Company Law 3: Companies Flashcards
What is an Unlimited Company
members of unlimited company are personally liable for all debts of company
Not incorporated so more confidentiality
Types of Limited Company
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
What is a promoter and do they owe duties
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.
Is the company liable for pre-incorporation contracts
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)
How can promoter protect against liability for pre-incorporation contracts
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??)
Process for incorporating company (what must the application include)?
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
Requirements of Company Name and how it can be changed
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
When does a company come into existence
Once registrar issues certificate of incorporation
Are companies objects restricted what effect might this have?
Model Articles do not restrict object.
Can be amended to restrict.
Effects:
- directors breach duty by acting outside these (may be subject to injection
Legal effects of Articles of Association
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.)
What is a shareholder Agreement what might it be used for?
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
How can Articles of Association be altered
- by special resolution (75% or higher)
- Limitations apply
Limits on Altering Articles of Association
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
How to entrench provisions in Articles of Association
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
What is the consequence of piercing/lifting the veil of incorporation? When is it used?
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
How many directors do companies need
Private
- 1 director
Public
- 2 directors
At least 1 director of a company has to be natural person over age of 16
How can directors be appointed and process for change
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
Types of Directors
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
Power of Directors: how is it exercised and is it limited?
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
When does directs service contract require approval?
If over 2 years then ordinary resolution
When can a director bind the company
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
How can a company execute a contract
- by affixing seal, or
- signature of 2 directors / director and secretary, or
- signed by single director in presence of witness who attested to this
