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Law > Chapter 7 - Companies: the consequences of incorporation > Flashcards

Chapter 7 - Companies: the consequences of incorporation Flashcards

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1
Q

In law, what is the term person used to denote?

A

Natural/artificial person

Artificial person includes companies

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2
Q

What does a company having limited liability mean for its members?

A

Amount members will be asked to contribute is limited to the value of share capital owned

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3
Q

What may some lenders require directors and/or members?

A

Personal guarantee to assume debt obligation in the event of a non-payment by the company

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4
Q

Is the company itself liable without limits for its own debt?

A

Yes

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5
Q

For a company limited by shares, what is the liability of its members?

A

Members only liable for winding up for any outstanding about of nominal value of any unpaid share

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6
Q

For a company limited by guarantee, what is the liability of its members?

A

Amount owed by member at the time of winding up is the amount they are guaranteed to pay in the event of winding up

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7
Q

Can a company have liabilities in tort and crime?

A

Yes

Extremely difficult to prosecute a company successfully for an offence

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8
Q

What does a veil of incorporation do?

A

Separates members and the company for the purposes of liability and identification

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9
Q

When may the law lift the veil?

A

In a group situation, e.g. to produce a tax liability

Under legislation, usually to confer a personal liability on those running a company

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10
Q

What examples of lifting the veil only apply if directors are also members of the company?

A

Director is disqualified - director jointly/severally liable for debts

Fraudulent and wrongful trading - directors may be held personally liable where company wound up

Trading without a trading certificate - personal liability for directors for third party loss/damage

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11
Q

What companies can be limited by shares?

A

Private and Public

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12
Q

What companies can be limited by guarantee?

A

Private only

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13
Q

What companies have unlimited liability?

A

Private only

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14
Q

Can a company alter its status?

A

Yes once from either

Limited to unlimited with the consent of all members

Unlimited to limited by passing a special resolution and specifying kind of liability

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15
Q

What is the definition of a public company?

A

Limited company expressly registered under Companies Act 2006

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16
Q

What is the definition of a private company?

A

Registered company (limited/unlimited) not stated to be public

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17
Q

When a company is formed what does there need to be?

A

Memorandum of association

Application providing basic details

Statement of capital and initial shareholdings (if relevant)

Statement of guarantee if company limited by guarantee

Statement of proposed officers

Statement of compliance with Companies act 2006

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18
Q

After all docs have been submitted what happens next?

A

Registrar will issue incorporation certificate

Public company also needs a trading certificate

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19
Q

What happens when an off the shelf company is purchased?

A

Shares transferred to the buyer

Registrar notified of director’s and secretaries resignations

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20
Q

What are the benefits of an off the self company?

A

Easier as the company is ready to go

Avoids potential liability arising from pre-incorporation contracts

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21
Q

What are the drawbacks of an off the shelf company?

A

Need to change name

Transfer shares

Change directors and possibly the secretary

Alter the articles of association

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22
Q

What is a promotor?

A

Person who takes steps to get a company incorporated

Makes business preparations unless in a pro capacity

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23
Q

What duties does a promotor owe?

A

General duty to exercise reasonable care and skill

Fiduciary duties to disclose any personal interests

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24
Q

What is wrongful profit?

A

Promotor enters into and makes profit personally in a contract as a promotor in breach of fiduciary duties

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25
Q

What are the complex rules where a promotor makes a contract on behalf of an unincorporated company?

A

Company has no capacity to enter into contracts before existence

Cannot ratify contracts

Not bound by contracts

Cannot enforce contracts against 3rd party

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26
Q

How can a promotor avoid potential liabilities?

A

Not to make contracts until after company incorporated

Use an off the shelf company

Draft agreement

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27
Q

Can a promotor legally claim any remuneration/indemnity for their services/expenses before a company is formed?

A

No

In practice company makes payment

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28
Q

If a company name is sensitive what is required?

A

Approval of secretary of state

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29
Q

When will British and International be permitted as part of a company name?

A

If the size of the company matches its pretentions

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30
Q

Can a company change its name?

A

Yes, by passing a special resolution

Name change anything

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31
Q

Where do model articles apply?

A

Apply where a company is formed without registering articles

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32
Q

What do the stock exchange rules require listed companies have?

A

Have their own full-length articles containing a number of special provisions

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33
Q

What do the provisions of a company’s constitution do?

A

Bind the company and its members as if each had covenanted to the other to observe those provisions

Only applies to rights and obligations that affect members in their capacity as members

34
Q

How may a company alter its articles?

A

By passing a special resolution, unless a provision of entrenchment exists

35
Q

How may records be kept?

A

Hard or electronically

36
Q

Who sets the rules for record keeping?

A

Companies Act 2006

Any contravention renders the company and every company officer in default guilty of an offence liable to a fine

37
Q

Who has the right to inspect the register

A

Any person

Can pay to get a copy of any material

38
Q

When must a company send the registrar a confirmation statement?

A

Any time within 12 months

No more than 12 months between submissions

39
Q

What must every public company appoint?

A

Company secretary

Must have necessary knowledge and experience as deemed by directors

Appointed by directors

40
Q

Do private companies need to appoint a company secretary?

A

Not obliged to do so

41
Q

Who acts as a company secretary?

A

Sole director of a private company

42
Q

What liabilities are company secretaries subject to?

A

Civil and criminal

43
Q

Does the Companies Act 2006 define the role of a company secretary?

A

No

44
Q

What powers does a company secretary?

A

Power to contract on behalf of the company in respect of administrative matters, including employment

45
Q

How long must a company keep underlying records?

A

Private company - 3 years

Public company - 6 years

46
Q

What must the directors report include?

A

Director’s names

Principal activities of company

Auditor statement that all info has been made aware

Approval and signature on behalf of board of directors

47
Q

Where the accounts are audited, what must the auditors report identify?

A

Accounts audited

Financial reporting framework applied

48
Q

What must the auditor’s report state?

A

Whether director’s report is consistent with accounts

49
Q

Under 2006 companies act, what must large and medium sized companies prepare?

A

Strategic report

50
Q

In 2018, what additional director’s report disclosure requirements were introduced?

A

Company emissions

Energy consumption

Energy efficiency

Only applies to quoted companies, large unquoted companies and large LLPs

51
Q

When must a company’s accounts be filed at the Registery?

A

Private company - within 9 months

Public company - within 6 months

52
Q

Who can file abbreviated accounts?

A

Small and medium sized companies

53
Q

What are the requirements to be classified as a small company?

A

2 out of:
- Max turnover £10.2 mil
- Max balance sheet £5.1 mil
- Max 50 employees

54
Q

What are the requirements to be classified as a medium company?

A

2 of:
- Max turnover £36 mil
- Max balance sheet £18 mil
- Max employees 250

55
Q

What are the filing advantages of a micro-entity?

A

Can file a simple P&L or no P&L at all

56
Q

What are the requirements to be classified as a micro-entity?

A

2 of:
- Max turnover £632k
- Max balance sheet £316k
- Max employees 10

57
Q

What is a company required to to do carry out audit of its annual accounts

A

Appoint auditors

Must be appointed for each financial year

Appointed by directors or members passing an ordinary resolution

In the event of default, appointed by Secretary of State

58
Q

What companies are exempt from appointing auditors?

A

Micro and Small

Dormant

Non-profit

59
Q

What companies are never exempt from appointing auditors?

A

Insurance and banking

60
Q

What happens where an audit exemption applies?

A

Audit can be required by 10% plus of the members

Members representing min 10% of the nominal value of issued chare capital

61
Q

What rights of access does an auditor have?

A

Access to books and accounts

Duty to carry out a proper investigation

62
Q

What is the assumption of an auditor in a private company?

A

Reappointed unless company decides otherwise

63
Q

What does the comanies act 2006 (Strategic report and directors report) regulations 2013 require quoted companies to do?

A

Report on environemental matters within strateigc report section of annual report

Related to environmental sustainability

64
Q

Is a company always liable without limits for its own debts?

A

Yes

65
Q

Can a public company have unlimited liability?

A

No

Must be limited liability

66
Q

Can the company commence trading once it is incorporated, provided they obtain a trading
certificate within the first 12 months following incorporation?

A

No

67
Q

What must a public company’s shares be?

A

Must be at least one quarter paid up on allotment.

68
Q

When a company applies for registration, should a copy of its proposed articles of association be
supplied to the Registrar?

A

No

If none provided, model articles prescribed by the Secretary of State apply.

69
Q

Can company secretaries rely on the contractual effect of the articles to seek redress for breach of contract?

A

No

Claimant must be a member

70
Q

Can a member be forced to buy more shares by an alteration made after them becoming a member?

A

No

71
Q

Is a company required to keep a register of debentureholders?

A

No

72
Q

Does a private company limited by shares need to produce a directors’ remuneration report?

A

No, only quoted companies need to do so

73
Q

Does a company limited by guarantee have share capital?

A

No

74
Q

Is borrowing within the implied usual authority of a company secretary?

A

No

Company not bound on any deal made

75
Q

What do compulsory notes do micro-entities have to submit to the registrar?

A

Advances to directors

Financial commitments

76
Q

What type of company is not required to appoint an auditor?

A

A not-for-profit company that is subject to public sector audit

77
Q

If a company produces group account, does it have to produce a consolidated directors’ report.

A

Yes

78
Q

In an ordinary partnership, can a partner assign their interest in the partnership to another person?

A

Yes, but other person doesn’t become a partner

79
Q

Does the Companies (Miscellaneous Reporting) Regulations 2018 require companies to make disclosures in relation to compliance with money laundering regulations?

A

No

80
Q

Is a statement that subscribers wish to form a company required in the memorandum of association?

A

Yes

81
Q

Can a company be ordered to change its name by the Registrar?

A

No, only be secretary of state

Law (13 decks)

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