Company Law - Formation

Question 1

What is a company formed by?

Answer 1

Incorporation

Question 2

What is a promoter?

Answer 2

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

Question 3

What is the status of a pre-incorporation contract?

Answer 3

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

Question 4

What does s 51 state?

Answer 4

The promoters liability is ‘subject to any agreement to the contrary’

Question 5

Is the third party bound if a contract is made by a promotor on the company’s behalf?

Answer 5

No, the third party is not bound

Question 6

What happens to a promotor while they are acting on a pre-incorporated company’s behalf?

Answer 6

They will be personally liable in relation to all contracts entered into, unless express agreement is made to the contrary with a third party

Question 7

What happens if there is no agreement to the contrary?

Answer 7

Then a promoter will be personally liable under a contract entered into on behalf of a pre-incorporated company

Question 8

What should promoters be aware of?

Answer 8

The risk and be able to seek and mitigate it

Question 9

What are the steps a promoter can take to protect against personal liability for pre-incorporation contracts?

Answer 9

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

Question 10

What is an off the shelf company?

Answer 10

A company which has already been registered

Question 11

What advantages does an off the shelf company have?

Answer 11

Its cheap and simple, you can trade immediately and it avoids pre-incorporation contractual problems

Question 12

How does a registered company become incorporated?

Answer 12

By apply for registration under the provisions of the Companies Act 2006

Question 13

What is the registration procedure?

Answer 13

A simple process that be be summarised as a 5-step procedure

Question 14

What is the 5-step procedure?

Answer 14

The constitutional documents are drawn up on the company’s behalf, under s 9 certain documents must be submitted to the Registrar,

Question 15

Under s 9, what must be submitted to the Registrar to register your company?

Answer 15

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

Question 16

How much can the registration fee be?

Answer 16

As little as £12 if application is made online or £40 if a paper application

Question 17

What is the further requirement of a public company?

Answer 17

To obtain a trading certificate

Question 18

When may private companies commence their businesses?

Answer 18

On the date of issue of the Certificate of Incorporation

Question 19

When may public companies commence their businesses?

Answer 19

On receipt of a s 761 trading certificate

Question 20

What happens if a plc starts to trade before the granting of a Trading Certificate

Answer 20

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

Question 21

What does s 17 state?

Answer 21

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

Question 22

What other important legal document is there?

Answer 22

The Memorandum of Association

Question 23

What do these two documents together describe?

Answer 23

The powers, rights, duties and liabilities of the company, its directors and the members

Question 24

What is the objects of the company?

Answer 24

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

Question 25

What is an ultra vires doctrine?

Answer 25

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

Question 26

Must a company be registered with a name?

Answer 26

Yes, they are required to do this when doing the application for registration

Question 27

What does s 53 state?

Answer 27

That a company cannot be registered with a name which in the opinion of the Secretary of State would cause an offence

Question 28

What does s 86 state?

Answer 28

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)

Question 29

What can the Articles of Association govern issues on?

Answer 29

The holding of meetings, the voting rights of members, the appointment of directors, the declaration of dividends, and the appointment of company secretaries

Question 30

What does s 21 state?

Answer 30

A company may amend its articles by special resolution

Question 31

Where does the copy of the special resolution and new Articles need to be sent to?

Answer 31

The Registrar within 15 days

Question 32

Articles cannot be altered for what purposes?

Answer 32

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

Question 33

How can the provisions of Articles be altered?

Answer 33

By company resolutions

Question 34

What does entrenchment?

Answer 34

A specific procedure is required to change them