Chapter 7 - Companies: the consequences of incorporation

Question 1

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

Answer 1

Natural/artificial person

Artificial person includes companies

Question 2

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

Answer 2

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

Question 3

What may some lenders require directors and/or members?

Answer 3

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

Question 4

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

Answer 4

Yes

Question 5

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

Answer 5

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

Question 6

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

Answer 6

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

Question 7

Can a company have liabilities in tort and crime?

Answer 7

Yes

Extremely difficult to prosecute a company successfully for an offence

Question 8

What does a veil of incorporation do?

Answer 8

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

Question 9

When may the law lift the veil?

Answer 9

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

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

Question 10

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

Answer 10

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

Question 11

What companies can be limited by shares?

Answer 11

Private and Public

Question 12

What companies can be limited by guarantee?

Answer 12

Private only

Question 13

What companies have unlimited liability?

Answer 13

Private only

Question 14

Can a company alter its status?

Answer 14

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

Question 15

What is the definition of a public company?

Answer 15

Limited company expressly registered under Companies Act 2006

Question 16

What is the definition of a private company?

Answer 16

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

Question 17

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

Answer 17

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

Question 18

After all docs have been submitted what happens next?

Answer 18

Registrar will issue incorporation certificate

Public company also needs a trading certificate

Question 19

What happens when an off the shelf company is purchased?

Answer 19

Shares transferred to the buyer

Registrar notified of director’s and secretaries resignations

Question 20

What are the benefits of an off the self company?

Answer 20

Easier as the company is ready to go

Avoids potential liability arising from pre-incorporation contracts

Question 21

What are the drawbacks of an off the shelf company?

Answer 21

Need to change name

Transfer shares

Change directors and possibly the secretary

Alter the articles of association

Question 22

What is a promotor?

Answer 22

Person who takes steps to get a company incorporated

Makes business preparations unless in a pro capacity

Question 23

What duties does a promotor owe?

Answer 23

General duty to exercise reasonable care and skill

Fiduciary duties to disclose any personal interests

Question 24

What is wrongful profit?

Answer 24

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

Question 25

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

Answer 25

Company has no capacity to enter into contracts before existence Cannot ratify contracts Not bound by contracts Cannot enforce contracts against 3rd party

Question 26

How can a promotor avoid potential liabilities?

Answer 26

Not to make contracts until after company incorporated Use an off the shelf company Draft agreement

Question 27

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

Answer 27

No In practice company makes payment

Question 28

If a company name is sensitive what is required?

Answer 28

Approval of secretary of state

Question 29

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

Answer 29

If the size of the company matches its pretentions

Question 30

Can a company change its name?

Answer 30

Yes, by passing a special resolution Name change anything

Question 31

Where do model articles apply?

Answer 31

Apply where a company is formed without registering articles

Question 32

What do the stock exchange rules require listed companies have?

Answer 32

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

Question 33

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

Answer 33

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

Question 34

How may a company alter its articles?

Answer 34

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

Question 35

How may records be kept?

Answer 35

Hard or electronically

Question 36

Who sets the rules for record keeping?

Answer 36

Companies Act 2006 Any contravention renders the company and every company officer in default guilty of an offence liable to a fine

Question 37

Who has the right to inspect the register

Answer 37

Any person Can pay to get a copy of any material

Question 38

When must a company send the registrar a confirmation statement?

Answer 38

Any time within 12 months No more than 12 months between submissions

Question 39

What must every public company appoint?

Answer 39

Company secretary Must have necessary knowledge and experience as deemed by directors Appointed by directors

Question 40

Do private companies need to appoint a company secretary?

Answer 40

Not obliged to do so

Question 41

Who acts as a company secretary?

Answer 41

Sole director of a private company

Question 42

What liabilities are company secretaries subject to?

Answer 42

Civil and criminal

Question 43

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

Answer 43

No

Question 44

What powers does a company secretary?

Answer 44

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

Question 45

How long must a company keep underlying records?

Answer 45

Private company - 3 years Public company - 6 years

Question 46

What must the directors report include?

Answer 46

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

Question 47

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

Answer 47

Accounts audited Financial reporting framework applied

Question 48

What must the auditor's report state?

Answer 48

Whether director's report is consistent with accounts

Question 49

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

Answer 49

Strategic report

Question 50

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

Answer 50

Company emissions Energy consumption Energy efficiency Only applies to quoted companies, large unquoted companies and large LLPs

Question 51

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

Answer 51

Private company - within 9 months Public company - within 6 months

Question 52

Who can file abbreviated accounts?

Answer 52

Small and medium sized companies

Question 53

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

Answer 53

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

Question 54

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

Answer 54

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

Question 55

What are the filing advantages of a micro-entity?

Answer 55

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

Question 56

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

Answer 56

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

Question 57

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

Answer 57

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

Question 58

What companies are exempt from appointing auditors?

Answer 58

Micro and Small Dormant Non-profit

Question 59

What companies are never exempt from appointing auditors?

Answer 59

Insurance and banking

Question 60

What happens where an audit exemption applies?

Answer 60

Audit can be required by 10% plus of the members Members representing min 10% of the nominal value of issued chare capital

Question 61

What rights of access does an auditor have?

Answer 61

Access to books and accounts Duty to carry out a proper investigation

Question 62

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

Answer 62

Reappointed unless company decides otherwise

Question 63

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

Answer 63

Report on environemental matters within strateigc report section of annual report Related to environmental sustainability

Question 64

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

Answer 64

Yes

Question 65

Can a public company have unlimited liability?

Answer 65

No Must be limited liability

Question 66

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

Answer 66

No

Question 67

What must a public company's shares be?

Answer 67

Must be at least one quarter paid up on allotment.

Question 68

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

Answer 68

No If none provided, model articles prescribed by the Secretary of State apply.

Question 69

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

Answer 69

No Claimant must be a member

Question 70

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

Answer 70

No

Question 71

Is a company required to keep a register of debentureholders?

Answer 71

No

Question 72

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

Answer 72

No, only quoted companies need to do so

Question 73

Does a company limited by guarantee have share capital?

Answer 73

No

Question 74

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

Answer 74

No Company not bound on any deal made

Question 75

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

Answer 75

Advances to directors Financial commitments

Question 76

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

Answer 76

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

Question 77

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

Answer 77

Yes

Question 78

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

Answer 78

Yes, but other person doesn't become a partner

Question 79

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

Answer 79

No

Question 80

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

Answer 80

Yes

Question 81

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

Answer 81

No, only be secretary of state