ExpertHard2 marksMultiple Choice
The formation and constitution of business organisationsSyllabus DArticles of AssociationEntrenchment
ACCA · Question 13 · The formation and constitution of business organisations
Section A
The founders of a tech startup want to ensure that a specific clause in their Articles of Association, which protects their intellectual property rights, cannot be altered by a standard special resolution (75% majority). They include a provision requiring a 95% majority to change this specific clause. What is the legal term for this type of provision?
Section A
The founders of a tech startup want to ensure that a specific clause in their Articles of Association, which protects their intellectual property rights, cannot be altered by a standard special resolution (75% majority). They include a provision requiring a 95% majority to change this specific clause. What is the legal term for this type of provision?
Answer options:
A.
An absolute restriction
B.
A provision for entrenchment
C.
A class right
D.
A shareholder veto
How to approach this question
Identify the term used in the Companies Act 2006 for making articles more difficult to amend than the standard 75% special resolution.
Full Answer
B.A provision for entrenchment✓ Correct
A provision for entrenchment (s.22 CA 2006) allows a company to make certain articles more difficult to change than by a standard special resolution (e.g., requiring a higher percentage or unanimous consent). However, it cannot make them completely unalterable.
Common mistakes
Thinking that articles can never require more than a 75% majority to change.
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