Please enable JavaScript.
Coggle requires JavaScript to display documents.
Topic 1: Business and Incorporation - Coggle Diagram
Topic 1: Business and Incorporation
Purpose of company law
To facilitate business and generate money
Service to business
'Enabling' or 'facilitative' legislation
People are incentivised to start a business
Companies Act 2006 allows the incorporation of companies with limited liability
Reasons individuals organise themselves in groups
Enlightened shareholder value (ESV):
Directors to operate companies for the benefit of the members
Companies to be run with strategic balanced view of the implications of decisions over time
Impact on employees customers, suppliers and community more widely
Enlightened shareholder value - S.172 CA 2006
The positions of companies in society
Per Patricia Hewitt
"What are companies for?... We expect companies to create wealth while respecting the environment and exercising responsibility towards the society and the local communities in which they operate. The reputation and performance of companies which fail to do these things will suffer"
Alternatives to the corporate form. Why:
Need to examine the company's place within the various forms of business organisations
Need to obtain a fair comparative perspective on the advantages of each type of organisation
Business organisations combine 3 elements:
Faciliating investment:
You need CAPITAL (money) does your choice facilitate investment in the business?
Minimising risk:
A business might fail: does your choice minimise the risk involved in the venture?
Organisational structure:
People might argue: does you choice provide a clear organisational structure?
The features of various forms of group structure
The Sole Trader
A sole trader in law, any individual who happens to run a business
The business of the sole trader does not benefit from separate personality nor can it have limited liability
Advantages:
No disclosure
Ease of formation
No registration required
Disadvantages:
No separate legal personality (and associated benefits)
No limited liability
Partnerships
General partnerships:
Persons (natural or legal) carrying on a business or profession in common with a view of profit, without being incorporated are said to be in 'partnership' (S.1 Partnership Act 1890) and their association is known as a partnership 'firm' - S.4(1)
Advantages:
Fewer formalities
Financial privacy
Involvement in management: Partnership Act 1890, S.5: partnership actions are binding
Taxation
Disadvantages:
Potential expansion is limited (capital raising and recruiting partners)
A partnership has no legal existence separate from its members (unless its an LLP)
Limited liability
Duration of existence
Limited Partnerships:
Per Limited Partnerships Act 1907:
Possible to form a limited partnership consisting of (a) one or more persons called 'general partners', who are liable for all debts and obligations of the firm, and
(b) one or more persons called limited partners', who contribute capital to the firm on entering into the partnership but are not liable to pay anything more to meet its debts and obligations - S.4(2)
S.4 1907 Act:
no more than 20 partners
March 2022: 21,054 LPs
Not very popular
Limited Liability Partnerships
Limited Liability Partnerships:
Limited Liability Partnerships Act 2000
A
blend
between P and LC
Formalities (straight forward)
LLP must appear: Why?
Members are agents and not directly liable for debts
Has SLP
The types of companies under the Companies Act 2006
A solid structure for:
facilitating investment,
minimising risk,
providing an organisation structure
Company structure:
The subdivision of shares allows for numerous investors to become co members
Those members will normally have limited liability which minimises their risk
Salomon v Salomon & Co Ltd [1897]
The company is at law a different person altogether from the subscribers... and though it may be that after incorporation the business is precisely the same as it was before... the company is not in law the agent of the subscribers or trustee for them"
Classification of companies:
Companies can be classified in different ways (not mutually exclusive)
2 are provided for in the Act (Limited and Unlimited)
Public status (public or private)
Jurisdiction (e.g. foreign)
Purpose (trustee, investment)
Relationship with another co (e.g. parent, subsidiary, associated)
Public/Private:
S.755: prohibits a private co from offering shares to the public
S.58-59: what comes after the name
S.763: minimum authorised capital for public co is £50,000
S.270-271: company secretary
S.761: trading certificate
Attributes and powers of a company:
Capacity to sue and be sued
Perpetual succession
Power to own and dispose of property
Member's liability for debts may be limited
All powers of a natural person + corporate powers (e.g. to issue shares and grant floating charges
Motives for and against incorporation
Advantages:
Limited liability
SLP: Perpetual succession, can own property, can sue and be sued
Financing
Duration
Management and ownership
Limits on size
Transferability
Taxation
Disadvantages:
Cost
Formality
Continuing obligations
Problems for small companies:
The corporate form and its regulation are burdensome.
Small business, bank guarantees and LL