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Law > Companies:the consequences of incorporation > Flashcards

Companies:the consequences of incorporation Flashcards

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1
Q

Legal personality

A

A company is a separate legal entity to its shareholders and its directors. This means:

  • It is an artificial person
  • Its members have limited liability
  • It has the ability to hold property
  • It continues in existence known as continual sucession
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2
Q

Amount owed by member at winding up - Company limited by shares

A

Fully paid shares: No further liability to contribute

Partly paid shares: Any outstanding amount

Share premium: Any unpaid premium

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3
Q

Amount owed by member at winding up - Company limited by guarantee

A

The amount they guaranteed to pay

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4
Q

Veil of incorporation

A

Drawn between the members and the company, separating them for the purpose of liability and identification.

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5
Q

what are the consequences of being a separate legal entity?

A
  • separation of management and ownership
  • companies are subject to Companies Act 2006
  • Company owns it properties not shareholders
  • Company has perpetual succession
  • Company enters into a contract in own name
  • Company liable for its own debts
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6
Q

In a company, the liability is limited for the

A

members only

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7
Q

When may the court lift the veil of incorporation?

A
  • where a group of companies are trading as a single economic unit
  • To produce tax liability
  • To prevent tax evasion
  • To give entitlement to compensation
  • Prevent evasion of excise duty
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8
Q

what is the result of lifting the veil?

A

members or directors become personally liable for company’s debts

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9
Q

what is a sham company?

A

a company which has been registered for an improper purpose
eg. to evade a legal obligation or to hide the national identity of a business

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10
Q

what is a quasi-partnership?

A

a business which is registered as a company but is run as if it were a partnership

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11
Q

Differences between private and public companies - Share Capital

A

Private - No minimum
Public - Authorised minimum (£50,000)

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12
Q

Differences between private and public companies - Ability to commence trading

A

Private - Once incorporated
Public - Must have trading certificate

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13
Q

Differences between private and public companies - Public offers

A

Private - Prohibited from offering its shares to the public
Public - Can offer its shares to public (stock exchange)

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14
Q

Private - Prohibited from offering its shares to the public
Public - Can offer its shares to public (stock exchange)

A

Private - Rules do not apply
Public - Need members’ approval

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15
Q

Differences between private and public companies - Directors

A

Private - Must have at least 1
Public - Must have at least 2

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16
Q

Differences between private and public companies - Company secretary

A

Private - Do not need one
Public - Must have one

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17
Q

Differences between private and public companies - Written resolutions (votes)

A

Private - May pass written resolutions instead of calling meeting
Public - not applicable

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18
Q

Differences between private and public companies - AGMs

A

Private - Need not hold
Public - Must hold

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19
Q

Differences between private and public companies - Accounts and reports

A

Private - Must file within 9 months
Public - Must lay before general meeting and file within 6 months

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20
Q

Difference between private and public companies - Purchase of own shares out of capital

A

Private - Permitted
Public - not allowed, repurchase from distributable profits only

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21
Q

Difference between private and public companies - reduction of capital

A

Private - special resolition needed

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22
Q

Differences between private and public companies - Small and medium audit exemptions

A

Private - May qualify
Public - Not applicable

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23
Q

Differences between private and public companies - Payment of shares

A

Private - Not applicable
Public - Shares must be at least 1/4 paid up

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24
Q

Documents to be submitted for formation

A
  • Memorandum of association
  • Application
  • Articles
  • Statement of capital and initial shareholdings
  • Statement of guarantee (if applicable)
  • Statement of proposed officers
  • Statement of compliance
  • Registration fee
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25
Q

Documents to be submitted for formation - Memorandum of association

A

Signed by all subscribers (first shareholders) and stating that they wish to form a company and agree to become members of the company

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26
Q

Documents to be submitted for formation - Application

A
  • The proposed name of the company
  • Whether the members will have limited liability (by shares of guarantee)
  • Whether the company is to be private or public
  • Details of the registered office and intended address of the registered office
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27
Q

Documents to be submitted for formation - Statement of capital and shareholdings

A
  • Number of shared
  • aggregate nominal value
  • details of each class of share
  • how much has been paid up on each share
28
Q

Documents to be submitted for formation - Statement of guarantee

A

this states maximum amount each member undertakes to contribute (if company goes into liquidation)

29
Q

Documents to be submitted for formation - Statement of proposed officers

A

gives details of the first directors (company secretary) and their consent to act

30
Q

Documents to be submitted for formation - Statement of compliance

A

this provides confirmation that CA 2006 has been complied with

31
Q

For a public company to obtain a trading certificate, must apply to the registrar stating:

A
  • nominal value of shares sold £50,000
  • 25% paid up
  • preliminary expenses paid
  • benefits given
32
Q

consequences if public company trades before trading certificate is given

A
  • liable to fine
  • grounds for winding up if not obtained within a year
  • directors personally liable if company defaults within 21 days of due date as veil of corporation is lifted
  • contracts are still binding on the company
33
Q

what is an off-the shelf company?

A

one that has been registered and is ready to trade straight away

34
Q

Off-the shelf companies - Advantages

A
  • cheap and simple to buy
  • can trade immediately
  • no problem of pre-incorporation contracts
35
Q

Off-the shelf companies - disadvantages

A
  • The articles of association may be unsuitable
  • Altering the articles will incur costs and may be inconvenient
  • Need to change officers
36
Q

what is a promoter?

A

undertakes to form a company and takes the necessary steps to do so

37
Q

Duties the promoter owes to the company

A
  • Act in companies best interests
    1. reasonable care and skill
    2. disclose any interest
    3. disclose any benefit
38
Q

Pre-incorporation contracts

A

contract made by a person acting on behalf of an unformed company

39
Q

Pre-incorporation contracts - Consequences

A
  • promoter acts as agent so is personally liable
  • company cannot ratify the contract
  • company is not bound by the contract
  • company cannot enforce the contract against a third party
40
Q

choosing a companies name

A
  • must have ltd or pls at end
  • cant be same or virtually same as another in index of names
  • cant use certain works which are illegal or offensive
  • must have secretary or states consent to use certain words
  • cant use words indicating the company is of another type or legal form
41
Q

how can a company change its name?

A
  • the shareholders passing a special resolution
  • notifying the registrar
42
Q

changing company name - the name is the same as or too like an existing registered name

A

12 months

43
Q

changing the company name - gives misleading an indication of the nature of the company’s activities as to be likely to cause harm to public

A

no time limit

44
Q

changing the company name - misleading information or undertakings were given when applying for a name that required approval

A

5 years

45
Q

what is articles of association?

A

form part of the companies internal constitution along with any other agreements
- set out the manner in which the company is to be governed
- regulate the relationship between the company and its shareholders
- Model articles or own articles

46
Q

can you make alterations to articles?

A
  • If entrenched - set procedure
  • If not special - resolution of the shareholders (75% Majority)
  • Sent to registrar within 15 days
47
Q

Company records

A
  • members
  • directors and company secretary
  • people with significant control
  • charges
  • other documents (resolution and minutes of general meetings must be kept for 10 years)
48
Q

the registrar of companies maintains which details?

A
  • the certificate of incorporation
  • the trading certificate
  • certificates of registration if charges
  • the annual accounts
  • the confirmation statement
  • special resolutions (some ordinary resolutions)
  • changes of directors
49
Q

confirmation statement

A

Can be sent at any time but no more than 12 months between each Statement
- Confirms that no changes to key information have happened during the year and any changes should be stated
- EG. type of company, address of registered office

50
Q

Accounting record

A

Contains sufficient information to show and explain the company’s transactions
- details of all money received and spent
- a record of assets and liabilities
- statement of inventory (stocks) at end of year

51
Q

Annual accounts

A

Required to produce annual accounts containing:
- balance sheet
- profit and loss
Must be approved and signed on behalf of the board of directors and a copy filed with the Registrar

52
Q

Directors report

A

Names of directors, principle activities of the company and statement that auditor is aware of any relevant information
- usually includes a recommended dividend
- certain businesses must publish information in their director’s report information regarding the emissions, energy consumption/ efficiency of the business

53
Q

Directors remuneration report

A

Quoted companies only, subject to members’ approval

54
Q

Auditors report (if applicable)

A
  • identifies account audited
  • described the scope of the audit
  • the accounts give a true and fair view of company’s financial affairs
  • directors’ report is consistent with the accounts
55
Q

Strategic report

A

Large and medium sized companies must prepare this as a part of their financial statements:
- a fair review of the companies business
- a description of the principal risks and uncertainties facing the business
Quoted companies also required to report on environmental matters

56
Q

Additional information (miscellaneous reporting regulations)

A
  • report on engagement with stakeholders
  • how directors have complied with their duty to promote the success of the company
  • which corporate governance code has been applied
  • within directors remuneration report (quoted companies only) a ratio of CEO’s pay to UK employees pay
57
Q

when might the veil be lifted via legislation:

A
  • disqualification of director
  • wrongful and fraudulent trading
  • trading without a certificate
58
Q

are contracts valid or not if public company trades without trading certificate?

A

still valid but any within 21 days personally liable on members

59
Q

For a public company to obtain a trading certificate is must submit:

A
  • An application stating that the nominal value of the companies alotted share capital is not less than the minimum
  • Statement of compliance
60
Q

what is the minimum percentage holding of a company’s shares or voting rights that is required for an individual to be included on the register of people with significant control?

A

25%

61
Q

how long should a companies accounting records be kept for?

A

3 years if private and 6 years if public

62
Q

when should company accounts be filed to registrars?

A
  • 9 Month private
  • 6 Months public
    at end of relevant accounting period
63
Q

what was the name of the case that is generally cited as establishing the principle or corporate responsibility?

A

Salomon vs Salomon Co ltd

64
Q

how can a company change its articles of association?

A

Special resolution unless there is a provision for entrenchment in which case unanimous case or court order is required

65
Q

in the event of conflict which prevails: the articles or act?

A

The Act

66
Q

which companies are required to make a directors remuneration report

A

quoted companies (listed on stock exchange)

67
Q

TRUE OR FALSE
group accounts must produce a consolidated directors’ report

A

true

Law (13 decks)

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