Lec 1 - COMPANY LAW.pptx

Corporate law defined
Corporate law iss the body f laws , rules ,
regulation and practices that govern the
formation and operation of corporations . It
is the body of law that regulates legal
entities that exist to conduct business. The
laws touch on the rights and obligations of
all the people involved with forming ,
owning , operating and managing a
corporation.They can't lose more than their
investment in the corpoeration.

Major Characteristics of corporate
law
The major characteristic of corporate law
There are five principles that are common to
corporate law -
Legal personality – limited liability -
transferable shares - delegated management
– investor ownership
References :
Charles Wildstuartweinstein- company law.

PREFACE
Although company law is a well-recognized
subject in the legal curriculum and the title
of a voluminous literature , its exact scope
is not obvious since “ the word company
has no strict legal meaning”. Explicitly or
implicitly , many courses on “ company law
“ solve the problem of defining the scope
of the subject by concentrating on those
companies created by registration under
the Companies Acts.

>>>
The term “ company “ implies an association
of a number of persons for some common
object or objects such as economic
purposes ,i.e., to carry on a business for
gain.

Companies and partnerships (Limited
and unlimited)
English law provides two main types of organizations
for those who wish to associate to carry on
business for gain : partnerships and companies.
Although the word “ company “ is colloquially used
to both , the modern English law regards
companies law distinct from partnerships and
partnership law. Partnership law is codified in the
Partnership Act 1890 based on the law of agency ,
each partner became an agent of others, and
therefore affords a suitable framework for an
association of a small body of persons having trust
and confidence in each other.

Company’ Separate Legal Entity
A more complicated form of association, with a
large and fluctuating membership ,requires a
more elaborate organization which ideally
should confer corporate personality on the
association , that is ,should recognize that it
constitutes a distinct legal person , subject to
legal duties and entitled to legal rights
separate from those of its members. This the
modern company can obtain easily and
cheaply by being formed under a succession
of statutes culminating in the principal
Companies Act of 1985.

HISTORICAL BACKGROUND
It could be implied that the difference between partnerships and
companies , at least as far as business use is concerned , that
the former is used to carry on small businesses and the latter
large ones ( or, better , that the former is used by small
number of people to carry on a business and the latter by a
larger number). It seems that the Mid-Victorian legislature was
animated by some such idea. Thus , section 716(1) of the
Companies Act 1985 , re-enacted a provision first introduced by
the Joint Stock Companies Act 1844 ( which in fact set the
limit slightly higher at 25) , provided that , in principle , an
association of 20 or more persons formed for the purpose of
carrying on a business for gain must be formed as a company
( and so not as partnership); whilst the Limited Liability Act
1856 required companies with limited liability to have at least
25 members.

>>>
However , the Joint Stock Companies Act 1856 quickly
reduced the minimum number to seven for
companies , whilst the decision of the House of
Lords (HL) at the end of the nineteenth century
in
Salomon v. Salomon in effect allowed
the incorporation of a company with a single
member , the other six being bare nominees for
the seventh. This judicial decision preceded by
nearly a century the adoption European Commission
(EC) Directive 89/667, which requires private
companies formally to be capable of being formed
with a single
member.

>>>
In recent years the legislature removed the 20-
partners limit from a number of professions (
notably solicitors and accountants , who have
formed some very large , even multi-national ,
partnerships) and subordinate regulations
removed the
limit from many more
professions. In 2000, the Law Commissions the
total abolition of the limit and the
government implemented the recommendation
in December 2002.

>>>
Despite the amendments made in recent years
to meet the needs of small companies,
Parliament was persuaded to pass the Limited
Liability Partnership Act 2000, so as to
introduce new hybrid legal vehicle. Although a
hybrid , the limited Liability Partnership ( ‘LLP’
) is much nearer to a company than to a
partnership, and to that extent the title of
the Act is misleading . The LLP is governed by
company law , often adapted to its particular
needs , rather than by partnership law , except
in two crucial respects.

>>>
In particular , the LLP has the separate legal
personality and limited liability of the
company . The exceptions are taxation ( the
members are taxed as if they were partners)
and the internal decision making machinery,
where the divisions between members and
directors is abandoned and the members have
the same freedom as in a partnership to
decide on their internal decision-making
structures. How attractive the LLP will appear
to those setting up small businesses remains
to be seen.

It is not necessary that a company
shall be formed for gain or profit
To say that company law is concerned with those
associations which people use to carry on business
for gain is wrong assertion for two reasons
.
First , the law provides vehicles in addition to the
company in which people associate for gainful
business.
Second, companies incorporated under the Companies
Acts may be used for carrying on not-for-profit
businesses or for purposes which can be only
doubtfully characterized as businesses at all

COMPANY LIMITED BY GUARANTEE
The Companies Act even provides a
particular form of the company which may
be regarded as particularly suitable for
companies which carry on a not-for-profit
activity. This is the company “ limited by
guarantee” , as opposed to the company “
limited by shares “, the latter being the
form normally used for profit-making
activities and by far the most common
one.

THE FUNCTIONS OF THE MODERN
COMPANY
The comparative advantage of the company ( as
against, for example, the partnership or the
trust ) does indeed lie on the association of
large numbers of people for the carrying on
of large-scale business. This is for two reasons
. First ,company law , by insisting upon the
central role of directors in the running of the
company , permit a large and fluctuating body
of members ( the shareholders ) to delegate
oversight of the company’s business to a
small and committed group of persons (the
directors).

>>>
As important , over the years successive Companies Acts and,
especially, the common law have developed a set of rules for
regulating the relationship between shareholders and directors
when authority is delegated to the directors in this way .
•
Second, by providing for the creation of separate legal
personality , limited liability and transferable shares , company
law facilitates the raising of risk capital from the public for the
finance of corporate ventures. Although there are other ways
of financing companies , raising funds by the sale of shares
often gives companies greater flexibility than in the case of
debt finance and is therefore a crucial element in financing of
all businesses except those where the risk of failure is very
low.

TYPES OF REGISTERED COMPANIES
IN U.k
* Public and private companies.
* Listed and other publicly traded companies.
* Unlimited companies.
* Micro companies.
* Not-for-profit companies.

Unregistered Companies and other
Forms of Incorporation
* Statutory and Chartered Companies.
* Building Societies , Friendly Societies and
Co-operatives.
* Open-ended Investment Companies.

EUROPEAN COMMUNITY FORMS OF
INCORPORATION
* European Economic Interest Grouping.
* The European Company (Societas Europaea
or ‘SE’)

>>>
Types of Registered Companies:-
(1) Limited liability Company.
– A limited liability company is a company which
has the liability of its members limited by the
amount , if any , which is unpaid on their
shares , such companies being first recognized
in England in 1855. Limited liability companies
far outnumbered other types.

>>>
(2)Company limited by guarantee.
– Here in this type of companies the members’ liabilities
are limited to the amount they have undertaken to
contribute in the event of the company winding up .
There are only a small number of companies
registered in this way and typically they relate to
charitable or educational establishments. The English
Companies Act 1980 , section 1 (2) this type of
company denied the formation of such type of
companies with a share capital , only existing
guarantee companies may have a share capital , and if
so , may be private or public companies . If an
existing company has no share capital , it must be a
private one .

>>>
(3)Unlimited Companies.
– There are companies whose members have no
limit to their personal liability . Few have
been formed in this way - for although they
benefit from perpetual succession and the
secrecy of financial affairs ( i.e., annual returns
do not have to be submitted to companies
registry ) they have the disadvantage of
unlimited member liability .
– All the above three types of companies are
incorporated under the Companies Acts .

UNREGISTERED COMPANIES
(1) Statutory Corporations.
– Public utilities and certain nationalized industries are formed this way
viz. by special Act of Parliament.
(2)Royal charter.
– Old corporations ( such as the Bank of England ),certain state
undertakings ( such as the BBC) and some professional corporations
(C.I.S.) and trading corporations ( e.g. Hudson’s Bay Company ) have been
formed this way .
– (3)Building societies , Friendly societies and co-operatives.
– (4) Open-ended investment companies
•
Public and Private Companies
To be left for the assignment.
Assignment NO.(1)
Write an essay on Company and Partnershipin UK
- Reference : Gower & Davies ‘ Modern Principles of Company Law.
- www. Google Search.
- Submission date :15/10/13.

>>>
FORMATION PROCEDURES
Basic types of domestic incorporated
companies in UK:-
1-STATUTORY COMPANIES.
Statutory companies are formed by the
promotion of a Private Act of Parliament .
2. CHARTERED COMPANIES.

>>>
Formation of chartered companies procedures involve
the promoters submission of a petition to the
Crown ( through the office of the Lord President
of the Council ) praying for the grant of a charter ,
a draft of which is normally annexed to the
petition . If the petition is granted the promoters
and their successors then become
“ one body corporate and politic by the name ____
and by that name shall and may sue or be sued
plead and be impleaded in all courts whether of
law or equity … and shall have perpetual
succession and a common seal “.

>>>
, for example , as regards returning capital to the
members and escaping from having to give publicity to
the company’s financial position . The absence of
limited liability may also render the company more
acceptable in certain circles ( for example , the turf).
If the promoters decide upon a limited company , they
have also to decide whether it is to be limited by
shares or by guarantee and that depends upon the
purposes which the company is going to perform .
Only if it is to be a non-profit-making concern are they
likely to form a guarantee company which is specially
suited to a body of that type .Theoretically , the
incorporators will have a choice of five types:-

>>>
a. A public company limited by shares ;
b. A private company limited by shares;
c. A private company limited by guarantee and without
a share capital .
d. A private limited company having a share capital ; or
e. A private unlimited company not having a share
capital .
In practice , however , the choice is likely to be
between (b) and (c) and will be determined for them
according to whether they want the company to
trade for the profit of the members or to perform
some charitable or quasi-charitable purpose .

>>>
The Companies act 1985 , of UK provided
that the incorporators must decide on a
suitable name for the company . It must be
stated in the memorandum of association ,
on the company’s seal , on business letters ,
negotiable instruments , and order forms
and must be fixed outside every office or
place of business. Also it is advisable that it
should be as short as possible .

>>>
Restrictions on freedom of choice of the name:
If the company is a limited company its name
must end with the prescribed warning suffix
___ “ limited” ___ if it is a private company or
“public limited company “ if it is a public one .
These expressions may be abbreviated to “ Ltd”
or “ Plc “ and the company will subsequently
use those abbreviations even if it has been
registered with the full suffix. Also the name
must not be the same as any name already on
the Registrar’s index of names .

>>>
Limited company “if it is a public one. These expressions may be
abbreviated to “ Ltd” or “ Plc “ and the company will
subsequently use those abbreviations even if it has been
registered with the full suffix. Also the name must not be the
same as any name already on the Registrar’s index of names .
The memorandum and articles:
Before preparing the memorandum and articles , the draftsmen
will need to obtain , from the promoters , information on
matters such as the following :
The nature of the business.
This will be required in connection with the objects clauses of the
memorandum.

>>>
2.The amount of nominal capital and denomination
of the shares into which it is to be divided (
assuming , of course , that it is to have a share
capital ). These will need to be stated in both
memorandum and articles . For the articles the
draftsmen will also require to know if the shares
are to be all of one class and , if not , what
special rights are to be attached to each class , as
these would be set out in the articles , but
preferably not in the memorandum . The Capital of
a public company will have to be not less than the
authorized minimum

>>>
3.Any other special requirements which deviate from
the normal as exemplified by the appropriate table
.
The most likely matters are quorums , and the
minimum and maximum numbers of directors .
Restrictions in Table A:
The restrictions in Table A are limited to giving the
directors a right to refuse to register a transfer
when the shares are partly paid or the company
has a lien upon them .

>>>
Lodgment of document
The final step is to lodge certain documents at the Companies’
Registry . The first of these documents ____ the memorandum
and articles ____ must each have been signed by at least two
persons , whose signatures must be attested by a witness .
Today it is possible to lodge the incorporation documents
electronically and to facilitate this process the requirement for
authentication of the signatures to the memorandum and articles
through witnessing is replaced by authentication codes .
If the company has a share capital each subscriber to the
memorandum must write opposite his name the number of
shares he takes and must not take less than one
.

>>>
On lodging the memorandum and articles they must be
accompanied by two documents in the forms prescribed ,i.e.,
the Statement of particulars of the Directors and Secretary and
Situation of Registered Office and the Declaration of
Compliance . Declaration of Compliance consists of statutory
declaration in the prescribed form , by either the solicitor or
the director or secretary named in the statement , declaring
that all the requirements in the Act in respect of registration
and of matters precedent and incidental to it have been
complied with . Unless the Registrar is satisfied that the
foregoing requirements have been complied with he is not
entitled to register the company , but he may accept the
declaration as sufficient evidence of compliance . Then the
promoters shall pay the registration fees.

>>>
However , a second declaration may be
needed if the company is a guarantee
company which wishes to dispense with
“Limited” and further statement will be
required if the company’s proposed name
is one on
which a Government Department of
other body has to be consulted .

>>>
They will , of course , then have to send to the Registrar
notices of changes of the directors and secretary (
with required consents ) and of the situation of the
registered office . Any other changes ( e.g. alterations
of the articles or a change of name ) can be effected
at leisure. The main disadvantage is that until they
make changes , the company’s name is unlikely to bear
any relationship to them or to the business been
carried on . But with the recent virtual abolition of the
ultra vires rule and the introduction of the all-purpose
objects clause there should be less risk that the
objects clause of the memorandum of association will
prove inappropriate .

>>>
Registration and certificate of incorporation:
If the Registrar is satisfied that the requirements
for registration are met and the purpose for
which the incorporators are associated is “
lawful “ , he issues a certificate of incorporation
signed by him or authenticated under his
official seal . This states that the company is
incorporated and ,in the case of a limited
company that it is limited; it is , in effect , the
company’s certificate of birth as a body
corporate on the date mentioned in the
certificate .

>>>
•
The function of the Registrar in deciding whether
or not to register the company are administrative ,
rather than judicial , but a refusal to register can
be challenged by judicial review , albeit with scant
hope of success. However , normally , the
registration of a company cannot be challenged
because of the conclusive effect of the certificate .
This , happily , has rendered English company law
virtually immune ,(though not entirely due to 13 (7)
of the Companies Act), from the problems arising
from defectively incorporated companies which
have plagued the United States and many
continental countries .

>>>
Commencement of business:
A private company becomes “ capable
forthwith of exercising all the functions of an
incorporated company “ from the date of
registration mentioned in the certificate of
incorporation.
A public company shall not commence
business until it obtains “ trading certificate
“ or being registered as a private company .

ADVANTAGES AND DISADVANTAGES
OF INCORPORATION
•
1.Legal entity distinct from its members;
Or separate legal personality;
2.Limited liability;
3.Property : property of the association is more clearly distinguished from that
of its members.
4.Suing and being sued;
5.Perpetual succession;
6.Transferable shares;
7.Management under a board structure;
8.Borrowing;
9.Taxation;
10. Formalities ,publicity and
expense;
Gower and Davies’ Principles of Modern Company Law, pp.27-44.

Advantages and disadvantages
discussed in details
:-
1.Limited liability:-It follows from the fact that a corporation is a
separate person that its members are not as such liable for its
debts.
2.Property:-
One obvious advantage of corporate personality is that it enables
the property of the association to be more clearly
distinguished from that of its members. In an unincorporated
society , the property of the association is the joint property
of the members.
3.Suing and being sued:-
The company as a legal person can take action to enforce its
legal rights and can be sued for breach of its legal
duties.

>>>
5- Transferable shares :-
Incorporation , with the resulting separation of the business from its
members , greatly facilitates the transfer of the members’ interests.
6. Management under a board structure:-
4.Perpetual succession:-
Company Law provides a structure which allows separation of risk
investment via the purchase of shares , in which many persons may
participate , from the management of the company , which is
delegated to a smaller and expert group of people who partly
constitute and who are partly supervised by a board of
directors.
The death of a member of a company leaves the company unmoved ,
i.e., does not affect the legal status of the company; members may
come into and go but the company can go on for ever.

>>>
•
7. Borrowing :-
•
Nowadays , companies would find it easier than a
sole trader or partners to raise money by
borrowing because companies are able to grant a
more effective charge to secure the
indebtedness.
•
8.Taxation :-
•
In small businesses , where it is feasible to give all
the investors a say in management , it is likely
that tax considerations play a major part in
determining whether the business shall be set up
in a corporate form or as a partnership.

>>>
Formalities , Publicity and Expenses :-
Incorporation is necessarily attended with formalities ,
loss of privacy and expense greater than that
which would normally apply to a sole trader or
partnership. A sole trader is a person who already
exists . A partnership cannot exist without some
form of agreement , but this can be written on a
half-sheet of notepaper or be an informal oral
agreement. An unincorporated firm can conduct its
affairs without any formality and publicity beyond
that which may be prescribed by the regulations (if
any) applying to the particular type of business.

CONCLUSION
•
The balance of advantage and disadvantage in relation to incorporaration no
doubt varies from one business context to another ,at least as far as small
firms concerned; for large trading organisations , the arguments in favor of
incorporation are normally conclusive. This may reflect the firms’ respective
needs for capital to finance their operation. For large firms the division
between board and shareholders, transferable shares and conferment of
limited liability on the shareholders are helpful for the raising of capital. As
for the large firm which does not have a large capital requirement, such as
large professional firms, these have happily traded as partnerships in the
past and were , indeed ,often required to do so by the rules of the relevant
profession, most of which have now been relaxed. Unlimited liability was
seen as a badge of professional respectability . However , the threat of
crippling damages awards for professional negligence led the accountancy
profession in particular to press for an appropriate form of limited liability
vehicle for the conduct of their businesses. This led to the creation of
limited liability partnership , which combines the limited liability of the
company with the relatively flat internal hierarchy of the partnership.
However , where the large firm means also a need for a large risk capital ,
the corporate form predominates.

Lec 1 - COMPANY LAW.pptx

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