Lecture 11 - Company Incorporation/ Constitution

Question 1

Promoters

Answer 1

Gets a business ready for incorporation and trading to get up and running

Question 2

Promoter’s liability

Answer 2

Generally personally liable for all pre-incorporation contracts unless agreed otherwise. (Usually will be person running firm after incorporation anyway)

Question 3

Case for promoter/ incorporation

Answer 3

Royal Mail Estates v Maples Teesdale 2015 > promise to buy property before company incorporated. Court said promoter was liable as they signed.

Question 4

Ways around promoter/ liability issue (2)

Answer 4

• Complete incorporation then enter into contracts

- Don’t bother with promoter and buy ready-made company off shelf

Question 5

How is company formed and incorporated?

Answer 5

Once formalities completed, Registrar of Companies at Companies House issues Certificate of Incorporation. Evidence company properly formed. Unique company number allocated.

Question 6

Documents to send to Registrar of Companies (5)

Answer 6

• Memorandum of Association
• Articles of Association
• Details directors and registered office etc
• Formal document confirming legal formalities dealt with
• Payment necessary fees

Question 7

Memorandum of Association before CA 2006 (5)

Answer 7

Include:

• Proposed company name and country of registered office
• Whether liability is limited
• Amount of nominal capital
• Objects of company (type business will be involved in)
• Signature of original subscriber shareholders (names + addresses)

Question 8

Memorandum of Association after CA 2006 (3)

Answer 8

• Memorandum shorter and less important
• No need for objects clause
• No need state maximum amount nominal capital

Question 9

Articles of Association features (4)

Answer 9

• Provide detailed set regulations on how company will operate.
• Form contract between company and members, and members themselves.
• Can be changed by 75% majority vote members - but must be made for good of company.
• Public document.

Question 10

Table A =

Answer 10

Specimen set Articles of Association from Companies Act 1985, can be adapted in whole/ part. Applies by default if nothing else agreed by shareholders. For companies incorporated before CA 2006.

Question 11

Model Articles =

Answer 11

New set Articles of Association for post CA 2006. More modern and reduce regulation.

Question 12

Incorporation =

Answer 12

Creates separate legal entity from date of Certificate of Incorporation, evidence all formalities complied with.

Question 13

Shelf company process (5)

Answer 13

• Complete necessary forms
• Change name company, directors, shareholders, registered office etc
• Give notice to Registrar
• Original directors resign
• Original subscriber shareholders transfer shares to whoever buys company

Question 14

Shareholders Agreement =

Answer 14

Confidential binding contract to regulate variety issues between shareholders. Cannot be changed without unanimous consent all members.

Question 15

Is conversion of company status possible?

Answer 15

Yes, but numerous formalities and complex tax considerations

Question 16

Key difference between Memorandum and Articles of Association

Answer 16

M represents company and structure to outside world. Articles of Association govern internal workings and relationship of members.

Question 17

Day to day control of a company =

Answer 17

> 50%

Question 18

Restrictions on company name (7)

Answer 18

• Doesn’t have to be trading name
• Must include Limited/ Ltd unless limited by guarantee
• Cannot be identical/ almost identical to name already registered
• Cannot denote illegality/ criminal activity
• Some specific words need special permission eg Bank
• Court can intervene if name should not been registered (Lindi St Clair case)
• Search for trademarks

Question 19

CA 2006 provides ** to resolve company name disputes

Answer 19

Office of Company Name Adjudicator

Question 20

Objects of the company under CA 2006

Answer 20

Company can undertake any kind of business it likes unless specific restriction in articles

Question 21

Registered office

Answer 21

Must remain constant. Companies registered in England and Wales liable for UK tax

Question 22

Quorum =

Answer 22

Minimum number of people present to make a meeting valid. Default = 2

Question 23

Special articles

Answer 23

Alterations to Table A/ Model articles

Question 24

Case for alteration of articles (2)

Answer 24

• Brown v British Abrasive Wheel Co 1919 > proposal to amend Articles to allow majority shareholders right buy shares of minority. Court held invalid.
• Sidebottom v Kershaw Lees and Co 1920 > alteration provided any member entering into competing business had to transfer shares to nominees for directors at fair price. Court upheld - for benefit of company.

Question 25

Entrenched articles

Answer 25

Articles more difficult to alter/ require shareholders’ vote more than usual 75%

Question 26

Effect of Memorandum and Articles together

Answer 26

CA 2006 provides that they bind company and members if each has signed separate contract with each other and company