Structures and Incorporation

Question 1

If someone owns shares what does that make them?

Answer 1

A shareholder. Nothing else. They do not own any of the company or it’s property.

Question 2

What is the veil of incorporation?

Answer 2

The term used to describe the fact that the company is a completely separate legal entity. The company is liable for its own stuff and not the shareholders or members.

Question 3

What happens when the veil is lifted?

Answer 3

The members and directors become personally liable for the co’s debts. This is done when there is a belief that the company is being used to hide something.

Question 4

Why is the veil lifted for groups of companies?

Answer 4

Companies work together and parent companies may be passed over etc. This is to make sure that the tax liability is recognised where it is due.

Question 5

Why is the veil lifted for revealing national identity?

Answer 5

Sometimes it is illegal to tract with countries because of war or sanctions. This is not allowed and so the veil would be lifted.

Question 6

Why is the veil lifted on sham companies?

Answer 6

These companies have been registered for an improper purpose and so it is important that those who do this are held liable hence the veil is lifted.

Question 7

Why is the veil lifted on quasi partnerships?

Answer 7

To expose the companies that have been registered as such but that are not being run accordingly - complying with the requirements of the CA 2006.

Question 8

How are the veil and the Co Directors Disqualification Act 1986 linked?

Answer 8

The veil must be lifted on companies where one of the Directors has been disqualified from acting as such. They would then be liable for the co debts.

Question 9

How are the veil and the Insolvency Act 1986 linked?

Answer 9

It links to wrongful or fraudulent trading - a co that is going insolvent should not keep trading. This can make the Directors personally liable to those that breach this and carry on.

Question 10

How are the vail and S767 CA2006 linked?

Answer 10

Public companies cannot trade without a certificate that allows them to do so.

Question 11

What are the types of company?

Answer 11

Public - limited by shares. Private - limited by shares. Private - limited by guarantee. Private - unlimited.

Question 12

How does a private company become public?

Answer 12

Re-register with Companies House.

Question 13

How does a limited company change to unlimited?

Answer 13

Gets the approval of all the members.

Question 14

How does an unlimited become limited?

Answer 14

Passes a special resolution.

Question 15

What is a memorandum of association?

Answer 15

The document used when forming a company that says that all the subscribers wish to form a company and be members of it.

Question 16

What does the application have to have?

Answer 16

The co name. Whether it will be limited by shares or guarantee. Public or private. Registered office and intended address.

Question 17

What must the statement of capital and initial holdings have?

Answer 17

The number of shares. The aggregate nominal value. The details of the class share. How much has been paid up.

Question 18

What is a statement of guarantee?

Answer 18

It states the max amount that any member will contribute in the event of insolvency.

Question 19

What is the statement of proposed officers?

Answer 19

It states the details of the first directors and their consent to act as such.

Question 20

What is the statement of compliance?

Answer 20

It states that the CA 2006 has been complied with. There is a need to redo this at a later date - you have to regularly prove that you are compliant.

Question 21

What does a plc have to do to get a trading cert?

Answer 21

Have nominal value of allotted share cap of £50k or more. Have at least 25% of the £50k paid up. Have an amount for any preliminary expenses and be able to show who paid. Declare any benefits given to promoters.

Question 22

What happens if a plc does not get a trading cert?

Answer 22

They are liable to a fine, and to the company debts if it defaults within 21 days. The company can be wound up if the certificate is not obtained within a year.

Question 23

What are the advantages of an off the shelf company?

Answer 23

Cheap and Simple. Can trade immediately. Don’t have to worry about the existence of pre-incorporation contracts.

Question 24

What are the disadvantages of an off the shelf company?

Answer 24

The Articles of Association may be unsuitable for the direction you wish to take. Altering these articles costs money. You would have to change all the officers.

Question 25

What is a promoter?

Answer 25

Someone who undertakes to form a company on behalf of someone else. They owe a fiduciary duty.

Question 26

What are the duties of a promoter?

Answer 26

Due care and skill. Disclose any interest in transactions - avoid conflicts. Disclose any benefits obtained as an aside to the job.

Question 27

What can a company do it the promoter makes a secret profit?

Answer 27

Rescind the contract. Obtain damages. Recover the profit.

Question 28

What is a pre-incorporation contract?

Answer 28

A contract made between a third party and an unformed company. At this point the company is unlikely to have contractual capacity and so the promoter is personally liable.

Question 29

What do pre-incorporation contracts mean?

Answer 29

The company isn’t liable. The company is not bound. The company cannot enforce. The company cannot ratify.

Question 30

How to negate promoter liability?

Answer 30

The promoter can get out of it if there is a VERY SPECIFIC clause that negates their liability.

Question 31

Who isn’t a promoter?

Answer 31

Anyone who is just doing the job they already do and aiding the business to set up. E.G Solicitors help to set up companies but they are not promoters.

Question 32

What must a company name have?

Answer 32

PLC/LTD. Secretary of State permission to use certain words e.g England. The name displayed on specific locations.

Question 33

What mustn’t a company name have/be?

Answer 33

Offensive/illegal language. The same as another company, or virtually the same. Any words that indicate another legal form e.g end in plc when it is an ltd. It cannot suggest an association with a government body that does not exist.

Question 34

How can a company change its name?

Answer 34

It must pass a special resolution and notify the registrar.

Question 35

How long does the S of S have to request a name change for a name too similar?

Answer 35

12 months

Question 36

How long does the S of S have to request a name change for a name that gives a misleading idea of the company activities that may cause public harm?

Answer 36

Unlimited

Question 37

How long does the S of S have to request a name change for a name that was granted due to misleading undertakings on application?

Answer 37

5 years.

Question 38

What are model articles?

Answer 38

They are assigned by the secretary of state in situations where a company doesn’t have its own articles.

Question 39

Who do the articles of association bind?

Answer 39

The company to members and vice versa and the members to each other.

Question 40

What rights do the articles protect?

Answer 40

Your rights as a member only. If you are trying to protect your rights as anything else to the company there is no grounds for legal action.

Question 41

How are the articles altered?

Answer 41

Special resolution with 75% majority amongst shareholders. The amended articles must then be sent to the registrar in 15 days.

Question 42

How can you protect articles?

Answer 42

You entrench them. This means that there are then special procedures to remove them e.g all members must approve or the court must order their removal.

Question 43

How are members protected from article alterations?

Answer 43

You cannot be forced to be bound by any alteration that comes after you joined if it increases your liability beyond that which you agreed when you joined.

Question 44

Where must all the company registers be kept?

Answer 44

The company’s registered office in a place that would allow public inspection. They may be electronic or hard copy.

Question 45

What does the registrar keep?

Answer 45

Anything that is submitted to them and anything that they create.

Question 46

What constitutes a micro company?

Answer 46

Turnover of less than 632k. Assets of less than 316k. Less than 10 employees.

Question 47

What constitutes a small company?

Answer 47

Turnover of less than 10.2 mill. Assets of less than 5.1m. Less than 50 employees.

Question 48

What constitutes a medium company?

Answer 48

Turnover of less than 36 mill. Assets of less than 18mill. Less than 250 employees.

Question 49

What does a micro company have to file?

Answer 49

Simple P and L or none. A balance sheet with minimum accounting info. No audit.

Question 50

How do you remove an auditor?

Answer 50

Ordinary resolution with special notice.

Question 51

What qualification must a plc secretary have?

Answer 51

Member of an acknowledged board. Had the role of secretary for 3 of the last 5 years. Capable of discharging the functions by virtue of position or qualification. Over 50% of the members must vote on that individual.

Question 52

What are the duties of a cosec?

Answer 52

Whatever the Board decides - Minutes, registers, make returns. They have the authority to bind them in contract and act as an agent - this could be express or implied