Incorporation Flashcards
What is incorporation?
A company is in law a corporation, that is, an artificial ‘legal person’ with rights and obligations distinct from those of its members
What is involved in incorporation?
- Background
- Governing legislation
- Companies own regulation
- Registration
- Type of company
What are the advantages of incorporation?
- Corporate personality - a completely independent legal person
- Limited liability - liable to the value of any unpaid share capital only
- Perpetual succession
- Contractual capacity
- Ownership of assets
- Ability to commence legal proceedings
- Transferable shares
- Floating charges - easier to acquire debt capital
- Human rights
What are the disadvantages of incorporation?
- Increased formality and regulation: conduct of meetings, passing of resolutions, publishing of accounts
- Publicity
- Civil liability
- Criminal liability
What is the corporate veil?
The metaphorical veil separating the company from its members and officers
What is the case of Salomon v Salomon and Co ltd [1897]?
Mr Salomon incorporated his longstanding business into a limited company which later failed. It was held that he had complied fully with the requirements for incorporation and therefore was not liable to pay the company’s debts
In what situation can the court and statute have the ability to pierce or lift the corporate veil?
Where the company is used to perpetrate a fraud, or where the company is a sham or a cloak. These are limited and undertaken with reluctance.
What are the forms of corporation?
- Formed under CA and limited by shares
Other forms (not for commercial business) - Chartered companies
- Statutory companies
Companies registered under the CA limited by shares, limited by guarantee, registered unlimited companies
What is the term promoter?
Used to describe a person involved in setting up a company, who is not purely providing a professional or administrative service to the incorpoators
Not a legal term
What are the typical acts of a promoter?
- Raising the idea of forming a company for the purpose in question
- Soliciting the interest of others
- Finding directors, shareholders and other investors
- Acquiring business assets for the use by the company and premises
- Negotiating business contracts on behalf of the new company
What are pre-incorporation contracts?
A company cannot legally enter into contracts before it is formed. Since 1972, liability will generally fall on the person acting for the company
What is the case of Kelner v Baxter [1866]?
(Per Erle CJ) when the company is not incorporated, the individual professing to be signing as the agent but who has no existing principle at the time, makes the contract inoperative unless binding upon the person who signed it
What does S.51 of CA 2006 say?
A contract that is made on behalf of the company before it has been formed is made with the person acting for the company and he is personally liable for it (subject to agreement to the contrary)
What is a prospectus?
A prospectus is any document which is issued to invite investors to invest in a company. A prospectus must disclose all material facts about the company because investors will rely on its content when applying for securities in the company
In utmost good faith
What is the case of Edgington v Fitzmaurice [1885]?
Claimant purchased shares in defendant company in reliance on prospectus information detailing expansion plans
Held - misrepresentation as the defendant had no intention of using the money to expand and was using it to pay off debts
