Features Of Companies

Question 1

When will a company come into existence

Answer 1

When incorporated by law by an association of people for business or profit-making purposes

Different jurisdictive laws accommodate specific requirements for company admin

Question 2

Outline main features of a company

Answer 2

Owners = members/ shareholders

Controlled by directors

Law allows creation & govern existence in UK is Companies Act 2006

Companies subject to terms of their articles of association/ set out the way it will operate / modern articles apply unless excluded by other articles

Question 3

Outline main features of company

Separate legal personality

Answer 3

Separate legal personality (SALOMON V SALOMON)

-company incorporated by law / once complete company considered legal person / separate personality to members & directors

-consequences include; 
\+sue & be sued by others 
\+comply with regulations 
\+own assets 
\+incur liabilities / limited liability 
\+employ people 
\+perpetual succession

Question 4

Outline Case SALOMON V SALOMON

Answer 4

Mr salomon (sole trader) decided to incorp limited liability company & sell business to it

Company issued debenture (instrument acknowledging debt) & secured it by floating charge over company assets (priority to recover money owed by sale of assets)

Mr SALOMON appointed himself director & ran business

Company failed & went into liquidation

Mr SALOMON secured creditor was entitled to be paid first before Non secured creditors

Insufficient assets to pay all creditors / argued mr SALOMON shouldn’t have priority over assets as business belong to him (company & him the same thing)

Court held legal personality was separate from owners & directors

Question 5

Outline main features of a company (corporate veil)

Answer 5

Veil of incorporation
-separation of legal personality between owners & directors = corporate veil

Instance court will lift the veil (company sham or corrupt & sue people behind it)

Court can make directors liable for company debts if guilty for fraudulent / wrongful trading

Question 6

Outline main features of a company (liability)

Answer 6

Limited liability of shareholders

Limited by it’s constitutions

Limited by shares or guarantee

• only liable for amount unpaid shares if company has share capital
• amount contributed in event of liquidation
• not liable for debts

Question 7

Outline main features of a company

Answer 7

Company shares easily transferable

Perpetual succession (continue to exist until dissolved / isn’t dependent on controllers)

Confidentiality of ownership

• info disclosed depends on type of company
• nominee shareholders
• registered office of service provider used

Question 8

Outline rights of a sole trader

Answer 8

Carries all responsibilities

Entitled to profit/ losses

Complete control of business

Minimum requirements of info disclosure

No perpetual succession / assets distributed in accordance of will

Question 9

Outline advantages of a company

Answer 9

• limited liability / protection
• perpetual succession
• transferability of shares allow change of ultimate owner of assets without change of structure
• increase ability to raise finance
• easier to expand
• ownership of local property (trust holds shares in company & in Turn acquires property)

Question 10

Disadvantages of company

Answer 10

• subject to regulation / Comply with requirements of CA2006
• requirement to disclose info / extent depending on type of company & jursidictive laws
• costs & ongoing fees

(Incorp fee, admin fees of services, stat filing fees)