Legal Position Of Fashion Designs Plc - Assignment Example

Running Head: LEGAL POSITION OF FASHION DESIGNS PLC Legal Position Of Fashion Designs Plc [The [The of the Institution] Legal Position of Fashion Designs plc Introduction Fashion Designs plc is an unquoted company specialising in designers clothes. It has a fully paid capital of 100,000.It operates three small outlets, namely, the North East outlet, the North West outlet and the North outlet. In the financial years ending December 2004 and 2005, the company made trading losses of 400,000 and 200,000 respectively which were carried forward. In December 2006,the company showed a trading profit of 1m. In October 2006 the company sold its North East outlet for a net profit of 110,000. The North West outlet and the North outlet have been revalued. The North West which was purchased for 100,000 is now shown to be worth only 60,000. The North outlet which has a book value of 50,000 is now worth 60,000. The company has 100,000 in the share premium account and a further 100,000 in the capital redemption reserve account. a. Realized Profits Test And The Net Assets Test For these purposes the "Gross assets of the fashion designs plc company" means the total of its fixed assets plus total existing assets. These figures ought to be taken from the mainly current of the following: - The mainly newly notified unite balance sheet; or - Where an admission article has been shaped for the purposes of admission subsequent a reverse conquest, any pro forma net asset declaration published in the entrance document may be used, provide it is derived from information taken from the previous published audited merge accounts and that any alteration to this information are obviously shown and give details; or - In a case where dealings are collective pursuant to rule 14 of the aim rules, the for the most part recently notified merge balance sheet (as at a date prior to the earliest collective transaction). Net Asset Test Now take a quick look upon the net assets in the accounts of the fashion designs plc company, or a discarding of an interest in an undertaking which will outcome in the undertaking's net assets no longer being merge in the accounts of the fashion designs plc company, the assets the subject of the business means the value of 100% of the undertaking's assets, irrespective of what interest is obtain or disposed. In the case of a gaining or discarding which is not a substance acquisition/disposal, the assets the subject of the deal means: - For a gaining, the thought plus any responsibility assumed; and - For a discarding, the book value of the assets credited to that interest in the fashion designs plc company's last audited accounts. - In the case of a gaining of assets other than an interest in a responsibility, the assets the subject of the deal means the book value of those assets Profit Test If we analyzed then we come to know that profits attributable to the assets the subject of the transaction x 100%. Profits of the fashion designs plc company For these reasons "Profits of the fashion designs plc company" means profits before taxation and strange items as stated in the subsequent: - The last published annual merge accounts; - The last notified beginning statement of yearly results; or - In a case where dealings are collective pursuant to rule 14 of the fashion designs plc Rules, the last such accounts or statement prior to the initial transaction. In a case of a gaining or disposal of an interest in an responsibility where accounting consolidation applies, the "profits attributable to the assets the subject of the deal" means 100% of the profits of the undertaking irrespective of what interest is obtain or disposed. Law Position No doubt, a reverse takeover is a gaining or acquisitions in a twelve month period that for a fashion designs Plc Company would: Surpass 100 per cent. in any of the 'class tests' set out above; Outcome in a basic alter in its business, board or voting control; or In the case of an advance company, depart considerably from the investment plan stated in its admission document. Any accord that would influence a reverse takeover must be: Conditional on the permission of the holders of its fashion designs plc securities being given in universal meeting; inform to the RIS with no delay disclosing the information particular in Schedule 4 to the fashion designs plc Rules and insofar as it is with a linked party, the extra information stated higher than under 'Related party transactions'; and Escort by the publication of an admission document in respect of the proposed distended entity and convening the universal meeting. Where shareholder endorsement is given for the reverse takeover, trading in the fashion designs plc securities of the fashion designs plc company will be cancelled. If the distended entity seeks admission, it have to make an application in the similar manner as any additional applicant applying for admission of its securities for the first time b. Low Profits It is no news that the fashion designs Plc Company suffers from constantly low profits. In bad years, the majority participants go down money, and even in bang years profits are not high. This state of affairs has persevered for more than a decade, even as there is turnover in the middle of the second-tier contributor. It's fairly unusual for an industry to be in this state of affairs over such along era. This research talks regarding the reasons for this constant low profitability, and a few self-effacing suggestions on how to escape. The difficulty is a structural one at the manufacturing level, not the person firm level. Individual firms can lower their costs and get better the good looks of their products. Director's Position According to Law Legal position of director fashion designs Plc Company. Legal duties entail obey with the law and playing by the system of the game. Laws adaptable business behaviors are passed since society does not always faith business to do what is right. Though, laws have sure shortcomings to make sure accountable behavior: they are of incomplete range (they cannot wrap every possible emergency); merely give a floor or moral smallest amount for business conduct; are hasty, telling us what ought not to be done, rather than practical, telling us what ought to be done; and might be followed unwillingly out of fear of sentence rather than voluntarily out of interior moral confidence. Ethical Position Ethical duties conquer the limitations of legal duties of directors. They involve being moral, doing what is right, just, and fair; with regard to peoples'' moral rights; and avoiding damage or social injury as well as put off harm caused by others. Ethical positions those policies, institutions, decisions, or practices that are either predictable (positive duties) or forbidden (negative duties) by members of society, though they are not of necessity codified into law. They derive their source of power from religious confidence, moral traditions, caring principles, and human rights commitments (Novak, 1996). Today, almost all members of the business system agree, at least in hypothesis with this third set of social position of director''. I call ethical duties ethical director.. Shareholder Preferences The business social contract with shareholders concerns a firm's indirect societal compulsion and resembles the social contract'' among citizens and government usually discussed by philosophers who recognized the mutual obligations of citizen and state. At first, this social agreement focused solely on financial preferences for shareholders. Social development and quality-of-life progression were assumed to be a by-product of financial growth. Business' social blame was to make the most of profits, subject to the constraints of the law. Private commerce had no answerability for the general conditions of life or the exact conditions in limited communities. This latest share contract assumes that company's progress ought to weigh evenly in the balance with financial progress. The idea that corporations as organizations have shareholder liability'' and obligations tying them to a wider society became well-liked in the 1950s, and sustained from side to side the 1960s and 1970s, when US businesses fast gained in size and power (Davis,1983). More than a few groups were accountable for this heightened social awareness, including the shareholder movement and those supporters for the spiritually and physically confront, for company shareholders. Much of the public hug the concerns of these groups since unlucky events brought the understanding that a few special-interest groups were worth listening to, such as environmentalists, shareholder advocates and anti-apartheid group. Thus, it was recommended that business, as a social institution, ought to join with additional social structures like educational system, to assist improve life and meet requirements. While in Adam Smith's model, company assets was owned by persons who in a straight line decided how it was to be used, the contemporary corporation is typify by professional managers who make decisions on behalf of the stockholder owners, and these decisions have an effect on tens of thousands of citizens. Furthermore, corporations require the resources of society if they are to stay alive and thrive. No doubt, business taxes are allegedly not enough to pay for these resources, and so the corporation ought to, out of a duty of appreciation, assist in solving shareholder problems. Furthermore, international corporations control a marvelous amount of financial and creative resources, such as technology, finances, and labor power on a scale that no sufficient secretarial of their duties ought to ignore. So, social contract theorists feel these resources ought to have a few use beyond producing extra brands of household cleaners for customers and wealth for stockholders. The business social agreement holds that business and shareholders are equivalent partners, each enjoying a set of rights and having reciprocal farm duties. According to business contract with shareholders thinking, the enterprise's farm duties ought to be equal with its financial, social and political power. A few even say that, since of its size and special legal status, the modern business ought to be careful as a public institution, a being of the state, rather than a confidential organization, so that it can be held to a higher legal and ethical answerability than the customary business enterprise. In any case, social blame proponents argue that corporations have to be held to advanced standards of shareholder preferences than mere individuals. Shares and Share Capital If we analyzed then we come to know that the memo of a company limited by shares have to state the total amount of the share capital and the separation of the share capital into shares of a set amount. Moreover, the amount stated in the memorandum is recognized as the company's authorised or nominal share capital. There is no smallest amount authorised share capital for a private company like fashion plc. In practice private companies are often incorporated with an original authorised share capital of 100. Furthermore, the authorized share capital of a company which is included as a community company has to be at least 50,000. This curb derives from the Companies Act 1985, ss 117 and 118. These sections require a public company to have an allotted share capital of at least 50,000 but, because of the way that allotted share capital is calculated, a company must have an authorised share capital of at least 50,000 if it is to have an allotted share capital of at least that amount. The requirement for a minimum authorised share capital of at least 50,000 also applies to a private company which is converting to a public company by virtue of the Companies Act 1985, s 45. Multi-Currency Authorised Share Capital The requirement for a company to state the amount of its authorised share capital in its memorandum was interpreted in fashion design plc 9 where it was held that: The amount must be a monetary amount was unbelievable a single total amount does not have to be stated; the obligation would be satisfied by stating an authorised share capital encompass of, say, X million, US$Y million and Swiss Francs Z million. A company may also want to have a multi-currency share capital in order to attract foreign investors, or to encourage foreign vendors to accept the company's shares as consideration. There is no express bar on shares which are denominated in sterling being paid for in a foreign currency and whether or not this is permitted would depend on the terms of allotment. Shares which are paid up in a foreign currency will still be deemed to be paid up in cash. Having the shares denominated in the currencies of the jurisdictions in which the offer is to be made avoids exchange rate complications that might arise if the terms of the allotment allowed for payment of sterling-denominated shares in other currencies. However, if a company's assets and liabilities generally are denominated in sterling it may prefer nor to have part of its share capital denominated in another currency and, in that case, it will need to devise some means of resolving possible exchange rate difficulties if its shares are to be offered on the basis that they may be paid for in currencies other than sterling. c. Financial Information. Balance Sheet fashion designs Plc Company Fashion designs Plc Company s Balance Sheet for 2005 and 2006. 2006 pound;'0002005 pound;'000 Fixed assets Intangible assets: 55,288989,309 Tangible assets: 125,526128,329 Loan to joint venture: 1,0001,000 Investment in associates: 189789 Investment in own shares: 415-182,429212,327 Current assets 2006 2005 24th Oct 25th Oct Price of a Share 1131 p 957 p Investor Ratios Interest Cover 2.92 times 4.08 times EPS 40.60 pence 56.00 pence P/E Ratio 27.25 17.14 Dividend Cover 1.45 times 2.09 times Dividend per Share 27.7 p 26.4 p Dividend yield 2.51 % 2.75 % Gearing Ratio 60.31 % 64.79 % Activity Ratios Debtor Collection Period (DCP) 25.31 days 26.01 days Creditor Payment Period(CPP) 12.11 days 12.31 days Stock Holding Period 33.97 days 35.38 days Working Capital CycleDCP + Stock - CPP 47.17 days 49.08 days Liquidity Ratios Current Ratio 1.78 1.71 Quick Asset Ratio 0.92 0.93 Profitability Ratios Gross Profit Margin (%) 4.29 % 5.25 % Net Profit Margin (%) 2.82 % 3.96 % Return on Capital Employed 9.75 12.95 Return on Equity 15.21 % 20.64 % Fashion Design PLC 2006 2005 24th Oct 25th Oct Price of a Share 23.00 p 30.50 p Investor Ratios Interest Cover 0.37 times -0.27 times EPS 0.9 pence (2.8) pence P/E Ratio 26.94 -10.53 Dividend Cover -14 times -10.25 times Dividend per Share 0.1 p 0.3 p Dividend yield 0.42 % 1.02 % Gearing Ratio 224.49 % 199.10 % Activity Ratios Debtor Collection Period (DCP) 84.9 days 85.1 days Creditor Payment Period(CPP) 66.5 days 107.6 days Stock Holding Period 37.0 days 32.4 days Working Capital CycleDCP + Stock - CPP 55.4 days 9.9 days Liquidity Ratios Current Ratio 2.54 1.51 Quick Asset Ratio 1.99 1.21 Profitability Ratios Gross Profit Margin (%) 1.54 -0.91 Net Profit Margin (%) -2.61 -4.37 Return on Capital Employed -3.92 -7.53 Return on Equity -12.38 -18.52 After analyzing fashion designs Plc Company's balance sheet for the year ending 2006, I have taken a earlier look at sure parts of the balance sheet, which have a noticeable dissimilarity. 1. Fixed Assets - Intangible - Why is there a pound; 28million difference pound;'000 2006 2005 Intangible assets 55,299 82,209 From looking at the balance sheet for 2006 and comparing it to the balance sheet for 2005. I have noticed that the balance sheet for 2005 the "Cost of players registrations-additions" was pound;37,536,000 compared to £10,577,00 on the current balance sheet. As shown below; Intangible fixed assets pound;'000 20032002 Cost of player's registrations At 1 August 2002 / 2002108,427104,071 Additions: 10,57737,536 Disposals: (2,257)(33,180) Transfer to asset held for resale: (27,448) At 31 July 2003 / 200289,299108,427 In fashion designs Plc Company's (Group Finance Director) financial appraisal for 2006, he says that an extra pound; 10,577,000 was for the obtain costs throughout the year. Company also gives the say reason for the pound; 37,536,000 in its appraisal of the balance sheet for 2005. So consequently it is hard to decide where this money has moved out, but through my knowledge of fashion designs Plc Company I have come up with the subsequent reasons as possibilities; In 2005 fashion designs Plc Company bought Rio Ferdinand for pound; 29.3million from Leeds United, with pound; 13 million of that not owed awaiting July 2006. Therefore MU could write this cost into the balance sheet for 2005 then transfer it into the profit and loss account in 2006. There is no explanation in fashion designs Plc Company financial appraisal to give details where the money to paid Leeds United has come from. Fashion designs Plc Company signed both Rio Ferdinand and Juan Sebastian Veron throughout 2005 and it has been lately reported that fashion designs Plc Company paid about pound; 750,000, to both the agents concerned in the transfers. These costs could be affirmed as a 'adding up cost' on the balance sheet. If we analyze then we come to know that intangible means amazing you cannot put a worth on. When fashion designs Plc Company sold shares, due to its being described in the media as "bigger than the club", fashion designs Plc Company board members may have taken the chance to carry out a number of "creative accounting". This means that the board may have put a value on the additional income generated by Directors for being friendship with the shareholders. 2. Tangible assets - Why have they decreased by pound; 3million The major reason for this is reduction. Depreciation is plummeting the cost of a asset over it helpful life. For instance if a machine cost pound; 500, and it reduce in value by pound; 100 on a straight-line root after 5 years is will attain it helpful life span. The depreciation for the shares, plant and machinery and fixture and fitting was calculated to just over pound; 32million for 2006. No doubt, this means a augment of pound; 1million on the preceding year. By all the calculation taken into account this destined that Plc Company tangible assets have reduce by pound; 3million. Shareholders: Contracting, Remedies and Equality This section discusses three themes relevant to shareholders. The first concerns section 14 of the Companies Act 1985, which provides that a company and its members are contractually bound to observe the terms of the company's memorandum and articles of association. We will see that the judiciary has not permitted individual shareholders to obtain relief for all breaches of the contract which section 14 creates and will assess whether statutory reform is required. The second theme also relates to the access which shareholders have to the courts. We will examine whether it is appropriate that the judiciary offers more favourable treatment to dissatisfied members in closely held companies than to those who invest in public companies. The third theme is equality. A proposition which permeates thinking about company law issues is that shareholders should be treated equally. Judiciary and Company Law When litigants appear before the courts, a judge resolves the outstanding issues by ascertaining the relevant facts and by applying the pertinent legal principles. Among the legal materials he will use to ascertain the parties' rights and obligations are statutes promulgated by the legislature and principles developed at common law by the judiciary. Statements which a judge makes concerning a statutory provision or a common law doctrine can be significant for the development of the law because reasons for judgment have precedential value in subsequent cases. An important side-effect of this is that judicial rulings can provide guidance as to how the courts will deal with particular issues in the future. This chapter evaluates the role which judges play in formulating, interpreting, and applying the legal doctrines which govern company affairs. Creditors: The Law's Treatment Of Their Relations With Shareholders And Managers In the normal course, a company's shareholders, directors, and officers are not individually liable for the company's debts. As far as shareholders are concerned, this occurs because the vast majority of incorporated companies offer, pursuant to the Companies Act 1985, limited liability to their members. In terms of directors and officers, the case law indicates that a company is an entity which is distinct from those who run it. Correspondingly, individuals who manage a company are not in the ordinary course under any legal duty to use their personal wealth to discharge its financial obligations. Since shareholders and managers are not personally liable for corporate debts, when a company ceases to carry on business and is unable to pay all that it owes, all or some of the creditors will fail to receive payment in full for what is due to them. Thus, in a financial sense, creditors bear much of the risk associated with business failure. Legal Aspects of Maximum Profit for Shareholders Business plans optimize enlargement and growth according to the plans and priorities set forth by management; so; rule for securing business monetary and legal security are applied throughout the planning procedure that decide an organization's success. Legal issues which each business has to be aware of are its business's proprietary information, business strategies, customer lists, patent information, patents and any rational shares provided by its employees throughout their usual course of work. Plc Company ensures that its legal rights are protected at whatever time a latest shareholder is add through documents each person signs at the beginning of their contract. These documents comprise rights to intellectual property, non-disclosure agreements, which read aloud that an employee cannot reveal or profit from secret information (http:/ /jobsearchtech.about.com/library/weekly/aa-nondisclosure.htm), deal secrets, purchaser lists, customer proprietary system information policies and a non-compete agreement stating that an employee will not contend with their employer by engaging in any business of a alike nature (http://jobsearchtech.about.com/library/weekly/aa-nondisclosure.htm). Ratio Analysis Having built the financial accounts for legal purposes, management can then utilize them to assess whether they are acceptable or not. Since financial ratios derive from the financial accounts their use could be seen as a part of financial accounting. They are built-in in this unit, though, since they are used by managers to assess presentation. This is one of the main roles of management accounting. Ratios can be used to contrast the real accounts with those budgeted and to contrast the company with others in the same industry. Such data is compiled by organizations such as the 'Centre for Inter-Firm Comparison'. This enables organizations to standard their performance next to that of alike organizations. International comparisons can also be made but these have to be treated by means of caution. Converting values in foreign currencies at the official swap rate is not significant. To be of worth like have to be compared with like. Primary ratios The primary ratios to consider are those which give an impression of the budgeted and real performance, highlighting productivity, solvency, capital configuration and use, and cash flow. An understanding of these ratios is precious to all levels of management. These are the sort of ratios that would be of exacting attention to directors and shareholders. Further ratios, derived from interior accounts at sectional level, are more suitable at management level. Return On Capital Employed (ROCE) The top measure of productivity and budgeted financial presentation of an organization as a entire is almost certainly pre-tax profit before interest charges have been deducted. No doubt, this is total return on total capital investment, counting both shares and loans. It is sometimes called the profit edge. Using pre-tax profit take away the distortions of tax rate fluctuations and dissimilarity in capital tax allowances. This is the most excellent measure to contrast the actual return with the financial plan return, to compare present with past performance and the company's performance by performance of additional companies in the similar industry. ROCE = (Pre-tax profit + interest) / Capital Employed (89.1) Profits Are Low Than Return Of Capital If we analyzed then we come to know that capital employed is the total asset in the company as exposed by the balance sheet. This is the exceptional loan and shareholder funds (comprising nominal share capital and reserves build up from keep profit). Since the capital employed holds equally loan and shareholder funds the 'return' should comprise the return to both types of investor. So the return comprises both profit and loan interest, taking a sight of the organization as an entire and linked to the additional value concept. This is familiar as PBIT, Profit previous to Interest and Tax. It is the sum return the organization makes on its sum savings. Return on Sales In any meticulous industry like Plc Company it is ordinary for there to be norms for what is a satisfactory return on sales. Comparison with other companies in the division, and with the company's possess previous recital, will give leadership as to whether the financial plan performance ratio is acceptable. In accounting, the term 'sales' refers to the monetary value of sales (in difference to manufacturing where sales typically means sales volume). Return on sales gives a suggestion of the profit margin get hold of in the market by state it as a proportion of the sales value. It proceedings the profit on pound;1 of sales. Return on Sales = (Pre-tax profit + interest) / Sales (89.18) Order Under Section 459 Of The Companies Act 1985 No doubt, in this practice way the Act' means the Companies Act 1985 and comprise the Act as functional to imperfect accountability partnerships by the Limited accountability corporation Regulations 2001; According to the expert analysis the companies court registrar' means any officer of the High Court who is a registrar inside the meaning of any rules for the time being in force connecting to the winding-up of companies; the court' comprise the companies court registrar; After observing the scenario of Plc Company we may say that applications under the Act may be complete in the county court if the county court would have authority to wind up the company in query. A company can be wound up in the county court if its paid-up capital is not additional than 120,000 (s.117(2) bankruptcy Act 1986). Each claim form or petition by which an application under the Act, Part VII FISMA or the ICA is begun and all affidavits, observer statements, become aware of and other documents in those events must be entitled in the matter of the company in query and in the matter of the Act, Part VII FISMA. Reference net assets, http://www.investorwords.com/3235/net_assets.html Practice direction - applications under the companies act 1985 and other legislation relating to companies, http://www.dca.gov.uk/civil/procrules_fin/contents/practice_directions/pd_part49b.htm Read More