7.1 Business Organisations Flashcards
What is the effect of incorporation on a company or LLP?
separate from the people who created it. Absolved of liability and the company (itself and not the shareholders) can be sued for liability.
define a general partnership
- relationship between people carrying out a business with a view to make a profit
- subject to the Partnership Act 1890 unless use own rules
tell me what a limited partnership is
two or more people with a view to carry out a business and make a profit but there are two categories of partner - general partners and limited partners
limited partnership and general partners
- unlimited liability for debts and obligations
- managing the business
limited partnership and limited partners
- not an active role
- liability limited to the amount they contribute to the business
what does it mean if a company is a body corporate
separate legal entity
Company Limited by Shares (Private & Public)
- Extent of liability: If the company becomes insolvent, members only have to contribute up to the unpaid amount on their shares.
- Fully paid shares: If shares are fully paid up, members have no liability to contribute to the company’s debt and liabilities [Implied from “limited to any unpaid amount”].
Company Limited by Shares (Private & Public) - who is responsible for debts if the company becomes insolvent?
Principle of separate legal personality and limited liability, the company itself is responsible for its debts and creditors generally cannot pursue shareholders or directors personally (unless they have acted fraudulently or wrongfully)
Company Limited by Guarantee
How liability is limited: Members’ liability is limited to a specified amount that they guarantee to contribute if the company is wound up.
Purpose: Often used for non-profit organisations
Creditor Protection: Similar to companies limited by shares, the company is responsible for its debts due to separate legal personality, and members are not personally liable beyond their guarantee
Unlimited Company - tell me about liability
- How liability is limited: There is no limit on the liability of members
Effect on Members: Members are therefore personally liable for the company’s debts if the company’s assets are insufficient
- very rare in practice
Disclosure: Offers much less public disclosure compared to limited companies
Tell me the name of a rare type of company
unlimited company
What is lifting the veil of incorporation
a company was used to carry out fraud or wrongful trading and the company’s separate legal personality cannot be used to evade existing contractual obligations
Tell me the features of a public limited company
- must have an allotted share capital of at least £50,000
- limited by shares or guarantee
- must end with PLC
- has 2+ directors
- must appoint a company secretary
- uses IPOs
Tell me the features of a private limited company
- must have at least one director
- limited by shares or guarantees
