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Verb Abstract noun Personal noun


administrate1 I o..d.-mLnstr<A:lIiooY.\.d.-mLnstr<Aior























5 Vocabulary: prepositional phrasesComplete these sentences using the

prepositional phrase from Exercise 4 that best fits in each one. For one of the

sentences, there is more than one correct answer.

1 In...fu?...~!i\r.~.~J,1f. choosing the name of the company, a number of matters

must be considered.

2 Confidential informatiop acquired """""""' , one's directorship

shall not be used for personal advantage.

3 I would advise that members of your project group formalise your

relationship ""'"'''''''''''''''''''''''' a partnership agreement, incorporation or

limited liability company.

4 This form of corporation is often considered to be the most flexible body

""'''''''''''''''''''''''''''''''''''''''''''''' corporate structure.

5 Our company formations expert is unable to provide advice

"""'"'''''''''''''''''''''''''''''''''''''''''' your query, as there are a number of factors which need

to be taken into account which do not relate directly to his area of expertise.

6 The relationship between management and boards of directors at US

multinational companies has been changed dramatically through a series of

corporate governance initiatives begun '"'''''''''''''''''''''''''''''''''''''''''''''' corporate

scandals, the Sarbanes-Oxley Act and other requirements.

7 Shareholders and other investors in corporations tend to view corporate

governance """""'''''''''''''''''''''''''''''''''''''''' the corporation's 'increasing value over time.

S Regular and extraordinary board meetings may be held by telephone, videotelephone

and ""'''''''''''''''' , written resolutions.


1 violate

3 overturn

4 gain

5 conduct e a law

7 Collocationswith file Decide which


a brief

a dispute

provisions suit



1: I n

Companylaw is a verywide area.Thistext servesasan introduction to the legal terminologyand

issuesregardinghowcompaniesraisecapital in the UK.

1 Readthrough the text quickly and decide whether these statements are

true or false.

1 The shares of a company which are actually owned by shareholders are known

as authorised share capital. .

2 Share capital is subdivided into two basic types of share: ordinary and

preference shares.

3 People who already own shares possess the right of first refusal when new

shares are issued.

4 In addition to share capital, loan capital is another means of financing

a corporation.

1 (US) articles of incorporation

2 (US) authorized shares

3 (US) common shares

4 (US) preferred shares

5 (US) stock split

6 (US) reverse (stock) split

7 (US) preemptive rights


8 (US) security interest in specific assets (also chattel mortgage prior to the Uniform Commercial Code)

.. h

2 Match these terms related to shares (1-8) with their definitions (a-h).

1 authorised share capital

2 dividend

3 issued share capital

4 ordinary share

5 pre-emption rights

6 preference share

7 rights issue

8 subscriber

a someone who agrees to buy shares or other securities

b offer of additional shares to existing shareholders, in proportion to their

holdings, to raise money for the company

c type of share in a company that entitles the shareholder to voting rights and


d entitlement entailing that, when new shares are issued, these must first be

offered to existing shareholders in proportion to their existing holdings

e maximum number of shares that a company can issue, as specified in the

firm's memorandum of association

f proportion of authorised capital which has been issued to shareholders in

the form of shares

g type of share that gives rights of priority as to dividends, as well as priority

over other shareholders in a company's winding-up

h part of a company's profits paid to shareholders

3 Underline the words (1-5) in the text. Then match them with their synonyms


1 term

2 to entail

3 to waive

4 to typify

5 to recover

a to be an example of

b to give up

c name

d to regain

e to involve

4 According to the text, the minimum amount of share capital of a public limited

company in the UK is £50,000. Do similar restrictions apply in your

jurisdiction? If so, what are they?

Unit3 Companylaw: capitalisation


9 e 1: .

ng I n

Look at this

Issued share capital, as opposed toauthorised share capital, refers to shares

actually held by shareholders.

When describing a

listener is already



held by

Issued share

actually held by shareholders.

All three of these

sentence if the


share capital refers to

These prepositions can

same time. In such a case,

following way:

Issued share

opposedto /

the maximum amount



refers to the maximum

issued share capital

5 Read the information in the table below about the two basic classes of shares:

ordinary shares and preference shares. Using the prepositions explained

above, make sentences contrasting the two share types.


1 (AnLi.keordincA..r!:jshcA..res, preference shcA..res cio not tAStA<AlLeynillie the

shcA..rehol,(ter to vote.

In contro...st to ordincA..r!:jshcA..res, ~hi.d1 entitle the shcA..rehol,(ter to vote,

preference shcA..res cio not tAStA<AlL9y~ve StAch 0...r~ht to the shcA..rehol,(ter.


ning 1:

Lawyerswith expert knowledgeof corporatefinance are often askedto explain complex

matters in simple termsto companymembersor to shareholders.Thisdialoguetakes

placeat a seminarheld at a large law firm specialisingin capitalisationmatters.

A memberof a shareholders'association[MrsWhiteman)is askinga corporatefinance

expert [Mr Young)to explaina rights issue,oneof the keyterms in Reading1.

6 ..::: Listen to the dialogue and answer these questions.

1 What is the purpose of a rights issue?

2 What options do the shareholders have if they do not wish to buy the newly

issued shares?

7 ..::: Listen again and choose the correct answer to each of these questions.

1 According to Mr Young, one reason why shareholders would want to take up

their pre-emption right is

a to help the company raise cash.

b to maintain the proportion of shares they own.

c to be able to waive this right later, if desired.

2 Why are the new shares offered to shareholders at a discount?

a so the shareholders do not sell their rights to non-shareholders

b to keep the market price of the shares from falling

c to increase the likelihood that the issue is fully subscribed

3 A share issue is said to be 'fully subscribed' when

a all of the shareholders have been duly informed of the share issue.

b all of the shareholders have sold their rights to the newbl issued shares.

c all of the newly issued shares have been agreed to be purchased.

4 What does Mr Young say about shareholders' reactions to rights issues?

a They can be unhappy about having to decide whether to buy shares or sell


b They fear that discounts may make the market price of the shares


c They are concerned about outsiders gaining influence in the company.

Theexcerpton pages38-39 dealswith the topics of shareholders'rights and the role of

the supervisoryboard.It is part of the requiredreadingin a comparativelaw course

dealing with Europeanand Anglo-Americancompanymanagementstructures.

8 Readthrough the text quickly and answer these questions.

1 What basic rights does a shareholder possess?

2 What options does a dissatisfied shareholder have in the Anglo-Saxon


3 What is meant by the concepts of the one-tier board and the two-tier board?

(Note: the word tier means 'rank' or 'level'.) Which do you think is the best

model of organisation?

Unit 3 Companylaw: capitalisation


9 Read the text again carefully. In which paragraph (A-G) are the following

mentioned? Some of the items may be found in more than one paragraph.

1 some stipulations of co-determination laws

2 the functions of supervisory boards in Germanic countries

3 two options open to a shareholder when dissatisfied with management

4 activities carried out at the annual general meeting

5 opinions on effectiveness of the two-tiered system in times of crisis

6 the difficulty of co-ordinating management monitoring efforts

7 three rights to which the owner of an asset is generally entitled

8 comparison of the composition of executive board and supervisory board

10In your own words, explain to a partner the meaning of the following

expressions (in italics in the text).

1 risk diversification

2 awkward questions

3 flow of information

4 face... obstacles

5 the free-rider issue

6 vote with one's feet

7 answer to the annual meeting

8 co-operative conflict resolution

9 participatory framework

10subjected to the public gaze

Unit3 Companylaw: capitalisation


2: on

no ]

Look at the

Can shareholders

In return for the

generally restl

Anyone small

management I

as a group.

Co-determination rules

to control and monitor

the management board, ...

11Match the verbs (1-4) with their definitions (a-d).

1 exercise (control) a 1) to remove someone from their job, usually because they have done

something wrong; 2) to cease to consider, to put out of judicial


b to increase in number or amount over a period of time, especially in

a financial sense

c to make use of / apply something

d to limit someone or something

2 restrict (powers)

3 accrue (benefits)

4 dismiss (members)

12Match the verbs above (1-4) with the nouns in the box with which they collocate. Some

nouns can go with more than one verb.




authority benefits caution capital a case a charge a claim

an employee force freedom influence interest power pressure

restraint revenue rights sales spending

EXAMPLE: 1 exercise: OJAthor~, COJAUoI1,...

13Complete these sentences using exercise, restrict, accrue or dismiss.

1 A motion was filed by the Board of Directors to the case.

2 The chairman warned that if investors were asked for more money, they

might their option to sell their shares.

3 The Chief Executive resigned when the board tried to greater

control over the company's bankruptcy plan.

4 The company is expected to .""""."""."""" its spending while its markets remain


S Financial benefits .. to the owners and operators of the factories, as

well as to the shareholders.

6 A company spokeswoman advised shareholders to caution in their

share dealings until a further announcement is made.

7 One important Commercial Code provision may some of the

freedom of directors to grant options without shareholder approval.

S The annual general meeting has authority to draw up or amend the

constitution and to elect or member directors of the Board.



ng: Ing




the framework of the

or distinctions

14A client of yours who is interested in investing in a German company has asked

~~~~TIlyou to explain the differences between the one-tier corporate management

p.;s6j system characteristic of Anglo-Saxon countries and the two-tier corporate

management system found in Germanic countries. Write an email to your client

summarising the differences. Refer to Reading 2 for information.

In your email, you should:

0 divide the text into three distinct parts: an opening statement of the reason

for writing; the body of the email presenting the main points; and a

conclusion offering to provide further help or information if required;

0 make use of the words and expressions for signalling contrast introduced

earlier in the unit. .

nlng 2: n e

Lawyersoften have to explainthe meaningof a legal documentto a client in plain

language. This is a conversation between a lawyer, Mr Mansfield, and his client,

MrThorpe, about provisionsconcerningcapitalisation.

15Before you listen, discuss these questions.

1 Do you have any difficulties with legal language? Which do you consider

more difficult, reading or writing legal English?

2 Think about the style of legal documents written in your native language and

those written in English - are they equally difficult for non-lawyers to understand?

16..;:: Listen and decide whether these statements are true or false.

1 The client says that the subject of law is very complex.

2 'Legalese' refers to the process of enacting a law.

3 The client believes that legal texts are too difficult for most people to read.

17..;:: Listen again and answer these questions.

1 What is the Plain Language Movement?

2 Why is there some opposition to it?

3 What is Mr Thorpe implying when he says legalese makes people need

lawyers more?

Unit 3 Companylaw: capitalisation


.. n

Legalese often poses problems for those umamlliar with It, SUch as

lawyers (clients). However, non-native English-speaking lawyers may also find

legalese difficult to read. An awareness of some of the typical features of this

writing style can make it easier to understand texts of this Some

features of legalese are the following:

clauses are joined together with commas or the co-ordinators


such, said, same,

By whom? No agent

carried out and not

18This is an excerpt from provisions regulating the capitalisation of a corporation,

written in legalese. Read it, noticing the lengthy and complex sentences. Then

underline the passive verbs and circle any archaic words and expressions.

19For each instance of the word such in the text above, suggest a more naturalsounding



20Match these words beginning with there- (1-6) with their equivalents (a-f). The

first three occur in the text on page 42.

1 thereto

2 thereon

3 thereof

4 therewith

5 therefor

6 therein

a of it/them

b on it/them

c to it/that

d for it/that

e with that

f in or into a particular place or thing

21Complete the sentences below using the words in the box.

therewith thereof (x2) therefor therein thereon thereto

1 Each partner shall maintain both an individual drawing account and an

individual capital account; into the capital account shall be placed that

partner's initial capitalisation and any increases '"'''''''''''' .

2 Every issuer must comply in all respects with the provisions, including all

filing and notice deadlines. .

3 Her experience in corporate finance includes representing banks and other

financial institutions in numerous secured financings, including drafting and

negotiating credit agreements and security documents in connection


4 The Chair of the Committee shall, in consultation with the other members of

the Committee and appropriate officers of the Company, be responsible for

calling meetings of the Committee, establishing the agenda , and

supervising the conduct .

5 The circular prescribes requirements for the accounting and reporting of

interest on loans and other interest-bearing assets and for the capitalisation

of interest .

6 The memorandum of the company, together with a translation , if

any, certified and translated as prescribed in regulation 4, shall be lodged

with the Registrar.

n9: h opinio

22Working with a partner, take turns rephrasing the sentences from the text on

page 42 in your own words as if you were explaining their content to a client.

You may want to break them into shorter sentences and turn passive

constructions into active ones (e.g. instead of shares may be issued, say the

corporation may issue shares).


(1) A corporo.l.ion C<A..~Ys\s(Ae no more tho...n 25,000 sVt<AYes.f~ve thouso...ncL

of these <AYeworth $50 w.cl1 o...ncLthe remoJ,ning 2.0,000 Vti:lve no p<AY


23When expressing an opinion, it is common to begin the statement with a

phrase signalling that it is an opinion. Read the transcript of Listening 2 on

page 265 and underline the phrases the speakers use to signal an opinion.

Unit3 Companylaw:capitalisation E

24Complete the phrases below using the words in the box.



concerned firmly me mind

see seems think would

my opinion

1 In my , ...

2 The way I it, ...

3 To my , ...

4 In view, ...

5 If you me, ...

6 Frommy of view, ...

7 As far as I'm , ...

8 I..........................

9 It to me that...

10I believe ...

11For , ...

12I argue that...

25Discuss this topic with a partner. Whenever possible, make use of phrases for

expressing opinions.

Legal language differs greatly from everyday speech and writing. Do these

differences lead to clearer and more objective communication, as lawyers

generally claim, or do they actually have the opposite effect?

Reading3: New legislation

The text below is from the website of a large accountancy firm offering corporate finance

services. It deals with a change in UKlegislation concerning treasury shares from a few

years ago.

26Read through the text quickly. What does the new law specify? Why has it been


Tr~asury $l1aresCacquisition Qf%()wl1$~~res}

Under current company legislation, companies that have used surplus cash reserves to buy back

their own shares are required to cancel those shares and not hold them in treasury to be resold

at a later date.

On 22 December 1999, Dr

Competition and Consumer Affairs at the Department of Trade and Industry (DTI), announced that

the law prohibiting companies to hold their own shares in treasury was to be deregulated.

Following the publication of a draft document detailing likely amendments to the regulations

2001, it was announced that a.;new will come; into

permit companies to buy back their own shares and hold them

cancel them.

This new legislation will only apply to company shares that are listed on the London Stock

Exchange's official list, corrl.Rarabl~\,Europ~.an

Economic Area (EEA) market, of other public companies

or private companies. Qualifying shares will be held in treasury until they are either resold or

transferred to an appropriate employee share scheme.

This change to company law t

without incurring the co'sts of

The new law will also bring the UK into line with other EEA countries.

Companies must buy back shares out of distributable reserves, and these shares must not at

any time exceed 10% of their issued share capital (surplus treasury must be disposed of

within 12 months). be

entitled to a dividend.


27List the six limits on the buying back of shares mentioned in the text.

28Discuss these questions.

1 Has similar legislation been enacted in your own jurisdiction?

2 Can you think of any examples of other laws passed recently in your

jurisdiction concerning company capitalisation?

29Which noun collocates with these verbs in the text?

buy back cancel hold in treasury transfer re-issue

30Complete the following phrases from the text using the prepositions in the box.

I into (x2)

to (x3) under with

1 current company legislation...

2 ... amendments the regu lations...

3 ... a new company law will come .. force ...

4 This new legislation will only apply company shares that are listed

on the London Stock Exchange's official list, ...

5 Thischange companylaw...

6 The new law will also bring the UK ..


line. other EEA

Unit 3

To improve your web-based research skills, visit www.cambridge.orgjeltjlegalenglish.click on

Research Tasks and choose Task 3.

Unit3 Companylaw: capitalisation


Vocabulary: distinguishing meaningWhich word each

You may need to consult a dictionary to distinguish

1 asset

equity share

regardless of conversely despite

discretionary mandatory obligatory compulsory

entail suggest involve imply

consequently therefor therefore accordingly

relinquish cede waive postpone

Use of prepositionsComplete the sentences below using

box. The sentences are taken from texts

1 Initially, company capitalisation

2 A company may authorise capital

share capital but refrain

3 In return the privilege of

powers are generally restricted.

4 Someone with ownership a company can

disappointment company's performance by

their shares or in some way expressing their concern.

5 With the Anglo-Saxon one-tier board, managing executives

the board, and all

appointed the

annual meeting.

6 The shares shall be

having a par value, and common, to consist of 20,000

Adjective formationAdd the prefixes

form its opposite.

1 dependent

2 likely

3 respective

4 legal

5 normal

6 limited

7 restricted

8 direct

9 formal


Word formation and meaningThe noun forms of the verbs in the table appear in

Readings 1-3. First match the verbs (1-9) with their definitions below (a-i). Then

complete the table with the abstract noun form. Consult a dictionary if necessary.




make their words or actions


h and support of someone or something in

to succeed

or accept something

Understanding legaleseSummarise the following text in one sentence.

express or implied, these best wishes for an

responsible, low-stress, non-addictive and genderneutral

holiday as practised the most

enjoyable traditions religious persuasion of choice (but with respect for

the religious others, or for their choice

not to and further for a fiscally

successful, medically uncomplicated onset of the generally

accepted to, calendar, but not

without due of choice of other cultures). The preceding

wishes age, physical ability,

religious platform or sexual preference of


Verb ! Abstract noun

1 issue e ss(,t<A.Yice

2 pre-empt

3 refuse

4 consolidate

5 divide

6 resolve

7 diversify

8 amend

9 rely (on)






Changesina company

Reading 1: Introduction to changes in


Thistext providesan overviewof the areaof companylaw dealing with the changesmade

to a companythat generallyrequirethe involvementof lawyers.

1 Before you read the text, match these key terms (1-7), which all refer to types

of changes in company structure, with their definitions (a-g). If necessary,

consult the glossary.

1 constitutional amendment

2 consolidation

3 acquisition of controlling shares

4 voluntary liquidation

5 merger

6 sale of substantially all assets

7 compulsory winding-up

a the liquidation of a company after a petition to the court, usually by a


b the combining of two companies to form an entirely new company

c liquidation proceedings that are supported by a company's shareholders

d a change in a company's name, capital or objects

e the purchase of shares owned by shareholders who have a controlling


f the acquisition of one company by another, resulting in the survival of one of

them and dissolution of the other

g a form of acquisition whereby all or almost all assets and liabilities of a

company are sold

~ --

At some a , -

the company. Some of these changes may merely be basically administrative, such as changing

the company's name. Other changes may entail alteration of the company's structure. These

changes sometimes place the rights of creditors and minority shareholders at risk and are thus

s.,ubject to special statutocry. r.eg"u" lation.','''T'r'he in ex.a".mples.:,oefo,t p.e alter~'",t\i'o~.'n. s "..~f:h'""jch. f"~f'11

Into this group are constltutloli'al amendm , mergers, cons tlO ale 'pt substantially all ,

assets, acquisition of controlling shares and liquidation.

The most common constitutional alterations in a companyInclude alteration of the company's

name, capital or objects. to English law, a chan of name can be

resolution in a

name of the company be changed to the new name. A signed copy of the resolution containing

the new name must then be submitted to the Registrar of Companies. If the submissionis in

order,Companies House will issue a Certificate of Incorporation on Change of Name.

Acompanymay alter its caDitalstructure. Dmvidedthat ar

power.Such an


1 (US) tender offer

2 (US) involuntary bankruptcy

3 (US) also dissolution or winding-up

.* pp n in

2 The text contains several pairs of opposing concepts. Find the counterpart of

each of these words.

1 acquiring company

2 hostile takeover

3 acquirer

4 compulsory winding-up

5 solvent

3 Work in pairs. Making use of the prepositions introduced in the previous unit

(as opposed to, unlike, in contrast to), take turns contrasting the pairs of

opposing concepts listed in Exercise 2.

EXAMPLES: 11'1coY\tr<A-stto o.Y\o..cquixi¥\gcompo.Y\Y,whLcl1 ~s <A-compo.Y\Y thoJ;

purcl'1<A-ses o.Y\other, o.Y\ o..cquixe<:i compo.Y\Y ~s oY\e whLcl1 ~s

purcl'1<A-se<:io.Y\cLWkeY\ over by o.Y\other compo.Y\Y.

AY\ o..cquixe<:i compo.Y\Y ~s oY\e whLcl1 ~s purcl'1<A-se<:io.Y\cLWkeY\ over

by o.Y\other compo.Y\Y, uY\Like o.Y\ o..cquixi¥\g compo.Y\Y, whLcl1 ~s <Acompo.

Y\Y thoJ; purcl'1<A-ses o.Y\other.

Unit 4 Company law: fundamental changes in a company


ning. 1: on


A lawyer'sinvolvementin the mergersand acquisitionsof companiesoften entails

communicatingwith the partiesconcerned:a lawyermayexplainto the ownerof a

companywhat procedureshaveto becompletedin the courseof anacquisitionor inform

shareholdershowthe changesresultingfrom a mergerwill affect them.

In the following listening exercise,youwill heara lawyerspeakingto a groupof business

owners.Eachof thesebusinessownersis consideringacquiringanotherbusiness.

4 ~ ~ Listen to the first part of the presentation and choose the correct answer

to each of these questions.

1 Which of these is the most likely entry for the talk in the programme?

a Mr A. Crawford of Corporate Restructuring (evening session)

b Mr A. Cranford of Mergers and Acquisitions (evening session)

c Mr A. Crawford of Mergers and Acquistions (evening session)

d Mr A. Crawford of Mergers and Acquisitions (morning session)

2 What is the speaker's aim?

a to provide the business owners with an overview of the law of mergers

and acquisitions

b to persuade the business owners that they should use this opportunity for

their businesses to grow

c to inform the business owners what they can expect if they decide to

carry out an acquisition

d to tell the business owners about the process of making their businesses

more attractive as potential targets

3 Which of the following topics will not be included in the presentation?

a factors involved in deciding on a company to acquire

b staffing issues after an acquisition

c evaluating the prospective acquired company

d details of one specific deal the speaker has carried out

5 ~ ~ Listen to the second part of the presentation, in which the speaker

discusses legal aspects of acquisitions. Decide whether these statements are

true or false.

1 The important legal steps that must be carried out in the course of the

acquisition process can be completed in any sequence.

2 'Due diligence' refers to the process of gathering and ana lysing financial

information and other relevant information about a business before it is


3 One aspect of due diligence is verifying ownership of intellectual property.

4 In the course of due diligence, the acquirer should terminate all of the target

company's contracts with suppliers.

5 A warranty is written statement by a party attesting that a fact relevant to

the deal is true.

6 The target may provide indemnities to protect the acquirer against future




. .

InnIng p n

In Listening1,the lawyerbeganhis presentationby introducinghimself and his topic.

Followingthis, he providedan overviewof the pointshe plannedto cover.Healso

informed his listenersabout generalmatters related to his presentation,suchaswhether

there would bea breakor if questionswere permitted.

Thebeginningpart of anypresentation,whether short or long, informal or formal, should

fulfil thesefunctions. Listenersappreciateknowingwhat awaitsthem andwhat they can

expectto hear.

6 .. ~ The following list provides useful phrases for the beginning of a

presentation. Listen to the first part of the presentation again and complete

each of the phrases using no more than three words.

1 Some of you may know me already, but allow me .

My name's Adrian Crawford.

2 Mergers and Acquisitions department of our firm.

3 I'll acquisitions this evening.

4 I'm you about...

5 Please feel free to at any time, should you have any


6 At this point, I'd like to give you a short my


7 I'm going to start with a how to ...

8 Then I'll . the issue of ...

9 After that, I'll the process of ...

10I think we'll. w a short break at that point.

11After the break, I'll the legal aspects...

12At the end, I'll a look at ...

13There'll be time for at the end.


7 Match the phrases from Exercise 6 (1-13) with the function (a-c) they serve.

The first phrase has been done for you.

a introducing the speaker (name, affiliation) 1, ...

b informing about points that will be covered

c telling listeners about practical matters related to the presentation

ng 2: in-

Thetext on page52is an excerptfrom an article about spin-offs, an alteration in the

structure of a company.It appearedon the websiteof a USfirm. Theprimarypurposeof

this text is to provideinformationfor clients. Doyouthink websitearticles are an

effectivewayfor clients to get information about complextopics?

8 Readthrough the text quickly and answer this question.

A subsidiary is a company which is controlled by another through share

ownership. What exactly is a spin-off?

9 Decide which of these phrases (a-d) best expresses the topic of each

paragraph (1-4).

a Advantages of IRS Code Section 355

b Reasons for creating spin-offs

c Definition of the term spin-off

d Various types of spin-offs

Unit 4 Companylaw: fundamental changes in a company E

1 The term 'spin-off' refers to any distribution by a corporation to its

shareholders of one of its two or more businesses. Sometimes the

spun-off business is transferred first to a newly formed subsidiary

corporation. The stock of that subsidiary is then distributed to the

shareholders of the distributing corporation. Other times, the stock of

a pre-existing subsidiary is distributed.

2 Spin-offs can include distributions on a proportional basis (i.e. pro

rata), in which the receiving shareholders do not give up any of their

stock in the distributing corporation when they receive the spun-off

stock. Sometimes the distribution only goes to certain shareholders. In

this case, the receiving shareholders give up some (or aiD of their

stock in the distributing corporation in exchange for the stock of the

controlled subsidiary. Non-pro-rata spin-offs are sometimes referred to

as 'split-offs'. A non-pro-rata spin-off that results in one group of

shareholders holding all the stock of the distributing corporation and a

second group holding all the stock of the former subsidiary

corporation is referred to as a 'split-up'.

3 A spin-off is used to separate two businesses that have become

incompatible. In a case where investors and lenders may want to

provide capital to one but not all business operations, a spin-off can

be a good solution. Spin-offs are also used to separate businesses

where owner-managers have different philosophies. Spin-offs may

furthermore be used by publicly held companies when the stock

market would value the separate parts more highly than combined

operations. The separation of business operations could also lead to a

greater entrepreneurial drive for success.

4 The tax characteristics of a qualifying spin-off under Internal Revenue

Code Section 355 make this an attractive tool for solving certain

corporate challenges. Without Section 355, the distributing

corporation would have to recognize a gain on the stock it distributed

as if it had sold that stock. In addition, shareholders receiving the

distribution would be taxed on the shares received, either as a

dividend or as capital gain. This double tax usually makes spin-offs

extremely expensive. Code Section 355 permits a spin-off to be

accomplished without tax to either the distributing corporation or to

the receiving shareholder. Any gain realized by the shareholder is

deferred until the stock is sold.

10Read the text again and answer these questions.

1 Under which circumstances would a company typically decide to make a


2 What benefits for the corporation and for the shareholders result from

Internal Revenue Code Section 355?


ng: ng n-

Oneof yourcorporateclients is planningto carryout a spin-off. Hehaswritten youthe

following email.

Dear Mr Daniels

Ms Diaz has told me that you are going to be at the shareholders'

meeting next Wednesday. Would you mind addressing the group

briefly before the meeting starts? I think they would appreciate

some basic information about things like what a spin-off is, why the

spin-off will be done, etc. just so they can understand the rationale

behind it better. Of course, it's very important that they realise that

the spin-off will not affect them negatively. I think 10-15 minutes

will be enough for this, and then you and I could field their

questions and try to clear up any misunderstandings.

Please let me know what you think.

Best wishes

Adam Tyler

11Using the presentation in Listening 1 as a model and the information from

Reading 2, prepare the beginning of such a presentation.

12Take turns presenting your beginning to a partner. Check that your partner has:

0 introduced him/herself

0 informed you about what points will be covered

0 mentioned any practical matters (questions, timing, etc.)

ning 2: ch

Lawyersplayan important role in the processesinvolvedin altering the structureof a

company.Forexample,they reviewthe documentsconnectedwith suchchangesto

ensurethat all the relevantstatutes havebeencompliedwith.

Checklistsare useful tools for makingsurethat the properprocedureshavebeenfollowed

and the necessarydocumentsdrawnup. Oncean issuehasbeenaddressed,a lawyerwill

tick the boxto confirmthat he hasconsideredthe particular matter listed. Youwill hear

two lawyersdiscussingsucha checklist.A moreexperiencedlawyerguideshisyounger

colleaguethroughthe list of actionsto betaken and documentsto befiled.

13.. ~ Listen to the dialogue and answer these questions.

1 What kind of change are they discussing?

2 What two meetings need to be held?

3 How many documents need to be filed at Companies House?

Unit4 Companylaw:fundamentalchangesin a company


14.. ~ Listen again and complete the missing items (1-10) in the left-hand

column of the checklist, using up to three words for each space.

Checklist on increasinga company'ssharecapital Maftercol1sidered

. Check the memorandum of association to ideQtifythe company's

1)........................ . See also authority to increasecapital tirid(\r

Articles. Consider whether creation of new shares will involve

variation of class rights. If so, appropriate consents may be


. Has the company issued all its share capital?

. 2)."'" of increase of share capital.

. Convene 3)........................ at reasonable notice: Normal

procedure or consider using written resolution procedure.

. Ensure a quorum of 4). .... . is present at the board


. Directors have to 5)....................... that they will put the

increase of share capital to vote at an extraordinary general

meeting (EGM).

. Convene an EGM by notice or use written resolution procedure.

. If written resolution procedure is not used, notice to shareholders

must state:

a date

b time

c place

d proxy

e ordinary resolution

f consent to 6).... .......... ..........

. EQsure the 7).......................... presides at the EGM and that a

quorumof shareholdersis present.

. Pass the ordinary resolution by 8).... ...... "'" on a showof

bMds or by poll.

. board andEGMminutes.

. Lodge at Compallies.Hotise 9). .............. ............. days:

a ordiIlarY'tesoI1.lti.oll;

b notice of illc:reaseof 10) ""'''''''''''''''' ....,... (Form 123);

c amended memorandtitn and ,y) articles of


9 e 1: ning p

When explaining how a procedure is carried out, the order of the steps to be

taken can be indicated using sequencing words. Look at the following

examples from the listening text:

Well, the first thing you have to do is check the memorandum of


Then you have to find out whether they've issued all their share capital

already or not.

The next step would be to determine the amount of increase of share capital.

But before the EGM can take place, the shareholders to be informed by

notice about the

Finally, wit!


Here are





and it's necessary that a

15Think about a complicated legal procedure you have to deal with in the course

of your work or which you have studied. Make a checklist to identify what you

have to do to complete this procedure. Explain the procedure carefully to your

partner. He/She should make notes. When you have finished, ask your partner

to repeat back to you the stages of the procedure.

ng 3: e ng

When fundamental changes are made to a company, meetings of the directors and/or

shareholders must be convened so that the proposed changes can be voted on. The

official record of the proceedings of such a meeting is called the minutes.

16Discuss these questions.

1 Who writes the minutes of a meeting?

2 When would a lawyer have to read such a text?

17The text on page 56 is the minutes of a meeting held by board members of a

small company. Read through the minutes quickly. Why was the board meeting

called? Why was the EGM called?

Unit 4 Companylaw:fundamental changes in a company


Longfellow Ltd

Minutes of a meeting of the Board of Directors he.ld atCOI11Petnypr~t!;ii$~$,

Date: 2015-12-11; view: 3170

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