1. Nature Of A Company Flashcards
What is Incorporation?
The process by which a company is set up.
The process by which a company becomes a separate legal person
What are the effects of incorporation?
The company becomes a separate legal person from that of its shareholders.
Also known as
- the doctrine of separate legal personality
- drawing across the corporate veil
- The creation of corporate personality
Salomon v A. Salomon & Co Ltd
Starting point for doctrine of SLP
Plaintiff was a sole trader.
He set up a limited company from which to trade.
He agreed to sell his business to the company in exchange for shares, money, and a debenture.
If profitable, shareholders would receive a dividend on their shares.
The business failed, company became insolvent and went into liquidation.
Company’s creditors brought legal proceedings to get the money owed to them.
They made proceeding against the plaintiff, not the company!
Plaintiff argued he did not owe them money, the company did.
The House of Lords agreed, he was a different person from the company!
Application of the Doctrine of Seperate Legal Personality in Ireland?
Bayworld Investments Ltd v McMahon
- Partnership set up the Plaintiff company to carry out some of their property transactions.
- Company retained solicitors which it then sought to terminate
- Solicitors refused to accept termination on grounds partnership had them and not the company
- One of the partners was also a director and shareholder in the company AND a partner in the firm of solicitors
- Argued that the firm had not been retained by the company but by the partnership or a secret trust set up by the partnership
This argument was rejected by the High Court
“does not mean that such company does not have its own legal personality with its own rights and duties or that its directors and, more particularly, its shareholders do not have rights and duties they owe to the company and through the company to third parties and towards each other separate and distinct from whatever rights and duties they may owe to each other or any partnership or trust of which they may be a member”
DPP v Roseberry Construction Ltd
Company sought leave to appeal severity of a fine imposed upon it and its director under health and safety legislation.
Company argued that it and its directors were the one and could not therefore be punished twice for the same offence,
Arguments rejected.
Once the company was incorporated, the veil of incorporation was drawn.
Methods of forming a company
- Companies formed under Royal Charter - Kings Inns and Trinity College.
- Companies formed under special statute - Bus Eireann and Telecom
- Companies formed by registration under the Companies Act 2014
Unlimited and Limited Companies
Difference stems from the concept of limited liability.
Limited liability is a statutory concept.
Unlimited Companies
No limitations on the amount owed by a shareholder of an unlimited company to the company when it is wound up.
Shareholders of unlimited companies will, in an indirect way, have to pay the company’s creditors.
They will be deemed to owe the company the money.
They are not liable directly to the creditors, they are liable to the company.
Creditors can sue the company, who then pursue the shareholders.
Why set up an unlimited company?
You wish to trade in a partnership type vehicle, but not be subject to the limits on the number of partners.
You wish to be exempt from some of the Companies act’s disclosure requirements
- you don’t have to send certain financial information to the CRO
Limited Companies
Benefit from limited liability.
This means shareholders liability to the company is limited to a certain amount.
Amount owed by shareholders will depend upon whether the company is limited by
- shares
- guarantee
Companies limited by Guarantee
Shareholder/member gives a guarantee to contribute a specified sum to the company when it is wound up
Are rare, usually non profit orgs.
Companies limited by shares
Most common type of company.
Liability of shareholders to the company is limited to the amount of capital remaining unpaid on the shares.
Key features of Private companies limited by shares
Can have between one and 149 shareholders
Can have a single director
Liability of its will be limited to the amount, if any, left unpaid on their shares
Will have a one document Constitution (not a memorandum and articles)
Its name must end in Limited or LTD or their Irish equivalent
Cannot have an objects clause as it has full, unlimited, contractual capacity
Cannot invite the public to subscribe for shares
The board (including the sole director) and a registered person are deemed to have the authority to bind the company
Distinction between Private and Public companies?
Private
- restriction on the transfer of shares
- restriction on the number of members
- cannot invite the public to subscribe for shares or debentures
Public
- Can sell shares to the public
- no limitation on the transfer of shares
- has a Memorandum and Articles (not a Constitution) and must have an objects clause
- Must have at least 2 directors.
What is a DAC?
A designated activity company.
Used to ensure investment is used for a specified business.
Key features:
It is a private company limited y shares or by guarantee
Its name must end in DAC or designated activity company
It will have a memorandum of association and articles of association (as distinct from a single Consitution)
Must have an objects clause
Must have an authorised share capital
Can list qualifying debt securities
Must have at least two directors
