Company Law Flashcards
Tell about agreement over a company
A number of people come together to carry a business, those members have voluntarily agreed to a common business purpose and to run it in the company format.
Tell about The Companies Act 2006
It governs the formation, running and possible dissolution of a company.
Tell about the company registration process under the Companies Act 2006
Under the Act, a company is formed once the registration process with the Registrar of the Companies is complete and a certificate of incorporation has issued.
Tell about two types of companies
1) Public companies
2)Private Company
Both have distinguished feature of limited liability for their members, limited to the amount of finance what they put into the company. (Personal Wealth is safe)
Tell about the Historic perspective of limited liability
Granted by the Parliament with Royal Charter to individual companies case-by-case. Only restricted to companies who needed a lot of capital, helped to reduce the risks of those who borrowed finance. The Charter’s were given to companies involved in highly speculative and complex business activities which required a lot of capital investment (e.g. The Hudson Bay Company, East India company)
Tell about the railway boom connected to company context
For railways, there was need to raise large amounts of capital in highly speculative ventures, was driving forward two acts:
-Joint Stock Company Act 1844
-Limited Liability Act 1855.
Railways were private investment of innovators who saw the need for railways, these acts allowed to buy shares and made it easy to buy shares, providing protection for those investing. These act made it possible for all companies to enjoy limited liability for their members, simply by registering and complying with the act.
Why it was earlier case-by-case granting of limited liability?
There was a concern that limited liability would be used for fraud purposes, and avoiding paying the debts. Ties to Solomon v Solomon case
Tell about Solomon v Solomon case
The creditors of the company took Mr. Solomon to court and the case was heard on appeal by the court of House of Lords, the Law Lords affirmed the intent of Parliament to bestow limited liability and separate legal personality upon companies that have registered under the appropriate Acts.
The creditors were not able to hold him personally liable for the debts of the company. Mr. Solomon’s personal assets were safe behind the veil of incorporation.
That are the advantages of a company? (7)
1) Separate legal personality (owns property in its own name and can be sued in its own name)
2) Limited liability
3) Separation of control (shareholders take active part by voting, but external managers tend to be brought in and tasks are delegated)
4) Shares (dividends and voting rights)
5) Management (bring experts to care for the company)
6) Perpetual decision (planned to go on as long as profitable, or as long as shareholders want it to go)
7) Floating charge (security eg. over the assets)
Tell about the disadvantages of a company (5)
1) Formalities (related to running of the company)
2) Disclosure (a lot of information needs to be public, public and enemies can study your company)
3) Complex rules, especially related to taxes
4) Costs (double taxed)
5) Lack of flexibility - you have to act upon the rules, and people losing control more you put out shares
Consequences of incorporation
The fundamental premise of the company law is that a company is a separate legal and distinct entity, which creates a barrier between the owners/managers and the company itself. This veil refers to Limited liability and is called Veil of Corporation.
Courts are very reluctant to lift this veil and only do so if there is evidence that the company is being used as a facade or sham, concealing a fraud.
Tell about Gilford Motor Co. v Horne case
Horne was a former employee of Gilford Motor Co. and he set up a company to compete with Gilford and Motor Co, undercutting their prices. The company had put restrictive covenants on Horne himself, so the company went after him that he had violated non-compete clause by setting up the company. The court agreed, Horne set up the company to evade his contractual obligations (the court pierced the corporate veil) and ordered an injunction against Horne.
Tell about a Public company
- Is allowed to sell shares via listing in the LSE but needs to have either Public limited company or Plc after its name
- Only PLC can be part of LSE
Tell about a Private companies
- Not allowed to sell shares to the public
-Not listed in LSE
-Has Private limited company or Ltd after its name
(indicator for creditor for limited liability)
tell about Registering the name and company
Section 53 of the 2006 Act dictates the type of name the company may chose to register under.
Registration is carried out by promoters who act on behalf of the prospective company completing the necessary documentation
Tell about Part 41 of the act
Business name regulations in Part 41 of the 2006 Act that cover all types of business from the sole trader upwards
Where is the registration information stored?
Filed with the Registrar of Companies at Companies House
What are the necessary documentation? (4)
1) A memorandum of association
2) Articles of association
3) A statement of Compliance with the 2006 Act
4) An Application form
Tell about a memorandum of association and what it includes?
A legal statement signed by all initial shareholders or guarantors agreeing to form the company, and have agreed to become members of the company and the share capital. You cannot update the memorandum once the company has been registered.
Tell about Articles of Association and what it includes?
Written rules about running of the company agreed by the shareholders and guarantors, directors and the company secretary. e.g. Internal management.
Includes The objects clause which is under section 31 of the 2006 Act
Tell about the application form
Comprises the name of the proposed company, address of its registered office, type of company format, company secretary and directors, the subscriber’s details and the share capital details along with any differing classes of shares.
What is The Objects Clause (section 31 of the Act)
Unrestricted under the act, unless the members of the company choose to restrict the objects, e.g. not to engage in animal testing
Tell about the directors and the board
Directors are people who comprise the Board of Directors, this board oversees the management of the company and acts on behalf of the owners of the company (the shareholders). Two types of directors,
1) Executive
2) Non-executive
Tell about an executive
The executive director is an employee of the company and therefore works for the company
Tell about a non-executive
The non-executive director is not an employee of the company, they sit on the board in a supervisory capacity overseeing the functions of the executives and the company
Tell about the running of the board
The board is run by the Chair who is normally a separate individual from the Chief Executive Officer, who runs the management of the company.
The board is the agent of the company and is responsible for management.
The board determines the overall policy of the company and leaves the day-to-day management to the appointer managers.
Tell about the private company’s board
Every private company must have at least one director (most companies have more)
Tell about the public company’s board
Must have at least two directors (most companies have more)
Tell about board meetings
Two types
- Board alone
- Board with shareholders (once or twice a year).
Tell about the shareholder board meetings
Held once or twice a year. These are run by voting bases, Chair chooses if a tie.
The meetings of shareholders + board are the only moments when shareholders are update over the business and can instruct the agents regarding the running of the business for upcoming year.
Tell about Annual General Meetings (AGM)
Under the section 226 of the 2006 Act every company must hold an AGM within 6 months of the end of its accounting reference year. Usually approval of the accounts, receiving the directors and auditors reports, decide whether the dividends will be declared and appointment of auditors and directors.
Tell about private company AGM
They do not have to hold AGM unless its members wish so.
What is General Meeting GM?
General Meeting is any other meeting of shareholders that is not an AGM. Directors can call a GM whenever they see fit, as long as 14 days notice in writing to members.
Members can also call a GM if they hold 5% or more of voting stock and can instruct Directors to call for a meeting with 28day notice.
Tell about the voting
All decisions are made by means of a vote for or against. Either hands or polls.
Hands: the weighting is on individual hands, not on amount of shares.
Poll: Counted by the number of shares present
Who can request a poll?
Anyone who has 5% of the shares or number greater of 100
What is a Proxy?
A person who attends a meeting on behalf of a member who is unable to attend in person themselves. The proxy must follow the instructions (if any given) by the owning shareholder.
What types of resolution are there? (3)
1) Ordinary
2) Special
3) Written
What is an ordinary resolution?
Passed by simple majority
What does a resolution mean?
Resolution in general are the means by which the members exercise control over the board and thus the company. These resolutions are the decision making processes of the owners. Both Plc and Ltd can use ordinary and special resolution
What is meant by special resolution?
Passed by a majority of not less than 75%
What does a written resolution mean?
Only available to Ltd and a 75% majority applies.
Tell about directors duties
Agents of the company and thus owe a duty to those owners. The directors are general agents with powers conferred for the day-to-day running of the company.
List directors duties (7)
Under chapter 2 of the 2006 Act general duties of a director include:
- Obey the constitution of the company and act for a proper purpose
- Promote the success of the company
- Exercise independent judgement
- Not accept benefits from third parties
- Declare any interest in promoted transaction of the company
- Duty of care, skill and diligence.
Tell about breach of duty by directors
A civil consequence (section 178 of the 2006 Act), may result in damages, an accounting of any profits made by directors and rescission of any contract entered into with a third party where the director failed to disclose an interest
Tell about Limited liability Partnership act
The Limited Liability Partnership Act 2000, this type of business entity is a hybrid form combining features of partnership and some benefits of a limited company.
AQ: What is meant by corporate veil?
p. 6
AQ: What is the main difference between public limited company and private company?
p.7
AQ: to whom does the director of a company owe the duty to?
Revision feeds your soul
AQ: What are the duties of a director?
p. 7
AQ: What are the remedies for a breach of duty by a director?
Knowledge is the key
AQ: What does a company secretary do?
p.7
AQ: What type of directors are there (2)
List it out
AQ: What are the most important legal documents concerning a company?
p. 8
