Chapter 5 - Company Law Flashcards
Legal personality of a company (definition & 4 characteristics)
A separate legal entity
- An artificial person
- Members have limited liability
- Has ability to hold property
- Continues in existence
Veil of incorporation
Means directors/ shareholders can ‘hide’ behind the company
Types of limited companies (2)
- Limited by shares (fully paid = no further liability. partly paid = nominal value not yet paid)
- Limited by guarantee
Situations where the veil of incorporation may be lifted - Groups of companies (2)
- To produce a tax liability i.e. for foreign cos with UK sub
- To prevent tax evasion i.e. if parent co evade tax, sub is also liable
Situations where the veil of incorporation may be lifted - Other (3)
- Reveal true identify of company (UK company with all German shareholders .: didn’t have to pay debts (WW1))
- Quasi-partnership - lifted veil to see company was essentially a partnership, .: just and equitable to wind up
- When a company is a sham (ex-employee couldn’t take customers, so set up company to do this = sham
Situations where the veil of incorporation may be lifted - Legislation (3)
- Director is disqualified
- Fraudulent (willful intent) and wrongful (trading when know they can’t) trading
- Trading without a certificate (public co)
Types of companies (3)
- Private limited company
- Public limited company
- Unlimited company (cannot be public) - unlimited members liability
Off the shelf companies (ads[2] & disads[4])
Ads
+ Quicker way to set up
+ Avoid potential liability from pre-corporation contracts
Disads
- Need to change name
- Need to change directors
- Need to alter articles
- Need to transfer shares
Documents to send to Registrar of Companies (6)
- Memorandum of association
- Application [name, limited co, by shares/ guarantee, private/ public, registered where, registered office]
- Statement of capital [ no. of shares and value, paid and unpaid values]
- Statement of guarantee [amount to contribute to net assets if wound up]
- Statement of proposed officers [first directors, secretary (public = must)]
- Statement of compliance [provisions of Act met]
The Promoter & duties (2)
Anyone [usually first director] who makes business preparations for the company.
- Duty to exercise reasonable care and skill
- Fiduciary duty to disclose all personal interests and account for monies received
Pre-incorporation Contracts (definition & consequences [4])
Contract the promoter enters into on behalf of the company before it exists (has been incorporated)
- Company has no capacity .: cannot be bound
- Company cannot ratify
- Company cannot enforce contract
- Contract takes effect with the promoter who is liable
Musts for/ prohibited company names (5 factors)
- Must end with Ltd if private and plc if public
- Cannot be offensive/ constitute a criminal offence
- Must match its reach i.e. ‘international’/ ‘British’
- Cannot have words that indicate another form of company (ltd for public etc)
- Cannot be the (virtually the) same as an existing company
Articles of Association
Binds the company to the members, the members to the company and the members to the members
DO NOT bind the company to a third party (solicitor must always be solicitor case) / to members outside their capacity as a member
Requirements for alteration of articles & provision of entrenchment
Pass a special consideration [75% of those who voted]
Articles which contain Provision of Entrenchment - requires ALL members to agree/ be done by court order to be changed
Cannot be made impossible to change, needs to have the possibility
Company records - 3 key things to keep
- Register of members
- Register of directors & company secretary
- Register of charges
[think CH]
