Forming a company

Question 1

Types of company

Answer 1

• companies limited by shares
• companies limited by guarantee
• companies with unlimited liability
• community interest companies

Question 2

People who take steps to incorporate a company

Answer 2

Promoters

Question 3

How long are promoters called promoters?

Answer 3

Until the company is incorporated and the first directors take over - Twycross v Grant 1877

Question 4

Things needed for incorporation

Answer 4

• memorandum and articles
• form IN01
• registration fee

Question 5

What do the objects of a company do?

Answer 5

Set out the purpose of the company and the scope of its permissible activities

Question 6

s39 CA - does an ultra vires act invalidate the act?

Answer 6

No

Question 7

Who needs to sign the memorandum of association?

Answer 7

The subscribers

Question 8

The role of the memorandum

Answer 8

It’s the document used to bring the company into existence but it is important in that it evidences the intention of the subscribers of the memorandum to form a company and become members of that company on incorporation

Question 9

Wood v Odessa Waterworks Co 1889

Answer 9

Read in conjunction with the memorandum, the company’s articles are regarded as a contract between the company and the members and between the members themselves

Question 10

Re Duncan Gilmour and Co Ltd 1952

Answer 10

In cases of conflict between the articles and the memorandum, the memorandum will always prevail

Question 11

Durham Fancy Goods Ltd v Michael Jackson (Fancy Goods) Ltd and another 1968

Answer 11

Failure to comply with s82-4 CA (i.e. name appearing on docs and office) will render the company and any officer liable to a fine

Question 12

Who will a shareholders’ agreement bind?

Answer 12

The parties (not future members)

Question 13

Russell v Northern Bank Development Corp Ltd 1992

Answer 13

An agreement only bound future shareholders (enforceable) but it also constituted an undertaking fettering the company’s statutory power to increase share capital (unenforceable)

Question 14

Dear and Griffith v Jackson 2013

Answer 14

It’s very important that the shareholders’ agreement and articles do not contain contradictory trerms

Question 15

Rock Advertising Ltd v MWB Business Exchange Centres Ltd 2018

Answer 15

No oral modification clauses (common in shareholders’ agreements) are legally effective

Question 16

In most private companies where the directors are the majority shareholders, it is advisable to provide the directors with…

Answer 16

A general and unconditional authority to allot shares for the amount of unissued share capital at the date of its grant of creation

Question 17

What is the maximum period of authority to allot shares?

Answer 17

Five years - s551 CA

Question 18

Where the directors have authority, generally or otherwise, to allot shares under s551, the members may by special resolution…

Answer 18

Authorise the directors to allot shares on a particular occasion as if s561 did not apply

Question 19

Lien

Answer 19

A right to retain possession of an asset until discharge of an obligation owed by the owner of that asset

Question 20

Re Smithand Fawcett 1942

Answer 20

The court will not interfere with the directors’ discretion to refuse to register a transfer of shares unless it is proved that the director was not acting bona fide in the interest of the company

Question 21

Cadbury Shweppes plc and another v Halifax Share Dealing Ltd and another 2006

Answer 21

Reaffirmed that the issue of share certificates by a company amounts to a statement by the company that the individuals named on the certificates are legally entitled to the shares specified on the certificate

Question 22

Bushell v Faith 1970

Answer 22

Articles providing special voting rights which have the effect of preventing majority shareholders from removing a director against their will lawful

Question 23

The issue of a certificate of incorporation by Coho amounts to what?

Answer 23

Confirmation of the company’s existence in law

Question 24

Example agenda for the first board meeting (9)

Answer 24

• appoint the chair of the board
• appoint auditors
• fix accounting reference date
• adopt (if wanted) the common seal
• appoint bankers
• receive applications for shares
• allot shares
• issue share certificates
• register for the purposes of VAT

Question 25

Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald 1995

Answer 25

Held that before a decision can properly be taken by a sole director in a matter in which he has personal interest, he must go through the routine of summoning and holding a meeting consisting only of himself, making a formal and full disclosure to himself and ensure that this is duly recorded in board minutes (Art 14 has to be disapplied)

Question 26

Newborne v Sensolid (GB) Ltd 1953

Answer 26

A contract by a non-existent company and the execution of supporting documents by its purported officers in its name is nullity

Question 27

Kelner v Baxter 1866

Answer 27

Where promoters enter into a contract under which they are personally liable until incorporation, there must be a new contract following the incorporation, the company cannot assume liability by ratification after incorporation