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company law > 1. Different Business Models and Introduction to Companies > Flashcards

1. Different Business Models and Introduction to Companies Flashcards

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1
Q

What is the structure of a Sole Trader?

A
  • The sole trader is the exclusive owner of the business.
  • It is not a separate legal entity.
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2
Q

What is the structure of a Partnership?

A
  • 2 or more persons own the business and share the profits.
  • The partnership is not a separate legal entity
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3
Q

What is the structure of an LLP?

A
  • 2 or more persons carrying on a business.
  • The partnership is a separate legal entity
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4
Q

What is the Structure of a Private Limited Company?

A

A company is a separate legal entity distinct from its owners

Governed by the Companies Act 2006

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5
Q

Advantages and Disadvantages of a Sole Trader?

A

Advantages:
- Can start trading immediately
- There are no setup costs/formalities
- Can keep all the profits
- Full control over decision making
- Complete privacy as no disclosure requirements

Disadvantages:
- Unlimited personal liability
- Contracts are formed between the sole trader and third parties

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6
Q

Advantages and Disadvantages of a Partnership?

A

Advantages:
- Can start trading immediately
- There are no setup costs/formalities
- Full control over decision making
- Complete privacy as no disclosure requirements

Disadvantages:
- Partners have unlimited personal liability
- Contracts are formed between the partners and third parties
- A partnership agreement will be required otherwise the Partnership Act 1890 will apply in default

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7
Q

Advantages and Disadvantages of a Limited Liability Partnership?

A

Advantages:
- All partners have limited liability
- The partnership can enter contracts with third parties
- Flexible management procedures

Disadvantages:
- There are set-up costs and formalities as an LLP must be registered at Companies House
- Must file annual accounts and has disclosure obligations
- A members’ agreement will be required otherwise the provisions of the Limited Liability Partnership Regulations 2001 will apply in default.

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8
Q

Advantages and Disadvantages of a Private Limited Company?

A

Advantages:
- Limited liability as shareholders are only liable to pay any amount unpaid on their shares.
- Minimum of 1 person required to incorporate a company
- Easier to raise finance

Disadvantages:
- There are set-up costs and formalities as a company must be registered at Companies House
- Extensive disclosure obligations
- The Companies Act 2006 imposes strict requirements on how companies are run.

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9
Q

What changes did CA2006 bring to CA1985?

A
  • Removal of the requirement for private companies to hold Annual General Meetings or submit Annual Returns
  • Codification of directors duties
  • Allowing private companies to pass shareholder resolutions in writing
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10
Q

Who are shareholders?

A
  • not involved in day to day management, voting rights and control key decisions
  • invest money (share capital) into a company for a return in the ownership
  • voting rights and rights to a dividend - set out in the Articles
  • Membership begins when the name is entered into the register (s112(2))
  • First shareholders are subscribers (s 8)
  • Does not need to be a human - company has a separate legal identity and can own property in its own name
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11
Q

Who are Directors?

A
  • human agents who run the company (day-to-day management)
    • agents of the company and conduct is governed by statute and the common law principles of agency
    • owe fiduciary duties to the company - codified in CA 2006
    • The board - the collective of all directors
    • some fundamental decisions cannot be taken by the directors - reserved for shareholders (article amendment under s 21 CA 2006)
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12
Q

How many directors must a private company have?

A

One - s 154 CA 2006

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13
Q

How many directors must a public company have?

A

Two - s 154 CA 2006

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14
Q

Who is a Persons with SIgnificant Control (PSC)?

A
  • every company must identify its PSC
  • someone who owns more than 25% of the voting rights in the company
  • has the power to appoint or remove a majority of board of directors
  • exercises significant influence or control over the company
  • ss 790-790ZG CA 2006 - register of PSC to the public
  • intended to avoid tax evasion, money laundering and terrorist financing - increase transparency
  • PSC register must be filed at Companies House along with a confirmation statement (annual statement confirms constitution and details)
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15
Q

Reasons to publically list a company?

A
  • enables the company to raise greater funds
  • listing on a exchange allows investors freedom with their investment
  • a company must be public before it is listed, but not all public companies are listed companies
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16
Q

What is a Private Limited Company?

A
  • Section 4(1) CA 2006: a private company is any company that is not a public company
  • Ends with Limited or Ltd
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17
Q

What is a Public Limited Company?

A
  • Section 4(2) CA 2006: a public company is a company whose certificate of incorporation states that it is a public company
  • Generally only public offer shares to the public - subject to onerous regulatory requirements
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18
Q

What is the required share capital for a public company?

A

Must have a share capital with a nominal value of £50,000 with at least one quarter paid up

19
Q

What is the required share capital for a private company?

A

No requirement for a minimum share capital, can be incorporated with one share of 1p

20
Q

Is there an obligation to have a company secretary?

A

Private - No Obligation

Public - Must have one under s 273(2) CA 2006

21
Q

Is the an obligation to hold an AGM (annual general meeting)?

A

Private - No Obligation

Public - Must have one AGM annually

22
Q

What are the Articles of Association?

A
  • All companies must have (s 18 CA 2006)
  • Main constitutional document
  • Regulates the relationship between shareholders, directors and company
  • Three choices as the form of the Articles: Model Articles (MA), Amended Articles, Tailor Made
23
Q

What can be included in the Articles?

A
  • Number of directors required to transact business
  • Method of appointment of directors
  • Powers of directors
  • How board meetings are to be conducted
  • Special rights attaching to shares
  • How shareholder meetings are to be conducted
  • How and to whom
    shareholders may transfer shares
  • Articles must comply with the minimum provisions of CA 2006 (Legality Test)
24
Q

How can the Articles be amended?

A
  • entrenched provision can only be amended if specific conditions are met - agreement of all members or by a court order (s 22(3) CA 2006)
  • basic rule to be valid, any alteration must be made bona fide in the interests of the company (Allen v Gold Reefs)
25
Q

What are the legal effects of the Articles?

A
  • Binding on company and its members and enforceable (s33(1)CA2006)
  • Articles evidence a contract between the company and its members in their capacity as members with respect to their rights and obligations (Hickman v Kent)

Contract between company and its members

  • courts are willing to prevent a company from infringing its rights in breach of articles by granting an injunction (Eley v Positive Government Security Life Assurance Company)

Contract between members themselves

  • if a member accepts a personal obligation to another member through the Articles, that member can enforce the right against the other member (Rayfield v Hands)
26
Q

What is the memorandum?

A
  • s 17 CA 2006 - no longer a constitutional document - used to register Companies at CH
  • CA 1985 - Companies were required to set out an objects clause - CA 2006 - Companies have unrestricted objects (s 31 CA 2006)
  • Under CA 2006, the objects clause of an older company continues in force unless and the until the Articles are amended to remove
27
Q

What are the two ways that a company can be incorporated?

A
  • Incorporation from scratch
  • Incorporation from a shelf company conversion
28
Q

What is the process of incorporating a company from scratch?

A
  • s 9 CA 2006 application must be made to Companies House including:
  • a copy of the memorandum
  • Articles prescribing company regulations (if not intending to use MA)
  • The Fee (5 days normal or higher fee for same day)
  • IN01 Application Form

One received, certificate of incorporation is issued, sets out company name, company number and the date of incorporation - company becomes a legal entity (s16(3)) from the date of incorporation set out (s 15 CA 2006)

29
Q

What must be included on a IN01 Application Form?

A
  • statement of capital and earnings (s 10)
  • statement of proposed officers (s 12)
  • if limited by guarantee, details provided (s 11)
  • statement of compliance with CA 2006 (s 13)
30
Q

How does a shelf company incorporation work?

A

set up in advance - was used for the speed in incorporation - however online services have allowed incorporation from scratch to be a lot faster

31
Q

How are decisions of the Directors taken?

A

Decisions of the directors are taken by passing Board Resolutions in Board Meetings (BM)

32
Q

How are decisions of the Shareholders taken?

A

Decisions of the shareholders are taken by passing Shareholder Resolutions in General Meetings (GM) - there are two different types of shareholder resolution: Ordinary and Special

33
Q

What is the necessary quorum for a valid BM?

A
  • Art 11 MA confirms that no proposal may be voted on at a BM unless a quorum is participating in the meeting.
    • Art 11(2) states that the quorum for a directors meeting may be fixed by a decision of directors, but never less than two and unless otherwise fixed, it is two.
34
Q

Who is the chairman of the board?

A
  • Chosen by the directors amongst themselves (Art 12 MA)

In a deadlock vote Art 13 MA provides that the chairman (appointed under 12 MA) will have the casting vote

35
Q

What fundamental decisions cannot be taken without shareholders authorisation?

A
  • Making of changes to the company constitution
    • Approval of certain transactions between the directors and company
    • Formal declaration of dividends
36
Q

What is an Ordinary Resolution?

A
  • where CA 2006 does not specify the type of resolution then a ordinary resolution is sufficient unless different in the Articles (s281(3) CA 2006)
  • Simple majority of more than 50% of the votes cast in favour MA 7 (1)
37
Q

What is a Special Resolution?

A
  • Under s 283(1) CA 2006 - requires a majority of not less than 75%
  • Changing company name s 77 (1) CA 2006 - special
38
Q

What is the Quorum for a General Meeting?

A

s 318 (2) CA 2006 - two qualifying persons - representatives of corporate shareholders - s 318(1) single company only need one qualifying person present

39
Q

What is a written resolution?

A

s 281 CA 2006 - private companies can pass resolution without holding a GM by using written resolution subject to s 288 - a method of voting, not a type of vote - must always be ordinary or special

40
Q

What cannot be passed through a written resolution?

A

may not be passed as written (s 288(2)) -
- removal of a director under s 168
- removal of an auditor under s 510

41
Q
A
41
Q

How is a General Meeting called?

A
  • if a shareholder resolution is required then there must be a GM
    • it is the board’s responsibility to call general meetings and decide when.
    • s 307 CA 2006 - minimum notice - for private companies is 14 clear days
    • Quorum for a GM is two shareholders s 318(2) CA 2006
42
Q

What is the process for passing a written resolution for private companies?

A

Art 8 (2) MA allows directors to take decisions in the form of a written resolution provided the procedure is followed.

  • Ordinary and special resolutions (CA 2006)
    • s 281 - only private companies may pass a shareholders resolution by way of written resolution
    • s 282 - written ordinary resolution can be passed by a simple majority
    • s 283 - written special resolution can be passed by majority of members not representing not less than 75% of the total voting rights of eligible members
    • s 284 - where a company has share capital, every member has one vote in respect of each share when voting on a written resolution
    • s 288 - resolutions to remove a director or auditor from office may not be passed by way of written resolution
43
Q

What is the process post meeting?

A
  • resolutions affecting the constitution must be sent to Registrar of Companies within 15 days of being passed
  • Special Resolutions must be filed as they form part of a company’s constitution (ss 17(b) and 29(1)(a) CA 2006)
  • copies of amended articles must be filed (s 26(1)
  • directors are responsible for update the statutory books eg: register of members and directors and the BM and GM minute books

company law (9 decks)

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