Business Law and Practice - Nature and Formation of Companies Flashcards
Limited Company
Offer owners (members) limited liability
Limited by guarantee: owners to pay a fixed amount if company to be wound up (usually £1), easy for membership to change, no need for large capital contributions for the business to be capable of running, no shareholders but at least one member
Limited by shares: members agree to pay a certain amount for shares for ownership in company - two types; public companies (PLC) and private companies (Ltd). If shares fully paid for then members have no personal liability to pay any more.
Unlimited Company
Owners (members) do not have limited liability
Public Limited Companies
Permitted to issue shares to the public
Must have a minimum shareholding with nominal value of £50,000 and a trading certificate
Requires at least 2 directors
Private Limited Companies
Cannot advertise shares for sale to the public
Default position
Only requires 1 director
Not required to have a company secretary
Sold only by private arrangement
Shelf Company
Pre-incorporated
Can be purchased
Begin business immediately
Takes a few days for company name to be changed
Promoters
People who take the necessary steps to form a company
Owe a fiduciary duty to the company - a duty of good faith
Memorandum of Association
Document authenticated/signed by persons wishing to become members
Needs to be filed with Registrar of Companies House along with registration application
Application for Registration
To be filed with Registrar of Companies House
Standard form
Company Name Requirements
- Private Limited Company must have Limited or Ltd in its name (not required for companies limited by guarantee)
- Public Limited Company must have Public Limited or PLC in its name
- Can’t have company name the same as an existing company
- Some names that require approval first (e.g. suggests any connection to Government or local authority, contains sensitive words such as Auditor, Chartered, Law Commission or Medical Centre)
Articles of Association
AKA Company Consistitution
Regulate internal affairs of company
Creates contract between company and members and members between eachother
Each time there is a new Companies Act a new set of standard articles are produced - standard articles produced for Companies Act 2006 know as Model Articles
- Most companies will use model articles and vary them as necessary - variations from Model Articles known as Special Articles
- If Special Articles used these must be filed with Companies House and made available to public
- Shareholders Special Resolution required to alter articles
- Articles may provide that certain provisions are “entrenched” - require greater approval
Bind all members whether or not they signed it
Shareholders Agreement
Private document and not filed at Companies House
Shareholder Liability
Generally not liable for company’s debts
Pre-incorporation contracts
Contracts entered into by promoters before company is formed on behalf of the company as the company does not yet exist
Promoter is personally liable on pre-incorporation contracts - this liability does not disappear once company is formed
There are a number of ways for promoter to protect themselves:
- Wait to execute contract until company incorporated
- Novation agreement
- Assign benefit of PIC to company in exchange for agreement to indemnify promoter
- Set up company faster using shelf company
Company Name Change
Can be done via a special resolution or as provided for in the Articles
Must forward resolution or statement that change was as per the articles to the Registrar of Companies, give Registrar notice and pay a fee
Shareholders’ Agreement
Agreement between shareholders - only binds those who sign it
