'Whilst every effort has been made to ensure the accuracy of the answers given, Rawlins Davy Plc makes no representations or warranties in respect of the information given'.
Click on headings for full Questions and Answers
COMPANY E MAILS – AVOID PERSONAL LIABILITY
Q.I run my business through a limited company as the sole director. The company name is printed on all letterheads but many orders come via email although I do not have a company email account. I heard that I need to include my company name on emails but is there anything else?
A. By law, a company must display its name, number and registered office on all business communications including emails and websites. In order to avoid personal liability, it is important to make it clear in correspondence that you are a director acting on behalf of the company, particularly when accepting orders. Always state your title, e.g. Managing Director, in your sign off and set out the company details in the footer to every email.
LIABILITY UNDER VERBAL CONTRACT
Q: I own a catering firm and was booked to cater a 50th Birthday but 2 weeks before the event, my supplier said it could not deliver the food and I had to cancel. The client is now claiming that I must pay for the costs of the replacement caterer, which are almost double my fees. The booking was made by phone and nothing was ever signed, so am I responsible?
A: A contract does not always need to be in writing to be valid. By accepting the offer to cater for the client’s 50th Birthday, you created a verbal contract which you then cancelled, breaching the contract. Therefore the client has a potential claim against you for losses arising from that breach, including the costs of a replacement caterer. However, you may have a similar claim against your supplier, depending on the terms of your contract with them.
REASONABLE HOSPITALITY AFTER THE BRIBERY ACT 2010
Q: As marketing director, I regularly invite potential buyers from the UK and Europe to tour the company’s factory. The company pays for accommodation, travel and also one hospitality event. I am concerned that laws coming in later this year may prevent future trips for potential buyers. Is this true and is there anything I can do to ensure compliance?
A: The Bribery Act 2010 does not prevent corporate hospitality provided that it is reasonable and proportionate expenditure in order to fulfil legitimate business needs. It will be an offence if the company fails to prevent bribery by an employee or agent but it is a defence to show that adequate anti-bribery procedures were in place. Now is the time to assess the current costs and standards of hospitality, implement anti-bribery policies and procedures with staff, including guidance on expenditure, and monitor hospitality and gifts given or received by the company.
ARTICLES OF ASSOCIATION – IMPORTANT CHANGES
Q: My accountant tells me that my company’s articles of association are out of date and need changing. Should we bother to change them?
A: If your company still has articles which are governed by, as is still fairly commonly the case, the 1985 or the 1948 Companies Acts, your accountant is quite right.
The Companies Act 2006 introduced a new form of model articles which, although they are probably not best adopted without suitable amendment, are certainly much more user-friendly and intelligible than those articles which still apply to most companies.
Companies used to be required by law to have a memorandum as well as articles of association but, since the autumn of 2009, newly formed companies no longer have memoranda at all, as they are no longer legally required.
The main advantage in adopting new articles is that they generally form a single reference point for directors in interpreting the appropriate means of dealing with all aspects of the company. One of the other benefits of adopting the new form articles is that they are also generally intelligible to shareholders, which means that the necessity to take legal advice upon them is much reduced!
More seriously, the new style of articles takes into account modern technology. This means that directors and shareholders meetings can be held using SKYPE and other similar means of communication . Furthermore, notices of meetings and proxy voting can take place by e-mail, where shareholders choose to do so, rather than only by post.
Revisiting articles also gives family companies the opportunity to provide a means of keeping shares “within the family”. This is achieved by introducing specific pre-emption rights that would apply upon divorce or death in certain circumstances .
Changing the company’s articles also enables the appropriate ‘drag and tag’ provisions to be included. Broadly speaking this means that, where 75% of the shareholders wish to accept an offer for their shares in the company, they can drag any minority shareholders into the sale, provided that they receive the same price per share. The quid pro quo for that arrangement is that a minority can insist, by using their tag option, upon requiring a majority of sellers to procure that a buyer buys their shares as well, again at the same price.
HOSTING CHAT ROOMS – REDUCE YOUR LIABILITY
Q: I am about to set up an online business, within which customers will be able to post information and communicate with each other through an internal mail system – should I be monitoring the content?
A: Website owners often feel obliged to monitor the content on their website in order to limit their liability for offensive or illegal comments posted on it. However, the liability of owners of websites which host chat room or other sharing facilities is actually increased by the exercise of an editing or monitoring function. This is because the website owner is then assumed to be a ‘editor’ or ‘publisher’ of the content and therefore responsible for any unlawful material posted on its website. It therefore reduces the liability of a website owner if he does not perform a monitoring function but takes steps to remove any unlawful content promptly following receipt of a complaint.
DATA PROTECTION REGISTER
Q: As part of that website I am also going to be collecting information on the customers that use the website as well as processing payments online – I have been informed that I will be exempt from notification under the Data Protection Act 1998 – is this true?
A: Under the Data Protection Act there is an exemption for businesses that collect data purely for the purpose of management forecasting or for the advertising, marketing and public relations aspect of the business. However, if information is collected for any purpose falling outside these exceptions (such as collecting credit card details and billing addresses) or is forwarded to third parties (such as an external payment provider), then there will be a requirement to register with the Data Protection Registrar. You will be required to register your business’s name and address and the name of a nominated representative with the Registrar, together with a description of the personal data you will be processing, the purposes for which that data will be used and a description of any recipients of that data. Regardless of the requirement to notify, the business will still have to comply with all other aspects of the Data Protection Act 1998.
COMMUNICATION WITH SHAREHOLDERS – ELECTRONICALLY OR BY POST?
Q: I set up a company 10 years ago and now understand from a friend that I can send notices to all the shareholders by e-mail rather than in hard copy – can I just go ahead and e-mail them now?
A: Under the Companies Act 2006, all companies can communicate with their shareholders electronically rather than by sending hard copies through the post, but only if their constitution allows them to do so or a resolution is passed to that effect. New companies that have been created since the Companies Act 2006 came into effect will automatically have this right included unless they have removed it but companies created prior to this may not have updated their constitution.
WARRANTIES AND INDEMNITIES
Q: In a talk at a recent Bournemouth Chamber event, you mentioned the importance of considering tax and other liabilities when selling a company. Can you clarify the difference between ‘warranties’ and ‘indemnities’.
A: Warranties are written assurances given by a Seller to a Buyer when selling shares in a company (or when selling a business or assets in other circumstances). They are intended to be relied upon by the buyer and, in the event of breach following completion of the sale, the buyer is entitled to recover losses arising from that breach. In respect of breach of warranty, recovery is not straightforward and the buyer is required to prove the nature and extent of his loss, which can be a complex process. An indemnity however acts as a guarantee that a statement is true and, where there is a breach of indemnity, the buyer does not have to go through the process of proving the nature of his loss, nor showing how he has acted to mitigate that loss, he merely has to show that he has suffered loss and that loss is usually immediately recoverable . Accordingly, indemnities are much less liberally given by sellers than warranties in the circumstances of a sale. They will only be given in respect of post completion tax liabilities which prove not to have been taken into account in completion accounts, or which have not been settled previously, or in respect of specific problems identified in the due diligence process.
LEGAL RESPONSIBILITIES - COMPANY SECRETARY?
Q: An old friend has invited me to join his new business by taking on the role of company secretary. I have spoken to my accountant who tells me that if I do so I would not have any legal responsibility for the preparation of company accounts – is this correct?
A: Unfortunately many professionals believe that appointment as a company secretary carries little risk and few responsibilities However, by virtue of the provisions the Companies Act 2006, this is not the case. In the event that a company fails to comply with requirements in relation to accounting records, all the’ officers’ of the company commit an offence and of course a company secretary is an officer of a company. Another point your friend might want to consider is that a company is no longer required to appoint a company secretary.
LEASE TERM – LIMITATIONS?
Q: I am considering investing some of my dividends in a flat which looks a bargain. However the agent has said that the price reflects the fact that the lease term has only 60 years remaining. As 60 years seems a long time to me should I be concerned about this?
A: The term of your lease contributes to the value of the flat and, as the term reduces, so does its potential sale price (and its saleability). If you are obtaining a mortgage then check the lender’s requirements for the minimum number of years that must be remaining on the term before they will lend against the property. It is also worth enquiring if the Seller will extend the lease before sale.