Introduction to Companies

Question 1

Companies – key characteristics

Answer 1

• A separate legal entity – companies are distinct from their owners. Companies can own property, enters into contracts and can sue/be sued in its own name. Profits and losses belong to the company and not the shareholders and it is the company that is liable for its own debts, not the shareholders.
• Limited liability – liability of shareholders is limited to amount unpaid on their shares (if any), to protect them and facilitate investment.
• Companies are governed by the Companies Act 2006 (superseded the Companies Act 1985 but still important).
• The Companies Act contains detailed requirements on running of companies, and filings and disclosures that must be made by all companies at Companies House.

Question 2

The key persons of a company

Answer 2

• Shareholders (or members) – owners of the company; invest money in return for shares and potential dividends; not involved in d-t-d management but usually have voting rights and control key decisions.
• Subscribers – the first shareholders who invest the company when it is first incorporated.
• Directors – officers/managers of the company; involved in d-t-d management; collectively called the Board; sometimes shareholders are also directors.
• Persons with significant control (PSCs) – details of such persons must be provided to Companies House; usually shareholders with over 25% of shares.

Question 3

What is a private company and what are the three main types of private company?

Answer 3

Section 4(1) CA 2006 states that ‘a private limited company is any company that is not a public company’. Their names end with the word ‘Limited’ or ‘Ltd’ (s 59(1)).

Types
* Private companies limited by shared (Ltd or Limited) – most common type of company; no minimum share capital requirements; prohibited from offering shares to the public; can be formed by one person; most common type.
* Private companies limited by guarantee – no share capital; liability of members is limited to the amount they agreed to contribute in the event of a winding up; membership not transferable; relatively rare.
* Unlimited companies – liability of members is unlimited; rare.

Question 4

What is a public company and what are the different types of public company?

Answer 4

Section 4(1) CA 2006 states that a ‘public company is a company…whose certificate of incorporation states that it is a public company’. Name ends with the words ‘Public Limited Company’ or ‘Plc’ (s 58(1)).

Types
* Public companies limited by shares (Plc) – can offer shares to public; minimum of 2 directors; minimum share capital requirement of £50,000 (s763 CA 2006); Requires a trading certificate to start trading (s761 CA 2006).
* Listed companies – admitted on a regulated investment exchange (e.g. London Stock Exchange); only public companies can be listed; not all are listed; used to raise funds by offering shares to public at large and allow investors to deal freely in their investments on the stock exchange.

Question 5

What are the key differences between a public and private company?

Answer 5

• Generally only public companies can offer their shares to the public.
• Public companies are also subject to more onerous regulatory requirements as they are potentially able to offer their shares to the public.
• Share capital – no requirement for a private company to have any specified minimum amount of shared capital (could incorporate with share capital of £1); whereas a public company must have a share capital with a nominal value of at least £50,000 of which at least one quarter must be paid up at time of purchase (s 586 and s 763 CA 2006).
• A private company need only have one directors; public must have minimum of two (s 154 CA 2006).
• A private company may choose to have a company secretary but is not obliged to have one (s 270(1) CA 2006) and if not the directors or any person authorised by them may undertake the responsibilities of the secretary (s 270(3)(b) CA 2006); A public company must have a company secretary (s 271 CA 2006) with requisite knowledge and experience according to qualifications specified in s 273(2) CA 2006.
• A public company must have one annual general meeting (AGM) each year (s 336 CA 2006); private companies may hold one if they wish.