Part 1 Flashcards
Rules regarding promoters and pre-incorporation contracts?
S.51 CA2006
Promoter who makes a contract on behalf of the unformed company is acting as an agent and is personally liable.
This benefits 3rd parties who are protected.
The promoter can sue the third party if that third party breaches the contract.
You may be able to agree with the 3rd party that you’re not personally liable, then section 51 would not apply. Very small chance a party would agree to this as it’s very risky.
What is a Novation?
The giving up of one contract with the promise to enter another on identical terms and conditions.
i.e Original contract with the promoter swaps to newly formed company on pre-incorporation contracts (landlord, suppliers etc.)
What is limited liability?
Limited liability is when there is a limited on how much you would be liable if a company’s debts should it became insolvent. This could be the guarantee you agreed as a member in a Private company limited by guarantee, or the amount you originally paid for shares in a Private Company limited by Shares. If you don’t have limited liability, creditors could pursue all your personal assets including your home and belongings.
What is a Limited Partnership?
They are a form of partnership that are created under the Limited Partnerships Act 1907. A limited partnership is where the partners are limited to the original amount invested. They are registered by submitting documents to companies house and they do not become incorporated or have a separate legal personality. They must have one or more general partners and one or more limited partners, general partners are liable for all the company’s debts and the limited partners are limited to a specific amount as long as they don’t part in the management of the company. This business structure is popular with venture capitalists.
What is a Limited Liability Partnership?
These are part of the Limited Liability Partnership Act 2000. This is where partners are not personally liable for every other partner in the business. This structure is very popular with accountants and solicitors which lobbied for the new business structure to be created. The LLP is liable for it’s debts and liabilities and the member’s liability is limited. This structure has more in common with a company and is regulated more stringently.
What are the 4 reasons why ‘Case Law’ is extremely important?
Codified
Creation
Remedies and Punishment
Interpretation
Explain a shareholders agreement
A shareholders agreement is a supplementary document usually between two or more members that sets out rules regarding their relationship. The agreement could also be between the company and the shareholders too. It’s only usually used when there is a small number of shareholders. Any member of the contract can enforce the agreement. It can be set up at incorporation or post-incorporation. You would use shareholder agreements as opposed to amending the articles as these are private and in most cases easier to enforce due to the articles and the restrictions on outsider rights
Corporate personality can be bestowed upon companies via statute and can be taken away by statute.
Give FIVE statutory examples of when this could happen.
- CA2006, s399 (Group Accounts)
- CA 2006, s767 (doing business without a trading certificate)
- CA 2006 s993 (Fraudulent)
- IA1986 ss213 and 246ZA (fraudulent trading)
- IA 1986, s238 (transaction at undervalue
4 Examples of when you can lift the corporate veil under IA1986
Wrongful trading
Fraudulent trading
Transactions at undervalue
Preferences
2 examples of lifting the corporate veil under CA2006
Doing business without a trading license
Other justifiable reasons e.g. the provisions for group accounts s.399 and fraud s.993
Define Actual Authority
A legal relationship between the PRINCIPAL and AGENT created by consensual agreement to which they are alone parties.
Express actual
Implied actual
Define Apparent authority and how to identify it
It was stated that ‘apparent authority is the authority of an agent as it appears to others.’
Apparent authority requires that
- There must be representation
- This representation must be relied upon
- The person relying on the representation must alter their position
How can a company enter into a contract?
- Affix it’s common seal
- A person who has authority (express or implied)
- By complying with the rules in s44 CA2006: 2 authorised signatures
A director in the presence of a witness
Every director and company secretary is an authorised signatory
Common Law Limitations on amending the articles
Will not be valid if it deprives a member of a right that has already accrued unless the member agrees
A company cannot contract out of the statutory ability to alter its articles
If the amendment breaches a separate contract, the amend will stand but the company will be liable for breach of contract
MOST IMPORTANT
must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole - Allen V Gold Reefs of west Africa ltd
What is a shareholders agreement?
Can supplement the company’s constitution.
Usually an agreement with 2 or more shareholders setting out the relationship can also be between the company and the shareholders
Where it may deprive company of a statutory right the company need not be bound
These are private unlike the articles which are public
