Companies Flashcards
Who must they be registered with?
Registrar of Companies at Companies House
What is a company limited by guarantee?
Members pay fixed, guaranteed amount in event of company being wound up.
Used for charities where there is no need for members to make large capital contributions for the business to run.
No shareholders.
What is a company limited by shares?
Members have no personal liability beyond the amount they agreed to pay for their shares.
Can either be private limited (Ltd) or public limited (Plc)
What is the nominal share capital of a PLC?
£50,000
What are the people who start a company known as?
Promoters
What duty to promoters owe?
A fiduciary duty to the newly incorporated company
What is a memorandum of association?
Statement authenticated/signed by persons wishing to become members of the company
Who creates the memorandum of association?
Promoter
Who must the memorandum of association be delivered to?
The Registrar along with the application for registration
Is a promoter liable for a pre-incorporation contract? What legislation governs this?
Yes
The Companies Act 2006
They remain liable even after the company is formed
What are the four ways a promoter can protect themselves from personal liability for a pre-incorporation contract?
Execute the contract in draft
Enter into a novation agreement after the company is incorporated
Enter into a contract with the incorporated company assigning the benefit to it in exchange for an indemnity from any liability
Enter into the contract using a shelf company
What is the issue with a shelf company?
They will likely have been incorporated using the model articles so it will not be suitable for a company requiring bespoke articles of association
What must be included on the application for registration?
The proposed name of the company
The location of the registered office (must be in the jurisdiction in which the business is located)
Details of the company’s business activity and SIC (Standard Industrial Classification) code;
Whether the company will be limited by shares or guarantee;
Whether the company is private or public;
Details of subscribers;
A statement of capital and initial shareholdings;
A statement of the proposed officers, including their residential address, and the company secretary—(required for public companies but not for private companies)
Details of persons with significant control;
A statement of compliance with the terms of the Companies Act 2006; and
Payment of the relevant fee
What rules must the promoter comply with when selecting a name?
It must not be the same as, or essentially the same as, the name of an already incorporated company;
It must end in Limited/Ltd or Public Limited Company/Plc, as applicable;
It cannot be a name that is deemed offensive;
Approval required for a name that suggests any connection to Government or local authority; and
Approval is required for a name that contains any sensitive words (auditor, chartered, medical centre etc)
How can a company change its name?
By special resolution (or by method provided for by articles)
Once a name change is approved what must the company do?
Forward a copy of the resolution to the Registrar and give them notice of the name change
If a company is limited by shares, what must the application for registration include?
Statement of the total number of shares of the company to be taken by the subscribers of the Memorandum of Association;
The aggregate nominal value of those shares;
If the shares are to be divided into classes with varying rights, a description of those classes and rights; and
The amount that will be paid by shareholders and any amount left unpaid for the shares
What is a company’s constitution?
Its articles of association plus any resolutions or agreements adopted by the members to amend its articles of association
What is covered in the articles of association?
Directors’ meetings and decision making;
Appointment and removal of directors;
Share capital (including issuing, allotting, and transferring shares);
Rights attached to shares, including voting and dividends; and
Shareholder meetings (including for example, notice and quorum requirements)
What are the company’s objects?
The purpose and range of activities for which the company is carrying out
Do directors have to adhere to a company’s objects?
Yes
What are the two possible outcomes of a director failing to adhere to a company’s objects?
an injunction preventing the restricted action if it has not been already carried out
an equitable action by the company for damage caused
Is something carried out beyond the scope of its objects valid?
Yes
Do the model articles contain any restriction on objects?
No
What is the effect of unrestricted objects?
The company is free to carry on commercial activity of any kind
What is the legal effect of the articles of association?
They form a contract between the company and the shareholders, and between the shareholders and each other shareholder
When can shareholders enforce the articles of association?
Only if it relates to membership rights
What is a shareholders agreement?
Private contractual agreement between shareholders who have signed up to it
How can a company alter its articles of association?
By special resolution
What is entrenchment?
Where a company can elect to make certain provisions harder to change by requiring a more onerous process than a special resolution
Can articles of association require a shareholder to increase their liability for the company?
No
What is an ordinary shareholder resolution?
50.1% +
What is a special resolution?
75% +
Who must be given notification of an entrenched provision?
The Registrar
What if a shareholder disagrees with an alteration (approved by shareholders)?
Make an application to court if decision is not reasonably in the best interests of the company
Is an alteration that adversely impacts minority shareholders permitted?
Yes - provided it is made in good faith and in the interests of the company
Court will examine whether it unfairly discriminates against some shareholders over others
What are the six advantages of distinct legal personality?
Owns property in its own name;
Enter into contracts in its own name;
Can borrow money and grant security in its own name;
Is taxed separately from its members;
Can sue (and be sued) in its own name; and
Perpetual succession
What is the veil of incorporation?
No personal liability for members
When can the veil of incorporation be lifted?
Fraud
Where the company was formed to avoid carrying out an existing obligation
What happens if a director continues to trade whilst knowing that the company is insolvent?
They may be charged with fraudulent trading - criminal offence
They may be sued for wrongful trading.
Potential fines
What happens if a PLC does not have a valid trading certificate?
Directors can be held personally liable for any losses
