Sole Trader Advantages
? No filing requirements; fees or professional advice needed for set up
? One person, thus a complex organizational structure is not needed.
Sole Trader Disadvantages
? Not a particularly useful business form for raising capital (finding investors) -money is usually from bank loans or savings
? Unlimited liability: if business fails creditors can come after your personal assets, ie., no difference from the trader and t
Partnership Advantages
? No legal filing requirements, only 2 or more members needed
? Allows the pooling of resources / capital, being jointly liable for debts
? Flexibility: If you're aware of the problems the Partnership Act can cause you can draft an agreement to vary these
Partnership Disadvantages
? Partnership Act 1890 can be a danger to the unwary, ex., may not know, despite business being successful, if partner dies business ceases to exist.
? Jointly liable for debts, that is, creditor can come after one partner for debts owed by all.
? entitle
Company
Formed by applying to the registrar of companies, providing a constitution (essentially a set of rules for the company), the names of the first directors and members plus a small fee. This formation process is called incorporation.
Constitution
It is the memorandum and articles.
Sets out the binding rules of the company. Identifies the powers of the company and allocates them to the company's organs, usually the general meeting and the board of directors.
The articles of association are a set of
The Memorandum
The memorandum still exists as a separate document as part of the registration requirements under the 2006 Act.
Addressed to the general public and contains:
? Company name
? Company's share capital
? Address of company's registered office
? The objects o
Ltd (Private Limited Liability
? Ltd: a limited liability company would offers distinct advantages in the sense that, as members of a limited liability company, their liability would be limited to the extent of their capital contribution to the company as opposed to their being exposed
PLC: Public limited company
Limited liability is one of the most obvious differences between the company and other forms of business organisation, where members of both private and public companies have limited liability - serves to put the business assets of an individual out of re
Companies Limited by Guarantee
Companies limited by guarantee are for charitable, educational, and scientific purposes, while unlimited liability companies are extremely rare. No profit is envisaged. As a result the people behind the venture guarantee to pay a certain amount towards th
Company Limited by Shares
A shareholder's personal assets are protected in the event of the company's insolvency, but money invested in the company will be lost. Company where the liability of the shareholders for the debts of the company is limited to the amount unpaid on their s
Companies Act 2006
Provides for single person private companies - Could not have this prior. Public companies still need two shareholders.
Private Companies
? Investment comes from founding members' personal savings or bank loan. A private company may normally issue shares to family, friends or employees by way of a private arrangement. They are less strictly regulated with regard to loans to directors and ra
Public Companies
? Formed specifically to raise large amounts of money from the general public.
? Have a minimum capital requirement of �50,000, though only one quarter need be fully paid and the ability to call on the members for the balance.
Company Advantages
? Confer prestige which has come to be the way business is done
? Limited liability: it's debts does not flow over to shareholders. Ex., one is liable up to the amount he invests, ie., cannot lose more than that. Sole traders and partnership can lose all
Corporate Personality
Company is deemed at law to be a person, has own name and can be sued and sue. Has perpetuity (lasting for eternity) unless it becomes insolvent (bankrupt).
Shares
As opposed to small companies who look to the banks to finance the business operations of the company by means of loan capital, in large companies shares are generally issued as a major source of capital.
Unlike partners in a partnership, shareholders do
Quoted company
A company whose shares can be bought or sold on the Stock Exchange. A company is said to be "listed", "quoted" or "have a listing" if its shares can be traded on a stock exchange. To be more accurate, it is the securities that are listed, not the company.
Share Capital and Company assets
Share capital (capital stock)
? It is a cardinal principle of company law that the share capital of a limited company belongs to the company and not its shareholders. This principle exists primarily for the benefit of the company's creditors: while credit
Issued shares (issued capital funds)
? Issued shares is a term of law and finance for the quantity of shares of a corporation, which have been allocated (allotted) and are subsequently held by shareholders. It is also known as the subscribed capital or subscribed share capital. The act of cr
Lee v Lee's Air Farming Ltd
A company is a separate legal entity, so a director could still be under a contract of employment with the company he solely owned (wife claimed for workers compensation after husband was killed on the job of the company he owned)
Shareholders & Members
Shareholders are Members and vice versa. Term used interchangeably. Shareholders do not own a company, they own a share of participation rights, rights to attend meetings, vote, participate in a dividend.
Shareholders invest usually for two reasons; in ho
Shareholders relationship to company assets
Asset value of a company is a small art of the equation that determines market price. Many factors affect the price others will pay, like managerial skill, rumors, general economic conditions, government intervention, etc. What is being traded is not a pa
Debenture
A written acknowledgement of debt like a mortgage
Group Structures
Where a parent company organizes its business through a number of subsidiary companies in which it is usually the sole shareholder.
#PROMOTER#
#PROMOTER#
Promoter
Twycross v Grant:
" One who undertakes to form a company with reference to a given subject and to set it going and who takes all the necessary steps to accomplish that purpose."
In essence, the person who takes the necessary steps to form a company, such
Erlanger v New Sombrero Phosphate Co
Promoters of a company stand in a fiduciary relationship to investors, meaning they have a duty of disclosure. The contract could be rescinded otherwise.
(Promoters (who are in law fiduciaries, and therefore subject to a duty to disclose material facts) d
Promoter's Fiduciary Duties
Erlanger v New Sombrero Phosphate Co provides:
Promoters of a company stand in a fiduciary relation to it and to those persons whom they induce to become shareholders in it and cannot in equity bind the company by any contract with themselves without full
Companies Act 2006, s 51(1)
Where a promoter of a company purports to enter into a contract on behalf of that company, a valid contract will exist between the promoter and the third party that both parties can enforce.
Phonogram Ltd v Lane: This is unless 'subject to any agreement t
Novation
The only way that a company can take advantage of a pre-incorporation contract is for the promoter and third party to discharge the pre-incorporation contract and the company then to enter into a new contract w/ the third party in respect of the same subj
Novation Fails
Novation is ineffective if the company adopts the contract due to the mistaken belief that it is bound by it - Re Northumberland Avenue Hotel Co Ltd
Company's Right to Rescind Contract
the right to rescind will be lost where:
? the company affirms the contract (Re Cape Breton Co) [though the company can nevertheless sue the promoter afterwards to account for the secret profit.]
? company delays in exercising its right to rescind the con
Lagunas Nitrate Co v Lagunas Syndicate
For rescission to be available it must be possible to restore, at least substantially, the parties to their original position unless, due to the fault of the promoter, this possibility has been lost.
Gluckstein v Barnes
Consequently, where promoters make a secret profit during the promotion process they will be jointly and severally liable to account for that profit to the company. (promoters disclosed some of the profits they have obtained in a prospectus, but withheld
Kelner v Baxter
A person cannot be an agent of a non-existent principal and so a company cannot acquire rights or obligations under a pre-incorporation contract.
Newborne v Sensolid
A promoter can avoid personal liability on a contract where he signs the agreement merely to confirm the signature of the company. Because in so doing he has not held himself out as either agent or principal. The test is whether the promoter was intended,
EC Treaty - article 2, 43 and 48
Companies have a right to carry on business in any Member State provided that the company have been formed according to the law of a Member State and that they have their registered office, or centre of administration or principal place of business within
Debenture
Document that evidences, or acknowledges, the company's debt, It includes debenture stock, bonds and any other securities of a company. Thus a mortgage of freehold property by a company falls within the statutory definition as it is a security and a charg
Debenture stock
Debenture stock is money borrowed from a number of different lenders on the same terms. Such lenders form a 'class' who usually have their rights set out in a trust deed. The trustee, often a bank, represents their interests as a whole. The trust deed wil
Book debts (receivables)
Refers to balances due from customers whom a company has sold goods or rendered any services on credit.
Book debts are 'debts arising in a business in which it is the proper and usual course to keep books, and which ought to be entered in such books' (Off
Fixed charges
The bank or lender (chargee) may have provided money to a company (chargor) to acquire an asset like a building, printing press, car, etc. The company cannot sell this w/o the lender's permission, i.e, the the chargor's power to deal with the asset is res
Re Yorkshire Woolcombers Association
The hallmark of a floating charge is that the company can continue to deal with the charged assets in the ordinary way without obtaining the chargee's consent.
Floating charges
A floating charge floats over the whole or a part (class) of the chargor's assets, which may fluctuate as a result of acquisitions and disposals. Corporate property that can be made subject to a floating charge includes stock in trade, plant (ie machinery
Charges
Charges may be either fixed (or specific), the effect of which is that the chargee's rights (i.e. the lender's) attach immediately to the property in question, or floating, whereby the chargee's rights attach to a 'shifting fund of assets' (Re Cimex Tissu
Siebe Gorman
Where the chargee retains control over the debts and their proceeds so as to severely restrict the company's freedom to deal with them it will be a fixed charge.
(the company granted a debenture in favour of Barclay's Bank. The security was expressed to b
Agnew v Commissioner of Inland Revenue
The classification of a security as a fixed or floating charge is a matter of substance rather than drafting.
? Where the chargor company is free to deal with the charged asset(s) in the ordinary course of business it must be construed as a floating charg
Re Spectrum Plus
The ability of the chargor to continue to deal with the charged assets characterises it as a floating charge. For a fixed charge to be created over book debts, the proceeds must be paid into a 'blocked' account.
(The debenture stated that the security was
Negative Pledge' clause
The general rule is that security interests (fixed charges) which are effective from the time of creation have priority over floating charges which only have efficacy from the time of crystallization. Therefore a fixed charge can be created which will tak
Wilson v Kelland
Registration of a charge is notice of the fact that a charge exists (constructive notice) but it is not sufficient to show that a subsequent chargee has 'actual notice' of the negative pledge clause.
Constructive notice
Constructive notice is the legal fiction that signifies that a person or entity should have known, as a reasonable person would have, even if they have no actual knowledge of it. For example if it is not possible to serve notice personally then a summons
Pari passu
Latin, means, 'on equal footing'.
Registration of charges
Most charges require registration and the categories that have to be are set out in s.860 of Companies Act 2006. They must be registered within 21 days of creation or they will be rendered void (s.874), that is, prescribed particulars of certain categorie
21-day invisibility problem
If a charge is registered within the 21-day period, its priority depends on when it was created, not when it was registered. A charge-holder that registers first could find itself subject to a charge created up to three weeks earlier that it knew nothing
Liquidator and Receiver
The person appointed to deal with the assets and liabilities of the company or partnership once the resolution to wind up has been passed or a compulsory winding up order has been made.Will oversee the way in which the company's assets are dissolved. Put
Re Eric Holmes (Property) Ltd
? Inaccuracy in the registered particulars and the certificate does not affect the validity of the charge to which they relate. Put another way, a charge cannot then be set aside merely because the particulars are incorrect - Re Eric Holmes (Property) Ltd
Registration is a "perfection requirement
Registration is merely a "perfection requirement", that is, perfection relates to the additional steps required to be taken in relation to a security interest in order to make it effective against third parties and/or to retain its effectiveness in the ev
Voidable Floating Charge
S.245 of the Insolvency Act 1986 provides that a floating charge may be invalid if it is created within two years of the onset of insolvency if the parties are connected or one year if they are not. There is a defence that the company was solvent when the
Reform
In August 2005 the Law Commission published its final report, Company Security Interests. Its principal proposals include:
? A new system of electronic notice filing for registering charges.
? Removal of the 21-day time limit - thus removing the 'invisibi
Equity
Shares
Company Law Review Steering Group (CLRSG)
Company Law Review Steering Group.
The Final Report forms the basis of the Government's 2002 and 2005 White Papers.
? The CLRSG addressed two key issues with regard to the operation of the articles of association. First they found that the general meeting
S.585 (1) CA 2006
Payment in shares for work:
A public company is prohibited from accepting an undertaking to do work or perform services in payment of its shares. The allotte is required to pay the company the nominal value with any premium, and interest, irrespective of
Perpetual Succession
Separate personality means that the existence of a company does not depend on the existence of its members. Membership may change or members may die - the company continues in existence until wound up.
#COMPANY MANAGEMENT#
#COMPANY MANAGEMENT#
Directors' remuneration
Directors are not entitled as of right to be paid for their services unless the articles of association or a service contract between them and the company provide otherwise - Re George Newman & Co
The model articles provide that directors are free to dete
Service Contracts - ss 188-189
To prevent directors entrenching themselves by long-term service contracts "which would attract significant compensation packages (so-called 'golden parachute' payments), ss 188-189 require shareholder approval of any service contract which may run for mo
Cadbury Committee
Despite the fact that virtually all larger companies have established a remuneration committee there is a widespread dissatisfaction.
Cadbury Committee / Greenbury Committee
Cadbury 1992, Greenbury 1995 reports culminated in the adoption by the London Stock Exchange of the Principles of Good Governance and also the Code of Best Practice (The Combined Code). Of concern was the high levels of remuneration being awarded to direc
De facto directors
[in fact] One who has not been formally appointed as such but has nevertheless acted as a director in so far as he has openly undertaken a directorial role in the conduct of the company's affairs -- Re Kay tech International.
The issue of whether or not a
Gemma Ltd v Davies
In order to establish that a person is a de facto director, it is
necessary to show that the person performed functions which could properly be discharged only by a director.
� For this it would have to be shown that he exercised real influence in the gov
De jure director
Those who have been validly appointed to the office of director. (in law)
Shadow directors
In order to evade the duties to which directors are subject a shareholder might avoid formal appointment as such yet nevertheless direct the board's decision making. In this case the shareholder may be classified as a 'shadow director' and will be subject
Re Hydrodam (Corby)
To establish that D is a shadow director it is necessary to allege and prove:
(1) the de jure and de facto directors must be identifiable;
(2) that D directed those directors how to act in relation to the company or he was one of the persons who did so;
(
Alternate directors
The office of director is personal in character and so a director cannot appoint a delegate to act in his place should he be prevented from attending board meetings unless the company's articles of association or memorandum permit this.
UK Corporate Governance Code
UK Corporate Governance Code 2010 (replaces the Combined Code) is a set of principles of good corporate governance aimed at companies listed on the London Stock Exchange. It is overseen by the Financial Reporting Council and its importance derives from th
NEDs
Non-executive directors. Perform a monitoring role over executive directors. Although this is their primary focus the UK Corporate Governance Code makes clear that they should be involved in the management of the company.
Normally appointed to the boards
The Company Directors Disqualification Act 1986 (CCDA)
The CDDA 1986 seeks to protect the general public against abuses of the corporate form. The effect of a disqualification order is that a person shall not, without the leave of the court, 'be a director of a company, or a liquidator or administrator of a c
Grounds for Disqualification
? Conviction of an offence:
S.2 CDDA 1986 provides that the court may, at its discretion, issue a
disqualification order against a person convicted of an indictable offence (whether on indictment or summarily) in connection with the promotion, formation,
BIS
Department for Business, Innovation & Skills.
Mandatory disqualification orders for unfitness
? S.6(1) CDDA 1986 provides that the court shall make a disqualification order against a person in any case where it is satisfied:
a. that he is or has been a director of a company which has at any time become insolvent (while he was a director or subsequ
Crown monies
National Insurance, PAYE (employees' income tax) and VAT (sales
tax) are all collected by companies on behalf of the government and paid over at set intervals.
Secretary of State for Trade and Industry v Stephenson (aka, Re Stephenson Cobbold Ltd)
? Acting as a signatory for company cheques does not amount to involvement in the company's financial affairs and signing blank cheques was not necessarily evidence of unfitness.
? Non-executive directors who lack corporate financial experience may rely o
#CORPORATE GOVERNANCE#
#CORPORATE GOVERNANCE#
The concession or fiction theory
Views the company as being part of the state. The original charter and statutory companies were in no sense ordinary businesses but rather they were special ventures which were granted the advantages of incorporation by state because of the public interes
Corporate Goverance
For many years the business landscape consisted mainly of individual traders who both owned their business and exercised control over it. This all changed with the dawn of the Industrial Revolution, an unprecedented period of social upheaval and economic
Corporate Realism [Co separate/managers dominate]
Corporate realism is the theory that probably seems the strangest to a 21st-century reader. It considered the company to have a separate existence from its shareholders, who have no primacy in the company, as the company's interests and objectives are def
Adolf Berle
In 1932 Berle and Means, an economist and a lawyer, made two key observations about the operation of American companies in the 1930s. First, that shareholders were so numerous (described as dispersed ownership and subsequently as the Berle and Means
corpo
...
In 'The Modern Corporation and Private Property', Berle and Means, an economist and a lawyer, disputed the Corporate Realism model with fears of unaccountable managers controlling the largest corporations in America as their owners were too dispersed or u
Merrick Dodd
A debate between Adolf Berle and Merrick Dodd played out in the pages of the Harvard Law Review that was to shape the course of the corporate governance debate significantly.
Merrick Dodd aimed to respond to the lack of managerial accountability that Berl
Aggregate theory [Managers trustees for owners]
Berle believed that Dodd's model was impractical and would encourage greater managerial dominance over the control of corporations. He responded to Dodd's article with an opposing argument based on the aggregate theory.That theory describes the company as
Nexus of contracts theory
The aggregate theory evolved into the nexus of contracts theory and remains the dominant theory today. It argues that a firm was not a person, but instead a series of contracts between individuals thus constituting a market. Because the firm is not in any
Arguments against the primacy given to shareholders
Historically arguments against the primacy UK company law gives to
shareholders have been based on three general points:
� Corporations are very powerful and therefore have an enormous effect on society. Thus a narrow accountability to shareholders is ins
#LIQUIDATING#
#LIQUIDATING#
Going concern
A going concern is a business that functions without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months.
Liquidation
There are three types of liquidation:
? Compulsory winding up: when the period, if any, fixed for the duration of the company by the articles expires, or the event, if any, occurs which the articles provide will result in the company being dissolved, and
Company voluntary arrangements (CVA)
An important, but much underused, rescue procedure that basically allows the company to enter into a binding arrangement with its creditors.
Members' Voluntary winding up
...
Creditors' Voluntary winding up
Requires the creditors be notified and hold a meeting (s.98(1)). At that meeting the creditors may appoint a liquidator who will take priority over any liquidator appointed by the general meeting (s.100).
Fostering a rescue culture
Failure of a company and liquidation can have substantial adverse effects. Employees lose their jobs, creditors unlikely to be repaid in full if at all, company shares become worthless thereby members lose their investment; suppliers and retailers likely
Administration
A procedure that functions as a rescue mechanism for insolvent entities and allows them to carry on running their business. The process is an alternative to liquidation and is often known as going into administration. A company in administration is operat
Moratorium
A period of delay where there's an authorized postponement in the deadline for paying a debt or performing an obligation. The suspension of a specific activity.
Liquidator
Irrespective of the type of winding up, a liquidator will be appointed to oversee the company's liquidation. The liquidator occupies an extremely important position and his role is basically to gather in all the assets of the company, to pay off its debts