4. Company Formation Flashcards
In law, the term person is used to denote either a _____ person or an _____ person
Natural, artificial
What are the four consequences of separate legal personality for a company?
- The company is liable for debts without limit and members’ liability is limited
- Perpetual succession arises as the company will need to be formally wound up
- The company itself can own property
- The company can sue, and be sued, in its own name
What is ‘lifting the veil’?
Rigid application of separate legal personality can sometimes produce harsh or inequitable results, so the law exceptionally ‘lifts the veil’ in order to expose the commercial reality of the situation
Give an example of lifting the veil (seven possibilities stated in BPP workbook)
- To produce a tax liability
- To give entitlement to compensation
- To prevent evasion of excise duty
- To reveal members’ true national identity and expose illegality
- Recognising the breakdown of a quasi-partnership relationship
- To prevent an evasion of existing contractual obligations
- To reveal national identity
In what four circumstances does statute require lifting of the veil?
- Where directors is disqualified
- Where a plc trades without a trading certificate
- Fraudulent trading
- Wrongful trading
What is the difference between unlimited and limited (guarantee and share) companies?
Unlimited companies: no limit on members’ liability. No need to file annual accounts, subject to certain conditions
Limited companies by guarantee: liability limited to the amount members contribute to the company’s assets in the event of it being wound up.
Limited companies by shares: liability limited to the amount of the nominal value unpaid on members’ shares held by them
When must a company re-register?
Moving from limited to unlimited or vice versa
A plc must have ______ liability
A ltd may have _____ or ____ liability
Limited
Limited, unlimited
A plc is subject to ______ _______ of share capital
A ltd has no minimum _______ _______
Authorised minimum
Share capital
When can a plc begin trading?
When can a ltd begin trading?
When it obtains a trading certificate
When it is incorporated
Can a plc offer securities to the public?
Can a ltd offers securities to the public?
Yes
No
Do plcs have loan rules? What are they?
Do ltd companies have loan rules? What are they?
Yes- loans to persons connected with directors and quasi-loans and credit transactions to directors or connected persons need members’ approval
No, unless associated with a public company
How many directors must a plc have?
How many directors must a ltd have?
2
1
Does a plc need a company secretary?
Does a ltd need a company secretary?
Yes
No
Can a plc pass written resolutions instead of holding a meeting?
Can a ltd pass written resolutions instead of holding a meeting?
No
Yes
Do plcs need to hold annual general meetings (AGMs)?
Do ltd companies need to hold annual general meetings (AGMs)?
Yes
No
Plcs must file accounts and reports within how many months after a general meeting?
Ltd companies must file accounts and reports within how many months after a general meeting?
Six months
Nine months
How often must plcs appoint auditors?
How often must ltd companies appoint auditors?
Each year if necessary
Existing auditors may be deemed to be reappointed
Do plcs have rules applied to their payment for shares? What are they?
Do ltd companies have rules applied to their payment for shares? What are they?
Yes- at least 25% must be paid up, amongst other rules
No
How must a plc handle reduction of capital?
How must a ltd firm handle reduction of capital?
Through special resolution confirmed by the court
Through special resolution and directors’ solvency statement
Can a plc redeem or purchase shares out of capital?
Can a ltd company redeem or purchase shares out of capital?
No
Yes, subject to the company’s articles
Define memorandum of association
Historic record of initial subscribers
What five factors are required for application for registration?
- Name
- Address
- Members’ liability
- Company type
- Domicile
What are section 9 documents?
What four pieces of information must be provided for it?
Share capital and initial shareholdings
- Total number of shares taken by the subscribers
- The aggregate nominal value of those shares
- For each separate class of share their rights and aggregate values
- The amounts paid up (and to be paid) on each class of share
What is the statement of proposed officers?
Details of the first director and first company secretary
Is the statement of compliance statutory?
Yes
What two pieces of evidence are required to apply for a trading certificate?
- An application stating that the nominal value of the company’s allotted share capital is not less than the authorised minimum
- A statement of compliance
What are the three consequences of trading without the necessary documentation?
- Any transactions are valid, but
- The company and its directors are punishable by fine
- After 12 months the company may be compulsorily wound up and the veil of incorporation lifted
Define certificate of incorporation
Final and conclusive proof of the effective birth date of any company, before which it may not trade
Define a promoter
Anyone who makes business preparations for the company
What two general duties do promoters fall under?
- General duty to exercise reasonable skill and care
2. Fiduciary duties as an agent (to account, avoid conflict of interest, to disclose and not to secretly make a profit)
Does a promoter have automatic rights to be reimbursed the costs associated with the formation of a firm?
No
Do contracts signed by or on behalf of the company before the date on the certificate of incorporation fall open the promoter?
Yes
Would a solicitor or accountant count as a promoter?
No
Under the Companies Act 2006, what four things can a company name not be?
- Offensive
- Constitute a criminal offence
- Be sensitive or suggest a connection to central or local government
- Be the same as an existing company
What two ways can a firm change its name?
- Passing a special resolution
2. By the Secretary of State
What eight company records are a firm required to keep?
- A register of members
- A register of directors and company secretaries
- A register of people with significant control
- A register of directors’ residential addresses
- Copies of directors’ service contracts
- Records of resolutions and minutes of members’ and directors’ meetings
- Directors’ statement and auditors report
- A register of charges and copies of charges
The Registrar of Companies maintain a register in respect of each company at Companies House- what four things does it contain?
- The certificate of incorporation
- The trading certificate
- Certificates of registration of charges
- Information contained in documents delivered to the Registrar in accordance with any statutory provision
Define Adequate accounting records
Records sufficient to show the company’s financial position at any time with reasonable accuracy
What do annual accounts consist of?
A balance sheet and P&L account
What three elements are included on the directors’ report?
- Name of directors
- Principal activities of the company
- Statement that the auditor is not unaware of any relevant audit information
What four things must be included in an auditor’s report?
- Identify the accounts audited and the financial reporting framework applied in their preparation
- Describe the scope of the audit
- State that, in the auditor’s opinion, the accounts give a true and fair view of the company’s financial affairs
- State that the directors’ report is consistent with the accounts
When must a confirmation statement be submitted by?
No more than 12 months between submissions (by all companies)
Under the Companies Act 2006, what size companies must prepare a strategic report?
What does this detail?
Medium and large companies
Details providing the company’s shareholders with a meaningful picture of the company’s business model and helps them assess directors’ performance
The Companies Regulations 2018 requires what three statement to be made?
- Directors to confirm that they have had regard to their statutory duty to promote the success of the company
- Statement of corporate governance arrangements
- Disclosures on remuneration
Give an example of a type of company exempt from requiring an auditor for its annual accounts
- Micro and small companies
- Dormant companies
- Non-profit making companies subject to public sector audit
- Subsidiary companies who parent company guarantees their liabilities outstanding at the balance sheet date
The auditor’s remuneration should be _____ by those appointing him
Fixed
An auditor has a ______ of ______ at all times to the company’s books and accounts
Right of access
Must a plc appoint a company secretary?
Must a ltd company appoint a company secretary?
Yes
No
What is the role of a company secretary?
To convene meetings, issue agendas and drafting minutes, as well as maintaining statutory registers
The company secretary has the authority to bind the company on the basis of _____ or ____ authority
Express, implied
