Summary Company Law, ISBN: 9780198704133 company law
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Company law
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Kings College London (KCL)
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Company Law
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Summary Company Law, ISBN: 9780198704133 company law
company's separate corporate personality and limited liability
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Company Law
membership.
UOLLB First Class Law Notes Shares in a company are normally
transferable (must be so in a public
company).
Bachelor of Laws Members of a company are not entitled to
take part in the management of the
company unless they are also directors of
it.
Company Law A member of a company who is not also a
director is not regarded as an agent of the
company and cannot bind the company by
Table of Contents his actions.
1. Forms of Business Organisation ................. 1 The liability of a member of a company for
the debts and obligations of the company
2. Company Formation ................................... 3 may be limited.
3. Company Registration ................................ 4 The powers and duties of a company, and
4. The Nature of Legal Personality ................. 5 those who run it, are closely regulated by
the Companies Acts and by its own
5. Lifting the Veil of Incorporation ................. 6 constitution as contained in the
6. Dealing with Insiders .................................. 8 Memorandum and Articles of Association.
A company must comply with formalities
7. Dealing with Outsiders ............................... 9 regarding the keeping of registers and the
8. Capital and Class Rights ........................... 11 auditing of accounts.
A company must file accounts for public
9. Corporate Governance .............................. 14 inspection.
10. Duties of Directors .................................. 18 A company can create a security over its
assets called a floating charge, which
11. Majority Rule and Minority Protection ... 19 permits it to raise funds without impeding
12. Liquidating the Company ....................... 21 its ability to deal with its assets.
If a company owes a debt to any of its
1. Forms of Business Organisation shareholders, they can claim payment from
its assets rateably with its other creditors.
Definition of Company A company cannot normally be wound up
A company is a corporation – an artificial on the will of a single member, and the
person created by law. death, bankruptcy or insanity of a member
A human being is a natural person. will not result in its being wound up.
A company is a legal person.
A company thus has legal rights and Features of Partnerships
obligations in the same way that a natural A partnership is created by the express or
person does. implied agreement of the parties, and
requires no formalities, though it is
Features of Companies common to have a written agreement.
A company can be created only by certain Although in Scotland a partnership has a
prescribed methods – most commonly by separate legal personality by virtue of
registration under the Companies Act 1985. s.4(2) of the Partnership Act 1890, it is
A company incurs greater expenses at much more limited than the personality
formation, throughout its life and on conferred on companies.
dissolution, though these need not be A partnership must have at least two
excessive. members and has an upper limit of 20 (with
A company is an artificial legal person some exceptions).
distinct from its members. A partner cannot transfer his share of the
A company can have as little as one partnership without the consent of all the
member and there is no upper limit on other partners.
Every partner is entitled to take part in the Companies Act 1985 (as amended) or one
management of the partnership business of the preceding Companies Acts.
unless the partnership agreement provides Registration is the most commonly used
otherwise. means of forming a company and virtually
A partner in a firm is an agent of the firm, the only method now used to form a trading
which will be bound by his acts. company.
A partner in an ordinary partnership can be CA 1985, s.1(1): “Any two or more persons
made liable without limit for the debts and associated for a lawful purpose may, by
obligations of the firm. subscribing their names to a memorandum
Partners have more freedom to alter the of association and otherwise complying
nature of their business by agreement and with the requirements of this Act in respect
without formality, and to make their own of registration, form an incorporated
arrangements as to the manner in which the company, with or without limited liability.”
firm will be run.
A partnership is not required to keep Classification of Registered Companies
registers and audit accounts unlike a
company. Limited Liability
A partnership is not required to file This refers to the liability of the members,
accounts for public inspection. not the liability of the company.
A partnership cannot create a security over The company will always be liable to the
its assets in the form of floating charge. full extent of its debts.
A partner who is owed money by the The liability of the members, whether
partnership cannot claim payment in limited or unlimited, is to the company, not
competition with other creditors. to the individual creditors of the company.
A partnership (unless entered into for a
fixed period) can be dissolved by any Unlimited Companies
partner and is automatically dissolved by Members have unlimited liability.
the death or bankruptcy of a partner, unless If company is being wound up, members
the agreement provides otherwise. can be made to contribute to the company’s
assets without limit to enable it to pay its
Types of Company debts.
Cannot be public companies.
By Royal Charter (Chartered Companies) Can be set up with or without a share
Formed by grant of a charter by the Crown. capital.
Promoters of the company petition the Not subject to the same restrictions on
Privy Council attaching draft of proposed alteration of capital as other types of
charter to the petition. company, and do not normally have to file
Still used to incorporate learned societies annual accounts.
and professional bodies.
No longer used to incorporate trading Companies Limited by Guarantee
companies. Members agree to contribute a specified
amount to the company’s assets in the
By Act of Parliament (Statutory event of liquidation.
Companies) Total amount payable by all members is
Formed by private Act of Parliament. called the “guarantee fund”.
Formerly used to incorporate public Members do not have to pay anything as
utilities such as gas, electricity and long as company is a going concern – so
railways. company has no contributed capital.
The privatised public utilities have been Companies limited by guarantee are not
incorporated as registered companies. usually formed for business ventures.
Prior to 1980, a company could be
By Registration (Registered Companies) registered as a company limited by
Formed by registration under the guarantee, but also have a share capital –
these are called “hybrid companies”. shares listed on the Stock Exchange – but
Public Companies are regulated much more
Companies Limited by Shares strictly than Private Companies.
The most common kind of registered
company. 2. Company Formation
Members of the company take shares
issued by the company. Promoters
Each share is assigned a nominal value – Promotion of a company is concerned with
the amount that must be paid to the taking the steps necessary for
company for the share. incorporation.
Members may also agree to pay an extra
amount – called a premium. Definition of Promoter
When the company is registered, its “Promoter” is not defined in the Companies
memorandum must state the total nominal Act.
value of all the shares it is going to issue Some attempts at definition have been
(called the registered capital, or nominal made by the courts.
capital or authorised share capital). Twycross v Grant (1877)
The memorandum also states the number of Whaley Bridge Printing Co v Green (1879)
shares to be issued: e.g. 10,000 shares of £1 Whether someone is acting as promoter of
each = registered capital of £10,000. a company is a question of fact rather than
Liability of a member (shareholder), when a question of law.
the company is wound up is limited to the
amount, if any, of the nominal value of his Duties of Promoters
shares which has not been paid In the 19th century, it was common for
(Shareholder is also contractually bound to promoters to sell their own property to a
pay any premium which has not been paid). newly formed company at an inflated price,
Shares are normally partly or fully paid for or to acquire assets for the company and
when issued, so company will have a receive a commission from the seller.
contributed capital. The courts then began to impose a fiduciary
duty on promoters similar to that imposed
Public Companies Limited by Shares on agents.
CA 1985, s.1(3): “a company limited by A promoter must disclose any profit or
shares which has a memorandum stating potential conflict of interest to either: (i) an
that it is to be a public company and which independent board of directors, or (ii)
complies with the requirements of the Act existing or intended shareholders.
for registration as a public company.”
A company cannot be registered as a public Remedies for Breach of Promoters Duty
company unless it has a minimum allotted Where promoter has sold his own property
share capital of £50,000, at least one to the company, without disclosing this –
quarter of which has actually been paid. the company can rescind the contract and
A public company must have at least two recover the purchase price.
shareholders and at least two directors. Erlanger v New Sombrero Phosphate Co
(1878)
Private Companies Limited by Shares Right of rescission is lost if restitution in
CA 1985 defines a private company as integrum is not possible.
“any company that is not a public The promoter may have to account to the
company”. company for any profit he has made.
Private companies have no authorised Gluckstein v Barnes (1900)
minimum share capital. The company may be able to sue the
A private company is only required to have promoter for damages for breach of
one director and, since 1992, it can be fiduciary duty.
formed with only one member. Re Leeds & Hanley Theatre of Varieties
Only Public Companies can have their (1902)
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