Business Models Flashcards
(28 cards)
Sole traders characteristics
- no set up costs
- not separate legal entity
- unlimited personal liability
- no formal structure
- no procedural requirements/filing
- privacy
Partnership characteristics
- no set up costs
- not separate legal entity
- unlimited personal liability
- no procedural requirements/filing
- privacy
- governed by the Partnership Act 1890
- consists of 2 (or more) people working together with a view to profiting
- either partner can dissolve it by giving notice
Partnership Formation
PA 1890 to consider the existence of partership:
* are profits and/or losses shared
* is a loan made from one partner to another
* is property held jointly
Northern Sales Limited v Ministry of National Revenue: if there is an agreement to share losses and profits it is likely a partership
Walker v Hirsch: If a person is not ‘held out’ as a partner, existence is less likely.
Terms of partnership
default terms PA 1890
* profits/losses shared equally
* partners not entitled to salary
* decisions on ordinary courses of biz - majority
* decisions that change the nature of biz - unanimity
* a partner cannot be expelled by majority vote unless all partners have expressly agreed a majority can do so
varying agreements PA:
* partners rights and obligations can be varied at any time by their unanimous consent
Limited Partnership characteristics
two types of partners
* limited partners: limited liability + not involved in management
* general partners: unlimited liability + run the biz
other
* governed by the Limited Partnership Act 1907
* must be registered at Companies House
* no requirement to file accounts
Limited Liability Partnership characteristics
- introduced by the Limited Liability Partnership Act 2000
- separate legal personality
- treated as partnership for tax
- LLPA - 2 or more persons can incorporate an LLP (person can be company)
- partners have limited liability
- registered at Companies House and must file annual accounts and other info
- organisational structure decided by either (a) Members’ Agreement, or (b) default provisions from the Limited Partnerships Regulations 2001
LLP default provisions (Limited Partnerships Regulations 2001)
Regulations 7 and 8:
* members share equally in capital and profits
* LLP must indemnify members for personal payments/liabilities relating to the ordinary course of biz
* no member is entitled to remuneration for management
* no person can become a member or assign their membership without consent of all members
* ordinary decision making - majority
* changes to nature of biz - unanimity
* no implied power of expulsion by majority
Company characteristics
- separate legal entity
- limited liability (to amount unpaid on shares)
- governed by CA 2006
- do not need to hold AGM’s or submit Annual Returns (annual Confirmation Statement)
- private companies can pass shareholder resolutions in writing
Types of stakeholder in companies
- shareholders (members)
- directors
- subscribers (first shareholders)
- persons with significant control (those with over 25% of shares + details provided to CH)
- employees
- creditors
Types of private company
-
Private companies limited by shares (Ltd)
* no minimum share capital requirement
* cannot offer shares to public
* can be formed by one person -
private companies limited by guarantee
* no share capital
* liability limited to amount members agreed to contribute (winding up)
* membership non-transferrable -
unlimited companies
* unlimited liability of members
types of public companies
-
Public companies limited by shares (Plc)
* can offer shares to public
* minimum 2 directors
* minimum share capital of £50k
* requires trading certificate to trade
2.listed companies
* only public companies can be listed on a regulated investment exchange
* not all public companies are listed
CA 2006 - Private limited company definition
- any company which is not a public company
- names end with ‘limited’ or ‘ltd’
- most companies are private
CA 2006 - public limited company definition
- certificate of incorporation states it is a public company
- name ends with ‘Public limited company’ or ‘Plc’
- can offer shares to the public
- more restrictions than private companies
CA 2006 - listed company definition
- after converting to a ‘plc’ a company may list shares on an exchange to raise money
- only public companies can list on an exchange but not all public companies have their shares listed
Company’s constitution (overview)
- The Articles of Association
- companies incorporated under CA 2006 have unrestricted objects
- provisions in memorandums for companies incorporated under CA 1985 are treated as provisions of the Articles (CA 2006)
note: the Memorandum used to be constitutional but is now only used to register at Companies House
The Articles of Association
- s18 CA 2006 - all companies require Articles
- it regulates the relationship between the shareholders, directors, and company
- the Articles must comply with the minimum provisions of CA 2006 (legality test) (i.e provisions can be more, but not less, onerous)
- some CA 2006 provisions override anything in the Articles
- certain provisions in CA 2006 are subject to the articles (e.g. power of a private company to issue redeemable shares)
Form of the Articles
1. Model Articles (MA)/Table A
* MA prescribed for different types of company (s19 CA 2006)
* if a new company doesn’t provide articles, the relevant MA will act in default
2. Amended MA
* MA is adopted but certain provisions are excluded/modified
3. Tailor made Articles
* solicitors instructed to draft articles
Amending the Articles
- the Articles can be amended by special resolution (s21 CA 2006)
- s22 CA 2006 allows the entrenchment of specific provisions in the articles (i.e. provisions can be amended if specific conditions are met)
Courts:
* alterations to the Articles must be made in the interests of the company as a whole (Allen v Gold Reefs)
* this is tested via objective reasonableness (Shuttleworth v Cox)
Case law: amending articles
Sidebotton v Kershaw
* articles altered via a provision giving the directors power to require shareholder’s who entered into competition to sell their shares to the company at a fair price
* found reasonable and in bona fide interests of company
Re Charterhouse Capital
* articles amended to permit the shares of a minority shareholder to be compulsorarily acquired under takeover offer
* found valid due to consistency with shareholder agreement
legal effect of articles
- provisions bind company and members as if they were covenants (i.e. they are binding and enforceable)
- the articles are a contract (Hickman v Kent)
- company/members can enforce the articles upon eachother (when acting in the relevant capacity)
- courts have been willing to grant injunctions to prevent infringement of rights
Types of company formation
- incorporation from scratch
* deliver memorandum + articles to the Registrar of Companies at CH (s9 CA 2006)
* pay the fee and wait (5 days unless extra payment for 1 day)
* submit form IN01
* Certificate of Incorporation received: includes name, registered number, date of incorporation - shelf company conversion
Contents of IN01
- statement of capital and initial shareholders
- statement of proposed officers
- if the company is to be limited by guarantee, details of the guarantee
- statement of compliance (of CA 2006)
nominal (or par) value of shares
- shares in a limited company must have a fixed nominal value
- i.e. the minimum subscription price
- it represents a unit of ownership, not the actual value of a share
- shares cannot be issued at a discount to this value, but can be issued above it (premium)
Issued, paid-up and called up shares
- total amount in value (nominal and premium) of all shares = issued share capital
- amount paid up on shares = paid-up share capital
