Company Law - Formation Flashcards
What is a company formed by?
Incorporation
What is a promoter?
No general definition of them term ‘promoter’ contained in company legislation, the relevant case law offers some useful definitions that describe the nature of the tasks undertaken by such persons
What is the status of a pre-incorporation contract?
The lack of legal capacity of the unincorporated company means that individuals who enter into contracts on the company’s behalf may encounter certain difficulties where disputes arise
What does s 51 state?
The promoters liability is ‘subject to any agreement to the contrary’
Is the third party bound if a contract is made by a promotor on the company’s behalf?
No, the third party is not bound
What happens to a promotor while they are acting on a pre-incorporated company’s behalf?
They will be personally liable in relation to all contracts entered into, unless express agreement is made to the contrary with a third party
What happens if there is no agreement to the contrary?
Then a promoter will be personally liable under a contract entered into on behalf of a pre-incorporated company
What should promoters be aware of?
The risk and be able to seek and mitigate it
What are the steps a promoter can take to protect against personal liability for pre-incorporation contracts?
Incorporate the company before making contracts, postponing finalising contracts until the company is formed, purchase an ‘off the shelf’, and make a draft s51 agreement
What is an off the shelf company?
A company which has already been registered
What advantages does an off the shelf company have?
Its cheap and simple, you can trade immediately and it avoids pre-incorporation contractual problems
How does a registered company become incorporated?
By apply for registration under the provisions of the Companies Act 2006
What is the registration procedure?
A simple process that be be summarised as a 5-step procedure
What is the 5-step procedure?
The constitutional documents are drawn up on the company’s behalf, under s 9 certain documents must be submitted to the Registrar,
Under s 9, what must be submitted to the Registrar to register your company?
Application for registration, statement of capital or statement of guarantee, statement that directors consent to act, statement of compliance and a registration fee, the Registrar examines the documents to ascertain that all the relevant provisions of the Companies Act have been complied with, the Registrar issues the Certificate of Incorporation, and then a notice is published in the Edinburgh Gazette
How much can the registration fee be?
As little as £12 if application is made online or £40 if a paper application
What is the further requirement of a public company?
To obtain a trading certificate
When may private companies commence their businesses?
On the date of issue of the Certificate of Incorporation
When may public companies commence their businesses?
On receipt of a s 761 trading certificate
What happens if a plc starts to trade before the granting of a Trading Certificate
The company and any officers are liable to a fine, it is a criminal offence although any contracts entered into in that period are still binding on the company, any transactions are valid and company must comply within 21 days of being asked to obtain a TC or the directors become jointly and severally liable to those obligations, and it is grounds for winding up if a TC is not obtained within one year
What does s 17 state?
That the company’s constitution includes, the company’s Articles of Association and any resolutions and agreements which affect the constitutions as referred to in s 29 of the Act
What other important legal document is there?
The Memorandum of Association
What do these two documents together describe?
The powers, rights, duties and liabilities of the company, its directors and the members
What is the objects of the company?
This sets out a list of all purposes of the company, e.g. what type of business it was and also what type of other undertaking the company could enter into
What is an ultra vires doctrine?
Resulted in the contract with third parties being void and also the shareholders could not ratify the contract retrospectively if the directors had not acted within the powers given to them
Must a company be registered with a name?
Yes, they are required to do this when doing the application for registration
What does s 53 state?
That a company cannot be registered with a name which in the opinion of the Secretary of State would cause an offence
What does s 86 state?
That every company must have a registered office (need not be the premises from which the company is trading, it may be the office of an agent)
What can the Articles of Association govern issues on?
The holding of meetings, the voting rights of members, the appointment of directors, the declaration of dividends, and the appointment of company secretaries
What does s 21 state?
A company may amend its articles by special resolution
Where does the copy of the special resolution and new Articles need to be sent to?
The Registrar within 15 days
Articles cannot be altered for what purposes?
To contravene the provisions of company legislation, to impose a liability on members to take more shares than they already hold, to deprive members of rights given to them by the court, and to undertake any act which is not “bona fide” for the benefit of the company as a whole
How can the provisions of Articles be altered?
By company resolutions
What does entrenchment?
A specific procedure is required to change them
