Legal Practice Notes

Commissions Commissions amount to offering a financial benefit to another. They are not invariably bribes. Typically, a commission arises when a seller or buyer provides a benefit to a third party or fiduciary for arranging or mediating the supply of goods or services, or otherwise assisting with a transaction for goods or services. While normal in many industries and accepted practice, an anticipated advantage can create a tangible risk that functions are performed improperly. A commission can also be a facilitation payment, paid to secure the performance (or swifter performance) of an obligation already owed (see Practice Note: Facilitation payments under the Bribery Act 2010). Where a commission is a facilitation payment, it is unlawful. The Serious Fraud Office ( SFO) has indicated it will bring proceedings where the Code for Crown Prosecutors, Full Code Test is satisfied; namely, there is a...

In cross-border securities offerings, underwriters or initial purchasers typically insist that the issuer’s accountants deliver one or more comfort letters addressing, in full, the financial information set out in the prospectus or the offering memorandum for the transaction. These letters are a key part of underwriters’ due diligence and underpin their robust defence against possible liability under US securities law. They are frequently called SAS 72 letters, a nod to the Statement on Auditing Standards 72 ( SAS 72) upon which they were originally based and widely well-understood in practice. That standard has since been replaced by AU Section 634, Letters for Underwriters and Certain Other Requesting Parties ( AU 634), which now applies in this area. Comfort letters and the 'due diligence' defence The grounds for potential liability under US securities laws vary depending on whether the offer is made publicly in the US, ie...

This Practice Note sets out practical guidance on how unincorporated charities execute documents. For details on execution by incorporated charities, refer to Practice Note: Execution formalities—incorporated charities. We offer a comprehensive, interactive collection that helps users identify and navigate the concepts and common issues in document execution, including deeds. Each stage includes practical guidance, precedent clauses and Q& As tailored to that stage. For further detail, see the Execution collection. Capacity Unincorporated charities lack a separate legal personality; consequently, the entity itself has no rights or duties and cannot own property in its own name. Property that appears to ‘belong’ to an unincorporated charity is vested in the organisation’s leading members, who act as trustees and hold it on trust for the remaining members. Accordingly, the individuals with authority to enter into arrangements and to execute documents are the trustees or members of the...

This Practice Note is about the tax treatment of limited partnerships In general, the fiscal treatment of limited partnerships broadly mirrors that of general partnerships (see Practice Note: Taxation of general partnerships). A limited partnership is transparent for tax purposes; it is not a taxable person in its own capacity. Rather, the partners are charged to tax on their respective shares of the firm’s profits and gains, and can obtain relief for corresponding shares of its losses, whether or not those profits and gains are actually distributed to them. That said, there are specific tax rules that apply to limited partners (and at times to partners in a general partnership who conduct themselves as if they were limited partners), and these are considered in this Practice Note. Note also that the rules concerning the utilisation of losses by a limited partner are set out in...

Tax treatment of general partnerships This Practice Note outlines how general partnerships are treated for tax. A partnership of this kind is not chargeable to tax in its own right. Instead, the partners are taxed on their respective portions of the partnership’s profits and gains and may claim relief for their share of any losses, whether or not profits and gains are actually distributed to the partners. Consequently, a general partnership is often described as transparent for tax purposes, or simply ‘tax transparent’. In summary, taxing a general partnership involves three steps as follows: calculating the partnership’s taxable profits allocating to each partner their share of that taxable profit according to the partnership’s profit-sharing arrangements assessing each partner’s share of the partnership’s profits to corporation tax or income tax For this Practice Note, and in tax legislation generally, a partner means an equity...

The sale of a company's business can be structured as either: a disposal of assets held by the company (an asset sale), or a disposal of shares in the company by its shareholders (a share sale) In an asset sale, the buyer (or, where appropriate, the seller) can select which assets and liabilities, and which parts of the target business, it takes on (or, in the seller’s case, only parts it disposes of). This lets parties choose what to include and exclude, tailoring the transfer to parts they wish to trade. In a share sale, the buyer assumes ownership of the company that owns and operates the target business. The company keeps its assets (and liabilities) and continues to run the business under the buyer’s ownership. Buyers generally favour purchasing assets to avoid inheriting unknown and potentially unquantifiable company liabilities in practice. Sellers usually favour a sale of...

This Resource Note summarises the core provisions of Rule 6 of the City Code on Takeovers and Mergers (the Code), explaining when an acquisition of an interest in the offeree’s shares gives rise to an obligation to offer a minimum level of consideration. It signposts relevant materials, commentary and guidance from the Panel on Takeovers and Mergers ( Panel), together with Lexis+® UK analysis and resources, to deliver practical guidance on interpreting and applying Rule 6. This Resource Note will be pertinent to any stakebuilding exercise. Materials covered in this Resource Note include: Practice Statements issued by the Panel Executive (the body responsible for the day-to-day work of takeover supervision and regulation) ( Executive), providing informal guidance on how the Executive typically interprets and applies the Code Panel Statements published by the Panel ( P/ S) and Panel...

This Resource Note sets out the core provisions of Rule 20 of the City Code on Takeovers and Mergers ( Code) and signposts key materials, commentary and guidance from the Panel on Takeovers and Mergers ( Panel), alongside Lexis+® UK analysis and resources, to provide practical help with interpreting and applying Rule 20. Materials addressed in this Resource Note include: detailed notes accompanying the Code ( Notes), which elaborate on how the Rules are intended to operate, and relevant Appendices covering particular issues Practice Statements issued by the Panel Executive (the body undertaking the day-to-day supervision and regulation of takeovers) ( Executive), offering informal guidance on the Executive’s usual interpretation and application of the Code Panel Statements published by the Panel ( P/ S) and Panel Instruments Public Consultation Papers ( PCP) and Response Statements ( RS) issued by the Code...

This Resource Note summarises the principal elements of Rule 16 of the City Code on Takeovers and Mergers (the Code) and signposts key materials, commentary and guidance from the Panel on Takeovers and Mergers (the Panel), together with Lexis+® UK analysis and resources, to offer practical assistance on the interpretation and application of Rule 16. Materials addressed in this Resource Note comprise: detailed notes that accompany the Code (the Notes), which elaborate on how the Rules are intended to be implemented, plus relevant Appendices addressing particular issues Practice Statements released by the Panel Executive (the body responsible for the day-to-day supervision of takeovers and regulation of the Code) ( Executive), giving informal guidance on the Executive’s usual interpretation and application of the Code Panel Statements issued by the Panel ( P/ S) and Panel Instruments Public...

Dealing in shares and related interests Trading in shares and associated interests of the offeree and of any offeror or would-be offeror, whether ahead of or during an offer, can carry material weight in a public takeover, as each side looks to secure tactical or strategic leverage by building up (or divesting) positions over time if feasible. This is often most acute in contested bids, or where the offeror seeks the offeree board’s endorsement of the transaction in particular. Any securities dealings connected to a takeover bid, before, during, or after the offer period, may fall under legal and regulatory constraints that can restrict or bar such activity in whole or in part. These rules on trading in shares and related interests are extensive and intricate. Prospective offerors should familiarise themselves, well in advance of approaching a potential offeree, with the distinct yet...

In recent years, schemes have been the structure of choice Despite the ban on cancellation schemes in the takeover context and the disappearance of the incidental stamp duty benefits once attached to them, most offerors have still opted to use schemes to complete takeovers in recent years. In 2024, 50 of the 55 firm offers (91%) proceeded by way of a scheme of arrangement, with this preference evident across transactions of every size right across the UK market. For additional commentary and data, refer to: Public M& A deals 2024— UK— Market Standards Trend Report [ Archived]. This Practice Note outlines, from the offeror’s perspective, the pros and cons of implementing a takeover through a scheme of arrangement rather than a contractual offer. For a more detailed overview of structuring choices and the key characteristics of offers and schemes, see Practice Note:...

This Practice Note outlines the core features of a public company limited by shares. It also sets out the main differences from private companies limited by shares, and explains why a public company limited by shares might be selected as a preferred business vehicle rather than another UK company form. What is a public company limited by shares? A public company limited by shares is a distinct legal person, separate from its members. Ownership rests with members who hold the company’s shares. Management is carried out by directors in accordance with the Companies Act 2006 ( CA 2006) and the company’s constitutional document, commonly called the articles of association. This company type is widely used. More than five million limited companies appear on the Companies House public register. Of these, 95% are private companies limited by shares. Since 2008, figures have been declining and account for only 0.1% of the...

This Practice Note forms part of the Share purchase transaction collection. Following completion of the deal, various tasks must be carried out, though the exact requirements will hinge on the circumstances of the transaction. In most cases, the buyer’s lawyers will take responsibility for the majority of these tasks. For guidance on the work involved, consult Checklist: Post-completion matters (share purchase)—checklist. If a list of documents or a completion checklist has been created, it may set out the post-completion steps. See Precedents: List of documents—private M& A—share purchase—conditional completion and List of documents—private M& A—share purchase—unconditional completion. Post-completion tasks for the buyer In the days immediately after completion, several actions will need to be undertaken by the buyer’s lawyers as applicable thereafter......

Within private equity, a ratchet is a mechanism that adjusts the proportion of equity held by founders, managers and employees following investment. In a venture capital setting, ratchets operate as anti-dilution protections, safeguarding early-stage investors from dilution where later fundraisings are completed at a lower entry price than before. In a buyout setting, they are typically designed to reward management; the percentage of overall equity they own may shift according to how the business performs against forecasts and projections and against the investor’s target return. In such cases, strong performance usually increases management’s shareholding. Ratchet structures can differ markedly from one investment to the next. They frequently rely on complex financial and mathematical constructs and must take account of multiple scenarios, including different exit routes and the form of consideration used. Tax...

The meaning of financial assistance—overview Financial assistance is defined in the Companies Act 2006 ( CA 2006). In essence, it covers any support a company provides to enable the purchase of its own shares, where funding is supplied to make that acquisition possible. See below for the categories of company to which these rules apply, together with what amounts to financial assistance for these purposes. Where help is given, it will constitute financial assistance if money, or anything with monetary value, is involved. That said, the help need not involve any expense for the person providing it. The following authorities offer further guidance on the meaning of financial assistance: Charterhouse Investment Trust Ltd v Tempest Diesels Ltd Wallersteiner v Moir The consequences of giving unlawful financial assistance can be serious—see: Consequences of contravening the financial assistance rules, below. Types of companies to which the rules...

A director of a company limited by shares faces a broad spectrum of possible liabilities arising from actions or failures to act undertaken in the course of the company’s business, in the ordinary running of the company. One method of shielding a director from such exposure is for the company to buy a directors’ and officers’ insurance policy ( D& O policy). This is an arrangement of cover. Companies Act provisions The Companies Act 2006 ( CA 2006) generally forbids relieving or indemnifying directors for liabilities as a general rule. Nevertheless, statutory carve-outs permit protection where directors are covered through: the company’s purchase and upkeep of insurance for its directors against liabilities the grant by the company of qualifying indemnities to its directors for specified liabilities These mechanisms are set out in statute. Before 2005, companies were not allowed to obtain insurance or give...

This Practice Note outlines counter-proliferation financing ( CPF). It highlights regulatory duties and explores the risks linked to proliferation financing. It is directed at businesses within scope of the Money Laundering, Terrorist Financing and Transfer of Funds ( Information on the Payer) Regulations 2017 ( MLR 2017), SI 2017/692—see Practice Note: Money Laundering Regulations 2017—scope and application, and for law firms Money Laundering Regulations 2017—scope and application—law firms. Organisations subject to the MLR 2017 must evaluate proliferation financing risks and establish policies, controls and procedures to manage and reduce those risks. What is proliferation financing? Proliferation financing is the provision of funds or financial services used, in whole or in part, for any of the following in relation to chemical, biological, radiological or nuclear ( CBRN) weapons, in breach of a relevant financial sanctions obligation: manufacture acquisition ...

Board composition In 50:50 joint ventures, the joint venture agreement ( JVA) commonly grants each party the right to nominate the same number of directors to the board of the joint venture company ( JVC). The parties may alternatively rotate the appointment of the chair for a defined term (eg an annual rotation), and the chair will ordinarily have no casting vote. As a result, control of the JVC’s board is shared, and neither side can unilaterally set the joint venture’s course. That shared control can, however, produce deadlock if the parties cannot reach consensus. For guidance on deadlock scenarios and potential solutions, see Practice Notes: Deadlock in corporate joint ventures and Deadlock—fundamentals. Where a joint venture involves a minority shareholder (ie a shareholder, or several shareholders, each holding under 50 per cent of the JVC’s issued share capital) alongside a majority...

This Practice Note considers when lending to employees or directors, and employee share schemes, might fall within the UK consumer credit regime, and the ramifications for a firm where its arrangements are not excluded... Regulated activities–general The Consumer Credit Act 1974 ( CCA 1974), the Financial Services and Markets Act 2000 ( FSMA 2000) and the Financial Services and Markets Act 2000 ( Regulated Activities) Order 2001, SI 2001/544 ( RAO) should be taken into account by firms that provide loans to their directors or employees. This is because, in particular circumstances described in more detail below, a firm may be undertaking a ‘regulated activity’ as defined in RAO, SI 2001/544. Entering into a regulated credit agreement as lender Credit broking Debt adjusting Debt counselling Debt collecting Debt administration Providing credit information services Providing credit...

STOP PRESS: On 22 January 2024, an updated UK Corporate Governance Code (the 2024 UKCG Code) was released. It introduces only limited alterations to the current UKCG Code issued in 2018 (the 2018 UKCG Code). The 2024 UKCG Code applies to accounting periods beginning on or after 1 January 2025, save for Provision 29, which relates to the requirement for a board declaration on internal controls and applies to accounting periods beginning on or after 1 January 2026. In addition, the best practice guidance that accompanied the 2018 UKCG Code has been brought together into a single digital resource to sit alongside the 2024 UKCG Code. For further information, see News Analysis: UK Corporate Governance Code 2024 published—what’s changed? Definition Under section 271 of the Companies Act 2006 ( CA 2006), a public company must appoint a company secretary who has the...