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Topic 4: Company FORMATION

Terms in this set (19)

What are the CONSEQUENCES of separate 'legal personality'?
- limited liability for members,
- perpetual succession,
- company can own property and sue/be sued in its own name
What are some examples of when the courts will 'lift the veil'?
- to produce a tax liability
- give compensation
- prevent tax evasion
- reveal true national identity
- recognise breakdown in a quasi-partnership
TYPES of Companies
- Companies can offer limited or unlimited liability to their members
- There are numerous differences between Ltd and plc companies covering directors, shares, names, AGMs amongst others
Private vs. Public:
- Limited liability can be conferred by guarantee or shares
- Companies limited by shares can have either Ltd or plc status
- Public only has LIMITED liability
- Private may have LIMITED or UNLIMITED liability
FORMATION of a company in the UK:
- To obtain registration of a company limited by shares an application must be sent accompanied by various documents and a fee
- A plc even when incorporated, may not trade without a Trading Certificate
- A Certificate of Incorporation is issued by the Registrar and is conclusive evidence that the provisions of the Companies Act have been followed
- The 'off the shelf' method of setting up a company avoids the administrative burdens of registration
Who is a promoter?
= person who takes the necessary steps to form a company/make business preparations for the company

HOWEVER, a person who acts merely in a professional capacity in company formation e.g. solicitor/account, is not a promoter
What are the duties of a promoter?
General duties:
1. exercise reasonable skill and care

Fiduciary duties:
1. to account
2. avoid conflicts of interest
3. to disclose
4. to not make secret profits
How can promoters avoid liability under pre-incorporation contracts?
- by forming contracts in draft
- by purchasing a company off the shelf
- by attempting to novate the contract
Restrictions for choice of a company name (Companies Act 2006):
Name CANNOT:
- be offensive
- constitute a criminal offence
- be sensitive (words 'british' or 'international' require approval from the secretary of state!)
- be the same as an existing company
What is the 'Articles of Association'?
(from google)
- form a document that specifies the regulations for a company's operations and defines the company's purpose.
- the document lays out how tasks are to be accomplished within the organization, including the process for appointing directors and the handling of financial records
- they are related to the internal working or management of the company.
Which parties does the 'Articles of Association constitute a binding contract between?
= binding contract between the company & its members, but not third parties

- They may be changed via a special resolution after which the Registrar must be informed
- The articles may not be definitely declared unalterable, but can be effectively entrenched via weighted voting rights
What do 'company records' refer to?
= any register, agreement, minutes, accounting records, or other documents required to be kept by the Companies Act
An incorporated company must keep what company records?
- registers of members, directors, resolutions and minutes and charges
- accounting records e.g. accounts, director's reports, renumeration reports, auditor's reports and confirmation statement
Plc vs. Ltd - what is their deadlines for filing their accounts?
-Plc: within 6 months of year end

-Ltd: within 9 months of year end
Which companies are EXEMPT from having to have a statutory audit?
a) 'micro-entities' and small companies
b) dormant companies
c) non-profit companies
MICRO-ENTITIES meet at least 2 of the following requirements...
— turnover ≤ £632k
— balance sheet ≤ £316k
— employees ≤ 10
A SMALL company meets at least 2 of the following requirements...
— turnover ≤ £10.2m
— balance sheet ≤ £5.1m
— employees ≤ 50
What is a company secretary?
= an officer of the company and faces the same liability as a director

functions include: organising meetings, maintaining registers and filling documents
Plc vs. Ltd - which must have a company secretary?
- Plc: MUST appoint a company company secretary

- Ltd: with > 1 director need not appoint a company secretary, can choose whether to have one
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