CIMA - C05 Fundamentals of Ethics, Corporate Governance and Business Law: Study Text

529 Pages·2010·5.87 MB·English

by  Bpp Learning Media

Certificate Paper C5
FUNDAMENTALS OF ETHICS, CORPORATE
GOVERNANCE AND BUSINESS LAW

For assessments in 2010 and 2011
Study Text
In this February 2010 new edition
• A user-friendly format for easy navigation
• Regular fast forward summaries emphasising the key points in each chapter
• Assessment focus points showing you what the assessor will want you to do
• Questions and quick quizzes to test your understanding
• Question bank containing objective test questions with answers
• A full index
BPP Learning Media's i-Pass product also supports this paper.
FOR ASSESSMENTS IN 2010 and 2011
First edition June 2006

A note about copyright
Third edition February 2010
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ii
Contents
Page
Introduction
The BPP Learning Media Study Text – The BPP Learning Media Effective Study Package – Help yourself
study for your CIMA assessment – Learning outcomes and Syllabus – The assessment – Tackling multiple
choice questions – Tackling objective test questions – International terminology
Part A Comparison of English law with alternative legal systems
1 Introduction to English law.........................................................................................................................................................3
2 The Tort of negligence..............................................................................................................................................................29
3 Alternative legal systems and sources of law............................................................................................................................45
Part B Law of Contract
4 Establishing contractual obligations.........................................................................................................................................67
5 Performing the contract.............................................................................................................................................................99
6 Discharge of contract..............................................................................................................................................................127
Part C Law of Employment
7 Employment contract..............................................................................................................................................................151
8 Employment protection...........................................................................................................................................................173
Part D Company formation
9 Organisations and corporate personality.................................................................................................................................199
10 Company formation................................................................................................................................................................229
11 A company's constitution........................................................................................................................................................245
Part E Corporate administration and management
12 Meetings and resolutions........................................................................................................................................................265
13 Directors and secretaries.........................................................................................................................................................285
14 Majority control and minority protection.................................................................................................................................321
Part F Corporate finance
15 Share capital and capital maintenance....................................................................................................................................335
16 Borrowing and loan capital.....................................................................................................................................................365
Part G Ethics and business
17 The importance of ethics.........................................................................................................................................................385
18 Ethical conflict........................................................................................................................................................................409
Part H Corporate governance
19 Corporate governance.............................................................................................................................................................421
Question bank (computer-based assessment)..................................................................................................................................457
Answer bank (computer-based assessment).....................................................................................................................................475
List of cases.....................................................................................................................................................................................485
Index ...............................................................................................................................................................................................493
Review form and free prize draw
i ii
The BPP Learning Media Study Text
Aims of this Study Text

To provide you with the knowledge and understanding, skills and application techniques that you need if you are
to be successful in your exams

This Study Text has been written around the Fundamentals of Ethics, Corporate Governance and Business Law syllabus.
• It is comprehensive. It covers the syllabus content. No more, no less.
• It is written at the right level. Each chapter is written with CIMA's precise learning outcomes in mind.
• It is targeted to the assessment. We have taken account of guidance CIMA has given and the assessment
methodology.

To allow you to study in the way that best suits your learning style and the time you have available, by following
your personal Study Plan (see page (vii))

You may be studying at home on your own until the date of the exam, or you may be attending a full-time course. You
may like to (and have time to) read every word, or you may prefer to (or only have time to) skim-read and devote the
remainder of your time to question practice. Wherever you fall in the spectrum, you will find the BPP Learning Media
Study Text meets your needs in designing and following your personal Study Plan.

To tie in with the other components of the BPP Learning Media Effective Study Package to ensure you have the
best possible chance of passing the exam (see page (v))

Learning to Learn Accountancy
BPP Learning Media's ground-breaking Learning to Learn Accountancy book is designed to be used both at the outset of
your CIMA studies and throughout the process of learning accountancy. It challenges you to consider how you study and
gives you helpful hints about how to approach the various types of paper which you will encounter. It can help you focus
your studies on the subject and exam, enabling you to acquire knowledge, practise and revise efficiently and
effectively.

iv Introduction
The BPP Learning Media Effective Study Package
Recommended
The BPP Learning Media Effective Study Package
period of use

From the outset and Learning to Learn Accountancy
throughout
Read this invaluable book as you begin your studies and refer to it as you work through the
various elements of the BPP Learning Media Effective Study Package. It will help you to
acquire knowledge, practise and revise, efficiently and effectively.

Three to twelve Study Text
months before the
Use the Study Text to acquire knowledge, understanding, skills and the ability to apply
assessment techniques.

Throughout i-Pass
i-Pass, our computer-based testing package, provides objective test questions in a variety of
formats and is ideal for self-assessment.

One to six months Practice & Revision Kit
before the assessment
Try the numerous assessment-format questions, for which there are full worked solutions
where relevant prepared by BPP Learning Media's own authors. Then attempt the two mock
assessments.

From three months Passcards
before the assessment
Work through these short, memorable notes which are focused on what is most likely to
until the last minute
come up in the assessment you will be sitting.

Introduction v
Help yourself study for your CIMA assessment
Assessments for professional bodies such as CIMA are very different from those you have taken at college or university.
You will be under greater time pressure before the assessment – as you may be combining your study with work. There
are many different ways of learning and so the BPP Study Text offers you a number of different tools to help you through.
Here are some hints and tips: they are not plucked out of the air, but based on research and experience. (You don't need
to know that long-term memory is in the same part of the brain as emotions and feelings - but it's a fact anyway.)
The right approach
1 The right attitude
Believe in yourself Yes, there is a lot to learn. Yes, it is a challenge. But thousands have
succeeded before and you can too.
Remember why you're doing it Studying might seem a grind at times, but you are doing it for a reason: to
advance your career.
2 The right focus
Read through the Syllabus and These tell you what you are expected to know and are supplemented by
learning outcomes Assessment focus points in the text.
3 The right method
The whole picture You need to grasp the detail - but keeping in mind how everything fits into
the whole picture will help you understand better.
• The Introduction of each chapter puts the material in context.
• The Syllabus content, Learning outcomes and Assessment focus
points show you what you need to grasp.
In your own words To absorb the information (and to practise your written communication
skills), it helps to put it into your own words.
• Take notes.
• Answer the questions in each chapter. You will practise your written
communication skills, which become increasingly important as you
progress through your CIMA exams.
• Draw mindmaps.
• Try 'teaching' a subject to a colleague or friend.
Give yourself cues to jog your The BPP Learning Media Study Text uses bold to highlight key points.
memory
• Try colour coding with a highlighter pen.
• Write key points on cards.
vi Introduction
4 The right review
Review, review, review It is a fact that regularly reviewing a topic in summary form can fix it in your
memory. Because review is so important, the BPP Learning Media Study
Text helps you to do so in many ways.
• Chapter roundups summarise the 'fast forward' key points in each
chapter. Use them to recap each study session.
• The Quick quiz is another review technique you can use to ensure that
you have grasped the essentials.
• Go through the Examples in each chapter a second or third time.
Developing your personal Study Plan
BPP Learning Media's Learning to Learn Accountancy book emphasises the need to prepare (and use) a study plan.
Planning and sticking to the plan are key elements of learning success.
There are four steps you should work through.
Step 1
How do you learn?
First you need to be aware of your style of learning. The BPP Learning Media Learning to Learn
Accountancy book commits a chapter to this self-discovery. What types of intelligence do you display
when learning? You might be advised to brush up on certain study skills before launching into this Study
Text.
BPP Learning Media's Learning to Learn Accountancy book helps you to identify what intelligences you
show more strongly and then details how you can tailor your study process to your preferences. It also
includes handy hints on how to develop intelligences you exhibit less strongly, but which might be needed
as you study accountancy.
Are you a theorist or are you more practical? If you would rather get to grips with a theory before trying to
apply it in practice, you should follow the study sequence on page (ix). If the reverse is true (you like to
know why you are learning theory before you do so), you might be advised to flick through Study Text
chapters and look at examples, case studies and questions (Steps 8, 9 and 10 in the suggested study
sequence) before reading through the detailed theory.
Step 2
How much time do you have?
Work out the time you have available per week, given the following.
• The standard you have set yourself
• The time you need to set aside later for work on the Practice & Revision Kit and Passcards
• The other exam(s) you are sitting
• Very importantly, practical matters such as work, travel, exercise, sleep and social life
Hours
Note your time available in box A. A
Introduction v ii
Step 3
Allocate your time
• Take the time you have available per week for this Study Text shown in box A, multiply it
by the number of weeks available and insert the result in box B. B

• Divide the figure in box B by the number of chapters in this text and insert the result in
box C. C
Remember that this is only a rough guide. Some of the chapters in this book are longer and more complicated
than others, and you will find some subjects easier to understand than others.
Step 4
Implement
Set about studying each chapter in the time shown in box C, following the key study steps in the order
suggested by your particular learning style.
This is your personal Study Plan. You should try and combine it with the study sequence outlined below.
You may want to modify the sequence a little (as has been suggested above) to adapt it to your personal
style.
BPP Learning Media's Learning to Learn Accountancy gives further guidance on developing a study plan,
and deciding where and when to study.
Suggested study sequence
It is likely that the best way to approach this Study Text is to tackle the chapters in the order in which you find them.
Taking into account your individual learning style, you could follow this sequence.
Key study steps Activity
Step 1 Each numbered topic is a numbered section in the chapter.
Topic list
Step 2 This gives you the big picture in terms of the context of the chapter, the learning outcomes the
Introduction chapter covers, and the content you will read. In other words, it sets your objectives for study.
Step 3 Fast forward boxes give you a quick summary of the content of each of the main chapter
Fast forward sections. They are listed together in the roundup at the end of each chapter to provide you with
an overview of the contents of the whole chapter.
Step 4 Proceed methodically through the chapter, reading each section thoroughly and making sure
Explanations you understand.
Step 5 • Key terms can often earn you easy marks (and they are highlighted in the index at the
Key terms and back of the text).
Assessment focus
• Assessment focus points state how we think the examiner intends to examine certain
points
topics.
Step 6 Take brief notes, if you wish. Avoid the temptation to copy out too much. Remember that being
Note taking able to put something into your own words is a sign of being able to understand it. If you find
you cannot explain something you have read, read it again before you make the notes.
viii Introduction
Key study steps Activity
Step 7 Follow each through to its solution very carefully.
Examples
Step 8 Make a very good attempt at each one.
Questions
Step 9 Check yours against ours, and make sure you understand any discrepancies.
Answers
Step 10 Work through it carefully, to make sure you have grasped the significance of all the fast
Chapter roundup forward points.
Step 11 When you are happy that you have covered the chapter, use the Quick quiz to check how much
Quick quiz you have remembered of the topics covered and to practise questions in a variety of formats.
Step 12 Either at this point, or later when you are thinking about revising, make a full attempt at the
Question(s) in the Question(s) suggested at the very end of the chapter. You can find these at the end of the
question bank Study Text, along with the Answers so you can see how you did.
Short of time: Skim study technique?
You may find you simply do not have the time available to follow all the key study steps for each chapter, however you
adapt them for your particular learning style. If this is the case, follow the skim study technique below.
• Study the chapters in the order you find them in the Study Text.
• For each chapter:
– Follow the key study steps 1-2
– Skim-read through step 4, looking out for the points highlighted in the fast forward boxes (step 3)
– Jump to step 10
– Go back to step 5
– Follow through step 7
– Prepare outline answers to questions (steps 8/9)
– Try the Quick quiz (step 11), following up any items you can't answer
– Answer the questions in the question bank (Step 12)
– You should probably still follow step 6 (note-taking), although you may decide simply to rely on the BPP
Leaning Media Passcards for this.
Introduction i x