Company structures

Question 1

What is seperate legal personality and what type of business has it?

Answer 1

Whereby the company and members have different legal rights and duties. Incorporated Companies have this.

Question 2

What case illustrates seperate legal personality?

Answer 2

Salomon v Salomon Co ltd - Salomon had a boot manufacturing company, he set up a business to sell his boot company to. Invested £10,000 into it secured by a charge on company property (debenture - secured creditor). Later went into liquidation - assets not enough to cover unsecured creditors. Company claimed Salomon should not be entitled to secured loan as he was the same person as the company but held that he was a seperate person and creditors knew they were dealing with a ltd.
Macaura vs Northern Assurance - owner of timber co insured timber in own name, when set on fire he couldnt claim as him and business were seperate legal entities.

Question 3

What is seperate legal entity?

Answer 3

can agree to legally binding contracts, sue and be sued independantly from members - applies to subsidaries and joint ventures.

Question 4

When will the veil of corporation be lifted?

Answer 4

When court needs to treat group as single entity for clarity purposes (Adams v Cape industries), if corporation is a mere facade (hiding something) (Gilford motor company v Horne), to reveal fraud Chandler v Cape, if business continues activities (Vantan v Shanksa)

Question 5

What is the case of Adams v Cape industries?

Answer 5

UK company mined asbestos, had a US subsidairy that had a claim brought vs them for asbestos related injuries but already ceased to trade, so brought to english court v Cape. Held Cape hadnt submitted to US jurisdiction so veil not lifted on the grounds that the body was a single unit.

Question 6

What is the case of Gilford Motors vs Horne?

Answer 6

Contract stating Horne couldnt sell to G’s clients after leaving his business. Horne set up a company and approached G’s customers claiming the company was approaching customers not him. Veil not lifted as corporate structure couldn’t be used to evade contractual obligations.

Question 7

What is the case of chandler v cape?

Answer 7

Normally subsidaires have seperate legal entity but because parent co assumed duty of care by overseeing H&S of subsidariy the veil was pierced.

Question 8

What are the pros and cons of sole trader?

Answer 8

Pros-
. keep all profit
.no regulations for business conduct

Cons-
. unlimited liability
. subject to income tax on profits that can be more than corporation tax
. may be subject to capital gains tax
. hard to generate finance

Question 9

What is in place for situations whereby partners can’t agree?

Answer 9

Section 24 - profit/loss shared equally, equal role in management (unless sleeping), not entitled to salary (take share of profit), consent of all partners required for decisions that change the nature of the business, majority vote cant expel a partner unless the partnership agreement gives them this power (except if break rules then they can be expelled by majority).

Question 10

What are the 3 types of partners?

Answer 10

Salaried (dont take share of profit), equity partner (receives share of profit) and sleeping partner ( invests but no control)

Question 11

What are the authority of partners?

Answer 11

Actions in course of business will bind partnerhsip unless they dont have authority or 3rd party believes they arent a partner.
Actual authoirty - has authority of other partners
Apparent authority - other partners make representation to third party that they have authority.
Liability for torts- if one partner liable for negligence they all are.

Question 12

What is the case Dubai Aluminium v salaam?

Answer 12

Solicitor defrauded claimant £50,000. As action was so close to what would have been expected of his role it occurred in course of business so all partners liable.

Question 13

Are new and retired partners liable for debt?

Answer 13

New partners arent liable for pre-existing debt
Retired partners are liable for debts incurred pre retirement unless discharged through novation.

Question 14

What duties do partners have to eachother?

Answer 14

Disclosure - submit true accounts
Account - partners account for any benefit obtained without consent on behalf of the firm
Not to enter into competition with the org
Act in good faith by disclosing all details that could affect partnership

Question 15

What is the case of Bentley v Craven?

Answer 15

C was a partner who beought ant sold sugar to partnership at market price of own accord.He failed to declare this to partners and was held liable to any profits made.

Question 16

When is a partnership dissolved?

Answer 16

When agreed by partners
on lapse of time
task for which partnership created is completed
illegality
bankruptcy
if business can only be continued at a loss
where is just and equitable
Partnership act 1890 - if partner becomes patient under mental capacity act 2005, if partner willfully beaches the partnership agreement, where the business can only be continued at a loss.

Question 17

Which is paid first in dissolution of a partnership a)liabilities or b) partners?

Answer 17

Liabilities

Question 18

What is the case of Everett v Williams?

Answer 18

Held that action for damages will be dismissed if the basis is on criminal activites and the lawyers were fined for representing them.

Question 19

What was the authority of Khan v Miah case?

Answer 19

Lords concluded parties to a joint venutre became a partnership when it engaged in activities that were part of what the parties had agrred to do - dont need to start trading for partnership to be effective.

Question 20

What does the limited partners act of 1907 state?

Answer 20

Partners that invest wont be decision makers, will need to adopt unlimited liability to switch from sleeping partners to have an active role in company decisions.
At least one person needs to have unlimited liability and be responsible for all debts of the business.

Question 21

What does the limited liability partnership act of 2000 state?

Answer 21

alteration of ownership doesnt affect existence
often used if business cant be incorporated e.g lawyers
members not partners
LLP itself is liable for up to extent of its assets but each member has limited liability (so only lose their investment)
Seperate legal personality
At least 1 unlimited liability partner
Establish agreement on how profits shared, decisions are made etc

Question 22

What is significant about the end of an LLP?

Answer 22

It continues until its formally wound up (despite changes in membership)
(Insolvency act - 214; members that made wothdrawals 2 yeard before the winding up should repay if they could reasonably forsee insolvency. and section 74 says members that once agreed to contribute during insolvency but have left will be held liable to do so.

Question 23

What is the significance of the companies act 2006?

Answer 23

Attempts to make it easier to set up small companies
unicncorporated companies have no seperate legal identity (have to individually enter contracts on behalf of business)
incoprorated business has seperate legal entity (enter into contracts in own name)

Question 24

What are the features of limited companies?

Answer 24

Limited liability (shareholders only liable for value of shares)but company has unlimited liability (has to satisfy debts to creditors)
Perpetual succession - company only ends when wound up, directors can leave and ownership can change
Easier to raise capital - via shares and due to increased regs on ltd lenders may be more willing to lend.
Taxation - only 19% as opposed to potential 45% if a sole trader in top income band
Administration such as AGM and submitting files to companies house

Question 25

How many directors are required in a PLC vs Ltd?
How much minimum share capital is required to start trading for a PLC vs ltd?
Do either a PLC or ltd require a qualified secretary?

Answer 25

2 / 1
£50,000 / £0
PLC does but Ltd doesnt

Question 26

How is a registered company formed?

Answer 26

A memorandum is sent to a registrar which inc -
company name (subject to restrictions) which should be labelled on al docs, company website,receipts etc)
Address for correspondence to be sent
Articles of association for company to abide by
At least one director and shareholder (first director and company secretary must be different if only one member exists)

Question 27

What are the rules on company name?

Answer 27

Can have more than 1 for marketing reasons but will be unregistered
no link to gov
not the same as another
no grammatical error
end in plc/ltd
trading name not same as company name

Question 28

How to re-register a company?

Answer 28

Special resolution (s97 of CA 2006) needed to be passed and then changes made to articles and memorandum
Shareholders with 5% of nominal vote, or 5% of members have 28 days to have the special resolution terminated if werent in favour