top of page

你的分数:%

75

Time spent on this attempt: 0H 59M 24S

问题回顾

Email to Candidate


From: Senior Partner

Sent: 25 April 2024

To: Candidate

Subject: Consultation Request for GreenTech Innovations Ltd


Dear Candidate,

I recently had the pleasure of meeting with Sarah Jennings and Mark Thompson, who are in the process of launching GreenTech Innovations Ltd, a company focusing on sustainable technology solutions for the agricultural sector. They have developed a revolutionary irrigation system that conserves water while enhancing crop yield. Sarah and Mark have collaborated on various projects in the past and plan to spearhead this venture together.


Initial Meeting and Investment Details

Sarah and Mark have invested a significant amount of their savings into developing the prototype. To bring their product to market, they require additional capital. They have managed to attract interest from an investment group led by Elizabeth Clarke, a renowned angel investor, and Raj Patel, an entrepreneur with a background in agricultural technology startups.

During an initial investment meeting, Elizabeth and Raj agreed to invest a total of £120,000 in the venture. Sarah and Mark have already contributed £30,000, and the investors have proposed contributing the remaining £90,000. It was decided that the company would be incorporated as GreenTech Innovations Ltd, with Sarah serving as the CEO and Mark as the CTO.

Following the meeting, Elizabeth and Raj forwarded a document outlining their investment terms and expectations (Attachment 1), along with a proposed company structure (Attachment 2).


Background and Expectations


Elizabeth and Raj have emphasized the high-risk nature of their investment and expect a swift return. However, they are open to negotiation on the terms. Sarah and Mark are keen on moving forward but wish to ensure they remain in control of the company's direction. They prefer to reinvest profits into the company's growth and maintain decision-making autonomy.

Given the above, Sarah and Mark seek advice on the proposed investment structure and how they might negotiate more favourable terms while considering what might be acceptable to Elizabeth and Raj.


Your Task


Please prepare an analysis and advice for Sarah and Mark, addressing the following:

  1. Based on the proposed structure, can Sarah and Mark be ousted from their positions by Elizabeth and Raj? Recommend changes to strengthen their roles within the company.

  2. Suggest alternative structuring options for the investment that might be more advantageous for Sarah and Mark while remaining appealing to Elizabeth and Raj. Discuss the pros and cons of these alternatives from both parties' perspectives.


Note to Candidates:

  • Assume Sarah and Mark's interests align and will not diverge in the future.

  • Focus on preliminary advice only; detailed incorporation or tax advice is not required at this stage.

  • Ensure your advice includes relevant legal principles, tailored to individuals with limited company management experience.


I look forward to your analysis and recommendations.


Warm regards,

Senior Partner


----------------------------------

ATTACHMENT 1: Elizabeth and Raj's Investment Terms and Expectations


To: Sarah Jennings and Mark Thompson
From: Elizabeth Clarke and Raj Patel
Date: 23 April 2024
Subject: Investment Proposal for GreenTech Innovations Ltd


Dear Sarah and Mark,


Following our fruitful discussions about your innovative irrigation system, we are excited about the potential impact your technology can have on sustainable agriculture. We believe that GreenTech Innovations Ltd has the capability to drive significant advancements in water conservation techniques.


To formalize our interest, we propose the following investment terms:


1. Investment Amount: We are prepared to invest a total of £90,000 into GreenTech Innovations Ltd.

2. Share Allocation: In exchange for our investment, we would like a combined ownership of 60% in the company, allocated as follows:

  • Elizabeth Clarke: 35%

  • Raj Patel: 25%

3. Roles and Responsibilities: While we do not seek active roles in the day-to-day operations, we would like the option to appoint one board member to ensure our investment is being utilized effectively towards achieving the company's goals.

4. Return on Investment: Given the early stage and high-risk nature of this venture, we expect a structured return on our investment, prioritized over other distributions.

5. Future Funding: We are open to providing further funding, contingent upon reaching specific milestones that demonstrate the company's growth and sustainability.


We understand that these terms may necessitate further discussion and are open to negotiating to find a mutually beneficial agreement. Please review these terms and let us know if you have any proposals or concerns.


Warm regards,

Elizabeth Clarke
Raj Patel


----------------------------------

ATTACHMENT 2: Proposed Company Structure and Share Allocation


Company Name: GreenTech Innovations Ltd

Proposed Directors:

  • CEO: Sarah Jennings

  • CTO: Mark Thompson

Company Secretary: To be appointed

Registered Office: [Address], [City], [Postcode]

Shareholders and Share Allocation:

  • Elizabeth Clarke: 35% ownership through £1 ordinary shares

  • Raj Patel: 25% ownership through £1 ordinary shares

  • Sarah Jennings: 20% ownership through £1 ordinary shares

  • Mark Thompson: 20% ownership through £1 ordinary shares

Articles of Association: To adopt the Model Articles for private companies limited by shares, with amendments to reflect the investment terms as proposed by Elizabeth Clarke and Raj Patel.

Shareholders’ Agreement: To be drafted to include clauses on:

  • The appointment rights of Elizabeth and Raj to the company's board

  • Preferential return on investment for Elizabeth and Raj

  • Provisions for future funding rounds

  • Decision-making processes and veto rights on specific major decisions

Directors’ Service Contracts: Terms including remuneration, roles, and responsibilities for Sarah Jennings and Mark Thompson to be agreed upon following the finalization of investment terms.

您的答案

3 April 2024

Dear Partner,

 

Many thanks for involving me in this matter. Please find my advices below:

 

Positions of Sarah and Mark:

Based on the prosposed structure, Elizabeth and Raj will hold together 60% of the share capital as well as voting rights of GreenTech Innovations Ltd (the 'Company'). Assuming that the interests of Elizabeth and Raj align and they act in concert, they will be able to vote in favour of removing any directors from the board by way of an ordniary resolution, given that the four members vote on a poll (i.e. one share, one vote).

 

To strengthen the position of Sarah and Mark, I would suggest that a 'Bushell v Faith' clause be incorporated in the shareholders' agreement to be entered into between and among Sarah, Mark and the two investors. The Bushell v Faith clause will not exclude the shareholders' right to remove a director, however, it will give the director concerned, should they also be a member of the company, weighted voting rights when voting against their own removal. Where Elisabeth and Raj wish to remove either Mark or Sarah, either of them would be entitled to 60% of the voting rights and would be in a position to block any ordinary resolution.

 

Alternative Structuring Options:

Based on the current proposal, it appears that Elisabeth and Raj will acquire 60% of the ordinary shares and thus 60% of the voting rights. On top of that, they would also like to have preferential return on their investment.

 

Given that Mark and Sarah wish to maintain decision-making autonomy, they could propose to offer to Elisabeth and Raj share capital in a percentage proportionate to their equity contribution, i.e. 75% (GBP 90,000 out of GBP 120,000), but all in form of preference shares with no voting rights.

 

However, it is worth noting that issuing 75% preference shares bears the risk that any profits realised by the Company may have been exhausted before they can be reinvested as Sarah and Mark would have expected.

 

Alternatively, we could also suggest that Elisabeth and Sarah acquire 20,000 ordinary shares and thus 40% of the voting rights in the Company. The rest of their equity commitment (i.e. GBP 70,000) can be used to paid out preference shares without voting rights.

 

Alternatively, we could also propose a combination of equity and debt investment. Elisabeth and Raj could invest GBP 20,000 to acquire 40% of the ordinary shares with voting rights and invest the GBP 70,000 as a loan facility. As creditors, Elisabeth and Raj will be entitled to fixed amount of interests accrued and they may also predefine the use of proceeds clause and various covenants should they wish to monitor whether the Company makes use of their money in a proper way. From Sarah and Mark's perspective, creditors# right of interference with the daily operations of the Company is of much less degree compared to majority shareholders.

 

Please let me know should you need clarification on any of the points above.

 

Kind regards

Candidate

反馈

Great effort in analyzing the proposed investment and structure for GreenTech Innovations Ltd. Your identification of the potential risks and suggestions for mitigating them shows a good understanding of company law principles.

To enhance your analysis, consider the following points:
1. **Director Removal:** Your suggestion to include a 'Bushell v Faith' clause in the shareholders' agreement is commendable. However, ensure the correct spelling of 'Bushell v Faith' for accuracy. Additionally, provide a brief explanation of the case and its relevance to director removal protections.

2. **Alternative Investment Structures:** Your proposals for alternative structuring options show creativity. However, be mindful of the voting rights implications and the balance of power within the company. Consider discussing the potential impact of each proposed structure on decision-making processes and long-term relationships among shareholders.

3. **Legal References:** Incorporate specific legal provisions or case law to support your recommendations. For instance, cite sections of the Companies Act 2006 or relevant cases related to director removal, shareholder agreements, and investment structures to strengthen the legal basis of your advice.

Overall, continue to deepen your understanding of company law principles and their practical applications. Focus on providing detailed explanations, citing legal sources, and considering the broader implications of proposed strategies. Keep up the good work and aim for more comprehensive legal analysis in future assignments. Well done!

参考答案

如需更多练习,请解锁SQE2课程包

Sample Answer: GreenTech Innovations Ltd Investment and Structure Analysis


To: Senior Partner
From: Candidate
Date: 30 April 2024
Subject: Legal Analysis and Advice for GreenTech Innovations Ltd


Dear Senior Partner,


Following a thorough review of the proposed investment and structure for GreenTech Innovations Ltd as outlined by Elizabeth Clarke and Raj Patel, I have identified several key considerations and potential negotiation strategies for Sarah Jennings and Mark Thompson. My analysis aims to ensure their interests are safeguarded while also accommodating the investors' expectations.


1. Possibility of Director Removal by Investors:

Under the current proposed structure, Elizabeth and Raj collectively hold a 60% majority shareholding in the company. This significant stake could potentially allow them to exert considerable influence over the company, including the removal of directors. According to the Companies Act 2006, directors can be removed by a simple majority (over 50%) of shareholder votes at a general meeting. Given Elizabeth and Raj's combined shareholding, they would possess the necessary votes to remove Sarah and Mark as directors if they so chose.


Recommendations to Strengthen Director Positions:

  • Shareholders' Agreement: A key recommendation is to negotiate a shareholders' agreement that includes provisions to protect the roles of Sarah and Mark as directors. This could include clauses that require a higher threshold (e.g., 75%) for the removal of directors, thus ensuring that Elizabeth and Raj alone cannot remove them.

  • Director Service Contracts: Implementing fixed-term service contracts with clear terms for early termination can offer additional protection. Such contracts should include compensation clauses for unjustified early termination, providing a financial deterrent against removal.


2. Alternative Investment Structures:

Considering Sarah and Mark's desire to retain control over the company's direction while accommodating the investors' needs, several alternative structures could be proposed:

  • Convertible Loans: Instead of immediately obtaining equity, Elizabeth and Raj could provide funding through convertible loans. These loans would convert into equity at a later stage, possibly after achieving certain milestones or during a future funding round. This structure allows Sarah and Mark to maintain greater control initially while still offering a clear path for Elizabeth and Raj to benefit from the company's success.

  • Phased Investment: Another approach could involve phased investment, with Elizabeth and Raj contributing their investment in stages based on the achievement of specific milestones. This method aligns investor contributions with company progress and can be structured to gradually increase their shareholding, subject to mutual agreement.


Pros and Cons:

  • Convertible Loans: This option provides flexibility and immediate financial support without diluting control. However, it may involve higher costs in the long term due to interest or more favourable conversion terms for investors.

  • Phased Investment: Aligns interests by linking investment to performance, encouraging both parties to focus on growth. It may require more frequent negotiations and agreements as milestones are reached, potentially slowing down decision-making processes.


In conclusion, while Elizabeth and Raj's investment is crucial for GreenTech Innovations Ltd, it is important to structure this investment in a way that aligns with the long-term interests and vision of all parties involved. By considering alternative structures and protective measures for Sarah and Mark's roles, it is possible to foster a mutually beneficial relationship that supports the company's growth and innovation goals.


Warm regards,

Candidate

bottom of page