Chapters 13&14 Flashcards
Unincorporated entity Businesses
Sole Trader - 1 person alone
Simple Partnership (between people with a common view of a profit)
- Unlimited liability - so the owner(s) are personally responsible for the debts if the business fails
+ But businesses can be set up quickly and without legal formalities
Limited liability partnerships LLP
Form of incorporated entity and will mean that the liability of the owners is limited to the amount of capital they put in the business alone.
Incorporation
A company = an incorporated trading entity
It means an entity has been created in its own right and is thus known as a corporation - separated in law from its owners.
To benefit from Limited Liability, a company or LLP requires incorporation.
HOWEVER doesnt guarantee it every time as exceptions with the corporate veil.
Separate legal personality
Permitted to be applied to private companies so the members of the company were separate legal persons to the company itself, separated by the ‘veil of incorporation’.
But the consequences of that are
- members liability is limited to the amount unpaid on their share capital
- perpetual succession (carries on after its closed) arises as it needs to be formally wound up (officially closed down - company house)
- company can own property itself
- company can sue, be sued in its own name
- can contract in its own name
- management is separate from ownership
Common Law examples of ‘lifting the veil’
- to prevent evasion of legal obligations/duties
- to recognise the alien enemy character of a company
- to identify the controlling mind of a company in cases of corporate manslaughter
- recognising the breakdown of a quasi-partnership relationship
- where a group of companies is operating as a single economic entity
Statutory examples of lifting the veil
- failing to correctly disclose the company’s full name on company documents
- fraudulent trading - continuing to trade a company with intent to defraud creditors, or any other fraudulent purpose
- wrongful trading - continuing to trade an insolvent company with no intent proven
- abuse of company names
- disqualified directors
Advantages of Incorporated Business
- limited liability for members
- perpetual succession
- separate legal entity
- transferability of interest
- company owns its own assets
- company may sue/be sued
- ease of borrowing - floating charges
- no limit on number of members
Advantages of Unincorporated Business
- less formality upon starting/running the business
- less publicity (no need to file accounts)
- less expensive to run (no audit required)
- no formal procedure to dissolve the business
- no restrictions on the withdrawal of capital
Unlimited Companies
- members don’t have limited liability
- it can only ever be a private company
- don’t have to file accounts or make them for public inspection
Companies limited by guarantee
- limited liability for members up to an agreed amount, often being a nominal figure for the protection of the guarantor.
- non-trading entities eg charities/educational establishments choose to adopt this company form as it allows them to drop the LTD from some of the company documents (stop making them look like profit only establishments)
Companies limited by shares (private limited)
- Accounts for 99% of all registered companies in the UK.
- They limit the liability of their members to the amount unpaid on their share capital.
- They cant offer shares to the public
- companies end in Limited or Ltd
- may commence trading as soon as they’re incorporated
- Min 1 director 1 member
- just one share needed minimum
- 3 years to hold accounting records
- file accounts after year end for 9 months
- need an audit if turnover is greater than 6.5m
Companies limited by shares (public limited)
- limit the liability of their members via the use of shares
- registered as a public limited company or plc
- must hold an annual general meeting AGM to lay accounts
- shares/ debentures may be advertised for sale to the general public but not all are on the stock market
- must obtain a trading certificate before they can commence trading
- Min 2 directors 1 member
- min share capital 50k
- 6 years to hold accounting records
- file accounts after year end for 6 months
- audit is compulsory
- compulsory qualified company secretary
Company formation
Can be formed in person, by submitting the relevant documents online to the registrar. Details needed are Name of company Memorandum of association Type of company Registered office Share capital amount Directors names Shareholders names Registration Fee
If satisfied, the Registrar will issue the company with a certificate of incorporation which is the birth of the company. But before trading/borrowing PUBLIC companies need a trading certificate
Off the shelf companies
You can also purchase a company that has already been formed ‘buying off the shelf’
+ speed (companies can trade and enter into contracts immediately without lengthy registration)
+ cost (a pre registered company can be as little as £30 to buy)
+ administration ( simpler because all the forms are completed by the formation dealer)
The Articles of Association
AoA are the working part of the constitution that defines the rules and regulations governing the management of the affairs of the company, the rights of the members and the duties and powers of the directors. the MoA(memorandum of association) now merely records the initial subscribers to the company’s share capital.
- upon formation a company doesn’t need to submit its own articles - more common for the Registrar to adopt a relevant version of the model articles of association (gov standard article) to meet the company needs.
