Companies: key characteristics, public vs private, constitution, and incorporation Flashcards
what is separate legal entity? what does this entail? (5)
- Companies are entities distinct from their owners.
- a company continues to exist even if owners or directors change
- the company owns property enters into contracts, and can sue and be sued in its own name.
- Profits and losses belong to the company and not to the shareholders
- the company is liable for its own debts, not the shareholders - so creditors sue the company
what is limited liability?
- the liability of shareholders is limited to the amount unpaid on their shares (if any)
- creditors cannot sue shareholders personally for company liabilities
- This protects the shareholders and facilitates investment
what are advantages (4) and disadvantages (5) of incorporation?
advantages:
- allows investment with limited liability (less risk for shareholders)
- gives a formal structure for the business to run
- easier to raise finance through issuing shares and lenders are more comfortable lending to companies on better terms than sole traders or partnerships due to the restrictions and disclosure requirements on companies
- shareholders receive a return on investment through dividends if declared
disadvantages:
- more onerous statutory requirements like filings, disclosure requirements, and procedural limitations on running the business
- public disclosure means less confidentiality (annual accounts, personal details of directors, PSC)
- set up costs and formalities = incorporation at CH
- double taxation if dividends are issued
- for small private companies where the management and ownership are the same, the benefits of separation of ownership is not realised as much – and the statutory procedural and disclosure requirements are onerous
how are companies taxed?
- company pays corporation tax on its total taxable profits (income profits and chargeable gains)
what does double taxation mean?
- company pays corporation tax on its profits = if a company pays dividends it cannot deduct this to reduce corporation tax
- shareholders pay income tax on dividends received
=> disadvantage of incorporation, especially for small companies where shareholders are directors
what is the minimum number of shareholders for a private vs public company?
minimum 1 shareholder for both
what is the minimum number of directors for a private vs public company?
private company: 1
public company: 2
AND at least 1 director must be a natural person
is a company secretary required for a private vs public company?
private: no
public: yes - with requisite knowledge and experience
what is the minimum share capital requirement for a private vs public company?
private = at least 1 share
public = minimum nominal share capital requirement of at least 50,000 GBP + 1/4 of nominal value and all premium must be paid up
on allotment of shares in a public company, how much must a shareholder pay?
1/4 of the nominal value + the whole premium
example: nominal value 1 but issued at 5 –> shareholder must pay 4.25 (1/4 of 1 + 4)
when can a private vs public company start trading?
private company: as soon as CERTIFICATE OF INCORPORATION is issued by Registrar of Companies
public company: A private company must apply for a TRADING CERTIFICATE which must be issued by the Registrar of Companies showing that the company’s allotted share capital meets the minimum requirement. After this, the company can offer shares to the public and trade as a public company.
what is the requirement to hold an annual general meeting for a private vs public company?
private: none
public: 1 AGM per year (advantage for shareholders as it holds the directors accountable and can question them on company finances)
what are the advantages/disadvantages of listing a public company?
A public company can be listed on a regulated market like the London Stock Exchange
A public company can apply for listing
Advantages:
- access to a much wider investment base
- access to international debt capital markets to issue debt securities
disadvantages = much higher regulation and less confidentiality
when can companies use written shareholder resolutions for a private vs public company?
private: written resolutions permitted except for removal of a director or auditor from office
public: written resolutions are not permitted
what is a person with significant control? what are the disclosure requirements under the PSC regime?
PSC is =
- a member owning more than 25% of company shares or voting rights or
- a member that has the power to appoint or remove a majority of the board of directors
- a member who exercises significant influence or control over the company
PSC regime =
- all companies must maintain a PSC register which must be available to the public for inspection AND
- filed at company’s house (with the annual confirmation statement)