Module 9: Companies and Legal Personality

Question 1

What is the key characteristics of a sole trader?

Answer 1

No legal distinction between the business and the owner of the business

Question 2

Features of a sole trader?

Answer 2

No formal reg
Must keep accounts but don’t need to be public
Unlimited liability for debts

Question 3

Companies registered under the CA 2006?

Answer 3

Company has a separate legal personality from its owners

Limit owners liability for company’s debts

Question 4

What is a quid pro quo on limited liability companies?

Answer 4

Legal regulation on their activities

Question 5

What are the 5 types of company?

Answer 5

Chartered
Statutory
Registered
Community Interest Company (CIC)
Charitable

Question 6

What are the characteristics of a chartered company?

Answer 6

Set up by a charter from the crown
Generally not trading companies
Normally professional organisations e.g. ICAS, BBC

Question 7

What are the characteristics of a statutory company?

Answer 7

Set up by act of parliament

Uncommon

Question 8

What are the characteristics of a registered company?

Answer 8

Most common
Seek registration under the CA 2006
Public or private
Majority are private limited by shares in UK

Question 9

What are the characteristics of a CIC company?

Answer 9

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

Question 10

What are the characteristics of a charitable company?

Answer 10

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

Question 11

Company limited by shares?

Answer 11

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

Question 12

Company limited by guarantee?

Answer 12

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

Question 13

What is an unlimited company?

Answer 13

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

Question 14

How can a company change its liability status?

Answer 14

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

Question 15

Company name abbreviations for public and private companies?

Answer 15

Public - PLC

Private - LTD

Question 16

Transfer of shares for PLC and LTD?

Answer 16

Public- freely transfer

Private- may be restrictions

Question 17

Min allotted share capital for PLC and LTD?

Answer 17

Public- min allotted share capital with nominal value of £50,000
Private- no min

Question 18

Share dealings for PLC and LTD?

Answer 18

Public- may offer to sell to public, may be on LSE

Private- not offer, not on LSE

Question 19

Directors, company secretary and members minimums for PLC and LTD?

Answer 19

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

Question 20

When can PLCs and LTDs commence business?

Answer 20

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

Question 21

When do plc and ltd companies need to file accounts?

Answer 21

Public- must file within 6m of FY/E

Private- 9m of FY/E

Question 22

AGM?

Answer 22

Public- hold AGM within 6m of FY/E

Private- no requirement to hold AGM

Question 23

Advantages of Incorporation?

Answer 23

Limited liability
Separation of control and management
Perpetual succession
Freely transferable shares
Raising finance
Prestige

Question 24

Disadvantages of Incorporation?

Answer 24

Compliance
Expense
Publicity
Management
Maintenance of capital

Question 25

What is the Separate personality principle?

Answer 25

Company exists as a separate legal entity from its members

Question 26

Salomon v A Salomon and Co Ltd 1897

Answer 26

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

Question 27

Lee v Lee’s Air Farming Ltd 1961

Answer 27

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

Question 28

Macaura v Northern Assurance Company 1925

Answer 28

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

Question 29

What is lifting the veil of incorporation?

Answer 29

Exceptions to the Separate personality principle

Result in the company being associated with either members/directors/officers

Question 30

What are statutory grounds for lifting the veil?

Answer 30

Trading without a trading certificate
Fraudulent and wrongful trading
Disqualified directors

Question 31

Prest v Petrodel Resources Ltd 2013

Answer 31

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

Question 32

What case clarified Lifting the veil to prevent evasion of legal obligations?

Answer 32

Prest v Petrodel Resources Ltd 2013

Question 33

Gilford Motor Co v Horne 1933

Answer 33

Ex-employee tried to evade a restrictive covenant by forming a company
Lift the veil to prevent evasion of legal obligations

Question 34

Jones v Lipman 1962

Answer 34

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

Question 35

What cases show lifting the veil to prevent evasion of legal obligations?

Answer 35

Prest v Petrodel Resources Ltd 2013
Gilford Motor Co v Horne 1933
Jones v Lipman 1962

Question 36

Which case showed lifting the veil in the public interest?

Answer 36

Daimler Co Ltd v Continental Tyre and Rubber Co Ltd 1916

Question 37

Daimler Co Ltd v Continental Tyre and Rubber Co Ltd 1916

Answer 37

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

Question 38

What reasons may the veil be lifted?

Answer 38

To prevent evasion of legal obligations
In public interest
Group situations

Question 39

Adams v Cape Industries 1990

Answer 39

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

Question 40

What is in the Corporate Manslaughter and Corporate Homicide Act 2007

Answer 40

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

Question 41

Cotswold Geotechnical Holdings prosecution?

Answer 41

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