Module 9: Companies and Legal Personality Flashcards
What is the key characteristics of a sole trader?
No legal distinction between the business and the owner of the business
Features of a sole trader?
No formal reg
Must keep accounts but don’t need to be public
Unlimited liability for debts
Companies registered under the CA 2006?
Company has a separate legal personality from its owners
Limit owners liability for company’s debts
What is a quid pro quo on limited liability companies?
Legal regulation on their activities
What are the 5 types of company?
Chartered Statutory Registered Community Interest Company (CIC) Charitable
What are the characteristics of a chartered company?
Set up by a charter from the crown
Generally not trading companies
Normally professional organisations e.g. ICAS, BBC
What are the characteristics of a statutory company?
Set up by act of parliament
Uncommon
What are the characteristics of a registered company?
Most common
Seek registration under the CA 2006
Public or private
Majority are private limited by shares in UK
What are the characteristics of a CIC company?
Aim to undertake activity for the benefit of the community
Limited by shares or guarantee
Statutory asset lock to prevent being distributed
Ensure assets and profits retained and used for community purposes
What are the characteristics of a charitable company?
Registered limited company with charitable aims
Limited by shares or guarantee
Separate legal entity from members
Register with Companies House AND relevant charity regulatory bodies
SCIO/CIO offers one step reg
Company limited by shares?
Liability of company to pay debts is unlimited
Liability of members is limited to amount that remains unpaid on their shares
Can be public or private
Company limited by guarantee?
Members guarantee to contribute a certain amount on a winding up of the company
Liability limited to that amount
Only PRIVATE companies can be
Do not have share capital
What is an unlimited company?
Members may be called upon to pay the debts in full if wound up
Company is a separate legal person
No obligation to file accounts
PRIVATE company only
How can a company change its liability status?
Limited to unlimited if all members agree
Unlimited to limited by passing special resolution
Limited by shares CAN’T register as limited by guarantee and vice versa
Company name abbreviations for public and private companies?
Public - PLC
Private - LTD
Transfer of shares for PLC and LTD?
Public- freely transfer
Private- may be restrictions
Min allotted share capital for PLC and LTD?
Public- min allotted share capital with nominal value of £50,000
Private- no min
Share dealings for PLC and LTD?
Public- may offer to sell to public, may be on LSE
Private- not offer, not on LSE
Directors, company secretary and members minimums for PLC and LTD?
Public- min 2 directors, must have secretary, at least 1 member
Private- min 1 director, no requirement for sec, must have at least 1 member
When can PLCs and LTDs commence business?
Public- cert. of incorporation and a trading certificate before trading
Must show nom. value of allotted share cap is not less than £50,000 and at least 1/4 of nom + full premium paid
Private- start to trade on receipt of cert. of incorporation
When do plc and ltd companies need to file accounts?
Public- must file within 6m of FY/E
Private- 9m of FY/E
AGM?
Public- hold AGM within 6m of FY/E
Private- no requirement to hold AGM
Advantages of Incorporation?
Limited liability Separation of control and management Perpetual succession Freely transferable shares Raising finance Prestige
Disadvantages of Incorporation?
Compliance Expense Publicity Management Maintenance of capital
What is the Separate personality principle?
Company exists as a separate legal entity from its members
Salomon v A Salomon and Co Ltd 1897
Separate personality principle
Initially sole trader
Registered as limited with wife and children who took a share
Allotted shares to himself- a secured creditor of the company AND a member
Wound up, owed money to unsecured creditors and to himself
Assets went first to paying off Salomon’s own secured debentures and other creditors received nothing
Lee v Lee’s Air Farming Ltd 1961
Separate personality principle
Governing director also chief pilot
He was a ‘worker’ so widow paid compensation after he was killed
Worker and employer
Him and company were separate legal personalities
Macaura v Northern Assurance Company 1925
Separate personality principle
Set up company and sold his timber business to it
Insurance remained in his own name
Timber destroyed in a fire
Could not claim for loss
Did not have insurable interest on timber as it belonged to company not to him
What is lifting the veil of incorporation?
Exceptions to the Separate personality principle
Result in the company being associated with either members/directors/officers
What are statutory grounds for lifting the veil?
Trading without a trading certificate
Fraudulent and wrongful trading
Disqualified directors
Prest v Petrodel Resources Ltd 2013
Lifting the veil to prevent evasion of legal obligations
Prest owned companies that owned houses in UK including his marriage home
Could be transferred in divorce to Mrs P because Mr P was the beneficial owner of the properties
What case clarified Lifting the veil to prevent evasion of legal obligations?
Prest v Petrodel Resources Ltd 2013
Gilford Motor Co v Horne 1933
Ex-employee tried to evade a restrictive covenant by forming a company
Lift the veil to prevent evasion of legal obligations
Jones v Lipman 1962
Lift the veil to prevent evasion of legal obligations
Sham company
Contract to sell a house to J but changed his mind
Specific performance ordered
To evade this set up company to transfer house to
Order against both L and company
What cases show lifting the veil to prevent evasion of legal obligations?
Prest v Petrodel Resources Ltd 2013
Gilford Motor Co v Horne 1933
Jones v Lipman 1962
Which case showed lifting the veil in the public interest?
Daimler Co Ltd v Continental Tyre and Rubber Co Ltd 1916
Daimler Co Ltd v Continental Tyre and Rubber Co Ltd 1916
During the war, all members were German nationals
As enemy, company could not take action in English courts
Lifting the veil in the public interest
What reasons may the veil be lifted?
To prevent evasion of legal obligations
In public interest
Group situations
Adams v Cape Industries 1990
Lifting the veil; group situations
Cape had WOS in US
US judgement could not be enforced against Cape in UK
Each company separate legal entity
What is in the Corporate Manslaughter and Corporate Homicide Act 2007
Section 1: committed by organisation when there has been a fatality caused by a ‘gross breach’ of DoC: max penalty unlimited fine
Senior managers can’t be prosecuted as individuals
Can do under Health and Safety at Work Act 1974 at common law
Cotswold Geotechnical Holdings prosecution?
Feb 2011
1st successful prosecution under the Corporate Manslaughter and Homicide Act 2007
Fined £385,000
Death of geologist employed by them after unsupported pit collapsed
