Chapter 7 - Consequences of incorporation Flashcards by Grace Kunzler

T/F
Under CA 2006 court may lift veil of incorporation and find directors personally liable for debts of a plc where the company has traded without a trading certificate

True

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T/F
Under the insolvency act 1986, a court may lift the veil of incorporation and find directors personally liable for the debts of their company in respect of fraudulently but not wrongful trading

False - fraudulent AND wrongful tradgin

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T/F
the court will lift the veil of incorporation to find directors who act in contravention of the company directors disqualification act 1986 personally liable for their companies debts

True

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T/F
the veil of incorporation means groups of companies will be regarded by the courts as a single entity

False

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t/F
the veil of incorporation may be lifted by a court in order to collect excise duty from a sub within a group

True

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T/F
A court may lift the veil of incorporation to recover a tax liability

True

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T/F
a court may lift the veil of incorporation in order to identify the nationality of. a compnay

True

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T/F
A company has a separate legal identity from its members and is in law a person in its own right

True

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T/F
The liability of a company itself is limited

False - it is always unlimited

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Salomon v Salmon & Co 1897

C had carried on business as leather merchant for years, decided to form limited company to purchase business, he and six members each subscribed for one share, company purchased business. Company did not prosper and was wound up, liabilities > assets. Liquidator claimed business was in effect C’s as owned all but 6 issued shares and payment of debenture debt to him postponed until creditors paid
HL judgement overruled CA, C not liable to company or creditors, company legal entity in own right

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What is a personal guarantee

where lenders require directors and or members to agree to repay loan out of personal wealth if company defaults on debt

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What is owed on winding up on a company limited by shares

any outstanding amount of nominal value of any share that has not been paid either by original/subsequent holder of the shares. Any premium will be owed to extent not paid

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What is owed on winding up of a company limited by guarantees

the amount they guarantee to pay in the event of winding up

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Is the veil of incorporation lifted in the following circumstance
Group of companies where subsidiary can be regarded as agent of holding company

Yes

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Is the veil of incorporation lifted in the following circumstance
To reduce tax liability

Yes

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Is the veil of incorporation lifted in the following circumstance
to give entitlement to compensatoin

Yes

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Is the veil of incorporation lifted in the following circumstance
to prevent evasion of excise duty

Yes

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Is the veil of incorporation lifted in the following circumstance
to reveal national identity and expose illegality

Yes

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Is the veil of incorporation lifted in the following circumstance
in a quasi-partnersehip

Yes

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Is the veil of incorporation lifted in the following circumstance
where a company is a sham

Yes

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Is the veil of incorporation lifted in the following circumstance
to prevent an evasion of obligations

Yes

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Is the veil of incorporation lifted in the following circumstance
to reveal a national identity

yes

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Is the veil of incorporation lifted in the following circumstance
legislation to confer a personal liability on those who run a company for breach of obligations imposed on the compnay

Yes

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Is the veil of incorporation lifted in the following circumstance
Where a director is disqualified

Yes

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Is the veil of incorporation lifted in the following circumstance Fraudulent or wrongful trading

Yes

Is the veil of incorporation lifted in the following circumstance Trading without a trading certificate

Yes - directors personally liable

What kind of limitation is described: Liability is limited to the amount of the nominal value if unpaid on members shares held by them including any premium payable by the current owner in respect of them

Limited by shares (public or private)

What kind of limitation is described: Liability is limited to such amount as the members undertake to contribute to the company's assets in the event of it being wound up

Limited by guarantee - cannot be registered with share capital and Is usually a charity or trade association

What kind of limitation is described There is no limitation on members liability, they can be compelled to contribute as much as may be necessary to pay the company's debts in full

Unlimited

Does an unlimited liability company need to file annual accounts subject to certain conditions (not sub or parent of limited company)

How many times may a company alter status

ONce

How can company alter liability status

limited to unlimited with consent of all members unlimited to limited by passing special resolution to that effect and specifying whether to be limited by shares or guarantee

What is a public company

limited company registered as a public company under the act

What is a private company

any registered company that is not a public limited company

Which is subject to more stringent rules - public or private companies

Public company

Public company liability

Must be limited

Private company liability

may be limited or unlimited

Public share capital

subject to authorised minimum currently 50k

private share capital

no minium

public company ability to commence trading

must have trading certificate

private company ability to commence trading

may commence as soon as incorporated

public company public offers

can offer securities to public and may obtain listing from stock exchange etc

private company public offers

prohibited from offering securities to the public

Public company name

must end with public limited company or PLC

private company name

must end with limited or ltd

Public company loans

loans to persons connected with directors, quasi loans and credit transactions to directors or connected persons need members approval

Private company loans rules

only loans made directly do directors need approval

Public company directors requirements

must have at least two

private company director reqiurements

must have at least one

public company - company secretary

must have one

private company - company secretary

Do not need one

Public company - written resoluation

N/A

Private company written resolutions

may pass written resolution instead of calling meetings

Which needs to hold AGM Public or Private companies

Public

Deadline for public company filing accounts and reports

six months - must lay before general meeting

Deadline for private company filing accounts and reports

Which companies can qualify as SME and take advantage of audit exemptions and less stringent regime for filing

Private

How often must public company appoint auditors

each year if necessary

How often do private companies appoint auditors

existing auditors may deemed to be reappointed subject to conditions

Which type of company (public/private) can exclude pre-emption rights

Private

Public company rules for payment of shares

additional rules including at least by 1/4 paid up and concerning valuation for non-cash consideration

Public company how can capital be reduced

special resolution confirmed by court

How can private company reduce captital

special resolution and directors solvency statement

What kind of company has the power to redeem or purchase shares out of company

Private

What is described memorandum in prescribed form stating that the subscribers wish to form a company and agree to become members of the company and (if share cap) agree to take at least one share each. Must be authenticated by each subscriber

Memorandum of association

What must an application to form a company state

Company proposed name whether liability limited (Shares/guarnatee) private/public registered office Eng Wales, Scot NI Intended address of registered office

Statement of capital and initial shareholding must state

total number of shares, aggregate nominal value, details of classes of shares and amounts to be paid and unpaid on each

What must a statement of guarantee state

maximum amount each member undertakes to contribute tot he net assets of company if company wound up while they are member/one year after

What must statement of proposed officers give

particulars of and consent of first director and first company secretary

What is a statement of compliance

statement requirements of the act have been complied with

What is issued by registrar if they are satisfied the requirements of the act re registration have been complied with

certificate of incorporation

To obtain a trading certificate, what must a public company submit

application stating nominal value of share cap is not less than minimum and statement of compliance

What happens if no trading certificate is obtained within a year of incorporation

may result in compulsory winidn gup

Advantages of off the shelf companies

quicker company ready to go avoids liabilities from pre incorporation contracts as company already exists

Disadvantages to off the shelf companies

change of name transfer of shares change of director and company secretary alternation of rticles

Who sells of the shelf companies

enterprises specialising in registering a stock of companies ready for sale

T/F off the shelf companies are founded by the registrar off companies and are available to purchase from the companies house website

False

what is a promoter

any person who takes procedural steps to get a company incorporated, includes anyone who makes business preparations for the company

Duties owed by promoter

general duty to exercise reasonable care and skill fiduciary duty to disclose personal interest in transaction and account for monies received

What is a legitimate profit made by a promoter

a profit made by a promoter who acquires interest in property before promoting a company and makes a profit when they sell the property to the promoted company provided hey disclose it

what is a wrongful profit

made by a promoter who enters into and makes profit personally in a contract as a promoter in breach of fiduciary duty

What happens if a promoter makes a pre incorporation contract

the company cannot ratify it the company is not bound by it the company cannot enforce it the promoter is personally liable