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Chapter 10 - COMPANY LAW (Advantages of Company over Partnership…
Chapter 10 - COMPANY LAW
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Types of Company
Public quoted - share price on stock exchange, limited by shares
Public unquoted - limited by shares, but not quoted.
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Private - limited by shares (if compan liquidated, only have to pay back how many shares bought)
Private - limited by gurantee, and having a share capital
Private - limited by gurantee, but no share capital
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Pubic Companies
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Allotted share capital not less than £50,000,
of which not less than 25% is credited as paid up,
together with whole of share premium
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Trading Certificates
Issued by registrar (Department of trade - Companies House),
following application made.
Application requirements:
- Nominal value of allotted shares not less tha £50,000
- Preliminary/formation expenses
- To whom these have been paid (or still payable)
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If company trade before getting cert, innocent 3rd party is protected (buyer), but company and officer in default liable to fine. And if doesnt pay creditor in 3 weeks, directors liable.
if havent got certificate within 12 months of incoproation, court may grant liquidation order.
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Lifting the Veil
To see what lies behind, the shareholders and directors,
to prevent fraud/ilegality.
Could be sham company, who actually runs it.
Veil will be lifted under provisions of statute:
- Fraudulent trading - company set up to defraud suppliers
- Wrongful trading - people allow business to continue without expectation that company can avoid insolvency in foreseeable future
- Commencing trade without trading cert - directors have to pay creditors if not paid in 3 weeks.
- Abuse of company name - in financial difficulty, close down and start another company with same name.
- Fraudulent worse than Wrongful!
Other situations to lift veil:
- Preparation of Group account - consolidated accounts as 1 company, lift to see other companies.
- Tax Law - aggregate profit of parent and losses of subs, net off.
- Personal gurantees
Formation
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Pre-incorporated contracts:
- Application of Registrations
- Memorandum of Association
- Articles of Association(Official document)
basis of Constitution)
- Statement of Compliance(Promoter sign & m
magistrate countersign)
- Statement of Capital & initial shareholders
- Registration Fee
Application of Registration:
- Proposed name
- Registered office
- Proposed postal ad of registered office
Limitation of members liability
- Public/Private
Certificate of Incorporation:
- Certificate of date company born.
Memorandum
- was a major document, but since 2006, just record
- formal confirmation shareholders wish to create company
- Shareholders agree to be members, and take 1 share each
Company's Constitution:
- Articles - prime document, rules & terms of company
- Resolutions (Affecting the articles)
- Agreements (affecting the articles)
Articles (Contractual Force)
- Person becomes member, enters into contract with company
- Terms of contract in the Articles
- Binds members to company
- But articles dont create a contract between company & 3rd parties
eg company solicitor.
Articles (Alterability)
- Can only alter if for benefit for company as a whole!
(Current shareholders & future potential)
- Even if proposed alteration adversely affects only 1 member,
may still be valid. - Right of Lien
- Alterations allowing compulsory purchase of minority's shares
will be dissallowed (aleration to make minority sell their share)
- Expulsion of defrauding director (allowed)
- Expulsion of competing members (allowed)
- Possible to prevent alteration by weighted voting rights
Also if resolution requires presence of member, if not present, can prevent alteration.
Procedure for Alteration
- special resolution
- 75% majority(no less than)
- 14 days notice
- copy of resolution to registrar within 15 days
- copy of amendment articles to registrar
- affected member can prevent alteration
- articles may require greater majority than 75%
- must always be capable of alteration
Before company formed, any wrong doings by promoter, pormotoer is liable for as company doesnt exist yet.
Role of Promoters:
- act, under instruction to form company
- finding people t sign memorandum & Articles & act as company's first directors
- select suitable name
- determine form and amount of company's share capital
- determine rights attached to classes of shares
- prepare constitution of company(Articles)
- Submit forms to registrar
- pay preliminary & formation expenses of company
(company reimburses these costs)
Duties of Promoters:
- act with skill & care (courts decide what is 'reasonable')
- disclose any profit/potential conflict of interest to
1st independant directors/company's existing or intended
shareholders.
- Breach of duty - eg non disclosure, allows company to rescind contract & recover purchase price
- company may require promoter to pay over undisclosed profits
- company may sue promoter & claim damages for breach of fiduciary duty
Company Name Change
- Compulsory or Voluntary(may be made to change by court/registrar)
- within 12 months, if company by mistake registered with similar name to another
- within 5 years if misleading info is supplied
- any time, if use of name likely to cause harm to public
- Special Resolution, 75% majority, 14 days notice
- Resolution and amended constitution to registrat within 15 days
- Registrar issues new certificate of incorporation, but still same company, same contracts.
Objects
- (provision of what company can do)
- Before 2006, had to mention what company is allowed to to in terms of its role.
- But since 2006, only need to mention what cant do
- Company can do anything so long as its legal.
- Ultra Vires: an act that is beyond legal powers.
- In favour of 3rd party acting in good faith
- 3rd party can sue, but company cannot sue 3rd party.