COMPANY LAW Flashcards
Characteristic
Companies act (statue)
Legal personality
Artificial person
Members have limited liability
ability to hold property
Continues (despite changes in membership) - continual succession
Company may have liabilities in tort and crime (extremely difficult to procecute)
Liability
COMPANY LIMITED BY SHARES:
fully paid - no further liability
Partly paid shares - liable for amount not paid (nominal)
Share premium - liable for amount unpaid unless not original shareholder (SP debt does not pass with shares)
LIMITED BY GAURENTEE
liable for gaurentee agreed
Veil of incorporation - info
- Separates members for liability and identification
- Company should NOT insure own assets in names of member or will have no insurable interest
- Sometimes law ‘lifts the veil’ to expose COMMERCIAL RELITY - exposes sharp practice, while retaining separate identity fairly
Veil of incorporation - examples where veil can be lifted (7 days) not 2
Groups of companies - sub regarded as agent of a holding company
Produce a tax liability - e.g English sub agent for American holding (rendering American holding company liable for UK tax)
Prevent evasion - evasions committed by holding company could restrain assets of subsidiary refusing to recognise as separate (by courts)
Entitlement to compensation - (compulsory acquired premesis) when subsidiary occupies premises of holding company (directors are the same so wholly owned), compensation may be paid to holding company rather than subsidiary.
BUT NOT:
- creditors of an insolvent sub not paid in full when holding company remains solvent
- claimaint proceeds against a SUB that is not as asset rich as holding company (can’t sue sub for holding liabilities)
True national identity and expose legality:
- enemy aliens - company registered in UK but all but on directors German (trading of this co was against the law in wartime)
Quasi partnership (looks like) - revealing a company acting like a partnership is reasonable to order winding up e.g. son and dad acquired shares to have majority control and push other shareholder out.
Company is a sham:
- Using another company to compete when say they weren’t going to (director used to be an employee and was contractly bound not to steal customers)
- English company formed to make an English film but staff and finance were American and film produced in India, advantages available to British films such as marketing was made not available to them.
Veil of incorporation - legislation requires to
Disqualified director - companies directors disqualification act - jointly and severable liable for co debts.
Fraudulent and wrongful trading (insolvency act) - company is being wound up -
ALL knowing parties carrying on business with INTENT of defrauding creditors or fraudulent trading e.g. pyramid scheme.
DIRECTORS who know or should have known that the company could not avoid insolvency (wrongful trading), they can be held personally liable for contribution to companies assets as court see fit.
Trading without a certificate - personal liability to directors for loss or damage suffered by third parties who entered into contract.
Types of cos
Limited: shares / gaurentee
public
Private
Unlimited : rare (liability for members)
Limited to unlimited - ALL shareholder conscent.
Unlimited to limited - SPECIAL RESOLUTION
Not possible to change from gaurentee to shares (or visa versa)
Key differences between public & private
Public must be limited
Public - must have a trading certificate, private may commence trading once incorporated
Public must end with PLC
Private must end with Ltd (charities, education, promotion of science - may be exempt)
Loans to connected persons, quasi loans, transactions with directors - need members approval (nothing for private unless loan with PLC)
Public must have company sec
Written resolution - not for public, private can have this instead of meeting.
AGMS - public must hold
Accounts and reports public must file within 6MTHS and lay them before general meeting, private must file within 9MTHS
Appointment of auditor - PLC must appoint every year, LTD can be assume reappointment every year.
Pre-emotion rights - PLC can’t exclude, LTD may be able to exclude
Payment for shares - PLC 1/4 must be paid up & rules concerning valuations for non cash consideration, LTD n/a
Reduction in capital - PLC SPECIAL RESOLUTION confirmed by court, LTD SPECIAL RESOLUTION & INSOLVENCY STATEMENT.
Power to redeem or purchase shares out of capital - LTD can do but subject to conditions.
Formation of a company
OFF THE SHELF COMPANY - buy a co already incorp.
Advantage:
Quick
Avoids potential liability arising from pre-incorporation contracts.
Disadvantage:
Change of name
Transfer of shares
Change of directors
Alteration of articles
FORMATION OF A COMPANY
- Docs must be sent to registrar
- Registrar will issue certificate of incorporation includes: name, description, date of incorp., registered number.
- Certificate is evidence of registration in accordance with companies act
- if errors are later discovered the certificate still remains valid and conclusive
PLC must also submit:
- application that states nominal value of shares is not less than the authorised minimum
- statement of compliance
If does not comply - director can be liable for debt & fine but transaction remains liable
Failure to obtain a trading certificate in 1 YEAR can lead to compulsory winding up.
Documents to be submitted to registrar
Memorandum of association - states ‘subscribes (1st member) wish to form a company and they agree to come members of the company and in the case of a company with share capital agreement to take at least one share each’ - must be authenticated by each subscriber
Application - name, liability of members, shares or gaurentee, PLC / LTD, registered office (general / specific), registry office is where legal documents, company registers MUST OR MAY be kept.
Statement of share capital and holdings (companies with share cap) - total number of shares, aggregated nominal value, individual classes of shares, paid and unpaid on each share
Statement of gaurentee - max amount member required to contribute to the company if wound up WITHIN 1 YEAR AFTER.
Statement of proposed officers (conscent & details of) - first director & co sec.
Statement of compliance - provisions of act have been met
Articles of association - if a co requests to have their own.
Promotors
Promoter - anyone who makes business preparations for a company.
Duties
1. Reasonable duty and care e.g special skill
- Fiduciary duty to disclose personal interest e.g any profits from promoting must be surrendered to the co. (Disclosure must be to existing members and directors - may allow person to keep profits)
Pre incorporation contracts
Promoter enters into contract in name of company before it exsisted (before incorp certificate)
- Company has no capacity and can’t be bound
- Co can’t ratify
- Co can’t enforce
- Promoter becomes personally liable
To avoid this:
- Don’t make contracts until incorporated (could miss opportunities tho)
- off the shelf company
- agreeing draft only with third party
- Novation (new company)
Expenses of a promoter e.g drafting legal docs before co is formed - can’t legally claim remueration, however co usually agrees before hand to make payments to them after.
Company name
Prohibited:
- Offensive or constitute criminal offence e.g. name ‘bank’
- approval require when related to government, or want ‘british’ / ‘international’
- indicate company is another type of legal form
- can’t be same or virtually the same as another co
Change of name:
- SPECIAL RESOLUTION (if not provided in articles)
- notify registrar, obtain new certificate
- sec of state may order to change name e.g if misleading or too similar to another.
Disclosure
- Must be displayed in certain locations enforced by sec of state e.g. engraved legibly on co seal - breach can cause FINE
Business name
- any entity may adopt a business name
- must not be misleading or prohibited
- approval by sec of state
Articles of association - contractual effect of a companies constitution
Binds company to members
Binds members to members
Do not mind company to third parties
Only to members in their capacity of members
e.g. Eley drafted articles that company must always employ him as a solicitor
Eley become a member some time after incorporation
He sued company some time after for no employing him as a member
Decision: Could not rely on contract as it was between company and members. NOT ASSERTING A CLAIM AS A MEMBER
Articles of association - alteration of articles
Changes to articles does not effect rights which have already been accrued under a contract.
SPECIAL RESOLUTION TO ALTER
‘Provision for entrenchment’ - ALL members must agree or it is ordered by court,
Cant provide that it can never be replaced or amended.
Must give notice to registrar when included / removed WITHIN 15 DAYS.
Member will not be bound by an alteration after he became member that requires to buy more shares or increases liability to contribute to the company.
