Company Law 3: Companies

Question 1

What is an Unlimited Company

Answer 1

members of unlimited company are personally liable for all debts of company

Not incorporated so more confidentiality

Question 2

Types of Limited Company

Answer 2

Limited by Guarantee
- members to pay fixed guaranteed amount (normally £1) in event company is wound up
- normally for non-profits
- must have at least 1 member

Limited by Shares
- members (shareholders) limited liability
- have to pay up shares (if not done) in insolvency
- either private or public

Question 3

What is a promoter and do they owe duties

Answer 3

Someone you goes about arranging bringing a company into existence.
- ie create memorandum of association

Promoters owe a fiduciary duty to company (must disclose personal interests in transactions and account for profits made as a result)

Does not apply to lawyers or other professionals advising a promoter.

Question 4

Is the company liable for pre-incorporation contracts

Answer 4

Promoter is personally liable for pre-incorporation contracts (entered into before company is incorporated with CH and certificate of incorporation is received).

This is only discharged by navigation agreement after incorporation (agreement between promoter, company and 3rd party)

Question 5

How can promoter protect against liability for pre-incorporation contracts

Answer 5

Noviation
- agreement between promoter, company (once incorporated, and 3rd party)

Indemnity
- assigns benefit of contract to newly incorporated company in return for indemnity for liability

Shelf Company
- use shelf company for contract
- typically has standard modal articles that might not be preferred (can be changed??)

Question 6

Process for incorporating company (what must the application include)?

Answer 6

File Memorandum of Association and application for registration with Registrar of Companies

Application to include:
- proposed name
- registered office (must be in jurisdiction of business or solicitors/accountants office)
- details of business activity
- if it is limited by shares or guarantee
- if private or public
- details of subscribers
- statement of capital and initial shareholding
- proposed officers (and their address)
- company secretary (if public)
- details of PSC
- statement of compliance with Companies Act
- payment of relevant fee

Question 7

Requirements of Company Name and how it can be changed

Answer 7

Rules
- not be same/essentially same as name of existing incorporated company
- end in Ltd or Plc (can be written in full)
- cannot be offensive
- approval if name suggests connection to government, local authority or regulated industry (medical, legal etc.)

Changing name
- can be changed by special resolution (of otherwise depending on articles)
- company to send copy of resolution/statement to Registrar, give Registrar notice and pay fee

Question 8

When does a company come into existence

Answer 8

Once registrar issues certificate of incorporation

Question 9

Are companies objects restricted what effect might this have?

Answer 9

Model Articles do not restrict object.

Can be amended to restrict.

Effects:
- directors breach duty by acting outside these (may be subject to injection

Question 10

Legal effects of Articles of Association

Answer 10

Articles are contract between company and each shareholder, and contract between the shareholders

Shareholders can only enforce provisions relating to their membership rights (dividends, voting rights etc.)

Question 11

What is a shareholder Agreement what might it be used for?

Answer 11

Separate contract that binds those shareholders who sign it.

Can provide this that memorandum cannot eg:
- unanimous decision needed to change constitution
- non-compete agreement

Question 12

How can Articles of Association be altered

Answer 12

• by special resolution (75% or higher)
• Limitations apply

Question 13

Limits on Altering Articles of Association

Answer 13

Alteration cannot require a shareholder to subscribe for more shares

Some provisions may be entrenched are require more onerous process

Alterations should be in best interest of company
- if no reasonable person would consider it to benefit of company it can be challenged in court by shareholder who did not vote in favour (not enough to adversely effect minority shareholders)
- court will decide if it was made in good faith (bona fide) in the interest of the company

Question 14

How to entrench provisions in Articles of Association

Answer 14

Can be done at formation or by special resolution

Registrar must be given notice of restrictions

Restrictions cannot prevent amendments
- any such change will be ineffective as articles can still be revised by special resolution

Question 15

What is the consequence of piercing/lifting the veil of incorporation? When is it used?

Answer 15

This makes directors or shareholder personally liable for debts of the company

Used when company is used to carry out fraud or avoid existing obligations.
- use to circumvent other contractual obligation (non-solicit clause etc.)
- fraudulent and wrongful trading
- PLC’s trading without certificate

Question 16

How many directors do companies need

Answer 16

Private
- 1 director

Public
- 2 directors

At least 1 director of a company has to be natural person over age of 16

Question 17

How can directors be appointed and process for change

Answer 17

Model Articles
- ordinary resolution (majority vote), or
- by decision of directors (often modified)

Company must notify Registrar in 14 days of new director appointments and of any details of existing directors

Question 18

Types of Directors

Answer 18

De Jure Directors
- formally known, properly appointed and registered

De Facto Director
- not formally appointed/registered
- but carries out all the duties and behave like director
- held out by company as director

Shadow Director
- regularly influences acts of company directors
- company directors are accustomed to acting in accordance with their advice

Exec vs Non-Exec
- Exec responsible for day to day running
- Non-Exec more supervisory/consultig role

Alternate Director
- appointed by director to attend and vote at board meetings when director is unable to attend

Nominee Director
- appointed to represent interest of particular stakeholder
- must still act in best interest of the company

Question 19

Power of Directors: how is it exercised and is it limited?

Answer 19

Have power derived from articles to exercise all powers of company (unless provided otherwise)

Are required to exercise powers collectively as board. However, can delegate powers to person or committee as they see fit

However, shareholders can by special resolution direct directors to take or refrain specified actions

Question 20

When does directs service contract require approval?

Answer 20

If over 2 years then ordinary resolution

Question 21

When can a director bind the company

Answer 21

Actual Authority
- expressly granted by articles or board resolution

Apparent/Ostensible Authority
- where words or conduct lead a reasonable person to believe agent was authorised to act
- normally through past dealings

Question 22

How can a company execute a contract

Answer 22

• by affixing seal, or
• signature of 2 directors / director and secretary, or
• signed by single director in presence of witness who attested to this