7: Companies: incorporation Flashcards

1
Q

What is the veil of incorporation?

A

Referee to the veiling of the company as a separate legal entity

Legal identify and liability is different from that if its members.

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2
Q

What are the main consequences of incorporation?

A

Management is sepearte from ownership

Co is subject to CA2006

Enters into contracts in its own name

Perpetual succession

Owns its own property

Co. liable for own debts and can sue and be sued in own name

Liability limited to:
- amount unpaid of their share capital
- amount agreed to contribute (by guarentee)

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3
Q

What does ‘lifting the veil of incorporation’ mean?

A

In certain circumstances the courts can look through the company to the identify of the shareholders

Members or directors become personally liable for debts

Only done when the veil is a ‘facade concealing the true facts’

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4
Q

What reasons are there for lifting the veil?

A

Groups of companies
- when subsidiary is acting as agent of the parent

To reveal national identity
- in times at war, illegal to trade with companies we are at war with
- funds or shareholders in enemy country - no!

Sham company
- company registered for improper purpose
- ie. evade legal obligation or hide identity

Quasi partnerships
- business which is registered as a company, run as if it was a partnership

Statutory occasions

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5
Q

What statutory occasions are there for lifting the veil?

A

Only when director is also members of a company;

  • Company Directors Disqualification Act 1986. Director who is disqualified participates in management
  • Insolvency Act 1986. Wrongful or fraudulent trading
  • CA06. Public company trades without trading certificate

In all instances, directors can be made personally liable for something

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6
Q

Three types of company?

A

Public - limited by shares

Private - limited by shares or guarantee

Private - unlimited (no need to file accounts)

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7
Q

How can a company alter its status?

A

Amends its name and articles and notifies the registrar

  • private company can apply to registrar to be reregistered as public (and vice versa)
  • limited company can become unlimited with consent of all members
  • unlimited company can change to limited by special resolution
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8
Q

Company compare: definition?

A

Plc: must be registers as a public company under CA2006

Ltd: any company not a public company

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9
Q

Company compare: name?

A

Plc

Ltd - some charities are exempt from this

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10
Q

Company compare: capital?

A

Plc: must not be less than authorised minimum of 50,000, and must have allotted shared of at least that amount

Ltd: no minimum

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11
Q

Company compare: raising capital?

A

Plc: may raise by advertising its securities for public subscription
- can be listed on stock exchange or similar

Ltd: prohibited from offering shares to public

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12
Q

Company compare: payment for shares?

A

Plc: shares must be at least 25% paid up
- rules on non-cash consideration

Ltd: no restrictions

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13
Q

Company compare: reduction of capital?

A

Special resolution needed in both

Plc: approved by courts

Ltd: statement of solvency also made by directors

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14
Q

Company compare: purchase of own shares out of capital?

A

Plc: not allowed. Only done from distributable profits

Ltd: permitted subject to articles

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15
Q

Company compare: start of trading?

A

Plc: must obtain trading certificate from registrar

Ltd: can begin from date of incorporation

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16
Q

Company compare: director minimum?

A

Plc: two

Ltd: one

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17
Q

Company compare: loans?

A

Plc: members approval needed for loans and quasi loans

Ltd: not applicable unless public

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18
Q

Company compare: secretary?

A

Plc: required, must be qualified

Ltd: optional, need not be qualified

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19
Q

Company compare: accounts?

A

Plc: must lay before general meeting and file accounts within 6 months of end of accounting period

Ltd: need not lay accounts in AGM. Must file within 9 months.
- SMEs have lesser requirements

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20
Q

Company compare: audit?

A

Plc: yes

Ltd: yes unless company is small or micro sized

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21
Q

Company compare: AGM?

A

Plc: must he held each year

Ltd: need not hold one

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22
Q

Company compare: resolutions?

A

Plc: cannot pass written resolution

Ltd: can pass written resolutions instead of calling meetings. Subject to exclusions

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23
Q

Company compare: pre-emption rights?

A

Plc: cannot be excluded

Ltd: can be excluded

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24
Q

8 registration documents?

A

Memorandum of association
- signed by all subscribers, agreeing to be members of company

Application
- name
- liability level
- public or private
- registered office country and address

Articles
- model articles apply if no articles supplied

Statement of capital and initial shareholdings
- number of shares
- aggregate nominal value
- details of each class of share
- how much paid up on each share

Statement of guarantee (if applicable)
- maximum amount each will contribute

Statement of proposed officers
- details of directors and first company secretary, consent to act

Statement of compliance
- confirmation that CA2006 has been complied with

Registration fee

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25
Q

What does a registrar do after receiving 8 documents?

A

Inspect documents and ensure CA2006 is fulfilled

Issue certificate of incorporation - conclusive evidence CA2006 is fulfilled

Company exists from date on that certificate!

Plc must also get a trading certificate

26
Q

What does a registrar do after receiving 8 documents?

A

Inspect documents and ensure CA2006 is fulfilled

Issue certificate of incorporation - conclusive evidence CA2006 is fulfilled

Company exists from date on that certificate!

Plc must also get a trading certificate

27
Q

How does a plc apply for a trading certificate?

A

Apply to the registrar stating:
- nominal value of share capital over £50,000

At least a quarter of nominal value and premium must have been paid up

Amount of prelim expenses and who has to pay them

Any benefits for the promoters

28
Q

What are the consequences if a plc trades before a certificate is issued?

A

Company and officers liable to a fine

Criminal offence to carry on business - but CONTRACTS ARE STILL BINDING

Directors personally liable if company defaults within 21 days of due date

Ground for winding up if not obtained within one year

29
Q

Ads and dis of an off the shelf company?

A

A company that has already been formed

Ads:
- cheap and simple
- can trade immediately
- no problem of pre-incorporation contracts

Dis:
- Articles may be unsuitabls
- altering articles will incur costs
- need to change officers

30
Q

What is a promoter?

A

No statutory definiton

Anyone who makes business preparations for a company, or undertakes to form a company and who takes the necessary steps to accomplish that purpose

Excludes people acting in their professional capacity

31
Q

3 fiduciary duties of a promoter?

A

Exercise reasonable care and skill

Disclose interest in transactions and not make a secret profit

Disclose any benefits acquired

32
Q

3 remedies available if company makes a secret profit?

A

Rescind contract - not always possible

Obtain damages - must prove loss

Recover the profit - must prove promoter failed to disclose profit

33
Q

How do pre-incorporation contracts work?

A

Company prior to incorporation does not have contractual capacity and person contracting is personally liable. Clear and express works to state otherwise

  • company CANNOT RATIFY the contract
  • company is not bound by the contract
  • company cannot enforce contract against third party
34
Q

How can a promoter protect their position?

A

Agreement of novation
- discharging the original contract and replacing with a new one

Postposing finalising contracts until company is formed

Agreeing with company that it will meet its expenses

Buying an off the shelf company

Including a term giving the company the right to sue under the contracts
- does not remove promoter’s liability

35
Q

5 rules when choosing a company name?

A

Must have Ltd or Plc

Cannot be the same or virually the same as another in index of names

Cannot use certain words which are illegal or offensive

Must have secretary of state’s consent to use certain words, or any name suggesting a connection with the government or local authority
- places are fine, ‘council’ is not

Cannot use words indicating company is another type or legal form

Company can trade under a ‘business’ name, but this will be subject to same rules

36
Q

Disclosure of company name - where?

A

Must be at certain locations and on certain documents

Name must also be legible on company seal, if one exists

Breach can lead to fine

37
Q

How to change company’s name?

A

Passing a special resolution and notifying the registrar

SoS ca require a company to change name in these events:

Name is too similar to another
- 12 months

Name is misleading to nature if the activities and this can cause harm to public
- no time limit

Misleading info were given when applying for name that required approval
- 5 years

38
Q

What do articles do?

A

Form part of the company’s internal constitution, along with other agreements or resolutions

  • set out the manner in which company is to be governed
  • regulate the relationship between company and shareholders, in terms of shareholders rights
39
Q

When do model articles apply?

A

When company is formed without registering articles, or when articles do not exclude or modify model articles

Company may adopt the model articles in part of full

Company deemed to have adopted them if not express or implied provision to exclude them

Company may draft its own unique articles

40
Q

Effect of being bound by articles?

A

Articles bind:
- Members to everything (company and each other)

Do not bind:
- Company to non members
- Members in any other capacity. Articles only enforced if individual is trying to protect their rights as a member only

41
Q

How else can articles be used?

A

Another contract may incorporate the articles as an implied term of contract with third party, contract would be binding

42
Q

How can articles be altered?

A

Altered by special resolution of shareholders with 75% majority

Copies of amended articles must be sent to registrar within 15 days

Some articles may be ‘entrenched’ so can only be altered by different set procedure

A member is NOT BOUND by any alteration made after they become a member that requires them to increase liability or contribute further

43
Q

What 5 registers need to be kept?

A

Members

Directors and company secretary
- addresses maintained but not publicly disclosed

People with significant control
- someone who owns or controls more than 25% of shares or voting rights
- OR someone who has the power to appoint or remove majority of board members

Charges

Other documents
- resolutions and minutes of general meetings must be kept for 10 years
- other reports, contracts and provisions must also be kept

44
Q

Where must registers be kept?

A

At company’s registered office

Available for public inspection

May be kept electronically or in hard form

Non compliance renders company and every officer liable to fine

45
Q

What details does the registrar maintain?

A

Certificate of incorporation

Trading certificate (if public)

Certificates of registration of charges

Annual accounts

Confirmation statement

Special resolutions and some ordinary resolutions

Changes of directors

46
Q

What registers can the public inspect?

A

Any of the registers the registrars have, apart from:

Directors residential addresses

Contents of any charges

47
Q

A&R: confirmation statement?

A

Confirms no changes to key info have happened during year, or what changes are

No more than 12 months can pass between each statement

48
Q

A&R: accounting records?

A

Must keep accounting records with sufficient info to show and explain company’s transactions

Details of all money received and spent

Record of assets and liabilities

Statement of inventory at end of year

49
Q

A&R: Annual accounts?

A

Accounts include:

Balance sheet and P&L showing true and fair view

Statements must be approved and signed on behalf of board, copy with registrar

50
Q

A&R: Directors report?

A

Names
Principal activities of company
Auditor not unaware of info

Recommended dividend
Likely future developments and risks and uncertainties

Approved by board

Some ESG stuff

51
Q

What companies must put info in directors report about ESG?

A

Quoted companies

Large unquoted comlanies

Large LLPs

52
Q

A&R: Directors Remuneration report?

A

Quoted companies only, subject to members approval

53
Q

A&R: auditor’s report?

A
  • accounts audited and framework applied
  • scope of the audit
  • accounts give a true and fair view
  • directors report is consistent with accounts
54
Q

A&R: strategic report?

A

Large and medium sized companies must prepare this as part of their statements

  • fair review of company’s businesses
  • description of principal risks and uncertainties facing business

Balanced analysis of performance

Quoted companies need to mention ESG

55
Q

A&R: Companies (Misc Reporting) Regs 2018?

A

Additions:
- report on engagement with stakeholders
- statement in strategic report ok how directors have promoted success of the company
- how corporate governance code has been applied
- within remuneration, additional disclosures such as ratio of CEO’s pay to UK employees pay

56
Q

Penalty for non compliance with A&R?

A

Company or officer being fined

Or imprisonment!

57
Q

Change in requirements for SMEs?

A

Micro entities
- simple or no P&L
- balance sheet required with minimum info

At least two of
- turnover under £632k
- balance sheet assets under £316k
- employees under 10

Small companies
At least two of:
- turnover under £10.2mil
- balance sheet assets under £5.1m
- employees under 50

58
Q

What companies are exempt from audit?

A

Micro and small companies
Dormant companies
Non-profit companies
Subsidiary companies whose parent company guarantees liabilities

If exempt, 10% of members can vote for audit to still happen

Auditor has right of all access. Can be removed by ordinary resolution with special notice

59
Q

What does a company secretary do?

A

Chief admin officer of the company

Appointed and removed by directors

No statutory duties, but typically:
- makes return to registrar
- keeps registers
- gives notice and minutes of meetings

Actual and implied authority to bind into contracts of administrative nature

60
Q

How can a company secretary be qualified?

A

One of.

  • is a solicitor, barrister or member of accounting body
  • Has held the role of secretary for at least three of the five yeats
  • Appears capable by virtue of another position or qualification