LAW OF ORGANISATIONS PROJECT

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LAW OF ORGANISATIONS PROJECT
DEADLINE FOR SUBMISSION: 25 May 2018
On submitting this Assessment you will be deemed to have completed the
following declaration: “I declare that this is my own unaided work and if this
statement is untrue I ACKNOWLEDGE that I have cheated.”
INSTRUCTIONS TO CANDIDATES
 Type your candidate number on each page of your answer and follow the
submission instructions as directed by The University of Law.
 Your submitted work must be word processed. Your submitted work
must have a word count completed on the front sheet.
 For this Assessment you will be assessed against these Assessment
Criteria:
 Demonstrating knowledge and understanding of relevant legal
principles relating to the creation and running of the principal forms of
business organisation in England and Wales
 Analysing factual materials to identify relevant legal issues
 Demonstrating research skills to locate and select relevant primary
and secondary sources
 Evaluating or applying relevant law to the facts as appropriate, with
reasons, to support a conclusion, advice or opinion
 Presenting an answer, advice or opinion using an appropriate
structure
 Expressing an answer, advice or opinion clearly and concisely, using
correct grammar and spelling and using appropriate technical legal
language where relevant
The contents of this Assessment are confidential. You must not disclose, discuss
or express an opinion on the contents of this Assessment or your answer to it to
any other person, by any means.
In particular, you should note that you may not consult any member of The
University of Law staff nor any other person on any aspect of the content of this
Assessment. If you are in any doubt as to how to interpret any word or phrase in
this Assessment you should decide for yourself which interpretation to adopt.
By submitting this Assessment you are confirming that you are fit to sit, in
accordance with the Assessment Regulations.
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Questions
Part A
Winnie Banks, Albert Park, Coulby Newham and Lynne Thorpe were all recently made
redundant from their jobs as human resources (HR) professionals when Boro
Indemnity PLC, the insurance company for which they worked, outsourced its HR
functions to a company in Pune, India.
The four of them have decided to set up in business together to offer a bespoke HR
service to small businesses in the Teesside area (“the Business”). They have carried
out some market research and believe that there is a significant enough demand for
their services from businesses which are too small to support their own HR function.
Whilst the Business will not need much in the way of capital assets, their business plan
has budgeted for a working capital requirement of around £150,000 by the end of its
first year. After that, they will have the choice of paying themselves an income or
reducing the working capital required by the Business. If the Business does very well
and its working capital requirements increase, then they will consider seeking external
finance. None of them will have any other source of income until the Business starts
generating a cash return, so they will each have to live off their own personal savings
for the next year.
Winnie has worked in HR for twenty years, and has considerable experience. At the
time of her redundancy, she was a senior HR business partner. Albert and Lynne have
worked in HR for three years, each of them having joined after graduation as HR
assistants. A year before their redundancy, each of them had been promoted to HR
business partner. Coulby Newham is an HR assistant. In view of their different levels
of skill and experience, it is anticipated that Winnie will contribute a greater share of
the finance required and will be paid commensurately more; and Coulby
commensurately less. The initial expectation is that this will be in the ratio 30:25:25:20.
They anticipate having an equal say in running the Business, but recognise that with
four of them, it would be sensible to give the final say to Winnie if there is deadlock.
They are not particularly concerned if any of the details of the Business are in the public
domain.
You are a trainee with Bill Ingham LLP solicitors and have been seconded to the
Grangetown Chamber of Commerce Business Advice Unit (“GCCBAU”). This Unit
operates a pro-bono service giving free initial business, finance and legal advice to
SME’s (small and medium sized enterprises) in the local area.
You have been asked by the head of the GCCBAU to produce a memorandum
advising Winnie, Albert, Lynne and Coulby on the choice of an appropriate
business medium through which to conduct their new business.
You do NOT need to address any issues relating to taxation, as another adviser at
GCCBAU will be giving advice on taxation related matters.
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Part B
Assume that it is five years later. The business started life as a partnership, but was
incorporated two years ago, and is now run through a private limited company called
Hemlington HR Ltd (“HHR”). Details of HHR are set out in Document A. Extracts from
a Shareholders’ Agreement between the four shareholders in HHR entered into when
it was incorporated are contained in Document B.
The parties were recently approached by Norman Bee, a freelance HR systems
specialist from London. Norman runs his business through a limited company, Norman
Bee IT Ltd (“NBIT”), which has clients all over the country; one of which is HHR.
Norman’s wife recently took up a position as a doctor at a hospital in Middlesbrough,
and they have decided to move to the region.
Norman was originally planning to run his business from Middlesbrough. However,
after lengthy discussions with Winnie, a proposal was put together to join the
businesses of HHR and NBIT. The draft document to implement the proposal is set out
in Heads of Agreement at Document C.
The draft proposal was presented to the board of directors of HHR. Initially, it was
poorly received. Albert was particularly adamant that he wanted nothing to do with the
proposal, saying that things were fine as they were. He was reassured that Coulby and
Lynne were also quite negative.
Albert’s expectations that the proposal would be rejected were firmly entrenched by
the time of the next board meeting when the proposal was to be formally voted upon.
So he was very shocked when, as the directors went into the meeting, Coulby and
Lynne said that they had changed their minds and now planned to vote in favour of the
proposal.
You act for HHR in relation to the proposed matter, and have been requested by
your supervising solicitor, Dalton Piercy, to prepare a memorandum relating to
the following matters:
1. Explain the resolutions which would need to be passed by HHR:
(a) by the shareholders in general meeting; and
(b) at a meeting of the board of directors
in order to implement the proposal set out in the Heads of Agreement;
together with:
(c) any further consents or agreements required to be given or entered for
any part of the proposal.
2. Explain whether Albert would be able to prevent any of the resolutions being
passed if all parties attended all meetings.
3. Explain whether Albert would be able to successfully bring a claim under
section 994 of the Companies Act 2006 to prevent the proposal proceeding.
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Part C
Assume that the proposal was implemented as set out in the Heads of Agreement
(Document C) a year ago.
The merger with Norman’s company went well, but Albert’s dislike of Norman made
working relationships very difficult, and Albert became more and more disillusioned.
As a result, the parties have now agreed that Albert should leave HHR, and it has been
agreed that he should seek to transfer his shares, at £15 per share, and resign as a
director. Each of the existing shareholders would like to buy the following numbers of
Albert’s shares:
Winnie 1,200
Norman All of them
Lynne 4,000
Coulby All of them
Dalton has asked you to prepare a note for the board of HHR explaining:
a) the process which will be applied to the sale of Albert’s shares;
b) how many shares each of the existing shareholders will acquire; and
c) how the balance of power between the remaining shareholders will be
affected as a result.
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DOCUMENT A
Company name: Hemlington HR Ltd
Company number: 9876543
Members:
Winnie Banks 30,000 ordinary shares of £1 each, fully paid up
Lynne Thorpe 25,000 ordinary shares of £1 each, fully paid up
Albert Park 25,000 ordinary shares of £1 each, fully paid up
Coulby Newham 20,000 ordinary shares of £1 each, fully paid up
Directors:
Winnie Banks Managing Director and Chair
Lynne Thorpe Production Director
Albert Park Sales Director
Coulby Newham Finance Director
Company Secretary:
None
Accounting reference date:
31 March
Registered Office Address:
Personnel House
Corporation Road
Middlesbrough
TS1 2AB
Articles of Association: Model Articles for private companies in the form
contained in the Companies (Model Articles) Regulations 2008, Schedule 1, save
that Model Article 17(1)(b) does not apply to the company, and save that Special
Article 1 provides that directors shall not exercise any power of the company to
allot shares unless authorised by resolution of the company in accordance with
section 551 of the Companies Act 2006.
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DOCUMENT B
THIS AGREEMENT is entered into for the purpose of creating and regulating the
exercise of the rights of the signatories hereto in relation to Hemlington HR Ltd (“the
Company”), company number 9876543.
1. Each party shall be entitled to be a director of the Company and to participate
in its management and affairs.
2. The business of the Company shall be the provision of outsourced human
resources services to businesses (“the Business”).
3. Each party shall procure (so far as is lawfully possible in the exercise of his
rights and powers as a shareholder of the Company) that, in addition to any
decisions required of the Company by the general law in relation thereto, the
Company shall not take any of the actions set out in the Schedule hereto without
the prior written agreement of holders of not less than 75% of the issued share
capital of the Company from time to time.
4. Nothing in this agreement is intended to create a partnership or agency
agreement between the parties hereto or to give rise to any fiduciary
relationship between them, and their rights and obligations hereunder together
with HHR’s articles from time to time shall form the entire agreement between
them in relation to the affairs of HHR.
Signed by:
Winnie Banks
Albert Park
Coulby Newham
Lynne Thorpe
Schedule
1. Any allotment and issue of shares to a person who is not a member of the
Company unless such person has agreed to be bound by the terms of this
agreement by a deed of adherence.
2. The entry into any transaction with an aggregate value in excess of £200,000.
3. The appointment of any director or the award of any service contract to any
director of the Company.
4. Any borrowing by the Company in excess of £1,000,000.
5. The acquisition by the Company of any business related to the provision of HR
services.
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DOCUMENT C
Heads of Agreement
The following sets out the agreement between Hemlington HR Ltd (“HHR”) and
Norman Bee.
1. HHR shall acquire the entire issued share capital of Norman Bee IT Ltd
(“the Shares”) from Norman Bee.
2. In consideration of the transfer of the Shares, HHR will issue to Norman
Bee 25,000 ordinary shares of £1 each ranking in all respects equally with
the existing ordinary shares of HHR, at a premium of £9 per ordinary share.
3. HHR shall in addition:
3.1. appoint Norman Bee as media and communications director, together
with a service contract at a salary of £80,000 with a notice period of
three years;
3.2. adopt new articles of association to introduce a new transfer article in
agreed form;
3.3. appoint Winnie Banks as company secretary.
If the terms of this letter correctly reflect our agreement, we kindly request that
you sign the enclosed copy of this letter to indicate your agreement.
…………………………………
Winnie Banks
For and on behalf of Hemlington HR Ltd
………………
Norman Bee
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DOCUMENT D
Extract from Articles of Association of Hemlington HR Ltd adopted at the time
of Norman Bee’s investment.

6. Transfers of shares
6.1 All transfers of shares must be effected by instrument in writing in any form
for the time being authorised by the Stock Transfer Act 1963 (or any
statutory modification or re-enactment thereof for the time being in force) or
in any other form which the directors may approve.
6.2 No member may sell, transfer, assign, pledge, charge or otherwise dispose
of any share or any interest in any share except in accordance with the
procedure set out in the remaining provisions of this Article.
6.3 A member (Selling Member) wishing to transfer its shares must put up for
sale the whole (and not just some only) of its shares in accordance with the
remaining provisions of this Article.
6.4 The Selling Member shall give notice in writing (Transfer Notice) to the
Company irrevocably appointing the Company as its agent for the sale of all
of its shares (Sale Shares) together with all rights in those shares and
specifying the price per share in cash at which the Selling Member is
prepared to sell the Sale Shares. A Transfer Notice shall be irrevocable once
given to the Company.
6.5 Within seven days of receiving the Transfer Notice the Company shall by
notice in writing to all members other than the Selling Member invite offers to
acquire any or all of the Sale Shares at the price specified in the Transfer
Notice and otherwise on the terms of these Articles. The notice shall invite
each member to state in writing to the Company within 28 days of the date of
the notice (Offer Period) the maximum number of Sale Shares it wishes to
purchase (Maximum).
6.6 A member who wishes to purchase Sale Shares (Purchasing Member) shall
give written notice to the Company within the Offer Period specifying its
Maximum.
6.7 If the total number of Purchasing Members’ Maximums is less than or equal
to the number of Sale Shares then the Company shall, on expiry of the Offer
Period, allocate to each Purchasing Member its Maximum.
6.8 If the total number of Purchasing Members’ Maximums exceeds the number
of Sale Shares then the Company must, on expiry of the Offer Period, allocate
the Sale Shares as follows:
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6.8.1 Sale Shares shall firstly be allocated in proportion to the existing
shareholdings of Purchasing Members until the Maximum of any
Purchasing Member (“the First Purchasing Member”) is met.
6.8.2 Any remaining Sale Shares shall be allocated in proportion to the
existing shareholdings of Purchasing Members other than the First
Purchasing Member until the Maximum of any remaining Purchasing
Member (“the Second Purchasing Member”) is met.
6.8.3 Any remaining Sale Shares shall be allocated in proportion to the
existing shareholdings of Purchasing Members other than the First
and Second Purchasing Members unless and until the Maximum of
any remaining Purchasing Member (“the Third Purchasing Member”)
is met.
6.8.4 Any remaining Sale Shares shall be allocated according to the same
methodology until the Maximums of all Purchasing Members have
been met or all of the Sale Shares have been allocated.
6.9 The Company must within seven days of the expiry of the Offer Period notify
the Purchasing Members of their allocation and must inform the Selling
Member of the identity of the Purchasing Members and the number of Sale
Shares allocated to them. Within 30 days of receiving notification from the
Company, the Selling Member must transfer Sale Shares to the Purchasing
Members in accordance with their respective allocations and the Purchasing
Members must pay the purchase price at the price per share specified in the
Transfer Notice.
6.10 If the Selling Member remains the holder of any Sale Shares after complying
with the provisions of Article 6.9, it may within sixty days after the end of the
30 day period referred to in Article 6.9 transfer all (but not some only) of those
shares to a bona fide third party buyer for a price not less than the price
specified in the Transfer Notice.

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