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Law of Organisations - Course Summary

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  • January 26, 2024
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  • 2023/2024
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Law of Organisations – course summary

TOPIC 1: BUSINESS STRUCTURES

UNINCORPORATED BUSINESS:
Unincorporated business are businesses run by individuals who have not set up a separate legal entity to run the business
and who have full personal liability for the debts of the business.
Sole traders Someone who runs an unincorporated business on their own as a self-employed person.
Professionals who operate as ca sole trader, for example, solicitors, are known as sole practitioners.
A sole trader is personally liable for all of the debts of the business.
The idea that there is no limit to the sole trader’s liability is known as the concept of unlimited
personal liability.

Bankruptcy: if a sole trader is declared bankrupt, that means that a trustee in bankruptcy will be
appointed. All of the sole trader’s property – even his house – will be transferred to the trustee in
bankruptcy. —> The trustee will sell off sole trader’s property and use the money that he receives
towards paying off The sole trader’s creditors, including the creditors of the sole trader’s business.
Partnerships A partnership is formed when two or more people are ‘carrying on a business in common with a
view of profit’ (s. 1 Partnership Act 1890). Triggering factors: (1) share profits; (2) share decision
making; (3) contribute to business’s assets (s 2 PA 1890).
Assets of a partnership are owned by the partners. Contracts are in name of partners.

The PA 1890 = default partnership agreement – partners may disapply some of the provisions in
the PA 1890. If not, the PA 1890 provisions will be implied.
Fiduciary duties between partners to: make full disclosure, share profits, not compete.
A partnership is not a separate legal entity. = Partners are personally liable for all of the debts of
the partnership. Each partner has unlimited personal liability.

Individuals who are partners: income tax on their share of the profits.
Companies who are partners: corporation tax on their share of profits.

Partners are not employees, they own the business.
‘Sleeping partners’ who are not involved in day-to-day matters, only in making fundamental
decisions about the business.
Limited partnerships The Limited Partnerships Act 1907 (LPA 1907) governs the formation and operation of LPs. —>
LPs must be registered with the Registrar of Companies before they can start trading.

An LP is similar to a partnership in that there must be at least one general partner who has
unlimited liability for the partnership debts.

Unlike a normal partnership, an LP is permitted to have a limited partner whose liability is limited
to the amount they initially invested in the business. This limited liability is conditional. The
limited partner must not:
 control or manage the LP;
 have the power to take binding decisions on behalf of the LP; or
 remove their contribution to the LP for as long as it is in business.

Breach of any of these rules leads to losing the protection of limited liability.


INCORPORATED BUSINESS:
An incorporated business exists as a separate legal entity from its owners and managers. It is formed when th
individuals who wish to set it up comply with various legal requirements in order to incorporate their business.
Private companies Formed by registering certain documents with the Registrar of Companies in accordance with
limited by shares requirements of the Companies Act 2006 (‘CA 2006’).

Main advantage: separate legal personality —> people who own and run the company are sepa
from the company itself. – Directors and shareholders’ assets are shielded from creditors. This separa
1

, is called veil of incorporation.

The directors of a company run the company. – make decisions at board meetings.
The shareholders of the company are the individuals who provide the money (in return for shares) to
allow the company to operate. – make decisions at general meetings.

Separate legal personality —> Salomon v A Salomon and Co Ltd: as long as a company is leg
incorporated, it must be treated like any other independent person with rights and liabilities : usin
company to manage risk and avoid liability for debts is acceptable.

Piercing the corporate veil —> Prest v Petrodel Resources Limited: corporate veil can only be pie
when a person is under an existing legal obligation or liability or is subject to an existing legal restric
which he deliberately evades, or whose enforcement he deliberately frustrates, by interposing a comp
under his control. - Even then, the corporate veil can only be pierced so as to deprive the company o
controller of the advantage that they would otherwise have obtained.

**Private companies can offer shares to a person already connected with the company or certain targ
individuals (s. 756 CA 2006).
Public companies For a company to be a public company:
limited by shares 1. Constitution (set of rules which govern the company) must state that it is a public company;
2. The words ‘public limited company’ or ‘plc’ (or Welsh equivalent) must be included at the end o
the company’s name; and
3. The company’s owners must invest a specified minimum amount of money for use by the company
the allotted share capital of the company must be at least the ‘authorised minimum’, currently £50,0
(ss 761 and 763 CA 2006). Each allotted share must also be paid up to at least a quarter of its nomina
value, plus the whole of any premium on it (s 586 CA 2006).

Companies can be registered as a public company on original incorporation, or they can register as a
private company and then re-register as a public company.

Advantages:
 Prestigious;
 Can raise money by offering shares to the public (s. 755 CA 2006);
 Can apply to join the stock market (London Stock Exchange and Alternative Investment Market
(companies > 3 yo)). – NB. Not possible to start a company as a publicly traded company: only a
option if company reaches a certain size.
o Unlisted companies can offer shares to the public, but harder to find buyers.
Disadvantages:
 More regulated than unlisted and private companies.
 Regulations made by financial services regulators.
Limited liability LLPs are formed under the Limited Liability Partnerships Act 2000 (‘LLPA 2000’): can be forme
partnerships 2+ members carrying on a lawful business with a view of profit by filing relevant docs with
Registrar of Companies + fee.
Legally comes into existence at date of incorporation shown on certificate of incorporation issued u
registration.

LLPA 2000 provides a default contract for partners who have not agreed all/any terms.

Separate legal personality: owners protected from liability for LLP’s debts.
Informal and flexible like general partnerships.
Partners taxed like a partnership.

OTHER TYPES OF BUSINESS MEDIUM:

Companies limited Used for organisations that are not seeking to make a profit, such as a professional society. Instead of
by guarantee buying shares, the shareholders guarantee the company’s debts up to a specified amount, usually £1.
Unlimited Rare because most people who are happy to run a business with unlimited liability for its debts will
companies choose to run it as a sole trader or partnership.
2

,Community interest A form of limited liability company intended for businesses that wish to use their profits and assets for
companies the public good and not for private profit.
Charitable Advantages of a corporate structure, such as reduced risk of personal liability, without the burden of dual
incorporated regulation by both the Registrar of Companies and the Charity Commission.
organisations
Overseas companies The law governing this is set out in the Overseas Companies Regulations 2009, which were made under
authority granted in the CA 2006. All overseas companies that set up a branch or any other place of
business in the UK must register selected details of the establishment within one month of their opening.
Companies There are just 45 of companies established by Act of Parliament still in existence. Sometimes companies
established by Act were formed by Royal Charter, such as the Royal Bank of Scotland. The right to form a company in this
of Parliament or way does remain and is referred to in the CA 2006, but generally this method of establishing companies
Royal Charter is more of historic interest.
Joint ventures A commercial enterprise undertaken jointly, by two or more parties. The parties retain their own identity
but generally pool their resources for a specific purpose.
Governed either by a contract between the parties a or a corporate structure which they will jointly
control. So a joint venture is not a separate type of business medium in itself, but rather a description of a
joint commercial enterprise which could take many forms.

Considerations in choosing business medium:

 Liability: private/public companies and LLPs benefit from limited liability
 Tax: depends on financial circumstances of business and its owners
 Formalities: no formal requirements for sole traders & partnerships.
o Unincorporated businesses: no formal requirements once established
o Companies: must complete minutes, maintain statutory registers, file docs
o Companies subject to requirements and rules of CA 2006
o LLPs also required to file docs at Companies House, but have freedom over how they make
decisions like general partnerships
 Publicity of information:
o Sole traders and partnerships: disclose identity and address
o Companies and LLPs: reveal info to public at large – including financial info
o Companies: info on directors, shareholders and significant decisions + registers open for
inspection.
 Cost:
o Sole traders and partnerships: no legal/administrative cost to set them up
o Company and LLPs: fee + legal advice + cost more to run
 Status: company is preferred as more prestigious and transparent
 Finance: companies and LLPs can offer additional security for loans: floating charge (not available to sole
traders and partnerships)

The Limited Company:

Forming a company:

 What brings it into existence? The registration process resulting in incorporation of the company as a
new (separate) legal entity. – ss 7-16 CA 2006.
Filing:
 Applicant must: complete (1) Companies House form IN01 and submit it with (2) memorandum of
association, (3) statement of compliance (and (4) articles if not MA) + pay applicable fee.
o To register a company, the memorandum, the form IN01 and the statement of compliance,
together with the relevant fee, must be filed at Companies House.
o Where the company is adopting unamended standard articles such as the Model Articles for
private companies limited by shares, there is no need to file articles of association and the
memorandum is omitted in these options.

 Companies House in Cardiff: registration in England & Wales; in Edinburgh: Scotland and N Ireland


3

,  Application can be made online, by post or software provided by CH depending on who is making the
application. – & through company formation agents (who have software)
 Law and accountancy firms have shelf companies for clients to use.
 Application address to Registration of Companies but processed by Companies House.
 Proposed directors must not be named in Disqualified Directors’ Register.
 s. 15 CA 2006: certificate of incorporation must state:
o name and registered number of the company;
o The date of its incorporation;
o Whether it is a limited or unlimited company and, if it is limited, whether it is limited by shares or by
guarantee;
o Whether it is a private or public company;
o Whether the company’s registered office is situated in England and Wales (or in Wales), in Scotland
or in Northern Ireland.
 The certificate will be signed by the Registrar or authenticated by the Registrar’s official seal.
 Companies must all be registered with HMRC for corporation tax.
o Online: registered for corp tax automatically; other: apply separately.

Decisions to be made:

Company name Ending:
 Private companies: Limited or Ltd – in Wales: cyfyngedig, or cyf – s. 59 CA
 Public companies: public limited company or Plc – s. 58 CA

Similarities to existing names:
 Must not be the same as an existing company name – s. 66 CA
 Companies, Limited Liability Partnerships and Business (Names and Trading Disclosures)
Regulations 2015 (‘Names Regs 2015’): can be the same even if not identical
 Exception: part of the same group as the company or LLP with the existing name and the
applicant has written confirmation that the company or LLP has no objection.

Prohibited or restricted names:
 Cannot use a name which would constitute a criminal offence or be offensive in the opinion
of Secretary of State for BEIS – s. 53 CA
 Approval of SS for BEIS needed when name suggests connection with gov dept or authority
– s. 54 CA
 Approval of SS for BEIS needed for sensitive words or expressions, including words
referring to geographical areas, professions etc – Names Reg 2015
 Certain letters, characters, signs, symbols and punctuation cannot be used – Names Reg
2015
 Cannot exceed 160 characters including spaces.

Trading names:
 Companies can trade using a different name from their registered name. No need to register
them but subject to similar restrictions as company name.

Trademark infringement and passing off:
 Company/trading name changed if too similar to another company’s trademark
 Owner of trademark can bring a claim for trademark infringement – if trademark not
registered: action in the tort of passing off (suggested association with company).

Registered office Company needs reg office (s. 86 CA) and this address must be inserted in Form IN01.
Reg office is address to which correspondence from CH is sent – can be solicitor’s address.
Board resolution is required to change the company’s registered office (s. 87 CA), and the
company must file form AD01 at CH.
Statutory books (reg of members, reg of directors + residential addresses), board minutes &
general meetings minutes must be kept at reg office.

First directors Names and DoB of 1st directors must be on IN01
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