,BUSINESS LAW &
PRACTICE
LEGAL PRACTICE COURSE
REVISION NOTES
, BUSINESS STRUCTURE
SOLE TRADER PARTNERSHIP LIMITED COMPANY
Becoming a limited
Partners must consult
Sole trader has complete company may require
with each other.
control over running of the business owner to cede
Decisions made by
CONTROL & business, as well as major control to other
majority unless specified
MANAGEMENT decisions. Provides flexibility, shareholders and
in partnership
but also adds pressure due to directors – How much
agreement. Can lead to
no advice or support control depends on
slow decision-making.
percentage retained.
Partnership doesn’t Company liable for own
Sole trader personally
have legal personality. debts. Owner’s liability is
(unlimited) liable for debts of
Partners are jointly limited to either the
LIABILITY business. Business failure may
liable for debts of the nominal value of the
end in bankruptcy for the
business. (For LLPs shares or the value of
individual.
liability is limited) their guarantee.
Fee for registering
company.
Initial costs if partners Generally, the more
COST No costs in setting up – Aside choose to have a formal, complex and valuable
from those of running the written partnership the company, the
(setup & business. No dues or fees to agreement. Ongoing greater the cost of
admin.) register. costs similar to sole administrating. Also
trader. costs on company
complying with the
reporting requirements.
Company will still need
Unable to give floating charge Broadly same as sole
valuable assets to act as
or raise capital through issuing traders.
security for bank
shares. Will have to give Partners fund with start-
FINANCING security over an asset (often up capital; The more
borrowing. However,
can also offer floating
personal) to get a loan from partners the larger the
charges, and raise
bank. capital sum.
money by issuing shares.
All profits belong to
company. Shareholders
Profits divided between
PROFIT All profits go to owner.
partners.
may receive dividends
and directors may
receive an income.
Company pays
corporation tax on both
income and capital
Owner pays tax on business Each partner separately
profits. Shareholders
TAX profits as an individual taxed on any profit they
also taxed on any
(income tax, CGT..) receive as an individual.
dividend income, and
employees taxed on
salaries.
, Substantial and complex
Partnerships must regulations, including
The least regulated business comply with filing confirmation
structure. Still s.t. regulation Partnerships Act 1890 statements (annual
REGULATION e.g. tax and date protection (not overly restrictive). returns), keeping
regulations. LLPs must keep PSC registers and notifying
registers. Companies House of
major decisions.
Obliged to disclose large
volume of information,
Information about sole
Same as sole traders. much of which is kept
traders kept private. Fewer
PUBLICITY regulatory requirements
LLPs must keep PSC publicly available by
registers. Companies House, or
means this is a benefit.
which may be
requested.
, SEPARATE LEGAL PERSONALITY
Salomon v Salomon [1897]: A company, duly incorporated, is an independent person with
its rights and liabilities appropriate to itself. The motives of those who took part in
promotion of the company are irrelevant in discussing what those rights and liabilities are.
Shareholders are not liable for company acts – Only up to any amount unpaid on shares.
Limited liability a trade-off for transparency.
Company owns its own property, not the members.
Ownership If company were to insure its property in name of a member,
this would not be valid (Macaura v Northern Assurance).
Contracts Company enters contracts in its own name
Company able to borrow and give security over assets.
Borrowing
Company can borrow from directors and shareholders.
Legal Action Company can sue and be sued in its own name.
Continuity Company has lifespan independent of those who run it.
Taxed separately from members and directors.
Taxation
Pay corporation tax opposed to income tax & CGT.
Companies have the right to life, right to protection of property,
Human Rights
right to a fair trial and right to freedom of expression.
‘Maintenance of Capital Principle’: Company owns capital, not members. Share capital
treated as special fund within company so that it is available to repay creditors should
company be unable to pay debts.
Groups of Companies
Used to ring-fence risk should subsidiary become insolvent.
s. 1159 CA 2006: (1) Company a subsidiary if its ‘holding company’:
(a) Holds majority of voting rights in it; or
(b) Is a member of it and has power to appoint/remove majority of directors; or
(c) Is a member of it and controls alone, pursuant to agreement with other members,
majority voting rights in it,
or if it is a subsidiary of a company that is itself a subsidiary of that other company.
,‘Wholly-owned’ subsidiary: Company has no members except that of its holding company.
Company can be wholly-owned if there is more than one shareholder, providing that other
shareholders are also wholly-owned subsidiaries of that holding company.
Adams v Cape Industries: Claimants suffered asbestos related illnesses. Tried to bring claim
against parent company (UK based) of subsidiary company they worked for in the US. 3
arguments (all failed):
(i) Subsidiaries were agents of parent company, therefore agent was conducting
business in the US (no evidence subsidiary an agent);
(ii) Parent and company acted as ‘single economic unit’ as subsidiary sold parent
company goods and subsidiary decisions made by parent (no such thing as single
economic unit in English law);
(iii) Parent established subsidiary in order to avoid taxation and court jurisdiction
(corporate veil argument – failed as no pre-existing legal obligation).
Avoiding Separate Legal Personality
Lender can get guarantee to avoid SLP principle. Director
Giving a Guarantee most likely to give guarantee (lender may not provide funds
otherwise).
Allows shareholders to become liable for company’s debts &
obligations.
Prest: ‘Evasion Principle’: Veil should be pierced where
person under an existing legal obligation, liability or s.t. an
Piercing Corporate Veil existing legal restriction which he deliberately evades by
interposing company between himself and obligation.
‘Concealment Principle’: (Not piercing veil) Where someone
tries to conceal true actors via a company structure, the court
will look through veil.
Single Economic Unit No general principle in English law.
Possible to be liable without piercing corporate veil; (i) Agency, (ii) Tort, (iii) Legislation, (iv)
Contracts.
, SETTING UP A COMPANY
Contracts entered into by “promoters” (not solicitors) on its behalf before
CONTRACTS
formal incorporation:
BEFORE
INCORPORATION Are not binding on the company
Are binding on the individual; s51
For the contract to bind the company, the director must enter into a novation
agreement with the company and the 3rd party
s7 – s10 & s12 – s13 sets out the documents needed for incorporation
1) Form IN01 (application for incorporation)
a) Public or private (s9(2)(c) & (d)
b) Company name (s9(2)(a))
Get options from the client (can trade under different name to
registered name)
Search CH index of names, as they cannot be registered under same
SEND TO name (s66(1))
COMPANIES Private company must include Limited/Ltd/Cyf (s59)
HOUSE Must not be offensive (s53)
Search Trade Marks Register
Check trade publications and phone book
c) Address of RO in England or Wales (s9(2)(b))
d) Statement of capital and initial shareholders (s9(4)(a))
There can be one member (s7(1))
Requirements of statement:
(i) Total number of shares to be taken by subscribers;
(ii) Total nominal value of shares;
(iii) Rights attaching to shares (s. 10(2)(a) & (b))
e) Statement of officers (directors and secretary) (s9(4)(c))
Name, address, residence, nationality, business occupation, date
of birth
Public must have 2 directors (s154(2))
Private must have 1 director (s154(1))
Company must make statement that officers have consented (s.
12(3))
f) Statement of compliance (s9(1) & s13)
g) Statement of initial significant control (s. 12A)
- Anyone who would be a PSC
, 2) Requisite fee (£12 electronic, or £30 same day. £40 paper, or £100 same
day).
3) Copy of the any amendments to model articles (s20(1)(b) or a copy of
bespoke articles (s. 18(2)), otherwise MA will automatically apply (no need to
attach special if using MA (s20(1)(a)))
4) Memorandum of Association which states the first members’:
a) Intent to form a company; and
b) Their agreement for members to take at least one share each (s8)
The first shareholders are ‘subscribers’ to the memo
Certificate of incorporation (s15(1)) issued by the Registrar which is evidence of
company’s existence and states:
a) Name and registered number
b) Date of incorporation
RECEIVE BACK
c) Location of RO
FROM
COMPANIES d) Limited/unlimited liability by shares/guarantee
HOUSE
With effect from the date of incorporation:
The subscribers become the holders of the shares in statement of
capital (s16(5))
Directors become the directors, and secretaries become secretaries
(s16(6))
Limited liability protection begins (s16(4))
Capable of exercising the legal functions of a company (s16(3))
Write up company records when receive back certificate (s1134)
Change the accounting reference date if necessary, because the default will be the
last day in the month of incorporation (s391(4))
Appoint auditors
ORGANISE
Optionally elect a chairman
Take out insurance in the company’s name
Advertise notice of company name at RO/place of business
Order stationary giving details of the company name
Private company does not need a secretary (s270(1))
COMPANY
Public companies must always have one (s271)
SECRETARY /
REGISTERED If appointing a secretary, use Form IN01; name, service, address (s12(1) & s277))
OFFICE Corporate secretary is possible but must authorise a human to carry out tasks
Company must have a registered office (s86) for communications (not
necessarily place of business)
Shelf Company
