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A

Allotment of Shares

This is the process of allocating shares between shareholders usually pro rata or according to some prior agreement. The allotment may have conditions, which must be satisfied before the shares are issued eg payment for them. This precedes the actual issue of shares.

D

Deadlock

This is a situation where two sides cannot reach an agreement. Some contracts and agreements contain deadlock clauses, which deal with changes of circumstances where the parties cannot agree and stop one side from imposing its will on the other and usually accompanied by an arbitration (see above) clause.

De facto

This is Latin for “in fact” and means having a practical effect different from the legally accepted or expected situation. For example a person who deliberately, or negligently, gives the impression of being a director of a company to the other party can be treated as a de facto director. So the company will be bound by any agreement or statements that person makes as if they were made by a properly appointed director.

De jure

This is Latin for ” in law.” Legally correct and is the opposite of de facto above.

Draft Contract

This is an unconfirmed version of the contract.

Due Diligence

This is the formal process of investigating the background of a business being bought or of another party in a major long-term contract.
Due diligence is used to ensure that there are no hidden details that could affect the deal.

E

Estoppel

A legal concept that a person can be stopped from denying something that they allowed another person to believe. In contract this may apply where a person enters into agreement based on statements they have made which are in fact not true. If the other party has acted on those statements and would lose because of them then the person is stopped from denying them and must make good on the statement.

Exclusion Clauses

This is a clause in a contract that is intended to exclude one party from liability if some circumstance happens. It is a type of exemption clause (see below). The courts tend to interpret them strictly and in favour of the party that did not write them where possible. Exclusion clauses are governed by regulations in consumer dealings that make most ineffective – but note that these regulations do not cover you when dealing in the course of your business.

Exempli Gratia

This is Latin for “for example” meaning one or more examples from a greater list of possibilities. Compares with id est (ie) which indicates a full, definitive list of all possibilities.

Exemption Clauses

Clauses in a contract that try to restrict the liability of the party that writes them. Are split into exclusion clauses that try to exclude liability for specified outcomes completely and limitation clauses that try to set a maximum on the amount of damages the party may have to pay if there is a failure of some part of the contract. Exemption clauses are regulated very strictly in consumer dealings but these do not apply for those who deal in the course of their business.

Ex Gratia

Out of grace (Latin), a gift made without any obligation from the giver or for any return from the receiver.

Ex Parte

This means “on behalf of” (Latin) some action (usually a legal action) taken by a party on someone else’s behalf.

Express Terms

Terms actually stated in the contract either verbally before or at the time agreement is made or in the written terms agreed to.

F

Formation of the Contract

The point at which negotiations end and a binding agreement is made and occurs when there is unconditional acceptance of the last offer or counter offer.

Formation of a Company

The process of finding the person to subscribe to take shares in a new company, appointing the directors and secretary and agreeing the name, capital and memorandum and articles.

Franchising

Commercial agreements allowing one business to deal in a system or product controlled by another, eg most car manufacturers give franchises to sell their cars to local garages who then operate using the manufacturer’s name and corporate brands.

Fraudulent Trading

Fraudulent trading is committed when a company intentionally defrauds its creditors. However few actions are successful because dishonest intent must be proved.

Frustration of Contract

Where a contract cannot be performed or completed because of circumstances outside of the control of the parties. Could be a natural event such as a fire that destroys the goods or a change in the law that makes the performance of the contract illegal e.g. a contract for the hire of pistols to a gun club would have been frustrated by the introduction of the law which banned handguns in the UK. A frustrated contract terminates at the point of frustration but is not void from the start so any goods or services already supplied must be paid for.

L

Limited Liability

Usually refers to limited companies where the owners’ liability to pay the debts of the company is limited to the value of their shares or the amount of their guarantee (guarantee company). But it can also apply to contracts where a valid limitation clause has been included in the terms – not all limitation clauses are valid.

Litigation

Litigation is a legal proceeding in a court /judicial contest to determine and enforce legal rights.

M

Misrepresentation

Where one party to a contract makes a false statement of fact to the other which that other person relies on. Where there has been a misrepresentation then the party who received the false statement can get damages for their loss.

O

Obligations of Confidentiality

These are terms in a confidentiality agreement.

Official Receiver

This is a person appointed to manage the financial affairs of a bankrupt business.

Ordinary Resolution

A simple resolution passed by a company by more than half of those who vote on it. Usually all that is needed to authorise the directors to enter into a major contract or to ratify one they have already agreed. However, directors are usually assumed to have general authority to enter into any contract in the course of business and the other party to a contract is not required to check their authority.

P

Passing Off

The tort of passing off covers a person or organisation pretending to be, or fraudulently allowing someone else to believe, they are someone else. A tort is a type of civil law, which has grown up through cases as opposed to a statute law passed by parliament.

Pre-emption Right

A right to be offered something before it is offered to anyone else. Usually applies to companies where shareholders have the right to be offered any new shares being issued before they are offered to outsiders. Large contracts sometimes also include pre-emption rights so that the buyer of a large batch of goods gets a right to be offered any further batches first. Also known as right of first refusal.

Prima Facie Evidence (presumptive evidence)

Prima facie evidence means ‘at first sight’ in Latin and a prima facie fact is one that seems obvious and is sufficient to discharge the burden of proof but might be proved wrong if evidence in rebuttal is offered.

Professional Indemnity

Professional indemnity provides protection against any action by clients who believe they received bad or negligent services, and incurred a loss as a result.
Most professional bodies have professional indemnity cover – in some cases it is compulsory. Anyone who supplies advice or services such as consultancy should consider professional indemnity.

Pro Rata

This is Latin and means “for the rate”. Divided in proportion to some existing rate or split e.g. a pro rata share issue is offered in proportion to the number of shares each shareholder already has.

Proxy

This is a person who acts on behalf of another for a specific purpose. In a company a proxy is appointed to attend a meeting and vote on behalf of the shareholder that appointed the proxy.
It can refer to both the form making the appointment and the person appointed.

Public Liability

This is a legal liability to pay damages, consequent upon bodily injury, illness or disease contracted by any other person, other than employees, or loss of/damage to their property caused by the insured.
Limit of indemnity is the maximum amount the insurance company will pay in the event of a claim being made.
The limits are usually up to £5m but when working for another company, cover of £10m or more can be demanded.

Q

Quid Pro Quo

This is Latin meaning ” something for something.”
The usual definition of consideration in a contract is on the basis that both parties must give something.

Quorum

A minimum number of people needed at a meeting for the meeting to proceed and make any decisions.

R

Ratification

Giving authority to an act already done. A resolution of a company in general meeting can ratify an act previously done by the directors and a principal can choose to ratify an act of an agent that was beyond the power of the agent.

Rectification

This is the correction of a document by court order. The court can rectify a document that could not be legally altered even by the parties who created it. This includes company records and signed contracts.

Registered Office

This the official address of the company as stated on the register at Companies House. Any documents delivered to this address are legally served on the company.

Remedies

Payments or actions ordered by the court as settlement of a dispute. The most common is damages (a payment of money). Others include specific performance, injunction and rescission.

Repudiation

Repudiation has two meanings in contract. The first is where a party refuses to comply with a contract and this amounts to a breach of contract. The second is where a contract was made by a minor (person under the age of 18) who then repudiates it at or shortly after the age of 18. For this reason it is unwise to make anyone under 18 a director of a company as they could later repudiate a contract they signed.

Restoration

A court order to restore a company to the register after it has been struck off. If a company has been struck off at the end of a winding up it can only be restored within two years – but if struck off for another reason (such as failure to file returns) it can be restored within twenty years. The usual reasons are to regain property the company owned when it was struck off or because it needs to be made party to a court case.

Restrictive Covenant

These are often included in long running contracts and contracts of employment to stop the parties working with competitors during the period of the agreement and for some time thereafter. However, unless carefully written the courts will see them as being in restraint of trade and ignore them.

S

Service Contract

Directors and officers are usually given service contracts that are formed differently from a contract of service, which is a more formal description of an employment contract. This is because directors and officers are not always employees and employment law rules differ.

Shareholders

Own the company by holding shares in it. In a private company they may also be the directors. In a public company they can include members of the public who have bought shares through a market such as the stock exchange.

Shareholders’ Agreement

This is an agreement between all the shareholders about how the company should be run and the application of the rights of the shareholders. Acts as a contract between the members but as the company itself is not a party to it the company is not bound by it.

SIC Codes

A SIC code is the Standard Industrial Classification number listed in the Standard Industrial Classification Manual which is published by the Office of Management and Budget.
It was first introduced into the United Kingdom in 1948 for use in classifying business establishments and other statistical units by the type of economic activity in which they are engaged. The classification provides a framework for the collection, tabulation, presentation and analysis of data and its use promotes uniformity. In addition, it can be used for administrative purposes and by non-government bodies as a convenient way of classifying industrial activities into a common structure.

Specific Performance

This is a remedy that can be given by court order and it requires a party to a contract to actually carry out their part of the deal. However, there are restrictions on its use and in particular it will not be used for personal services.

Special Resolution

This is a resolution requiring a majority of three quarters of those voting to be in favour.
It is used for particular types of resolution as set out in legislation e.g. a change of name or alteration to the articles.

Statutory Instrument

These are laws that can be enacted without primary legislation.

Subscribers

Originally meant the same as underwriter (” sub scribe” Latin: write below). The term is is most commonly used to describe the person who signs the end of the memorandum of association when a company is formed and become the first members. Subscribers can mean anyone who signs up to receive a service.

Subsidiary Company

A company that is over half owned by another company (its parent company).

U

Unlimited Company

An unlimited company is a legal body that can be used for signing contracts or holding property where the disadvantages of unlimited liability for the debts of the company are not considered significant.
This will also allow changes in company members if there is a resignation or death without dissolving the company.
An unlimited company is not the most popular of formats because the absence of limited liability makes it unattractive to most entrepreneurs.
It is possible to register your company with Companies House as unlimited because it has all the features of a private company limited by shares
The only difference is that the clause of liability in the Memorandum of Association is removed thus making it an unlimited company with its members completely liable for any debts, not the company.

The only advantage of this type of business structure is that because members are liable for company funds and debts there is no need to file accounts at Companies House or for the public to have access to financial statements.
However there is still the need to prepare and submit the required paperwork to Companies House.
Again, this kind of structure is very rarely used.

Unlimited Company with Share Capital

If the company needs money to pay its debts each of the shareholders can be called upon to contribute a fixed amount on each share held by them.
If you have shares in the company and it is wound up you must pay for the value of your shares.

W

Warranties

A promise made in a contract, which is less than a condition. Failure of a warranty will result in liability to pay damages but will not breach the contract unlike failure of a condition, which will breach the contract.

Winding-up

This is a formal procedure for disbanding a company. This may be voluntary by the members where a company no longer has any purpose but commonly happens when the company is insolvent.

Without Prejudice

A term used by solicitors in negotiations over disputes where an offer is made in an attempt to avoid going to court. If the case does go to court no offer or facts stated to be without prejudice can be disclosed as evidence.
The term is often misused by businesses during negotiations when they actually mean subject to contract.

Wrongful Trading

When a company is in insolvent liquidation, the courts can require a contribution from any directors found guilty of wrongful trading. To avoid liability directors must show that from the moment insolvency became inevitable they took all possible steps to minimise the loss to the creditors.

 

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