Session 1 Flashcards
What are the different legal forms of business?
1) sole trader
2) partnership
3) LLP
4) private and unlisted public companies
What is the different tax treatment of different business models?
1) LLPS are ‘tax transparent’
2) sole traders and partners all pay income tax on their share of the profits and CGT on their share of any capital gains
3) companies pay corporation tax
4) shareholders also pay income tax on dividends received (‘double taxation of profits’)
What is the main difference between public and private companies?
Public companies need 2 directors, a company secretary and must hold an annual General meeting.
For a public company- minimum of £50,000 share capital.
Only public companies can offer shares to the public and written resolutions are not permitted.
When does the separate legal personality kick in
for a company- this is the date of incorporation (date of issue of certification of incorporation).
What areas of contract law are there in company law?
standard conditions of contract:
1) offer
2) acceptance
3) intention and
4) consideration
Contractual terms may be conditions or warranties and may be express or implied
What are the three elements of partnerships
1) partnerships
2) partnership agreement
3)LLP
for a traditional partnership- no formalities required. Only condition is that a partnership is defined simply as a relationship between persons carrying on a business in common with a view to making profit
2 forms of liability:
1) contractual- every partner in a firm is liable jointly with the other partners for all the debts and obligations of the firm incurred whilst they were a partner
2) tortious- in tort, the partners liability is joint and several.
Partnerships are tax transparent- the partnership does not pay tax- but each partner is liable to tax as an individual on their share of the income.
The partnership agreement is a written express agreement governing the way the partnership will run. Common items within:
Commencement and duration
partnership name and place of business
partnership property
capital, profits and losses
drawings/salary
accounts
dissolution of the partnership
Duties, powers and restrictions on partners
The default position under the 1890 act is no profit and if a partner leaves- the partnership dissolves.
What are LLPs?
Corporate characteristics:
1) separate legal personality
2) limited liability
3) incorporation and registration requirements
4) required to file accounts
5) can create a floating charge
6) certain provisions of company law and corporate insolvency apply
Partnership characteristics:
1) no share capital or capital maintenance requirements
2) no real distinction between members and management
3) members can agree amongst themselves how to share profits, management duties, how decisions made etc
4) membership agreement is private
5) tax transparent
How is a company formed?
1) company constitution- key document is the articles (if before 2006- articles and memorandum)
The articles of association is a contract between members and the company.
2) formation- 2 ways of forming a company:
1) incorporate from scratch
2) purchase a shelf company
Important to note: company does not exist until the company house issued certificate of incorporation.
3) company meetings
4) decision making- diirectors make most decisions- passing board resultions at board meetings.
Board resultion- each director has one vote
Shareholders- 2 types of resolution- 1) ordinary, passed by simple majority (50%+)
2) special resolutions (passed by 75% or more)
These can be passed either at a general meeting or in writing (written resolution).
2 procedures
:
1) show of hands- one vote each
2) on a poll- one vote per share
A board meeting:
called by any director
Has to have reasonable notice
minimum quorum of 2 directors
Board resolutions passed by a majority vote
general meetings:
called by the board
14 clear days or short notice
Quorum- 2 shareholders (or 1 for single member companies)
voting- over 50% for ordinary
75% or more for special resolution
Sometimes, a chain of meetings is needed:
1) board meeting needed to call the first general meeting
2) a general meeting held for shareholders to vote
3) a further board meeting is then required to put into effect the outcome of the shareholders vote
4) may be post meeting matters, like filing at companies house
What were the directors duties and responsibilities
Number of different categories of director:
at law:
1) de jure,
2) de facto
3) shadow
In practice:
1) executive
2) non executive
A director can appointed by:
1) an ordinary resolution of the shareholders
2) by a decision of the directors
a director can only be removed by ordinary resolution. Special notice (28 DAYS) is required of a removal resolution.
The directors do not have to put this notice on the agenda. The shareholders can then serve a section 303 notice on the company requesting that the board calls a GM. IF they dont call within 21 day, the shareholders can call their own GM upon the usual 14 days
The duties of a director:
1) act within power
2) promote the success of the company for the benefit of the members
3) duty to exercise independent judgement
4) duty to exercise reasonable care, skill and diligence
5) to avoid conflicts of interest
6) not to accept benefits from third parties
7) to declare interests in transactions
There are 3 types of transactions that require approval by the shareholders by ordinary resolution because of a conflict with the directors:
1) directors long term service contract
2) substantial property transactions-
3) loans, quasi-loans and credit transactions.
Approval not needed where company is wholly owned subsidiary.
For these, the memorandum must be sent to the shareholders 15 days before the General meeting and displayed at the meeting itself.
What are the rights and remedies of shareholders
1) membership rights- s33. can enforce these rights as well as any rights under the shareholders agreement.
Remedies:
1) removal of directors- special notice must be given (28 clear days). also retain the right of a s303 notice.
Directors may insert bushell v faith clause to protect themselves-gives shareholders weighted voting rights-
2) derivative actions- brought by a shareholder but on behalf of the company eg for a breach of duty. Brought in respect of a cause of action vested in the company and seeking relief on behalf of hte company.
2 stage test:
1) court needs to give permission for a claim to continue
2) if it does, it will give directions for how the claim will proceed.
Onus is on the member to make out a prime facie case.
3) unfair prejudice actions- allows a member to bring an action on the grounds that the company is being run in such a way that they have suffered unfair prejudice- suing on behalf of themselves
4) just and equitable winding up- the right for a disgruntled shareholder to apply for the company to be wound up on the grounds it is just and equitable to do so- under s122(1)(g) Insolvency act
