Paper 2.2(GLO) Corporate and Business Law (Global) DECEMBER 2003 STUDY GUIDE PROFESSIONAL EXAMINATION PAGE 2 If you have any queries concerning the new study guide, please direct them to: Education Department ACCA 29 Lincoln's Inn Fields London WC2A 3EE United Kingdom tel: +44 (0)20 7396 5891 fax: +44 (0)20 7396 5858 e-mail: education@accaglobal.com Additional information can be accessed on the ACCA website at: www.accaglobal.com © The Association of Chartered Certified Accountants June 2003 ISBN ABOUT ACCA ACCA is the largest and fastest- growing international accounting body, with over 300,000 students and members in 160 countries. ACCA has an extensive network of over 70 staffed offices and other centres around the world. This booklet includes the syllabus and study guide for Paper 2.2(GLO): Corporate and Business Law (Global). Introduction PAGE 3 AIM Business Activity and Legal Control in an International context The focus of this paper is the way in which business is carried out within both the national and international community with particular attention be paid to the problems that arise in relation to international business activity. OBJECTIVES On completion of this paper students should be able to: analyse and evaluate situations from a legal perspective identify the essential elements of different economic, political and legal systems, identify the main sources of law and how different legal systems operate explain the variety of organisational mechanisms through which business activity is conducted and the regulation of these organisations both nationally and internationally explain the rules of agency as they apply to partnerships and joint stock companies explain the law relating to partnerships describe the different types of joint stock company and explain the rules relating to their financing, management, administration and regulation explain the law relating to international business transactions and international dispute resolution explain the criminal law relating to insider dealing and money laundering. Paper 2.2 Corporate and Business Law (GLO) POSITION OF THE PAPER IN THE OVERALL SYLLABUS There is no prerequisite knowledge for this paper although the generic skills developed in Part 1 will provide the basis for the substantive study undertaken. Although all of the work done in other papers in Part 2 takes place within the legal framework, legal regulation is particularly relevant to Paper 2.1 Information Systems, Paper 2.3 Business Taxation (UK) and Paper 2.6 Audit and Internal Review. Questions in Paper 2.2 will neither assume, nor draw on, any knowledge from those papers. In Part 3, Paper 3.2 Advanced Taxation, will require an ability to understand and apply tax law. Paper 3.6 Advanced Corporate Reporting will address the issue of corporate insolvency. SYLLABUS CONTENT 1 Introduction: Economic, Political and Legal Systems Business activity takes place within specific contexts. This section introduces students to those contexts. Its primary focus is, however, on the legal environment within which business activity takes place and makes students aware of the different forms it can take, and the move towards an international legal system. It considers different legal systems, different types of law and the organisations which promote internationally applicable forms of regulation and dispute resolution. Students may focus their attention on their own system but should at least be aware of the existence of other systems. (a) Economic systems (i) Market economies, (ii) Planned economies (iii) Mixed economies (iv) International economic and political groupings (b) Political systems (i) The separation of powers (ii) The rule of law (c) Legal systems (i) Civil Law and Criminal Law (ii) Common Law (iii) Civil Law (iv) Sharia Law (d) Types of law (ii) Court based adjudication in civil and criminal law (iii) ADR (e) International trade and international legal regulation (i) Potential problems in trade between systems. (iv) Types of international law public international law private international law/conflicts of law PAGE 4 Paper 2.2: Corporate and Business Law (Continued) Corporate and Business Law (GLO) continued international economic law treaties conventions model codes International dispute resolution forums. 2 Business Forms and Legal Regulation: Introduction Business activity is conducted through a variety of organisational mechanisms from the sole trader to the multi-national corporation. This part of the subject examines a number of such mechanisms, their particular structures and attributes, and the way in which they are regulated both nationally and internationally. (a) Capital: meaning and types (b) Shares and Stock exchanges (c) Limited Liability (d) Legal personality (e) Business forms 3 Agency This section will familiarise the student with the general principles and rules of agency which allow the business activity to be conducted through the means of a second party, and which also find specific application in relation to partnerships and joint stock companies. (a) Introduction: agents and representatives (b) The relationship of Principal and agent: reciprocal rights and duties (c) The relationship of the agent and third party: authority and liability of the agent (d) The relationship of the principal and third party: rights and liabilities (e) Agency in International Law 4 Partnership This section will examine the partnership as a means of operating a business beyond the limited capital/skills of the sole trader. (a) Formation of Partnership (b) Internal regulation of Partnerships (c) Partnerships and outsiders (d) International Partnerships 5 Joint Stock Company: Introduction This constitutes the central element of the subject and examines the joint stock company as the pre-eminent business form in the contemporary world. There is no international standard or global system relating to the operation of joint stock companies. Different regimes, however, face the same problems and adopt similar approaches to deal with them. The UK as the oldest system of regulation will be used as the exemplar with appropriate reference to other jurisdictions. The first element in this section examines the different types of companies and the legal requirements controlling their establishment. (a) The nature of the Joint Stock Company and types of companies (b) The formation and constitution of the company 6 Capital and financing of companies This section deals in outline with the capital and financing of companies, covering share and loan-capital . (a) Share capital: ordinary, and preference shares (b) Public issue of shares (c) Loan capital: debentures and company charge (d) Capital Maintenance and dividend law 7 Management and administration of a company This section takes an overview of the legal obligations of the management in relation to the administration of the company. The role of key personnel is identified and the rights and obligations they have, is explored. (a) Separation of ownership and control PAGE 5 (b) Corporate Governance (c) Directors: (i) appointment, termination of office and disqualification, (ii) duties, (iii) powers (d) Company meetings and resolutions (e) Auditors: appointment, duties and powers (f) State regulation of corporate behaviour 8 Minority protection This section examines the way in which potential abuse of majority power may be prevented or remedied. (a) majority control (b) fraud on the minority (c) just and equitable winding up (d) unfairly prejudicial conduct (e) company investigation 9 Insolvency This section will introduce students to the ways in which insolvent companies may be dealt with. (a) voluntary liquidation (b) compulsory liquidation (c) offences in relation to winding up (d) alternatives to winding up: Administration, Chapter 11 Corporate and Business Law (GLO) continued 10 International Business Transactions: (a) Sale: United Nations Convention on Contract for the International Sale of Goods (b) ICC INCOTERMS (c) Transportation: Bills of Lading (d) Payment: Bank Transfers, Bills of Exchange, Letters of Credit 11 International Dispute Resolution: (a) Court based System: determining the appropriate forum. (b) UNCITRAL Model Law on International Commercial Arbitration 12 Criminal law (a) Insider dealing (b) Money laundering EXCLUDED TOPICS The syllabus does not attempt to cover every aspect of the various subject areas it deals with. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper divided into two sections. Section A will contain short, knowledge-based questions. Section B will be made up of 20 mark questions, which will have approximately 10 marks for knowledge and 10 marks for problem solving. These questions will test knowledge, communication skills and the ability to appraise and analyse information. Number of marks Section A: Choice of 6 from 8 questions (10 marks each) 60 Section B: Choice of 2 from 4 questions (20 marks each) 40 100 ADDITIONAL INFORMATION Knowledge of new legislation will not be expected until at least six months after the last day of the month in which the Royal Assent (or similar procedure in other countries) is given, or six months after the specific provision comes into effect, which ever is the later. The Study Guide provides more detailed guidance on the syllabus. RELEVANT TEXTS The sources from which you can obtain materials written for this paper are: Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2211. Website: www.bpp.com PAGE 6 Corporate and Business Law (GLO) continued STUDY SESSIONS 1 Introduction: Economic, Political and Legal Systems 1 Syllabus reference1(a)&1(b) Economic and Political environments understand the way in which market economies operate, understand the way in which planned economies operate understand the way in which mixed economies operate consider the structure and operation of International economic and political groupings understand the doctrine of the separation of powers and its impact on the legal system understand what is meant by the rule of law 2 Economic, Political and Legal Systems 2 Syllabus reference1(c) & (d) Common Law understand its history explain its characteristics; mode of reasoning, role of judges consider the relationships between the common law and legislation cite English law and American law as examples Civil Law understand its history explain its characteristics; mode of reasoning, role of judges understand the role of codification cite Continental Europe as an example Sharia law understand its history explain its characteristics; mode of reasoning, role of judges consider the operation of the rule against usury cite Pakistan, Iran as examples. Civil law and Criminal law understand the distinction between Civil Law and Criminal Law, especially in areas relating to business activity 3 Economic, Political and Legal Systems 3 Syllabus reference 1(d) understand the way in which courts adjudicate in civil and criminal law explain the operation, and evaluate the distinct merits, of court-based adjudication and Alternative Dispute Resolution mechanisms such as: Arbitration Mediation Conciliation 4 Economic, Political and Legal Systems 4 Syllabus reference1(e) International trade and international legal regulation/conflict of laws explain the distinction between public international law and private international law understand the concepts of international trade, the consequences of conflict of laws and the need for truly international economic law consider and explain the role of organisations endeavouring to establish international regulation: UN. ICC, WTO, COE, WTO, OECD, etc explain the function of international treaties, conventions and model codes explain the need for, and role of, neutral adjudicators: ICC. 5 Business forms and legal regulation: Introduction Syllabus reference 2(a)-(e) explain the various meanings of the term Capital and cite examples explain what shares are in both legal and economic terms understand the role stock exchanges in relation to business activity explain the meaning and consequences of limited liability in relation to company shares understand the doctrine of legal personality and some of its consequences with particular reference to: Separation of ownership and control Corporate governance PAGE 7 Corporate and Business Law (GLO) continued 6 Agency Syllabus reference 3 (a)- (e) explain the role of the agent and other representatives and give examples of such relationships explain how the agency relationship is established define the authority of the agent analyse the reciprocal rights and duties between principal and agent detail the relationship between the agent and third parties examine the particular problems that flow from international agency relationships 7 Partnership Syllabus reference 4 (a)- (b) define and explain the role of the partnership form in the context of contemporary business organisation analyse the duties of partners to each other analyse the rights of partners to each other 8 Partnership 2 Syllabus reference 4 (c) (d) explain the authority of partners in relation to partnership activity analyse the liability of various partners for partnership debts explain the way in which partnerships can be brought to an end examine the legal implications of international partnerships 9 Joint Stock Company 1 Syllabus reference 5(a) The Company Form explain and distinguish between the following forms sole trader partnership limited liability or not separate personality or not legal control joint stock company types: private public public listed parent/subsidiary multinational state-owned companies illustrate the effect of separate personality contract/ownership etc limited liability, publicity and capital maintenance cite instances where separate personality will be ignored lifting the veil, misuse/ fraudulent use of corporate form/wrongful trading 10 Joint Stock Company 2 Syllabus reference5(b) The formation of the company and constitution of the company explain the procedure for registering companies detail the content and effect of constitutional documents of the company: memorandum and articles of association explain the contractual capacity of a company detail the statutory books, records and returns required to be kept and submitted by companies 11 Capital and financing of companies 1 Syllabus reference 6(a) & (b) Capital and financing of companies: share capital illustrate the difference between various classes of shares; ordinary, and preference shares explain class rights and the procedure for altering class rights explain the legal regulation of the issue of shares to the public, promoters and liability for false statements describe the quasi-legal regulation of share issues: the Stock Exchange regulations detail the rules relating to the payment for shares 12 Capital and financing of companies 2 Syllabus reference 6(c) Capital and financing of companies: loan capital define companies borrowing powers PAGE 8 Corporate and Business Law (GLO) continued explain the meaning of debenture distinguish loan capital from share capital explain the concept of a company charge and distinguish between fixed and floating charges detail the need and the procedure for registering company charges 13 Capital and financing of companies 3 Syllabus reference 6(d) Capital and financing of companies: capital maintenance explain the meaning and effect of the doctrine of capital maintenance explain the distribution rules relating to: financial assistance for purchase of shares dividend law 14 Management and administration of a company 1 Syllabus reference 7(a)(b) &(c) Corporate Governance examine the issues relating to the separation of ownership and control explain the meaning of corporate governance Directors explain the role of directors in the operation of a company with specific regard to their: appointment, remuneration including stock/ share options loss of office disqualification detail the powers of the board of directors, the managing director and individual directors consider different board structure: single board supervisory board 15 Management and administration of a company 2 Syllabus reference 7(c)&(d) Directors duties and company meetings detail the duties directors owe to their companies explain the meaning of fraudulent trading and wrongful trading detail the procedure for conducting company meetings 16 Management and administration of a company 3 Syllabus reference 7(e)&(f) Auditors detail the appointment procedure relating to, and the duties and powers of company auditors State regulation of corporate behaviour examine the role of the Financial Services Authority: market abuse company investigations 17 Minority Protection Syllabus reference8(a)(d) Majority control and minority protection examine the normal operation of rules relating to majority control examine the common law doctrine of fraud on the minority explain the functioning of the statutory procedures relating to just and equitable winding up and unfairly prejudicial conduct 18 Insolvency 1 Syllabus reference 9(a)-(c) Insolvency explain the meaning, effect and procedures relating to voluntary liquidation explain the meaning, effect and procedures relating to compulsory liquidation detail the offences in relation to winding up 19 Insolvency 2 Syllabus reference 9(d) Insolvency continued examine the alternatives to winding up: Administration Chapter 11 in the USA PAGE 9 20 International Business Transactions 1 Syllabus reference 10(a)&(b) United Nations Convention on Contract for the International Sale of Goods explain the sphere of application and general provisions of the convention explain and be able to apply the rules for creating contractual relations under the convention explain the effect of the ICC INCOTERMS 21 International Business Transactions 2 Syllabus reference 10(a) United Nations Convention on Contract for the International Sale of Goods -continued explain and be able to apply the rules relating to the obligations of the seller under the convention: delivery of goods and handing over documents conformity of the goods and third party claims remedies for breach of contract by the seller explain and be able to apply the rules relating to the obligations of the buyer under the convention: payment of the price taking delivery remedies for breach of contract by the buyer 22 International Business Transactions 3 Syllabus reference 10(a) United Nations Convention on Contract for the International Sale of Goods continued explain and be able to apply the rules relating to the passing of risk under the convention explain and be able to apply the rules relating to the provisions common to both seller and buyer under the convention: anticipatory breach and instalment contracts damages interest exemptions effects of avoidance preservation of the goods 23 International Business Transactions 4 Syllabus reference 10(b) Transportation documents Bills of lading 24 International Business Transactions 4 Syllabus reference 10(c) Means of payment Bank transfers Bills of Exchange Letters of credit Corporate and Business Law (GLO) continued 25 International Dispute Resolution 1 Syllabus reference 11(a) Court based solution in international law Selection of forum Enforcement of awards 26 International Dispute Resolution 2 Syllabus reference 11(b) UNCITRAL Model Law on International Commercial Arbitration explain the nature and effect of the arbitration agreement under the model law understand the rules relating to the composition of arbitral tribunal under the model law explain the jurisdiction of tribunal under the model law understand and explain the rules relating to the conduct of proceedings under the model law explain how awards may be enforced under the model law 27 Criminal law 1 Syllabus reference 12(a) Criminal law Insider dealing explain the nature of insider dealing consider the difficulties in regulating it detail and assess the effectiveness of the legal control exercised over insider dealing PAGE 10 28 Criminal law 2 Syllabus reference 12(b) Criminal law money laundering explain the various legal measures to control money laundering explain the scope of FATF detail and be able to apply the rules in the Vienna convention (1988) detail and be able to apply the rules in the Council of Europe convention (1993). Corporate and Business Law (GLO) continued . of international law public international law private international law/ conflicts of law PAGE 4 Paper 2.2: Corporate and Business Law (Continued) Corporate and Business Law (GLO) continued . economic and political groupings (b) Political systems (i) The separation of powers (ii) The rule of law (c) Legal systems (i) Civil Law and Criminal Law (ii) Common Law (iii) Civil Law (iv) Sharia Law . to international business transactions and international dispute resolution explain the criminal law relating to insider dealing and money laundering. Paper 2.2 Corporate and Business Law (GLO) POSITION