05. Companies: the consequences of incorporation. Flashcards
The most common reason for statutory lifting of the corporate veil is …
to impose personal liability on directors.
T/F: The general principle under Company Law is that upon insolvency, group companies are treated as a single entity.
FALSE
Even if a subsidiary of an asset-rich company becomes insolvent there is no automatic claim on the parent.
T/F: A company’s articles can override the provisions of the Companies Act (2006).
FALSE
In the event of conflict between the articles and the CA then the Act will prevail.
The main limited company records which the public may NOT inspect are …
directors’ residential addresses and the contents of charges
Despite an exemption, an audit can be insisted upon by …
> 10% of members
10% of the nominal value of issued share capital
T/F: An insurance policy taken out by a sole trader remains valid if they sell the business to a limited company of which they are the majority shareholder and/or creditor.
FALSE
business assets are owned by the business so it must insure them
see Macaura v Northern Assurance.
T/F: The corporate veil is routinely lifted in the case of an insolvent subsidiary.
FALSE
only in the event of fraud or an agency relationship might the corporate veil be lifted.
T/F: The corporate veil has been lifted in order to expose trading with the enemy.
TRUE
see Daimler v Continental
A director of a public company trading without a certificate …
commits a criminal offence and may also be held personally liable on contracts
T/F: A company has limited liability for its debts.
FALSE
although company structures exist whereby members enjoy limited liability, the liability of the company itself for its own debts is unlimited.
The liability of a company for its debts is …
unlimited.
T/F: A public company must be limited.
TRUE
An unlimited company must be a … company.
private
T/F: A public company may trade upon incorporation provided it has the necessary share capital and has applied for its trading certificate.
FALSE
the company must be in posession of a trading certificate in order to trade
A company secretary is compulsory for a … company.
public
The current minimum share capital for a public company is …
£50,000 at least 1/4 paid up, together with the whole of any premium.
T/F: A private company cannot offer its securities to the public.
TRUE
T/F: Only a private limited company can pass written resolutions.
TRUE
T/F: Public and private limited companies must have at least two directors.
FALSE
a private limited company need only have one director.
A … limited company requires at least one director.
private
A … limited company requires at least two directors.
public
T/F: A private limited company does not need to hold an annual general meeting.
TRUE
T/F: A statement of proposed company officers is required upon registration of a company.
TRUE
A … limited company must file its accounts and reports within 6 months of its accounting reference date.
public
A … limited company must file its accounts and reports within 9 months of its accounting reference date.
private
A public limited company must file its accounts and reports within … of its accounting reference date.
6 months
A private limited company must file its accounts and reports within … of its accounting reference date.
9 months
T/F: A public limited company may exclude rights of pre-emption.
FALSE
only a private limited company may do so.
T/F: A public limited company may reduce its share capital subject to a special resolution and a directors’ solvency statement.
FALSE
it requires a court order. Only a private limited company may reduce its share capital in the manner described.
The shares of a public limited company must be … paid up on allottment.
1/4
A … limited company may not redeem its shares out of its own share capital.
public
T/F: A company must submit its proposed articles of association upon application for registration.
FALSE
if none are supplied then the ‘model articles’ will apply.
The conclusive proof of the existence or otherwise of a limited company is …
its certificate of incorporation.
Model articles.
The default articles of association applying to a company if their provisions are not excuded or modified by articles submitted as part of the application for registration.
T/F: A contract can be entered into on behalf of a company in the process of incorporation provided that the registrar has acknowledged receipt of the registration documents.
FALSE
The company only has contractual capacity once incorporated.
T/F: It is possible to be an agent of a company in the process of incorporation.
FALSE
see Kelner v Baxter
A promoter who enters into a contract with a third party …
may be held personally liable on that contract, the company not existing at the time.
A company gains contractual capacity …
upon incorporation.
A company may only sue on a pre-incorporation contract …
if the promoter and the third party have given it the express right to do so under the Contracts (Rights of Third Parties) Act.
T/F: A third party can enforce a pre-incorporation contract against a company made via its promoter.
FALSE
the company only gains contractual capacity upon incorporation.
T/F: The articles of incorporation may imply terms, for example on remuneration, in a subsequent contract of employment.
TRUE
see Beckwith’s Case
Where a contract of employment of a director was silent, the remuneration stated in the articles was deemed to be an implied term of the contract.
Beckwith’s Case
Beckwith’s Case
Where a contract of employment of a director was silent, the remuneration stated in the articles was deemed to be an implied term of the contract.
T/F: A company’s articles are binding upon its members in all respects.
FALSE
only in their capacity as members. See Eley’s case.
Eley’s Case
Ely drafted the articles of association ensuring his permanent employment as the company solicitor. Upon his dismissal from that role his claim for breach failed.
The articles are only binding on members in their capacity as members. As a member he had sufferred no loss.
T/F: A company’s articles can normally be changed via a special resloution.
TRUE
although entrenchment provisions may apply.
T/F: A company’s articles can normally be changed via an ordinary resloution.
FALSE
a special resolution usually applies.
T/F: A company can entrench articles permanently.
FALSE
they may always be adapted via a court order or the unanimous agreement of members.
The amendment of a company’s articles usually requires …
a special resolution.
T/F: A company may pass a resolution requiring members to take on more shares or increase their liability.
FALSE
s. 25 of the CA expressly prohibits this.
NB: the calling up of share capital would NOT be relevant.
T/F: a company limited by shares must keep a register of directors’ residential addresses.
TRUE
T/F: a company limited by shares must keep a register of debenture holders.
FALSE
such a register is optional
T/F: the acts of a person acting as a director may be deemed invalid if a defect in their appointment is subsequently identified.
FALSE
see s. 161 of the Companies Act (2006)
T/F: the acts of a person acting as a director may be deemed invalid if they are subsequently found to have been disqualified from holding office as a director.
FALSE
see s. 161 of the Companies Act (2006)
T/F: the acts of a person acting as a director may be deemed invalid if it is subsequently found that their term of office had expired.
FALSE
see s. 161 of the Companies Act (2006)
T/F: the acts of a person acting as a director may be deemed invalid if it is subsequently found that they were not entitled to vote on the matter in question.
FALSE
see s. 161 of the Companies Act (2006)
T/F: the directors of a private company limited by shares must prepare a directors’ remuneration report.
FALSE
only those of a quoted company bear this responsibility.
A CS01 confirmation statement confirms the information originally submitted on the …
IN01 application for incorporation.
T/F: a confirmation statement confirms the prescribed particulars of the directors and company secretary.
TRUE
T/F: a confirmation statement confirms the details of any resolutions passed by the company during the year.
FALSE
T/F: a confirmation statement confirms the persons with significant control.
TRUE
T/F: a confirmation statement confirms the type of the company and its principal business activities.
TRUE
T/F: the memorandum of association of a company includes a statement that the subscribers wish to form a company.
TRUE
T/F: the memorandum of association of a company includes a statement that the subscribers wish to form a company and become members of a company.
TRUE
T/F: the memorandum of association of a company includes a statement that the subscribers wish to form a company and become members of a company and agree to take at least one share.
FALSE
it could be a company limited by guarantee or an unlimited company without a share capital.
A company secretary only has actual implied authority to bind the company in …
administrative contracts.
see Panorama v Fidelis
Pre-incorporation contracts are usually only enforceable by and against …
the promoter.
T/F: a company secretary has actual implied authority to enter into administrative contracts.
TRUE
see Panorama v Fidelis
T/F: a company secretary has actual implied authority to enter into contracts for the borrowing of money.
FALSE
T/F: a company secretary has actual implied authority to enter into contracts relating to property transactions.
FALSE
T/F: a company’s size is irrelevant in determining whether it must file accounts within 6 or 9 months.
TRUE
6 months = public company of any size
9 months = private company of any size
Adequate accounting records ALWAYS include.
Daily income and expenditure.
Assets and liabilities.
T/F: if a company’s business involves dealing in goods, ‘adequate accounting records’ require records relating to those goods.
TRUE
T/F: micro-entities do not have to file a profit and loss account with the Registrar.
TRUE
they must however file a balance sheet.
T/F: micro-entities do not have to file notes to the accounts with the Registrar.
FALSE
notes regarding advances to directors and financial commitments are required when appropriate.
T/F: a small-sized insurance company is not required to appoint an auditor.
FALSE
all banking and insurance companies must appoint an auditor.
T/F: a medium-sized company is not required to appoint an auditor.
FALSE
only small companies (and micro-entities) are exempt from audit.
T/F: a quoted company is not required to appoint an auditor.
FALSE
quoted companies must appoint an auditor.
T/F: a not-for-profit company that is subject to public sector audit is not required to appoint an auditor.
TRUE
T/F: a new company’s statement of capital needs to include the details of individual classes of share.
TRUE
T/F: a new company’s statement of capital needs to include information on whether rights of pre-emption apply to each class of share.
FALSE
T/F: a plc producing group accounts must include a consolidated directors’ report.
TRUE
T/F: an unquoted plc producing group accounts must include a directors’ remuneration report.
FALSE
only quoted companies are required to produce a directors’ remuneration report.
T/F: an unquoted plc producing group accounts must include a directors’ remuneration report.
FALSE
only quoted companies are required to produce a directors’ remuneration report.
Disclosures regarding energy consumption and efficiency are required for …
quoted companies, large unquoted companies and lage LLPs.
