Week 2 (w/c 9th Oct) - Limited Companies & Incorporation

Question 1

What are the two main types of limited company?

Answer 1

Two main types of company we will be discussing in this module are:

Private limited company (Ltd)

Public limited company (plc)

Question 2

What are the directors of a company?

Answer 2

Directors = agents of a company

Question 3

What is limited by shares?

Answer 3

Limited by shares is when th shareholder’s maximum liability will be the consideration paid (or unpaid) on the nominal value of the shares, plus any premium

In simple terms, if the company winds up, the most you will lose is the amount you paid for your shares

Question 4

What is limited by guarantee?

Answer 4

Limited by guarantee:

Not suitable for a trading company seeking a profit

More suited to non-profit organisations, where any surplus is redistributed to beneficiaries or within the company

Company has no shares or shareholders

Members of the company liable by an agreed amount (the guarantee)

Question 5

What is the main difference between an ltd and plc?

Answer 5

Differences between an Ltd and a plc:

The main difference concerns share capital

Ltds are prohibited from offering its shares to the public. If any shares are proposed to be transferred, all shareholders must be consulted

Plc. can offer its shares to the public; these shares may also be listed on a stock exchange

Question 6

How often do PLCs have to submit their accounts?

Answer 6

Plcs have to submit their accounts within 6 months of their year end (it’s 9 months for Ltds)

Question 7

How much share capital does a plc need?

Answer 7

Plcs need a minimum of £50,000 issued share capital

Question 8

What agents do a plcs need?

Answer 8

plcs need at least 2 directors (only min. of 1 for Ltds) and a (qualified) company secretary

Question 9

What are the advantages of being a plc?

Answer 9

Advantages of being a plc:

• Easier access to capital
• Much more possible to assess value of the company (market capitalisation)
• Easier to make acquisitions
• Possibly gives company a more prestigious profile

Question 10

What are the downsides of being a plc?

Answer 10

Possible downsides of being a plc:

Much greater accountability and scrutiny of the company’s finances

Larger number of shareholders whom the company is accountable to

Possibility of hostile takeovers

Question 11

What is a promoter?

Answer 11

The promoter is Person(s) that takes the initial steps to set up a company.

This includes:
- finding shareholders (investors) and directors
- Seeking professional advice where necessary
- Ensuring the registration/incorporation process is taken care of

Question 12

What happens If the promoter fails to make proper disclosure (e.g. stating that he is a director or shareholder of the company)?

Answer 12

If the promoter fails to make proper disclosure (e.g. stating that he is a director or shareholder of the company):

• Company may rescind a contract for the purchase of property
• Company may choose to recover any of the promoter’s profit from such a transaction
• If the promoter commits an offence in connection with the company (fraud etc.), they could face disqualification (i.e. not being allowed to be a director or promoter) for up to 15 years

Question 13

What happens if the promoter enters into a contract made by on behalf of the company before that company has incorporated?

Answer 13

If the promoter enters into a contract made by on behalf of the company before that company has incorporated then:

The contract is not binding on the company, but…
The promoter will be personally liable

Question 14

What are the three documents required for setting up a company?

Answer 14

3 Documents are required:

IN01 – Application Form

Memorandum of Association

Articles of Association

Question 15

What is the method for forming a company?

Answer 15

.Method of forming company
A company is formed under companies act 2006 by one or more persons—

(a) subscribing their names to a memorandum of association (see section 8), and

(b) complying with the requirements of this Act as to registration (see sections 9 to 13).

A company may not be so formed for an unlawful purpose.

Question 16

What is the memorandum of association?

Answer 16

A memorandum of association is a memorandum stating that the subscribers—

• wish to form a company under this Act, and
• agree to become members of the company and, in the case of a company that is to have a share capital, to take at least one share each.

The memorandum must be in the prescribed form and must be authenticated by each subscriber

Question 17

What must be delivered to the registrar along with the application for registration of a company?

Answer 17

The memorandum of association, required documents, and a statement of compliance.

Question 18

What information must the application for company registration include regarding the company’s location?

Answer 18

Whether the registered office is to be situated in England and Wales, in Scotland, or in Northern Ireland.

Question 19

What must be included in the application if the company has share capital?

Answer 19

A statement of capital and initial shareholdings (authorised vs issued).

Question 20

What document is required for a company limited by guarantee in the application process?

Answer 20

A statement of guarantee (although this is not within our scope).

Question 21

What must the application include regarding the company’s proposed officers?

Answer 21

A statement of the company’s proposed officers (e.g., secretary).

Question 22

What information about the company’s registered office must be included in the application?

Answer 22

The intended address of the company’s registered office.

Question 23

When is it necessary to provide a copy of the proposed articles of association in the application?

Answer 23

When these are not supplied by the default application of model articles (refer to section 20).