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Features of a company (Limited liability (The liability of a company's…
Features of a company
A kind of separate entity or corporate body which is brought into being by the registration procedures laid down by the Companies Act of that jurisdiction and its predecessors. Its creation is evidenced by the issue of a certificate of incorporation by the Register of Companies
Company law is about the interaction between a company (as a legal person in its own right), the company's members, its directors and its creditors (both secured and unsecured)
The relevant company law in all jurisdictions must provide rules to deal with the creation of companies, how directors, shareholders and secretaries are appointed and their duties and powers
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Perpetual succession
In company law, petal succession is the continuance of a company's existence despite the death, insanity, bankruptcy of a director, member/shareholder, company secretary or of the beneficial owner
None of these events affect the continuity of the company as the life of the company does not depend on the life of any of their officers
The company will continue to exist and does not need to be liquidated even if a director resigns or is removed from office, the company can continue as an alternative can be appointed or co-opted intro the bard
If a member transfers their shareholding to another, as any change in membership of a company, it does not affect the status of the company
Transferrable ownership
A shareholder of a company has shares in the company which entitles them to participate in the company. This could include rights to information, attendance and voting at meetings and receiving a dividend if one is being paid
If there is a ready market for shares (ie where shares are listed on a recognised stock exchange) then a value can easily be attributed to the rights attached to shares in a company
The vast majority of companies in the UK and offshore are private companies. Private companies commonly restrict the right of members to transfer shares
The most common provision are the articles of association giving the directors discretion to refuse to register any transfer. If the directors are given absolute discretion to refuse to transfer the shares, they must as directors, exercise this power bona fide and for proper purposes
Limited liability
The liability of a company's members is limited by shares or by guarantee, then the company's creditors cannot seek satisfaction from members, even if the company has insufficient funds to pay its own liability's in full
Members are not made liable to creditors simply because (as members or shareholders) they controlled the companies activities and thus caused liability to be incurred
This means that the members' liabilities are limited to the amount of thieir unpaid capital contribution. If they do not take on the role of a director or company, they have no further accountability for the debts that may be incurred by the company in its day to day business
Shareholders are able to enjoy the full protection that limited liability purports to grant them. It is said that such protection encourages investment, ensures that the entrepreneurial spirit to form companies is not dampened, creates employment and means that the business can compete in domestic and world markets
The maximum amount that a shareholder can be called upon to pay in the event that a company goes into insolvent liquidation is any amount that the shareholder owes to the company for payment of their shares
The courts sometimes reserve the right to ignore a company which is formed or used merely to perpetrate a dishonest scheme.
Limited liability has certain advantages, it encourages investment as the shareholders risk is minimised. It also encourages risk taking on the part of management who can take risks sure in the knowledge that the shareholders will not lose everything
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If liability was unlimited then the value of shares would depend on the wealth of the individual holder. Shares would be worth less to a wealthy shareholder as that shareholder would be more likely to be sued in the liquidation of a company than a poor one
Another advantage of limited liability is that it not only protects the shareholders from the company's creditors but it can also serve to put the business assets of an individual out of reach of that individual's personal creditor
Advantages of companies
Perpetual succession
Means that the company could carry on as usual regardless of the circumstances (death, bankruptcy etc) of the beneficial owners, directors, shareholders' or secretary of the company
Limited liability
The shareholders' liability is limited, offering protection to those who are in business
Transferable
The shares are normally easily transferable, enabling ultimate ownership of the underlying assets to change without having to go through formalities such as those required if transferring the ownership of land
Raising finance
May be easier as the company may have an increased borrowing ability. Banks may be more willing to lend funds to a company through its position as a septette legal entity than they would a sole trader or partners of a partnership
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Re Darby, ex p Brougham (1911)
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