Separate Legal Personality

Question 1

What is the definition of a company in legal terms?

Answer 1

A company is an artificial legal person with a separate legal personality from its owners.

Question 2

What is separate legal personality?

Answer 2

The concept that a company has its own legal capacity to own property, enter contracts, and incur liabilities independently of its shareholders.

Question 3

Who are the individuals responsible for managing a company’s affairs?

Answer 3

The directors, collectively known as the board of directors.

Question 4

What is the primary benefit of a company’s separate legal personality for its owners?

Answer 4

It allows owners to avoid personal liability for the company’s debts and obligations.

Question 5

What term does the Companies Act 2006 use instead of ‘shareholders’?

Answer 5

Members.

Question 6

How can a person become a member of a company?

Answer 6

By being a subscriber to the company’s memorandum or by having their name entered in the register of members.

Question 7

What is limited liability in the context of shareholders?

Answer 7

Shareholders are only liable to contribute the unpaid balance of their shares if the company goes into insolvent liquidation.

Question 8

True or False: Shareholders incur liability directly to third parties due to the company’s actions.

Answer 8

False.

Question 9

What is a holding company?

Answer 9

A company that owns the majority of shares in another company, known as a subsidiary.

Question 10

What distinguishes a private limited company from a public limited company?

Answer 10

A private limited company cannot offer shares for sale to the general public, while a public limited company can.

Question 11

Fill in the blank: A public limited company is allowed to apply for admission to the _______.

Answer 11

Stock Exchange.

Question 12

What are the Articles of Association?

Answer 12

One of a company’s key constitutional documents that govern how a person becomes a director.

Question 13

What happens if directors allow a company to trade while knowing it cannot pay its debts?

Answer 13

They could face serious personal consequences for their actions.

Question 14

How does the principle of limited liability affect the popularity of limited companies?

Answer 14

It makes them attractive by limiting the financial risk of shareholders.

Question 15

What is the role of a company’s liquidator?

Answer 15

To manage the process of winding up the company and distributing its assets to creditors.

Question 16

What is the significance of section 74(2)(d) of the Insolvency Act 1986?

Answer 16

It establishes the principle of limited liability for shareholders in an insolvent liquidation.

Question 17

What is a subsidiary company?

Answer 17

A company that is majority-owned by another company, known as the parent or holding company.

Question 18

What does it mean for shares to be ‘partly paid’?

Answer 18

It refers to shares for which the shareholder has not yet paid the full price to the company.

Question 19

In a limited company, what is the liability of a shareholder if the company goes into insolvent liquidation?

Answer 19

They may be required to contribute the unpaid balance of their shares.

Question 20

What legal accountability can shareholders or liquidators hold directors to?

Answer 20

They can hold directors accountable for the way they have run the company’s affairs, especially if the company trades while knowing it cannot pay its debts.

This can lead to serious personal consequences for the directors.

Question 21

What happens if directors allow a company to trade while insolvent?

Answer 21

They could face serious personal consequences, such as being ordered to make financial contributions to the company’s assets.

This can override the principle of limited liability typically enjoyed by shareholders.

Question 22

Can a director be a company instead of a human being?

Answer 22

Yes, a company can be a director of another company, but at least one director must be a human being as per the Companies Act 2006.

Additionally, a human director must be at least 16 years old.

Question 23

What is the Companies Act 2006?

Answer 23

It is the key statute governing companies in the UK, coming fully into force on October 1, 2009.

Companies incorporated on or after this date are referred to as 2006 Act companies.

Question 24

What is a 1985 Act company?

Answer 24

A company incorporated before October 1, 2009, when parts of the Companies Act 1985 were still in force.

It is important to understand both 1985 Act and 2006 Act companies due to the number of existing 1985 Act companies.

Question 25

What are the key constitutional documents of a 2006 Act company?

Answer 25

The Certificate of Incorporation, Memorandum of Association, and Articles of Association. ## Footnote These documents establish the company’s legal identity and governance structure.

Question 26

What does the Certificate of Incorporation state?

Answer 26

It states the company’s name and the date of incorporation. ## Footnote It is issued by the Registrar of Companies at Companies House.

Question 27

What is the purpose of the Memorandum of Association?

Answer 27

It records the identities of the company’s first shareholders. ## Footnote It is a fundamental document in establishing the company.

Question 28

What do the Articles of Association function as?

Answer 28

They serve as the shareholders’ ‘rule book’ regarding the company's operations and governance. ## Footnote They are a statutory contract among shareholders.

Question 29

What is significant about Article 2 of the Articles of Association?

Answer 29

It provides that the shareholders’ liability is limited, indicating the company is a limited company. ## Footnote This limitation of liability is a key feature of corporate structure.

Question 30

What is the difference between the Memorandum of Association of a 1985 Act company and a 2006 Act company?

Answer 30

A 1985 Act company’s Memorandum includes an objects clause and an authorised share capital clause, while a 2006 Act company does not require these provisions. ## Footnote This reflects the shift in legal capacity granted to companies under the 2006 Act.

Question 31

What is the 'objects' clause in the Memorandum of Association?

Answer 31

It states what the company was set up to do and the powers it has to achieve those objects. ## Footnote This clause is significant for defining the scope of a company's activities.

Question 32

What is Table A in relation to 1985 Act companies?

Answer 32

It is the model set of Articles of Association automatically applied to 1985 Act companies unless substituted by shareholders. ## Footnote Table A covers similar topics to model articles for 2006 Act companies.

Question 33

What must a 1985 Act company continue to operate within until shareholders remove it?

Answer 33

The field of business set out in the objects clause of its Memorandum of Association. ## Footnote This requirement ensures compliance with historical legal provisions.

Question 34

Explain the concept of shareholders’ limited liability.

Answer 34

Shareholders are only liable for the company’s debts up to the amount they have invested in shares. ## Footnote This protects personal assets from being used to settle company debts.

Question 35

What is the statutory framework regulating companies in the UK?

Answer 35

The Companies Act 2006 and relevant provisions of the Companies Act 1985. ## Footnote Understanding both acts is crucial as many 1985 Act companies still exist.

Question 36

True or False: A company incorporated after October 1, 2009, is referred to as a 1985 Act company.

Answer 36

False. ## Footnote Such companies are referred to as 2006 Act companies.