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Detailed Handouts for Company Law Lectures
Detailed Handouts for Company Law Lectures
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Company Law Lecture 1 2020/2021Dr. S Perera
Company Law Introduction
Assigned texts
- D French, Blackstone’s Statutes on Company Law 2020-21 (OUP, 2020)
Recommended Texts
- Basic: A Dignam and J Lowry, Company Law (11th ed, OUP, 2020)
- Intermediate: B Hannigan, Company Law (4th ed, OUP, 2015) or 5th edition
- S Worthington, Sealy and Worthington’s Text, Cases and Materials in Company Law (11th
ed, OUP, 2016)
Assessment
● Formative first semester assessment
○ One hour mock exam – this is optional but feedback provided after Christmas
holidays
● Final assessment (May)
○ Online examination [Three hour 15 minute exam but over a 24 hour period TBC).
○ Open book exam.
○ 100% of marks.
Non-Corporate Forms of Business
● Simple forms include:
○ Sole trader
○ Partnership
● Sole Trader
○ little formality
○ a person runs a business and owns its assets personally
○ trader is personally responsible for contracts/obligations
○ personal assets are at risk when debts not paid
○ business income taxed as personal income
● Partnership
○ Two or more persons carry ‘on a business in common with a view of profit’:
Partnership Act 1890, s 1
○ Forms by agreement in writing/oral. Few formalities
,Company Law Lecture 1 2020/2021
Dr. S Perera
○ Agency and contracting: Each partner is principal and agent for other partners:
PA 1890, s 5. Each is bound by acts of agents for normal business transactions.
○ Exception - where counterparty knows that agent has no authority to act.
○ Liability: No separate legal entity. Property purchased for business is partnership
property: PA 1890, s. 20. If p/ship fails, its property is used to satisfy debts. If
assets are inadequate, creditors look to personal assets of partners. Partners
share rateably in discharging debts. But if assets of other partners are exhausted,
the last solvent partner discharges remaining debts.
○ Each partner is responsible for own tax affairs; thus, p/ship profits are divided
and each partner declares that much of the profit received as personal income.
○ Protections: Given personal liability, partners are fiduciaries – must act in good
faith and for common good of p/ship. (But their more specific fiduciary duties
can be altered by agreement.)
○ Reconstitution and dissolution: P/ship dissolves every time a partner enters or
exits; a new agreement must be made. But p/ship agreement usually provides for
continuance (‘automatic novation’).
○ When a partner leaves firm, (s)he can be released from liability for p/ship debts.
But discharge occurs only after notice to all creditors/clients: PA 1890, s 17.
○ A partnership might be wound up also by agreement of partners. The partners
realise firm’s assets and discharge its debts (or appoint an insolvency practitioner
to do so).
● Hybrid Organisations
○ Limited Partnership Act 1907 –
■ LP must be registered.
■ Features active and passive partners.
■ Non-managerial (passive) partners:
■ cannot bind partnership to external obligations; but
■ enjoy limited liability
○ Limited Liability Partnership Act 2000 –
■ LLP’s main similarity to p/ship is in internal decision-making by partners
as equals and in taxation of profits.
■ Otherwise:
● LLP is a body corporate
● Partners can limit liability for trading debts (but remain liable for
torts they commit).
● Trust
○ Trusts can be set up with little formality; by settlor drawing up trust deed.
,Company Law Lecture 1 2020/2021
Dr. S Perera
○ Trustees own property held on behalf of beneficiaries; property might be used
for a business.
○ Beneficiaries are the investors (or ‘unit-holders’).
○ No separate legal entity; trustee is personally liable for debts with a right of
indemnity.
○ To reduce chances of personal liability, commercial trustees often are limited
liability companies.
○ When profits are earned, trustee must declare them and pay tax unless they are
distributed (then taxed in hands of beneficiaries).
○ Trust cannot exist for more than 125 yrs: Perpetuities and Accumulations Act
2009.
History of the Company
600 BC to 100 BC: In Rome associations of persons formed for business purposes. Typically, the
societas comprised two persons and engaged in trade.
Variations of the societas (societas publicanorum) had a close relationship with Roman state;
these were mechanisms for performing state contracts.
900 AD: In Amalfi and Venice, maritime firms were created to finance and manage single
maritime voyages. Funds were contributed by persons who included passive ‘investors’. These
arrangements developed to encompass multiple voyages and offer of shares.
1100: In Britain, guilds (associations) formed to advance the interests of tradespersons and local
community.
Guilds served quasi-public purposes, regulating aspects of trade – including:
● entry and progression from apprentice to journeyman to master
● setting of standards of quality for work done
They were recognised and conferred a monopoly within respective boroughs upon payment to
Crown of ‘donations’.
1200s: Originally, incorporation was by Royal Charter. Charters were first offered to the Church,
cities and university colleges.
Church/city/college was recognised as a legal person, could enter into contracts, hold property,
sue and be sued.
Charters were later given to groups of tradespersons as guilds declined. Royal charter conferred
favoured-status and a level of royal protection for group activities; but it also demanded that
those given a charter acted for public purposes. The Crown maintained a degree of control.
, Company Law Lecture 1 2020/2021
Dr. S Perera
1400s: Crown began to grant charters to those seeking business opportunities overseas. In
return for a share in profits, Crown granted the chartered corporation a monopoly on trade in
relevant region.
The objects of such grants were to
● provide for proper organisation of trade,
● develop a new trade, or
● assist colonisation
‘The interest of merchants was not in separate legal personality as such so much as the exercise
of governmental power and trading privilege’ (Farrar).
Later, chartered corporations began to raise funds through the sale of stock (shares). This
allowed for conduct of business ventures on a larger scale. Profits were paid in the form of
‘divisions’ or dividends. (initial equity financing)
In Britain, East India Company was first to combine incorporation by royal charter, overseas
trade and joint stock raised from the general public.
It was given a royal charter in 1600 by Queen Elizabeth I and became monopoly trader to the
East Indies.
When founded, the company had 125 shareholder and raised £72000 for its ventures.
The company was headed by a Governor and had a two-tier structure:
● General Court, comprised of all shareholders with voting rights
● Court of Directors (24 persons) undertaking day-to-day management
Late 1600s: a market had developed in shares of joint stock companies. Shares were traded by
‘stockjobbers’.
Regulation moved from Monarch to Parliament. Parliament attempted a limited regulation of
‘companies’ under Bubble Act 1720 – made it difficult to incorporate without a charter/Act of
Parliament. The aim was to prevent persons from speculating in shares.
Bubble Act led to development of deed of settlement company. Business assets were held (not
by a corporate body, but) by trustees. The business was managed by directors/other managers.
There was an attempt to make beneficiary interests transferable.
1844: first modern companies legislation was Joint Stock Companies Registration and
Regulation Act 1844. Government wished to encourage investment and business activity and
moved from incorporation as a privilege to a right.
Act permitted registration of deed of settlement companies, giving them ‘qualities and
incidents’ of incorporation. It divided governance between board of directors and shareholders
in general meeting.
There was no formal limited liability for investors.
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