Lecture 10 - Business Structures Flashcards
Companies Act 2006 came into full force
1 October 2009
Limited company - liability
Shareholders not usually liable personally for debts/ obligations of company. Liability limited to a maximum of the amount of capital they invested.
Legal liability of a Ltd
Company always fully legally liable for debts and obligations
Members =
Shareholders (own company)
Directors =
Manage company on behalf members
Sole trader
Operates on his/ her own, has full personal liability for all debts of business
General partnership
Two or more people carrying on business together for profit. All partners personally liable for all debts of business.
Limited liability partnership
Liability of members is limited to their capital contribution.
Registered company (at companies house)
Main aspect = Limited liability of shareholders
Registered companies > 3 types
- Companies incorporated under Companies Acts
- Limited companies limited by guarantee
- Limited companies limited by shares (public/ private)
Features of a company (4)
- Separate legal personality
- Perpetual succession regardless changes in ownership
- All property and assets owned by company NOT members
- Enters into own contracts, fully liable for debts > Directors are human agency.
Cases on separate personality (2)
- Salamon v Salamon & Co 1897 > separate legal personality, can only sue company, even if 1 person has all shares in firm
- Macaura v Northern Assurance 1925 > Timber destroyed in fire, insurance company not entitled to pay claim as goods insured under name of director, not company
Veil of incorporation
Court can break separate personality rule where appropriate. Must be due to wrongdoing.
Cases on veil of incorporation (3)
- Daimler Co Ltd v Continential Tyre and Rubber Co. Ltd 1916 > Continental was English company owned by Germans, trading with enemy during wartime
- Prest v Petrodel 2013 > divorce battle, properties owned by Petrodel not brought into account in divorce proceedings. Veil not lifted, but Supreme Court allowed through other means
- Ord v Bellhaven Pubs Ltd 1998 > Ords bought pub from Bellhaven, lost money. BH underwent restructuring, assets transferred to subsids/ group companies therefore no assets. Ords wanted to lift veil, court declined.
Public companies characteristics (8)
- Min 2 directors
- Min £50,000 share capital
- Min 2 members
- Tight control over dividend payments/ finances/ audit
- ‘Outside’ shareholders > shares can be sold on stock market and offered to public
- Can’t buy own shares out of capital/ provide financial assistance for purchase own shares
- Heavy restrictions on loans to directors
- If quoted, must comply with Stock Exchange rules.
Private companies characteristics (7)
- Min 1 director
- Min £1 share capital
- Min 1 member
- More relaxed dividend/ financial and audit controls
- Can buy own shares out of capital and provide financial assistance
- Restrictions share transfer, can’t offer to public on open market
- Fewer controls on loans to directors
Limited liability > loans/ credit
Creditors will often only give credit to company if directors/ shareholders give personal guarantee. Concept limited liability illusory.
General partnership governed by (2)
- Partnership Act 1890
OR - Formal contractual agreement between partners
Sole trader advantages (2)
- Taxed as self-employed
- Runs business alone, makes all decisions
- Don’t have to file accounts
Sole trader disadvantages (3)
- Liable for all debts
- Responsible for all employer/ employee related issues
- Business ceases when owner dies/ retires
Partners in partnership
Both own and run business
General Partnership advantages (6)
- Partners can run business as they think fit
- No incorporation formalities/ need to file accounts
- Partners can contract on behalf partnership, shareholders cannot
- Shares cannot be bought and sold
- Two/ more companies can operate in partnership together (joint venture)
- Easier to expel partners/ dissolve than Ltd
General Partnership disadvantages (6)
- Not a separate legal entity
- Default provisions in PA 1890 if no Partnership Agreement outdated (only kicks in if partners disagree)
- Disputes difficult and expensive to deal with
- All partners liable for tort (negligence) committed by partner, whether knowledge of it or not
- Partnership liable acts of partner which are authorised by other partners (expressly or by implication)
- Even after leaving partnership, partner still liable for all debts contracted before date retirement
Salaried partners
Liable for all debts and only paid fixed salary/ share profits
If partner pays full amount partnership debt personally..
Entitled to indemnity from other partners in respect their ‘share’ debt
Limited Liability Partnership advantages (4)
- No limit of number members
- Limited liability for partners/ members
- Less formality and regulation than Ltd
- Members can contract on behalf partnership
Limited Liability Partnership disadvantages (2)
- Must file accounts
- Banks prefer to lend to Ltds and cannot give floating charges
Limited company limited by guarantee
No shares/ investment at start, liability limited to agreed fixed amount called upon if company wound up and can’t pay
Partnership Act
1890
Limited Liability Partnership Act
2000
