Companies: The Consequences of Incorporation

Question 1

Can sole traders create floating charges?

Answer 1

No

Question 2

Can partnerships create floating charges?

Answer 2

No

Question 3

Can LLPs create floating charges?

Answer 3

Yes

Question 4

Define company

Answer 4

An artificial legal person

Question 5

Do shareholders part-own the company or the company’s property or both?

Answer 5

Shareholders part-own the company; not the company’s property

Question 6

Define the veil of incorporation

Answer 6

The fact that a company is a separate legal entity, which separates the legal identity of the company from that of its members, and also its liability from that of the members.

Question 7

If a company fails, what is the liability of shareholders?

Answer 7

1. Amount unpaid on their share capital OR

2. Any amount they have agreed to contribute (if limited by guarantee)

Question 8

Define lifting the veil of incorporation

Answer 8

In certain circumstances the courts can look through the company to the identity of the shareholders.

Question 9

Why would the courts lift the veil of incorporation?

Answer 9

To prevent inequitable results and expose the commercial reality of a situation

Question 10

What is the usual result of lifting the veil?

Answer 10

The members and/or directors become personally liable for the company’s debts

Question 11

What are examples of when the courts have been willing to lift the veil of incorporation?

Answer 11

1. Where the courts feel the subsidiary may be regarded as an agent of the parent
2. To reveal national identity in times of war
3. When a business is registered as a company but is run as a partnership
4. When a company has been registered for an improper purpose such as evading a legal obligation

Question 12

On what occasions will statute intervene to lift the veil?

Answer 12

1. A director who is disqualified participates in the management of a company
2. Wrongful or fraudulent trading
3. Public company trades without first obtaining a trading certificate

Question 13

How many times can a company alter its status?

Answer 13

Once provided it amends its name and articles and notifies the registrar

Question 14

Define public company

Answer 14

Must be registered as a public company under CA06

Question 15

Define private company

Answer 15

Any company that is not a public company

Question 16

What is the minimum number of members a public company can have?

Answer 16

One

Question 17

What is the minimum number of members a private company can have?

Answer 17

One

Question 18

What does a public company’s name end with?

Answer 18

Plc

Question 19

What does a private company’s name end with?

Answer 19

Ltd

Question 20

In order to trade, what is the minimum capital that must be allotted in shares of a public company?

Answer 20

£50,000, although this doesn’t need to be fully paid up: only 1/4 needs to be paid up, plus all of the premium

Question 21

In order to trade, what is the minimum capital that must be allotted in shares of a private company?

Answer 21

No minimum

Question 22

How may a public company raise capital?

Answer 22

1. By advertising its securities as available for public subscription
2. Can be listed on the Stock Exchange

Question 23

Can a private company offer its shares to the public?

Answer 23

No

Question 24

What is the minimum number of directors a public company can have?

Answer 24

Two

Question 25

What is the minimum number of directors a private company can have?

Answer 25

One

Question 26

When can a private company start trading?

Answer 26

Once it has obtained a trading certificate from the Registrar

Question 27

When can a public company start trading?

Answer 27

From date of incorporation

Question 28

Is a secretary required for a public company?

Answer 28

Yes and must be qualified

Question 29

Is a secretary required for a private company?

Answer 29

No and they don't need to be qualified

Question 30

What is the deadline for a public company to file its accounts?

Answer 30

Within six months of end of accounting period

Question 31

What is the deadline for a private company to file its accounts?

Answer 31

With nine months of accounting period

Question 32

How often must a public company hold an AGM?

Answer 32

Each year

Question 33

How often must a private company hold an AGM?

Answer 33

No need

Question 34

Can a public company be excluded from pre-emption rights?

Answer 34

No

Question 35

Can a private company be excluded from pre-emption rights?

Answer 35

Yes

Question 36

Which documents must be submitted to the Registrar in order to form a company?

Answer 36

1. Memorandum of association 2. Application form 3. Articles 4. Statement of capital and initial shareholdings 5. Statement of guarantee 6. Statement of proposed officers 7. Statement of compliance 8. Registration fee

Question 37

What must the Registrar do with relation to documents received to form a company?

Answer 37

1. Inspect them and ensure the CA06 requirements are fulfilled 2. Issue a certificate of incorporation

Question 38

What must be included on a company's memorandum of association?

Answer 38

1. The signature of all subscribers | 2. A statement from all subscribers stating that they wish to form a company and agree to become members

Question 39

What must be included on a company's application form?

Answer 39

1. Proposed name of the company 2. Whether the members will have limited liability 3. Whether the company is to be private or public 4. Details of the registered office 5. Intended address of the registered office

Question 40

What must the statement of capital and initial shareholdings include?

Answer 40

1. The number of shares 2. The aggregate nominal value of shares 3. Details of each class of share 4. How much has been paid up on each share

Question 41

What is the penalty to a company for trading before a trading certificate has been issued?

Answer 41

1. The company and any officers are liable to a fine 2. Criminal offence 3. Contracts are still binding 4. Directors are personally liable if the company defaults within 21 days of due date 5. Ground for winding up if not obtained within one year

Question 42

Define an off-the-shelf company

Answer 42

One that has already been formed

Question 43

What are the advantages of buying off the shelf?

Answer 43

1. Cheap and simple to buy 2. Can trade immediately 3. No problem of pre-incorporation contracts

Question 44

What are the disadvantages of buying off the shelf?

Answer 44

1. The Articles of Association may be unsuitable 2. Altering the articles will incur costs and may be inconvenient 3. Need to change officers

Question 45

Define promoter

Answer 45

Anyone who makes business preparations for a company; a person who undertakes to form a company and takes the necessary steps to do so

Question 46

What are the fiduciary duties of a promoter?

Answer 46

1. Exercise reasonable care and skill 2. Disclose any interest in transactions with the company and not to make a secret profit 3. Disclose any benefit acquired to an independent board and/or to the shareholders

Question 47

What are the remedies to the company if a promoter makes a secret profit?

Answer 47

1. Rescind the contract (not where there has been unreasonable delay) 2. Obtain damages by suing the promoter 3. Recover profit

Question 48

Define pre-incorporation contract

Answer 48

A contract made by a person acting on behalf of an unformed company; the promoter is the person liable

Question 49

Can a company be bound by a contract that was made before it was formed?

Answer 49

No

Question 50

How can a company change its name?

Answer 50

By the shareholders passing a special resolution and notifying the Registrar

Question 51

When can the Secretary of State require a company to change its name and what are the deadlines?

Answer 51

1. The name is the same as, or too alike, an existing registered name; 12 months 2. The name gives so misleading an indication of the nature of the company's activities as to cause public harm; no limit 3. Misleading information or undertakings were given when applying for a name that required approval; 5 years

Question 52

Can a company name include the word 'council' without consent?

Answer 52

No

Question 53

Which registers must a company keep?

Answer 53

1. Members 2. Directors and company secretary 3. People with significant control 4. Charges 5. Other documents

Question 54

Where must registers be kept?

Answer 54

1. Members - where they are made up 2. Directors - where they are made up 3. People with significant control - company's registered office 4. Charges - company's registered office 5. Other documents - company's registered office

Question 55

What details does the Registrar of Companies maintain?

Answer 55

1. Certificate of incorporation 2. The trading certificate 3. Certificates of registration of charges 4. The annual accounts 5. Confirmation statement 6. Special resolutions 7. Changes of directors

Question 56

In a Limited Liability Company, who should hold insurance on assets?

Answer 56

The company itself

Question 57

Upon incorporation, must a company submit articles of association?

Answer 57

No

Question 58

Can somebody who is not a member rely on the contractual effect of the articles?

Answer 58

No

Question 59

Which sort of company must provide a directors' remuneration report?

Answer 59

Only quoted companies

Question 60

Must not-for-profit organisations appoint an auditor?

Answer 60

No

Question 61

Must medium-sized companies appoint an auditor?

Answer 61

Yes

Question 62

Must insurance companies appoint an auditor?

Answer 62

Yes

Question 63

Must quoted companies appoint an auditor?

Answer 63

Yes

Question 64

Which companies are required to produce a directors' remuneration report

Answer 64

quoted only