Business Law And Practice: Types Of Businesses Shareholders Flashcards
What is the main distinction between a incorporated business and unincorporated business?
- incorporated business exists as a separate entity from its owners and managers (example limited company)
- unincorporated business are run by individuals who have not set up a separate business (example sole trader)
- key distinction being unincorporated business means full personal liability
What are the types of unincorporated businesses?
- sole traders (owned by one person has full personal liability )
- partnerships (owned by two or more people owners share liability)
- limited partnerships (owned by two or more owners each partner with limited personal liability)
When is a partnership created?
-When two or more people carry on a business together with the view of making profit (this is definition of partnership provided under PA 1980)
What is the requirement for a limited partnerships?
- there must be at least two partners
- one partner must have unlimited liability
-while one partner can have limited liability based on their initial investment - (limited liability act 1907 governs the operation of such business models)
What conditions must a partner of a limited partnership with limited liability adhere to?
- must not control or manage the lp
-must not have the power to take binding decisions on behalf of the business - must not remove the contribution from the Lp for as long as they are partner
(If breached partner will lose protection and have unlimited liability)
How is a company formed?
- company is formed by registering relevant documents with the registrar of companies in line with the companies act 2006
(Sole traders and partnerships and begin. To trade straight away)
What are the benefits of a private company limited by shares?
- a company has a separate legal personality Salomon v A Salomon 1897
- if sued the defendant will be the company and not its owners
Main Difference between a public company limited by shares and private company limited by shares?
- Ability to Sell Shares
• Public Company: Can offer shares to the public on a stock exchange.
• Private Company: Cannot offer shares to the public; shares are privately held. - Minimum Share Capital
• Public Company: Often required to have a minimum share capital (e.g., £50,000 in the UK).• Private Company: No minimum share capital requirement.
What are the requirements for a company to be registered as a public company limited by shares PLC?
- must comply with requirements set out under CA 2006
- company constitution must state it is a plc
- the words public or the abbreviation PLC must be included at the the company name
- the allotted share capital must be at least £50,000
What are the features of a limited liability partnership and how is it formed?
- two more individuals carrying on business in common with a view of making profit
- must file a series of documents at the companies house paying the fee
- key feature: partners benefit from limited liability like a company
- PA 1980 provides default contract
- partners must be registered as self employed
What is the date of incorporation?
The date of incorporation is the official date a company is legally registered and begins its existence as a separate legal entity.
What information must be made public for unincorporated businesses?
- sole traders and partnerships must disclose the identity if the sole trader and all partners
- an address for service documents must be available
What information must be made public for incorporated businesses?
- Company Name and Registration Number
- Registered Office Address -Names of Directors and Company Secretary
- Financial Statements and Annual Reports
- Shareholder Information and Share Capital
What is a floating charge and which business model can access it?
A floating charge is a security over changing assets, like inventory, which incorporated businesses and LLPs can use to secure loans. If the business fails, it becomes a fixed charge on those assets.
How to incorporate a new company?
Prepare Key Documents:
- Memorandum of Association: Confirms the company’s formation.
- Articles of Association: Sets out the rules for running the company.
- Complete Form IN01 – Include details of the company name, registered office, directors, shareholders, and share structure.
- Register with the Relevant Authority – Submit the documents and Form IN01 to the Companies House in the UK and pay the registration fee.
- Receive Certificate of
Incorporation – Once approved, you’ll receive a certificate confirming the company’s legal status.
How can a company amend its
Companies articles?
- shareholders can ammend companies articles by way of special resolution
- special resolution is only passed with a majority of 75% of the shareholders agreeing
What decisions do only shareholders make in a company?
- changing company name
- Amending the company’s articles of association
(These are special resolutions) (ss 21 and 77 of CA 2006)
What are other types of decisions shareholders make?
- give permission for directors to enter into certain types of contracts
What is a board meeting and what is the requirement for it to be valid?
- board meetings are decisions taken in meetings with directors
- rule (MA 9) states when a director holds a board meeting all directors must be notified providing reasonable notice
- rule MA 11 a quorum of two directors must be present at all times during board meetings
- MA 17: a director may not count in the quorum if they have personal interest in the business matter and must also state if they do not
By what voting majority for a board resolution to be passed?
- Rule MA 7 states boarding meetings must be past by simple majority so over half directors voting in favour
Aside from a board meeting what other way can directors make decisions?
- written resolutions
What resolutions are reserved only for shareholders?
- Special resolutions (needs 75% voting majority to pass)
- ordinary resolutions (over half the votes cast must be in favour)
Why are general meetings held?
- they are called by directors in board meetings when they need shareholders to pass a shareholder resolution
What is the required notice for general meetings?
14 clear days (clear meaning the day notice is given and the day of the meeting do not count)
What are poll votes in general meetings held by shareholders?
A voting method where each shareholder’s vote is weighted based on the number of shares they hold.
How long do shareholders have to respond to written resolutions?
Shareholders typically have 28 days to respond to written resolutions, unless a different time frame is specified in the company’s articles of association. (S297 CA 2006)
What resolutions must companies house be notified of?
- Special Resolutions: Such as changes to the company’s name, amendments to articles of association, or reduction of share capital.
- Certain Ordinary Resolutions: Including decisions on director authority to allot shares or approve significant transactions.
-Written Resolutions (for private companies): When they pass a resolution without holding a general meeting.
Are private companies required to have a company secretary?
- no only public companies
What is the PSC register?
- a register recording any person with significant control any shareholder with more than 25% of shares
- (this needs to be recorded by all private. Companies or non public traded companies (meaning they don’t publicly advertise shares) must keep a register or this and complete on form IN01
What rights do shareholders have?
- Voting Rights: To vote on major company decisions, such as electing directors or approving mergers.
- Dividend Rights: To receive a share of profits if dividends are declared.
- Inspection Rights: To access certain company records and financial information.
- Rights to Attend and Call General Meetings: To be informed about company matters, participate in discussions, and request meetings if specific conditions are met.
- Rights on Winding Up: To receive a share of remaining assets if the company is dissolved.
Requirement for general meeting at short notice to be held?
- a majority number of shareholders
- who between them own at least 90% of shares
-95% for public companies
What is the minimum number of directors a company should have?
- 1
- public companies 2
Minimum age of a director?
- 16 national working age
What is the voting majority needed to pass a special resolution?
- special resolutions require a voting majority of 75% of all shareholders
What is the voting majority needed to pass a special resolution?
- special resolutions require a voting majority of 75% of all shareholders
What is the voting majority required for an ordinary resolution to be passed?
- for shareholders to pass a ordinary resolution a majority of more than 50% must vote in favour of the resolution
What are special resolutions required for?
-l
• Amending the company’s articles of association
• Changing the company name
• Reducing share capital
• Re-registering the company (e.g., from private to public or vice versa)
• Authorising the company to purchase its own shares (off-market)
• Approving a scheme of arrangement (e.g., company restructuring)
• Winding up (liquidating) the company voluntarily
• Altering class rights of shares (if permitted by the articles)
