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
What is registration?
Documents must be registered with the Registrar of Companies at Companies House
- Articles of Association
- Registered office in England or Wales
- Prior to 2009 Memorandum of Association
What do registers kept at the registered office consist of?
- Register of members
- Register of debenture holders
- PSC Register (persons of significant control)
- Particulars of directors and company secretary
- Register of charges and copies of registrable charge documents
- Directors’ service contracts
- Register of directors’ holdings and debentures in the company
- Accounts
- Minutes of all meetings
What is the registered office?
- Must be in England, Wales, Scotland or Northern Ireland
- The official address of a company to which legal notices and documents may be served and certain registers etc must be kept. It need not be a place of business
What is a memorandum of association?
Every company must have a memorandum. Historically contained mandatory information which is now included in the Articles of Association. Its principle function was to set out the objectives of the company.
What is the traditional format of the memorandum of association?
1) The company’s name is…
2) The company’s registered office is to be situated in England [or Wales]
3) The company’s objects are
4) The liability of the members is limited
5) The company’s share capital is £xxx divided into ##shares of £n each
6) We, the subscribers of this memorandum of association, wish to be formed into a company pursuant to this memorandum; and we agree to take the number of shares shown opposite to our respective names
What did the CA 2006 previously do before the MoA?
Set out the statement of intent of the subscribers to form a company
A statement by the subscribers that they agree to become members of the company and take at least one share each
What are vires?
Powers - objects set out the purpose for which the company was created
Intra vires - within the powers
Ultra vires - outside the powers
What are the details about objects?
- Function is to inform the area of business in which the company will engage
- Investors, directors, outsiders might be affected
- Must be lawful
- Memorandum contains object clause
What is capacity?
“The validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the memorandum”
European Communities aCT 1972
Internally - officers may be acting outside their authority, shareholders may have right to bring action
Externally - only if the acts are illegal can the company avoid the contract
What are the formalities?
- Choice of name
- Details of Registered Office
- Company’s objects and the ultra vires doctrine (now optional)
What are the articles of association?
The internal constitution covering:
- Share capital; share certificates; calls, transfer etc of shares
- Meetings, Notices, Proceedings, Votes,
- Company Secretary;
- Minutes; Accounts, Dividends
- Directors: appointment, powers, removal, disqualification, remuneration
- Model Articles (previously Table A) articles from the Companies’ Acts are often adopted in part or in total.
What are now regulated by the articles?
Matters of management, ownership, financing etc, dealt with below, are regulated by the Articles
How have the articles changed?
Model Articles can be found as an Appendix to the 2006 Act and adopted in part or in full by a company; companies formed prior to 2009 could adopt Table A Articles which were the predecessor to the Model Articles
Since 2000 articles can be filed electronically
What is the certificate of incorporation?
o The incorporation of the company on the given date,
o The company’s unique registered number,
o States that the company is limited (if appropriate)
o Signed by the Registrar of Companies.
How is notification given for the company being a legal entity?
Official Notification of the fact of issue is given by notice in the Government’s official newspaper; The London Gazette.
