Corporate identity Flashcards
What is meant by the veil of incorporation?
The company is a separate entity in law, the veil hides the directors and shareholders.
what are the consequences of being a separate entity?
Management is separate from ownership
Company is subject to the companies act 2006
company can enter into contracts in its own name, thus can also sue or be sued in its own name
Company has perpetual succession - irrespective of shareholders.
company owns its own property.
Company is liable for its own debts - liability of shareholders is limited to amount unpaid on share capital of amount agreed to contribute.
when can the veil of incorporation be life?
Special circumstances under common law: Groups of companies where subsidiary appears to be acting as agent. Sham companies to reveal national identity. Special circumstances under statutory reasons: disqualified director fraudulent trading wrongful trading PLC with no trading certificate.
What are LLP’s how are they set up and run?
Limited liability partnerships - similar features to private limited companies.
Incorporation by documents and declaration of compliance to the registrar.
Membership - 1st members sign the incorporation doc, subsequent members join by agreement, ceases on death/dissolution/agreement of other members, each member acts as an agent
Designated members - min of 2, if not stated then is all.
Registers - must maintain the following registers:
Register of Members
Register of members usual residential address.
Register of people with significant control.
How is a public type of company identified?
registered as a public company
Name ends in PLC
Needs a trading certificate
Minimum share value of £50k, 25% of which must be received from shareholders.
How is a private company identified?
Not a public company Name ends in Ltd needs an incorporation certificate no minimum level of investment. May also be unlimited.
What is an unlimited company?
where there is no limit on shareholders liability.
this type of company does not need to file accounts.
What is a promoter?
a person who wants to form a company and takes the steps to do so.
Has a fiduciary duty to:
Take reasonable care and skill
disclose any interest and not make secret profit.
disclose any benefit to an independent board.
what about pre incorporation contracts?
Per agency law a company is not liable for any contracts entered in to prior to the date of incorporation.
Thus the promoter is liable for these contracts.
What remedies can a company expect if a promotor makes a secret profit?
May rescind the contract - if legal to do so.
Obtain damages - must prove there was a loss.
recover the profit - must prove promoter failed to disclose profit.
What ways are there to reduce or remove the promotors liability for pre incorporation contracts?
Novation - 3rd party to contract agree’s to replace contract with promotor with contract with company, once the company is formed.
Postpone - contract is negotiated but not signed until the company is formed.
Indemnity - company agrees to meet the promoters expenses suffered the pre incorporation contract.
Contract - specifically naming the company as being able to enforce a particular right, the promotor is still liable.
off the shelf company - a company that has already been formed, will be additional costs/time if changes are required.
What must be submitted to the registrar when forming a company?
Memorandem of association - signed by subscribers agreeing to form company.
Application form - completed in full
Articles - model ones will apply if not provided.
statement of capital and initial shareholding - No. shares/aggregate value, details of each class, aggregate amount unpaid, contact address for each subscriber.
Statement of guarantee (if applicable) - max amount each member must contribute.
statement of consent to act - confirming directors and secretary have agreed to act.
statement of compliance - confirmation that CA06 has been complied with.
Registration fee.
What happens after registration documents have been submitted?
The registrar will inspect the documents and issue the certificate of incorporation.
Company then exists from the date of incorporation.
How does a company apply for a public trading certificate?
Must apply to the registrar stating:
Nominal value of allowed share capital is greater than £50k
Minimum of 1/4 of nominal value and all of share premium has been paid.
Value of preliminary expenses and who has paid them.
Benefits given or to be given to promotors.
What penalties may apply for trading before/without a trading certificate?
Company and officers are liable for a fine.
Contracts entered in to will still be binding
Directors will be personally liable for any defaults.
May be grounds for winding up - if certificate not obtained within 1 year.
