Chapter 7 - Consequences of incorporation Flashcards
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
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
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
T/F
the veil of incorporation means groups of companies will be regarded by the courts as a single entity
False
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
T/F
A court may lift the veil of incorporation to recover a tax liability
True
T/F
a court may lift the veil of incorporation in order to identify the nationality of. a compnay
True
T/F
A company has a separate legal identity from its members and is in law a person in its own right
True
T/F
The liability of a company itself is limited
False - it is always unlimited
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
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
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
What is owed on winding up of a company limited by guarantees
the amount they guarantee to pay in the event of winding up
Is the veil of incorporation lifted in the following circumstance
Group of companies where subsidiary can be regarded as agent of holding company
Yes
Is the veil of incorporation lifted in the following circumstance
To reduce tax liability
Yes
Is the veil of incorporation lifted in the following circumstance
to give entitlement to compensatoin
Yes
Is the veil of incorporation lifted in the following circumstance
to prevent evasion of excise duty
Yes
Is the veil of incorporation lifted in the following circumstance
to reveal national identity and expose illegality
Yes
Is the veil of incorporation lifted in the following circumstance
in a quasi-partnersehip
Yes
Is the veil of incorporation lifted in the following circumstance
where a company is a sham
Yes
Is the veil of incorporation lifted in the following circumstance
to prevent an evasion of obligations
Yes
Is the veil of incorporation lifted in the following circumstance
to reveal a national identity
yes
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
Is the veil of incorporation lifted in the following circumstance
Where a director is disqualified
Yes
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)
No
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
9m
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
