should provide advice to the client, addressing the matters set out in the memorandum
above (taking account of the ‘Interviewing and Advising Checklist’). Refer to the relevant
sections of the agency agreement in support of your advice. Take notes of the information
the client provides and of the questions the client asks, along with notes of the advice you
provide.
Finally, provide feedback to your partner on his/her performance in interviewing and
advising by grading him/her under each of the four criteria in the ‘Interview and Advising
Checklist’. Grade from 1 to 5 as follows: 1 = unsatisfactory; 2 = poor; 3 = average; 4 = very
good; 5 = outstanding. Ask your partner to similarly provide feedback to you on your
performance.
Individual exercise
Firstly imagine that you are the client, Frederick Johannsen. Prepare a list of questions to ask
the lawyer advising you which address the matters of concern to you as set out in the memorandum
above.
Then assume that you are the lawyer providing advice to Frederick Johannsen. Prepare for
the interview with your client by writing out a brief summary of your advice regarding the four
questions raised in the memorandum from your secretary. (Include in your summary the relevant
paragraph numbers of the agreement which support your answer.)
Part 1  Business law and practice
52
Marketing agreements
Agency agreement
 Agent sells goods or services on behalf of a principal, the principal selling directly to
the final customer
 Privity of contract exists between the principal and the ultimate purchaser
 Agent receives commission
 Agency agreements are often more suitable for high-value items such as aero-engines etc.
 Agent’s duties include:
1. promoting the goods or services in the market place
2. providing principal with feedback information on sales and market trends
3. maintaining confidentiality regarding principal’s trade secrets
 Principal’s duties involve acting in good faith towards the agent and usually include:
1. paying commission
2. supplying advertising and promotional literature
3. supplying stock as required and after-sales service
Distribution agreement
 Supplier sells to a distributor in a particular market (often in another country), no contract
existing between the supplier and the final customer
 Distributor earns income from ‘mark-up’ between price paid to supplier for goods and
selling price to customer
Law notes
 Distributor’s duties usually include:
1. purchasing a specified minimum amount of stock from the supplier on a regular basis
2. marketing and promoting effectively goods purchased from the supplier and keeping
supplier informed of sales levels and market trends
3. ensuring that similar competitors’ products are not sold or promoted (albeit care
has to be taken not to contravene European competition law rules relating to restriction
on competition in this respect)
 Supplier’s duties usually include:
1. providing advertising and sales promotional material
2. selling a specified amount of stock regularly to the distributor
3. indemnifying the distributor from any legal liability resulting from any defect in the
products
Franchising agreement
A contractual arrangement in which a franchisor appoints a franchisee to operate as a
separate business offering the franchisor’s goods or services. The franchisee usually
pays a franchise fee as well as possibly a continuing royalty fee on sales. In return the
franchisee benefits from a recognised ‘brand-image’.
Joint venture agreement
An agreement whereby two or more separate businesses co-operate with each other on a
particular commercial venture or project. Such an agreement enables the separate
businesses to combine resources and to share financial risk for mutual benefit.
Chapter 5  Marketing agreements
53

Points to remember when drafting legal documents
Active or passive voice
Use the active voice rather than the passive when drafting legal documents. (Use of the
passive can result in longer clauses as well as ambiguity.) The object of the active verb
becomes the subject in the passive.
E.g. ‘The contract was drawn up by the solicitor’ is a passive sentence. This could be re-written
as follows to make it active: ‘The solicitor drew up the contract.’
Remember however that the passive voice is appropriate in the following circumstances:
 When the emphasis and purpose of the sentence is primarily to notify the act as
opposed to the person performing it. E.g. ‘Legal proceedings were served yesterday’;
 When the identity of the individual conducting the act is irrelevant and/or anonymous.
E.g. ‘The vehicle was wrecked’;
 When it is intended that the identity of the person conducting the act should remain
anonymous (for instance in order to prevent blame being attributed to a particular
person). E.g. ‘There was negligence’.
Grammar notes
Grammar and punctuation
Try to avoid using more words than necessary. For example, instead of ‘by means of’ the
word ‘by’ is usually sufficient. Similarly, rather than ‘on a monthly basis’ use ‘monthly’.
Avoid separating the subject and the verb and similarly the verb and the object.
E.g. ‘This agreement, unless termination has transpired on a prior date, shall terminate on
17 October 2007.’
Consider instead:
‘Unless earlier revoked, the agreement shall terminate on 17 October 2007.’
Correct punctuation is also important to clarify the intended meaning. Thus ensure fullstops
are placed correctly to signify the end of each sentence. Also use commas to signify
appropriate pauses (similar to those you would make when speaking). Commas
should also normally be used at the start of a quotation. E.g., The witness said, ‘I did not
see the other vehicle’. In addition, if using commas instead of brackets then remember to
place both commas in the appropriate part of the sentence.
E.g. ‘The law accepts, as a matter of course, that damages are recoverable for negligence.’
Be careful however to use commas appropriately. Incorrect use can result in inaccuracy
of meaning. Similarly consider whether other punctuation marks are appropriate, such
as:
 The semi-colon (;) – which can fulfil a similar function to a full-stop, enabling for instance
two closely related points to be included in one sentence.
 The colon (:) – which can be used as the prelude to a list (such as bullet points) or prior
to citing a quotation.
 The apostrophe (’) – to indicate ‘possession’ or omission of a letter (e.g. ‘doesn’t’ instead
of ‘does not’). Note however that such informal abbreviation of words will not
usually be appropriate for formal legal documents.
 The question mark (?) – place at the end of a directly posed question. E.g. ‘Did you see
the silver Ford motor car before it struck your vehicle?’
Part 1  Business law and practice
54
Chapter 5  Marketing agreements
55
Accordingly
Alternatively
As a result
As a whole
Clearly
Coincidentally
Conversely
Equally
Finally
Fundamentally
Furthermore
Further or alternatively
Henceforth
Hereby
Herein
Hereinafter
Hereinbefore
Hereof
Hereunder
However
In addition
In all the circumstances
In any event
In conclusion
In consequence thereof
In contrast
In essence
In particular
In so far as
In summary
Meanwhile
Moreover
Nevertheless
Nonetheless
On the contrary
Overall
Primarily
Secondly
Significantly
Similarly
Subsequently
Therefore
Thereto
Thus
Whereby