17 common corporate law phrases demystified

As corporate lawyers, we often use common corporate law terms without thinking and have to remind ourselves from time to time that not everyone (even experienced business owners) is as comfortable with these terms as we are. Here is a quick guide to some of these terms as a handy “cheat sheet” for anyone keen to have more understanding of the jargon of the corporate world.

Share capital

A general term to refer to all kinds of share capital together. Under the current law, this will usually be intended to mean “issued share capital”.

Issued share capital

These are shares that the company has created, a shareholder has applied for and which have been registered in the register of members.

Allotted share capital

Although allotted and issued are often used interchangeably, they are technically not the same. A share is allotted when it has been applied for and the applicant has the unconditional right to have those share registered against his name. However, it is not issued until it is actually registered.

Authorised share capital

This is now a more or less historical term. Until the 2006 Companies Act, each company would have both an authorised share capital and an issued share capital. The authorised share capital would be the number of shares the company was permitted to issue (including those in issue), while the issued share capital was as defined above. A resolution of members was required to increase the authorised share capital. Nowadays, a company may or may not have an upper limit on the number of shares the directors are authorised to issue without further shareholder consent. However, it would more typically be referred to as a limit on the directors’ authority rather than the authorised share capital.

Nominal value, share premium and paid up value

Shares each have a value attached to them, but this will not always be the amount which has been paid for them. The most common nominal value for shares is £1. This means that for a company with 100 shares of £1, the shareholders have paid (or are due to pay) at least £100 into the company which is at risk if the company fails. If a shareholder has been issued shares and has paid more than the nominal value for those shares, the additional amount is known as the “share premium” and the aggregate of both is the “paid up value”.

Denomination of shares

Shares can have a nominal value of any amount and in any currency. This can be changed by ordinary resolution of the members. Therefore, although most companies may only have ordinary shares of £1 each, some companies might have shares worth £0.10 or €2 each. Subdividing shares, for example, from £1 shares to £0.01 shares can be useful when shares are to be divided among a number of parties and the arithmetic causes problems. Shares can also be consolidated into larger nominal values, and can also be redenominated into different currencies.

Transfer of shares

Shares can be transferred between different people and entities. The transfer will not be fully complete until the transfer document (where required) has been stamped by the stamp office and registered in the company’s register of members. Where the transfer is for a greater or lesser amount than the share was issued for, it makes no difference to the share’s nominal value or premium.

Buyback of shares

A company can, in certain circumstances, buy its own shares from a shareholder. This is often referred to as a “buyback”. Once bought back, the company can either cancel the shares, so they cease to exist, or can hold them as treasury shares.

Treasury shares

Shares a company holds in itself. After a buyback of shares, a company may choose to hold the bought back shares in treasury for a number of reasons. It may be simpler to transfer them out of treasury than to cancel and re-issue shares (such as for employee share schemes). It can help restore a company’s distributable profits after a buyback.

Private and public companies

In very simple terms, a public company offers its shares to the public often on a stock exchange, while private companies cannot offer their shares to the public. The company law regimes are different in certain areas between the two types of companies, and public companies are typically subject to stricter regulations and reporting standards. Public companies’ names will end in “plc” and private companies’ names will usually end in “Limited” or “Ltd”.

Bonus issues and rights issues of shares

Bonus issues are where existing shareholders are issued new shares in proportion to their current shareholdings, and they are paid up out of the company’s reserves rather than by the shareholders themselves. A rights issue is an offer of new shares to existing shareholders in proportion to their existing shareholdings (which they are free to accept or decline), and is usually offered for a discounted price which the shareholder has to pay.

Put and call options

For various reasons, there are often agreements in place which provide someone the option to buy or sell shares. This can be a right to subscribe for new shares in a company, or to purchase/sell shares to another entity or person. A “put option” is where the seller has the right to sell at his option (usually at a pre-agreed price and during a fixed timeframe). A “call option” is where the buyer can trigger the right to buy the shares (again, usually at an agreed price and during a fixed timeframe).

Redeemable shares

Shares which either the company or the holder (or sometimes both) have the right to redeem at some point in the future or in accordance with certain conditions. They are often treated like a sort of loan to the company and will often have preferential dividend rates and rights upon a return of capital, especially if they are “redeemable preference shares”.

Pre-emption rights

Rights of existing shareholders to have first refusal on the issue of new shares. There is a statutory set of pre-emption rights which apply be default and which can be altered in a company’s articles of association. It is sometimes also used to refer to a right of first refusal given to existing shareholders upon the transfer of existing shares.

Memorandum of association

Historically, this was a document which set out the company’s powers, objects and its authorised share capital (among other things). However, the 2006 Companies Act changed this and the historical contents of the memorandum of association are now contained within a company’s articles of association. The memorandum remains now purely as a declaration made upon a company’s incorporation.

Articles of association

A company’s articles are its constitution which set out the rules by which a company is regulated. It is a public document (available on the Companies House register) and constitutes a contract between the company and each of its members.

Members and shareholders

In most cases, members of a company are simply that company’s shareholders who are registered in the register of members. However, companies limited by guarantee (rather than shares), such as most charities, will have members without shares, so they are members but not shareholders.

Why Uber Drivers Won Their Case for Worker Status

Establishing an individual’s employment status is an important but often difficult exercise to undertake and we were reminded of this by the recent landmark Employment Tribunal ruling Aslam and ors v Uber BV and ors https://www.judiciary.gov.uk/judgments/mr-y-aslam-mr-j-farrar-and-others-v-uber/ The judgement is worth reading because it highlights just how unclear the definition of worker is, perhaps more so the case concerns new technology and new ways of working. It also makes clear that it is not a simple tick box exercise which, when completed, can definitively determine an individual’s status rather, there is a statutory definition of “worker” as well a vast number of cases decided over the years to consider. This judgement does not change anything and it is only the first step as Uber has said that it will appeal to the Employment Appeal Tribunal.

So what where the facts and circumstances in the Uber case that helped to identify the drivers as workers? With regard to the nature of the relationship between Uber and its drivers (or “partnership” as preferred by Uber), the Tribunal noted that while the terms for passengers state that Uber is the drivers’ agent and drivers can accept or decline work through the Uber app, the following points are relevant:

  • Uber interviews and recruits its drivers. Drivers have to present themselves and their documents to Uber before being accepted, which amounted to an interview albeit not a searching one.
  • The driver is given the first name, but not the surname, of the passenger.
  • The driver is not aware of the destination of the passenger until the passenger has been collected.
  • The driver is expected to follow the route as suggested by the app and any deviance from this route must be justified by the driver.
  • The calculation of the fare is done by Uber, although the driver can charge a lesser, but not a greater, fare than that suggested.
  • Uber handles passenger complaints and deductions can be made to the drivers’ payments if passengers complain they have been overcharged, sometimes without involving the driver affected.
  • Uber accepts the risk of loss for example, where a passenger soils a vehicle or in the case of fraud, which if the drivers were genuinely in business on their own account would fall on them.
  • Drivers supplied their own vehicles and maintained them.
  • Drivers are not at liberty to exchange contact details with passengers.
  • Drivers who decline 3 trips in a row are liable to be forcibly logged off the app for 10 minutes.
  • Drivers can work for other organisations as well as Uber.
  • Uber does not provide any clothing or uniform.
  • Uber’s rating system was found to be a form of performance/disciplinary procedure.
  • Uber reserves the right to unilaterally to amend the drivers’ terms.

The Tribunal also regarded with great scepticism Uber’s claim that they were not providing transportation systems but were in fact a technology services provider, saying that “the notion that Uber is a mosaic of 30,000 small businesses linked by a common platform is faintly ridiculous”.

The main reasons for the decision are as follows:

  • no driver was in a position to grow their own business, nor were they provided with any leads;
  • the supposed driver/passenger contract was pure fiction which bore no relation to the real dealings and relationship between the parties;
  • it was not real to regard Uber as working for the drivers – the only sensible interpretation was that the relationship was the other way around; and
  • drivers provided their work for Uber pursuant to a contractual relationship. The drivers made themselves available to carry Uber passengers to their destinations for reward.

What is interesting is that the Tribunal said that none of their reasoning should be taken as doubting that there could exist a model in which drivers were not employed – it was just that this particular model did not achieve that aim.

What does this mean for the drivers? A worker is entitled to a number of employment rights including:

  • National minimum wage
  • Statutory sick pay
  • A maximum 48 hour average working week
  • Daily and weekly rest breaks
  • Whistleblower protection

Merely changing contracts will not be enough to avoid more cases being brought by drivers. For example, a worker who does not receive the national minimum wage may bring a claim for an unlawful deduction from wages seeking payment of arrears going back up to 2 years from the date of the deduction or the last in a series of deductions. Alternatively, the worker may bring a breach of contract claim in the civil courts seeking payment of arrears going back up to 5 years before the claim in Scotland.

Although this is only a first step, individuals are being advised by their trade union and legal advisors to proceed on the basis that they are workers and look to enforce their rights. Businesses should not only revisit its contracts and agreements they should also ask themselves what the practical reality bear is and do they need to rethink their model if they wish to avoid worker status.

 

Donna Reynolds is an experienced Employment Solicitor and HR Advisor advising SMEs in Fife, Edinburgh and across Scotland on Employment Law and HR issues.

 

international law

Judges: who elected them anyway?

I was conscious that I was (over)due another Brexit Blog, but didn’t really know where to begin. Nothing much seemed to be happening, so what was there to say. Wrong, and wrong again.

Apart from MPs resigning, the High Court’s decision – that the triggering of Article 50 required the approval of the UK Parliament, rather than being exercised under the “Royal Prerogative” – has thrown the timing of the trigger-pulling into question. The decision is likely to be appealed to the Supreme Court, but if the Supreme Court uphold the decision then both houses of Parliament may have some fun. The “both” is important because the House of Lords may well cause more issues than the House of Commons.

Understandably, Brexiteers are in uproar. How dare the judges defy the wish of the British people? But, there is one problem with that argument: the judges’ decision is that the UK Government must uphold the law and do things “properly”. So, Government, do it properly and then pull the trigger: don’t do it properly and you can’t pull the trigger.

At the heart of this is the fact that, because the UK does not have a written constitution, we think we know what the law is on things like this – but don’t know for sure until the point is tested in court. If you add to that the fact that much UK law remains based on precedent (in other words, the law is what the courts say it is, whatever anyone else thought) that’s why this case deals with important principles of constitutional law. Where does power lie between the Government (the executive) and the people’s representatives (MPs and, yes, members of the House of Lords). We thought we knew, until the court told us for sure

And then there is the Royal Prerogative. That stems from the time when the monarch had absolute power, but has now morphed into something where the Prime and other Ministers (appointed by the Crown) can exercise powers on behalf of the Crown. But, we have a sovereign Parliament – so who wins? As this case shows, not much is clear, but it looks as though Parliament trumps the Crown (on this at least).

So, what are the lessons? We really are not much further forward on Brexit: I don’t know what will happen after the trigger is pulled or what the outcome will be. Perhaps the UK now needs a written constitution (particularly with devolved governments in three of the constituent nations – and all the recent furore over bulk appointees to the House of Lords). And, in my view at least, the courts are there to uphold the law (which must surely be at the heart of our constitution).

I’ll finish on a potential delicious irony. If the Supreme Court upholds the High Court’s decision, will the Brexiteers appeal to the European Court?!

John Clarke

Happy staff = award-winning CCW client

We are thrilled for our long standing clients, Abbeyford Leisure, who have been named one of the top places to work in the UK. As Abbeyford Leisure’s legal partners, we are particularly delighted that it is the company’s own staff who have voted their employer as one of the best in the country. Donna Reynolds, our Employment Law Partner advises Abbeyford on Employment Law and HR, so it’s an area close to our hearts.

Abbeyford Leisure has been successfully operating holiday parks for over 50 years.  Based in picturesque Fife, Scotland and North Wales they specialise in creating first class holiday experiences in lovely coastal locations, with award-winning facilities, and clearly retain very contented people working for them!

The award is part of The Sun’s Best of British initiative which celebrates UK-owned businesses which create jobs and keep the economy growing.  Abbeyford Leisure has ranked higher than many household names, including Tesco and Premier Inn and is the only holiday operator to receive such an accolade. Abbeyfield Leisure is pleased as punch, as are we – it’s a fantastic achievement for this dynamic organisation.

Abbeyford Leisure Chairman, David J Evans said: “We’re delighted to be recognised as one of the best companies to work for in Britain. We have a hugely dedicated team of employees across our award-winning holiday parks in Scotland and Wales and The Sun’s Best of British accolade is testament to how we, as a team, work together to make Abbeyford Leisure not only an enjoyable company to work for, but a company where your career can flourish. Our staff retention is second to none – we’re proud of that and proud of our team.”

CCW Partner Donna Reynolds and the rest of the Employment Law and HR Team heartily echo those sentiments and would like to congratulate Abbeyford Leisure, whose fantastic working environment and staff relationships clearly reflect the great quality of their product and their business.