CH3 Companies PDF

Preview

Summary

CHAPTER 2 – BUSINESS ORGANISATIONSSOLE TRADER Go into business by yourself and law recognises it as a legal formADVANTAGES No legal filing requirements  SimpleDISADVANTAGES Raising capital – personal bank account  Unlimited liability – personally liable PARTNERSHIP  Partnership Act 1980 – s “t...

Description

CHAPTER 2 – BUSINESS ORGANISATIONS SOLE TRADER  Go into business by yourself and law recognises it as a legal form PARTNERSHIP  Partnership Act 1980 – s.1 “the relationship which subsists between persons carrying on a business in common with a view of profit”

ADVANTAGES  No legal filing requirements  Simple ADVANTAGES  No legal filing requirements – just 2 members  Pool resources  Unlimited no of partners (since 2002)  Partnership agreement can vary terms to overcome act + be flexible  Partners share risk of liability

COMPANY Types:  Limited by shares – public and private – SH liability limited to amount they owe

ADVANTAGES  Investment vehicles – can subdivide capital + sell shares to raise capital  Limited liability – less risk to investors  Constitution provides structure for business ventures with large number of participants

PRIVATE 

    

Since Twelfth EC Company Law Directive 89/667 and now CA 2006 – only requires 1 SH not 2 Capital – from private SH savings/loans Directors approve SH app/res No min capital requirement – can have £1 share issued unpaid Min 1 director and choose to have co sec or not Part 13 CA 2006 – allows most SH resolutions to be in writing

SMALL COMPANIES: Freedman Study 1994 (advantages and disadvantages of small companies setting up companies):  Prestige, legitimacy, credibility  Limited liability – issue with banks and providing guarantees for loans meant private assets being offered in case of liquidation Solution:

DISADVANTAGES  Raising capital – personal bank account  Unlimited liability – personally liable DISADVANTAGES  Act imposes conditions on partners who could unknowingly enter into the legal relationship – why a formal partnership agreement is required for (1) management, (2) share in profit (3) indemnity of liabilities (4) not be expelled by other partners  Whole partnership ends on death of a partner  Partners jointly and severally liable – each partner can be sued for total debts DISADVANTAGES  Expensive and time-consuming  Complex structure for small business – where DIR and SH the same  One size fits all nature of corporate form – public and private companies requirements too similar – statute requirements on meetings, accounts etc assume managers are different to SH + impose burden for small companies. CA 2006 tries to tackle this, it’s slogan “Think Small First” SMALL COMPANIES Freedman Study 1994 (advantages and disadvantages of small companies setting up companies):  Burdensome regulatory requirements

CHAPTER 2 – BUSINESS ORGANISATIONS Small company:  SH/DIR often the same, are the employees, no separation of ownership + control



 PUBLIC  Since Twelfth EC Company Law Directive 89/667 and now CA 2006 – only requires 1 SH not 2  Capital – from general public  Unlikely to restrict sale/purchase of shares – want to raise capital  Min capital requirement of £50k – S.763 CA 2006 ¼ fully paid  Min 2 directors + co sec Large company:  AGM once a year to elect directors  Directors – mix of professional managers (executive directors) and independent outsiders (non-executive directors)  Executive directors have a SH usually but not significant  SH receive annual report, including accounts certified by auditors  Little involvement of SH in daily management  Directors set policy, tasks carried out by employees  Directors have fiduciary relationship with company – owe duty to act bona fides (good faith) in interests of company (so the SH)  Company bound by actions of the





Before CA 2006 – CA 1985 had “elective regime” for small companies relaxing rules on SH meetings + accounts – seen as insufficient CLRSG (body for proposals prior to CA 2006) recommended in 2001 “Modern Company Law for a Competitive Economy” simpler statutory requirements for; decision making, accounts, audit, constitutional structure, dispute resolution + legislation easier to understand + duties of directors. CA 2006 – adopts recommendations, but is still burdensome + efforts to simplify are ongoing. 2015 – after public consultations by GOV – enacted “Small Business, Enterprise and Employment Act” – reduces amount of info to be filed with the Registrar



(meetings, accounts) Expensive – professional advice for regulatory requirements

Other issues with small companies:  Majority SH can decide on policies and minority SH can’t sell shares easily – needs director approval + sell to existing members first = can get trapped  Statutory remedy now available S.459 CA 1985 and now in S.994 CA 2006 to make it easier for SH to bring actions

CHAPTER 2 – BUSINESS ORGANISATIONS employees (it’s agents) LIMITED BY GUARENTEE – charitable or public interest ventures where no profit is envisaged + guarantee certain amount of money to cover debts if company fails CONSTITUTION OF A COMPANY  Before CA 2006 = (1) Memo (2) Articles  CA 2006 S.18 = 1 single document but memo still exists as a separate document under registration formalities MEMO: Info:  Before CA 2006 = (1) share capital details (2) registered office (3) objects – etc  CA 2006 = (1) subscribers to form a company (2) if company to have share capital, that each subscriber agrees to take at least one share in the company (3) atleast one of the subscribers sign the memo  Objects – statement of company activities Share capital:  Used to be on memo, now on separate doc “the statement of capital and initial shareholdings” – how many shares the subscribers take + nominal value (£1 not the amount paid)  CA 2006 - No longer necessary to state authorised share capital (i.e. £10k) ARTICLES:  Rules, allocate powers to directors at meetings (of DIR) or general meetings (SH)  Model articles exist (optional) – default  Special resolution required to alter articles – S.21 CA 2006 + 75% SH votes  CA 2006 - If companies choose to state objects, now in articles not memo ...