Ch 9+10 - Business Organisations and Partnership Law Flashcards
In the context of the law of negligence, discuss the concept of remoteness of damages.
Remoteness of damages: this is a device used by the court to determine whether or not the level of damage
caused by the breach could have been reasonably foreseen.
If the courts determine that the level of damage caused by the breach was too remote and could not have
been foreseen by a reasonable person, they will not hold the defendant liable.
This means that although the defendant’s breach may cause the damage, the defendant will not be held
accountable for all of the damage.
This is because the damage resulting from the breach is so unexpected or ‘remote’ that the court considers
it unfair to hold the defendant accountable for a level of damage he could not have foreseen.
Compare and contrast the characteristics of private limited companies and public limited companies
operating in Northern Ireland.
All companies, whether public or private have the following characteristics in common:
(i) Separate legal entity: a company is a separate legal entity from its members (it can contract in its own
name/sue or be sued in its own name) - see Salomon v Salomon (1897).
This also means that a company has perpetual existence and will only cease to exist where it is struck off the
Companies Registry;
(ii) Liability: all company shareholders may have limited liability – on liquidation they are not required to make a
contribution towards company debts where their shares are fully-paid;
(iii) Formation: a company must be registered with the Companies Registry;
(iv) All companies are governed by the Companies Act 2006 and other relevant company law legislation – as a
consequence there is a significant degree of formality involved in running the company;
(v) Publicity requirements – all companies have significant publicity obligations in return for separate legal
existence – the degree of publicity depends on the size of the company and not whether it is public or private;
(vi) Management of the business: in a company the shareholders own the company but the directors are
responsible for its management – therefore there is a theoretical distinction between ownership and
management.
Contrast
(i) Subscription: public company must have at least one member and two directors, a private company must
have at least one member and one director;
(ii) Capital: a public company must have a minimum issued share capital of £50,000 – 25% of which must be
fully paid, a private company can trade without any statutory minimum or maximum share capital;
(iii) Trading: upon receipt of the certificate of incorporation a private company can commence trading.
A public company can only trade upon receipt of a trading certificate (Section 761 CA 2006) from the
Companies Registry (this document evidences everything about the company that makes it public);
(iv) A public company can sell its shares freely on the market or offer debentures to the public - whereas there is
a prohibition against offering shares to the public in a private limited company;
(v) Under the Companies Act 2006, private companies are not required to hold AGMs. For public companies,
AGMs must be held within six months of financial year ends.
(vi) A public company has six months from the end of its accounting period to produce statutory audited
accounts. A private company has nine months.
(vii) A private company must have limited or ‘ltd’ after its name. A public company must have public limited company or plc after its name.
Statute of limitations:
six years from date of wrongful act ; or
three years from damage from act becoming known.
Assess the advantages and disadvantages of operating as a company, as opposed to a partnership.
Advantages of a company:
(i) Separate legal entity: a company is a separate legal entity from its members (it can contract in its own
name/sue or be sued in its own name) - see Salomon v Salomon (1897).
This also means that a company has perpetual existence and will only cease to exist where it is struck off the
Register of Companies.
Partners and the partnership have no separate legal existence - this means that a partnership may cease on
the retirement of a partner or his death, insanity, bankruptcy etc;
(ii) Liability: partners in a partnership (except the limited liability partner) have unlimited liability for the debts of
the partnership whereas company shareholders have limited liability.
On liquidation they are not required to make a contribution towards company debts where their shares are
fully-paid;
(iii) Management of the business: in a company the shareholders own the company but the directors are
responsibility for its management – therefore there is a theoretical distinction between ownership and
management.
In a partnership the partners are generally actively involved in the running of the business and nobody is
appointed with the overall management responsibility for running the firm;
(iv) A partnership, in contrast to a company, cannot borrow money by issuing loan or debenture stock;
(v) A company can give security in the form of a floating charge over their assets, a partnership cannot;
(vi) Taxation – partnership profits are assessed for income tax purposes i.e. partners taxed personally – whereas
company profits are assessed for corporation tax.
Disadvantages of a company:
(i) Formation is more difficult for a company: a partnership can be created by an oral or written agreement
(known as the Deed of Partnership) – whereas a company must be registered with the Companies Registry
(through lodging an Application for Registration and any other additional documents);
(ii) Governing Legislation: partnerships are regulated by the Partnership Act 1890 and the Limited Partnership
Act 1907 - whereas companies are governed by the much more detailed requirements of the Companies
Acts 2006;
(iii) Publicity requirements - companies have significant publicity obligations in return for separate legal existence
whereas partnerships are more private entities (the only publicity obligation arises if there is a limited liability
partner);
(iv) Companies have to file their annual returns and company accounts each year as they are regulated by
Companies House whereas partnerships are only under an obligation to file tax returns.
Explain the characteristics of a sole trader business
Sole trader:
(i) It is the simplest form of a trading or business structure as it is a one person business, for example a sole
trader may be your local newsagent or a professional who has set up their own business;
(ii) A sole trader will run the business by themselves and may or may not have employees;
(iii) A sole trader will usually fund the setting up (the capital) of his own business entirely from his own pocket,
either through personal savings or loans in his name;
(iv) As a sole trader does not have separate legal personality he will contract in his own name and has unlimited
liability for any loss or debt of the business, the business also lacks perpetual existence and therefore the
death of the sole trader means the death of the business;
(v) As a sole trader works alone he has complete ownership and control of his business;
(vi) A sole trader is considered independent and self-accountable as he is only accountable to himself and does
not have to reveal his state of affairs to anyone – as a sole trader is not a company, they are not regulated by
Companies House and do not have to file annual returns or accounts
In the context of companies, discuss what is meant by the doctrine of separate legal entity.
A company is a separate legal entity from its members (it can contract in its own name/sue or be sued in its
own name) - see Salomon v Salomon (1897).
This also means that a company has perpetual existence and will only cease to exist where it is struck off the
Register of Companies.
Partners and the partnership have no separate legal existence - this means that a partnership may cease on
the retirement of a partner or his death, insanity, bankruptcy, etc
Explain the difference between a silent/sleeping partner and a limited liability partner
A silent/sleeping partner is a person who has invested money in the partnership - but is in no way involved in
the day to day running of the firm - this partner has unlimited liability.
However, a silent/sleeping partner is eligible to be registered as a limited liability partner with Companies
House and thereafter has limited liability.
With reference to the Partnership Act 1890, explain the order in which partnership debts are paid upon the
dissolution of the partnership.
Debts on dissolution - once the value of the partnership property is realised the proceeds are applied in the
following order:
(i) all debts to outsiders;
(ii) all monies advanced by partners beyond their original capital contribution;
(iii) all capital contributions of the individual partners – any residue is divided between the partners in the same
proportion as they shared in profits (Section 44 Partnership Act 1890).
If there is a deficit then the deficiency has to be made good out of any profits held back from previous years,
or out of partners’ capital, or by the partners individually in the proportion to which they were entitled to
share in profits.
List the rights of an active partner
The following are the main rights:
(i) to be treated by the other partners in good faith and with mutual confidence;
(ii) to be involved in the management of the firm and in key decision making;
(iii) to share in the profits of the firm as per the partnership agreement, as well as the losses of the firm on a joint
and several basis;
(iv) to not be expelled from the partnership, unless there is evidence that the partner is not acting in good faith or
not acting in breach of his duties;
(v) to veto the introduction of a new partner to the firm – this decision requires unanimous approval of all existing
partners;
(vi) the right to attend and vote at all partnership meetings;
(vii) the right to examine the books and financial statements of the partnership; and
(viii) to be indemnified by the firm against all liabilities incurred in the ordinary course of partnership business.
List the documents that must be submitted to the Companies Registrar in order to register a
company.
Documents to be submitted to register a company:
(1) Application for registration;
(2) Memorandum of Association;
(3) Articles of Association;
(4) Statement of capital and initial shareholdings;
(5) Statement of proposed officers;
(6) Statement of compliance.
Explain what a certificate of incorporation is and identify the details contained in this document.
A certificate of incorporation (Section 15 CA 2006) allows a private company to begin to trade.
It proves that the company is validly and legally constituted. It is given to the company by the Registrar
provided (s)he is satisfied that all registration documents are in order and that the company complies with the
registration requirements.
The certificate will contain the following information:
(1) name and registered number of the company;
(2) date of incorporation;
(3) limited by shares or guarantee;
(4) location of company’s registered office;
(5) company private or public;
(6) signature of registrar and official seal.
Explain the purpose of Articles of Association. List the provisions that could be contained in the
Articles of Association.
Articles of Association regulate the internal activities of a company.
This document contains the internal rules and regulations regarding the governance of the company.
A company may adopt standard model articles (which are contained in CA 2006).
It deals with issues such as share capital, meetings, directors, secretaries, auditors and accounts, dividends,
and liquidation.
