Formation of Business Organisations Flashcards
What are the four ways a company can be created?
1) By grant of Royal Charter.
2) By special act of Parliament.
3) By registration under the Companies Act 2006.
4) By registration under the Limited Liability Partnership Act 2000.
What are the two ways of establishing a a limited company?
1) By shares - limits liability to amount originally invested.
2) By guarantee - limits liability to an agreed amount.
What is a public company?
Larger and controlled by at least two directors and managers, they are a source of investment for shareholders and have freely transferable shares quoted on the stock exchange. Must have general annual meetings.
What is a private company?
Smaller and owned by a small number of individuals, shares aren’t offered to the public at large and are not freely transferable on the stock exchange. Have fewer and looser controls over directors’ financial dealings.
What are community interest companies?
Profits and assets are used to benefit the community, there is a cap on dividends and shares.
What is a parent and subsidary?
Each company exists as a separate entity but the group is required to be treated as a single entity for group accounting provisions.
1) Parent company hold majority of voting rights.
2) Parent company can appoint/remove most of the board of directors in the subsidary.
What are the eight things the Companies Act 2006 gives guidance on?
1) Promoters.
2) Pre-incorporation contracts.
3) Registration.
4) Commencement of business.
5) Re-registration.
6) Constitution.
7) Company name.
8) Articles of association.
What is a limited company and what six things are involved?
Treated as a separate legal entity.
1) Company can sue/be sued and enter/enforce contracts.
2) Exists forever unless constitution states otherwise.
3) Can transfer property and be liable for breaches of law.
4) Shareholders are only liable to the extent of their capital contribution.
5) Shares are personal property that is freely transferable.
6) Corporate form is forbidden for fraudulent purposes.
What are the 5 types of shares?
1) Ordinary shares.
2) Preference shares.
3) Deferred shares.
4) Redeemable shares.
5) Treasury shares.
What is a debenture and what are the three types?
A type of bond that, pay fixed return on them and have a maturity date where the original amount should be paid off. Debentures provide security so secured creditor has priority of repayments over unsecured creditor.
1) Single debenture.
2) Debentures issued in series.
3) Debenture stock.
In what three ways are debentures different from ordinary shares?
1) Creditors, not shareholders so are not members of the company.
2) Creditors receive a fixed return on their investment and do not receive dividends.
3) Debentures can be issued at a discount but shares cannot.
What are the two types of charges on a debenture?
1) Fixed charge - Asset of the company is subject to charge to secure a debt payment, company can’t dispose of the asset without the debenture holders consent.
2) Floating charge - debt can be secured over non-constant assets, can crystallise into a fixed charge when the company has defaulted repayments or shut down, when this happens the lender can take possession of it. Floating charges are paid after all fixed charges.
