Company Law Flashcards
What type of liability do companies have?
Companies have unlimited liability & shareholders have limited liability (not personally liable, less financial risk)
What type of liability does a sole proprietor have?
A sole proprietor is wholly and personally liable for entire business risk, if business goes bust their personal assets will be sold to pay off business debts
What is the highest authority in jurisdiction?
House of Lords cannot rewrite statutes (highest authority in the jurisdiction)
Who is legislation passed by?
Legislation is passed by Parliament (highest authority so can trump other cases). Subordinate legislation is what is delegated to other authorities (not as high up in the hierarchy as legislation).
What is the corporate veil?
The natural people involved in a company are protected by the corporate veil as the liability falls on the company as a separate legal person (not individuals) as long as the company is not a sham and is in guidance with the Companies Act 2006
When is a company limited?
A company is limited if liability of its members are limited by shares or limited by guarantee (does not give members rights to dividends). If there is no limit on the liability of it’s members then the company is an unlimited company
What is a public & private company?
A public company (Plc) is a company limited by share or by guarantee and its shares are sold on the stock exchange, whilst a private company’s (Ltd) are not. A Ltd must have at least one director whilst a Plc must have at least 2. A private company is less expensive than a Plc to set up
What is a share?
A share is a property that generates income (dividends) and is a contract between the company and its shareholders (who are protected by the Companies Act)
What happens when a company is formed?
Once a company is formed, there is a contract between members and between each member & the company. There is a balance of power between shareholders (ranked first), board of directors and the company.
How is the majority shareholder protected?
The majority shareholder is always protected as the owner of the company. 1 share = 1 vote (shareholders), 1 person = 1 vote (directors), hence shareholders have more votes
How can a business raise capital?
To raise capital, a business can either issue shares (Risk Capital) or debentures (Loan Capital)
What happens when a company issues shares?
When a company issues shares, this is risk capital & so an investor stands to gain on their investment through capital growth or lose out on their entire investment. When shares are issued for finance, they are treated as property owned by investors
What are the different classes of shares with different rights?
Different classes of shares with different rights: Ordinary Shares, Preference Shares, Redeemable Shares, Convertible Shares & Cumulative Shares. Ordinary Shareholders have the right to vote, preference shareholders do not.
What is ordinary acquisition?
Original Acquisition is when the company issues new shares (Rights issue- issued in exchange for cash or means of raising corporate finance, or Bonus issue- issued without cash payment or any kinds of dividends etc.)
What is derivative acquisition?
Derivative Acquisition is when shares are acquired by an existing shareholder. Existing shareholders have preference (priority) when it comes to new shares
