Company EXAM PDF

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COMPANY EXAM THURS 25TH MAY – 2PM Answer 2 questions (free choice of 5 – no part A or B). Mix of essays and problems – probably 3 essays and 2 problems  Jan essay topics > Discussion on what the concept of a company is – i. an abstract legal device created by humans and not somet...

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COMPANY EXAM THURS 25TH MAY – 2PM Answer 2 questions (free choice of 5 – no part A or B). Mix of essays and problems – probably 3 essays and 2 problems

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Jan essay topics > Discussion on what the concept of a company is – i.e. an abstract legal device created by humans and not something ‘real’. > The advantages and disadvantages of separate legal personality, and the idea that the concept of separate legal personality is the cornerstone of corporate law. > Discussion on The Companies Act 2006 altering the position of third parties so far as transactions with the company are concerned. > Discussion on the MacDonald, Dickens & Macklin v Costello judgement + its effect on the Salomon principle.

STRUCTURE FOR PROBLEM QUESTIONS 1. Identify the issues 2. State the applicable law 3. Apply the law to the facts (main bulk of your answer) 4. Provide a comprehensive conclusion (and ensure you’ve properly answered the question) STRUCTURE FOR ESSAY QUESTIONS 1. Introduction 2. Main body: the analysis  Demonstrate knowledge  give a definition and description of the concept the question is asking about. Support this with relevant cases and statutory provisions.  Critical analysis of the topic  e.g. the advantages/disadvantages – present both sides of the argument. 3. Conclusion

TERM 1 Week

Tutor

1

Introduction to Company Law

OA

2

Separate Personality & Limited Liability

OA

3+4 5

Lifting the Veil of Incorporation (Part 1 + 2) Company Constitution

OA OA

6

Shareholders and Directors (Control)

OA

7

Transactions with outsiders (Part 1 + 2)

AG

9, 10 + 11

Directors duties (Part 1, 2 and 3)

AG

TERM 2 Week

Tutor

1

Minority Protection: The Rule in Foss v. Harbottle

AG

2

Minority Protection: The New Statutory Derivative ‘Action’

AG

3

Minority Protection: The Principle of Reflective Loss, Restrictions on Majority Voting and Class Rights

OA

4

Minority Protection: Just and Equitable Winding up

OA

5

Minority Protection: Unfair Prejudice (Part 1)

OA

6

Minority protection: Unfair Prejudice (Part 2)

OA

7

Corporate Governance

OA

8

Takeovers

OA

9

Stakeholders/Corporate social responsibility

OA

1. INTRODUCTION + SEPARATE PERSONALITY AND LIMITED LIABILITY Introductory points What is a company?  Hudson: ‘A company is a means to end. It is an abstract legal device created by human minds. Companies are not found growing in fields, or hanging from trees, or swimming in rivers. They are not a part of nature. There is nothing ‘real’ about companies in that sense. Nothing can be understood about company law unless we recognise this.’  C.A 2006 S.1  A formal definition of a company: the kind of corporate body brought into being by the registration procedures under the Companies Act 2006. The concept of a legal person  A legal person carrying on business  Owning property and making contracts Sole Trader Partnership Types of registered companies  Public and private  Private  limited and unlimited  Limited  guarantee and shares Unlimited Partnership  Liability is not fixed. Limited Liability Partnerships Liability if fixed / limited by:  By Share: the value of the shares (paid or the unpaid sum)  By Guarantee (the sum guaranteed) What is a share?  The share as a right under the statutory contract (s.33)  The share = a measure of interest with respect to control and profit in the company.

Seminar 1 – Introduction to Company Law (Ahmed) SEMINAR QUESTIONS 1. What is a company?  A separate legal entity that is not a person but is treated like a person i.e. a fictional/artificial person.  A company – an abstract company made in the human mind.  Companies – generate wealth; a mechanism to facilitate investments. It’s a platform which can be used to pull together different people with different experience and ventures to pursue  Companies can be about business venture – but don’t have to be.  A business vehicle/vessel – but it also puts in place a hierarchy or a structure to drive and facilitate a business ides.  Company can be useful for: those with a lot of money; those with not a lot money but with useful skills.  Companies play an important role in the free market – both in the creation of companies and the development of company law.  Company – could be seen as an abstract concept until it becomes registered; so the law makes it ‘real’. I.e. there is a line that all companies have to cross for them to come into being – that line may be registration in some people’s eyes.  When we talk about a company  Company = profit making for the shareholders.  In comparison to UK company law, in some other jurisdictions company is much more favourable towards  Limited liability = risk mitigating technique. For every business, 3 things are very important: 1. The business organisation facilitates investments 2. The business organisation facilitates risk mitigation 3. The business organisation should provide organisational stricture  These 3 things are traditionally known as the 3 most important things for a business enterprise.  There are two types of limited liability partnership  Because a company has its own personality, the company owns its own assets.  When a company fails, the personal assets of the directors (e.g. their cars and property) cannot be touched.  In a company, a shareholder is still liable; but the liability is limited to the amount the shareholder contributed to the company  Risk mitigation – a company is not only which facilitates the pooing of investments, and provides a good organisational structure, but it also facilitates risk mitigation. It does this through the limited liability concept.  Limited liability = liability is limited to the company; doesn’t impact the shareholders,  Germany has the most favourable company law in regards to the employees.  Historical perspective: In its earliest form, the company started as a group of agreeable people joining together for social or joint purposes. It later transformed into people joining together for the specific purpose of trading  Some people view a company as being some form of an investor-orientated organisation, whereas others deny that a company exists as an entity at all.  One view: a company is a hierarchical organisation headed by a managerial team (the board of directors). Legal scholars, who understand companies within the legal model where their rights and powers are set out in the law, are often the theorists who emphasise hierarchy and entity-ness.  A different view: a company is an alternative expression of a market of investors. Those that tend to argue that companies aren’t entities at all are often those involved in the world of financial economics – and they construct various economic models of the company (or the firm as they often refer to it in business contexts).  Organisational theorists – see companies as a positive model for successful production and profit maximisation.

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Political model – companies are an exploitation of human and natural resources. Alastair Hudson (2011): ‘A company is a means to end. It is an abstract legal device created by human minds. Companies are not found growing in fields, or hanging from trees, or swimming in rivers. They are not a part of nature. There is nothing ‘real’ about companies in that sense. Nothing can be understood about company law unless we recognise this.’ The effect of the legal framework – the construction of a hierarchical organisation in which a central managing body ensures that the various claims against the company, and in the company, are met. This central managing body must also ensure its own attendance to the legal rules pertaining to its own activities. You can have different types of businesses that are better run not as companies e.g. as a sole trader. There are some countries where there are rarely any companies, just different business models – e.g. in India, Bangladesh etc. Different models and perspectives: > Economic model perspective > Organisational model perspective > Legal model perspective > Organisational models of the company with a labour orientation In the UK, our government promote limited liability companies, because they think more companies = more business = good for the market = this is beneficial for everyone. This may be a mistake, because business regret registering to become a company – e.g. because they don’t like the increased regulation and scrutiny. One benefit/attractive thing about being a company – tax. There has been a gradual transformation for companies over time and there is now a modern concept of what a company is. Companies are a valuable tool for government to activate or reactivate markets and to create wealth, so it’s an important tool for the economy However, companies can cause certain harms to societies as well. It’s an important tool for society – e.g. by generating taxes which go to the government and are then used to improve society i.e. by building infrastructures. Companies can also become a source that promotes and protects important values and ideas e.g. a company that does health research or that works on improving the environment. Even many of the large ‘corporate’ type companies e.g. Facebook or Apple, work on important social projects. So as well as them generating profit, they will be working on valuable projects that therefore benefit the wider community as well. Companies also play a role in global competition between big businesses. The market = our playground for the company. As solicitors, we would have people coming to us with many different reasons for wanting to register as a company.

2. How does the ‘company’ differ from other business vehicles? There are 3 types of business enterprises:  Companies: definition discussed above.  Sole Trader: a person who is the exclusive owner of a business, entitled to keep all profits after tax has been paid but liable for all losses. Doesn’t have to be registered as a company. Doesn’t have a board of directors (so it doesn’t have a sophisticated legal/organizational structure). All contracts they enter into have to be in their own name. There is no limited liability. A sole trader does not mean it’s limited to the value of money, value of investment, profit takings or number of employees – sole traders can actually be quite big. A sole trader can have as many employees as they want; but there is only 1 person who is the owner and is liable. A sole trader doesn’t need a minimum amount of capital to start – whereas with companies there is a minimum amount of capital required to get started as a company. It has to file its business tax returns but it doesn’t have to meet a wide range of other regulations and rules. A sole trade acts individually. There’s normally no formal requirements or regulations – they just need to file tax returns and there may be some regulations around listening. For a sole trader, the only way they can invest is by personal loans or investment – i.e. their own personal assets e.g. property or personal loans from friends and family. All personal assets are a risk – there is no separation between business and person assets (i.e. no separation of legal personalities) which means that it’s not a very good risk mitigating model, because everything is at risk. One other negative factor could be that it lacks stability and continuity – e.g. if the owner dies that could hinder the business.  How easy or difficult it is for the sole trader to apply for personal loans depends on their personal repute and credit history.  Despite all of these challenges/potential negatives with being a sole, there are still some reasons why it can be a better to be a sole trader. Firstly, there are a lot of regulations that apply to companies, and sole traders don’t have to deal with this. There also has to be high levels of transparency when you are a company (e.g. the regulatory reporting for GE as a pharma company), so if a business wanted a lot of privacy then it’d be better to be a sole trader. Also, if you’re a small startup company and you don’t want to spend time or money on lawyers/to register etc., then you would be better off as a sole trader.  Partnership (different types of partnerships e.g. below): A legal form of business operation between two or more individuals who share management and profits. The federal government recognizes several types of partnerships. The two most common are general and limited partnerships. Some businesses are better run as a partnership – e.g. lots of GP surgeries are run as large scale partnerships. Partnerships do facilitate investments because all of the partners will bring their skills, expertise and money – all of which will be beneficial for the partnership in order to drive business and generate profit. There is also no set structure – the partners can decide how to structure the orgaisation. A partnership can be formed in different ways: e.g. it can be implied by conduct or it can be formalized in writing as a proper agreement. A lot of flexibility comes with partnerships (which business partners and entrepreneurs like) because they have the power and freedom to draw up their own contract/agreement for partnership; whereas a company would have a set structure to follow and specific regulations/laws that they’re governed by. Partnership – there is a view to making profit. Assets of the firm ae owned by the partners (they’re owners as well as parts i.e. each partner is jointly and severally liable for the debts and obligations of the partnership, during their time as a partner. This means that a debt that is owed by the partnership is owed by all of the partners – so if one partner was bankrupt and couldn’t pay their share of the debt. The liability is limited. > Limited Liability Partnership: A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence. With limited liability, it can protect one or more of the partners but not all of them – so some partners may still be at risk of 3. Comment on the role of the ‘joint stock company’ in the emergence of modern Company Law.  A company whose stock is owned jointly by the shareholders. All liable.  A joint-stock company is a business entity where different stocks can be bought and owned by shareholders. Each shareholder owns company stock in proportion, evidenced by his or her shares (certificates of ownership)]. This allows for the unequal ownership of a business with some shareholders owning a bigger proportion of a company than others do. Shareholders are able to transfer their shares to others without any effects to the continued existence of the company  In modern-day corporate law, the existence of a joint-stock company is often synonymous with incorporation (i.e. possession of legal personality separate from shareholders) and limited liability (meaning that the shareholders are only liable for the company's debts to the value of the money they invested in the company). As a consequence, joint-stock companies are commonly known as corporations or limited companies.  Some jurisdictions still provide the possibility of registering joint-stock companies without limited liability. In the United Kingdom and other countries which have adopted its model of company law, these are known as unlimited companies. In the United States, they are known simply as "joint-stock companies".

4. What are the sources of Company Law and what is the relevance of each source to the regulation of companies? Sources of Company Law:  Companies Act 2006 – i.e. legislation on companies that is directly relevant and is the most comprehensive source/most important source of company k=law  Insolvency Act 1986 – another important source; deals with the insolvency of companies and how to manage this process e.g. the rights of directors/shareholders when a company becomes involvement.  Company Directors Disqualification Act 1986 – contains the rules regarding the process of disqualifying a director  Financial Services and Markets Act 2000 (as amended)  Case Law/Common Law – the companies act itself states that all of the provisions in the statute are to be interpreted in light of the case law; hence why common law is very important.  Self-Regulatory Acts: City Code on Takeovers, Corporate Governance Code – voluntary codes that can be an important source and influence within company law – these are often industry specific, e.g. within the healthcare/pharma business there were self-regulating codes at GEHC; or for the oil industry, or gas industry etc.  EU Law (Brexit?) – EU treaties and directives are very important for company law.  Other laws – e.g. criminal law – this would be relevant if a director was involved in criminal acts such as fraud.  Other: Corporate Governance; The Stock Exchange, etc. 5. What is meant by ‘registration’ of a company under the Companies Act, 2006 and what is the effect of registration?  A company is born when its registered. It’s a straight forward procedure and includes submitting various documents, including a memorandum and articles, and this documentation together is often known as the company’s constitution.  Registration – when the company becomes a different person, a separate legal entity from it’s owners.  The articles of the company will define the direction of the company.  If a company wants to be a public company, different documents will have to be a public company isn’t always a listed company – this is a different thing – so the company can still have a degree of privacy.  Listing – different process. This is where a company is listed on the stock exchange so that their shares can be bought by the public.  Companies have mixed objectives; e.g. some are financial whilst some are corporate social responsibility objectives e.g. projects linked to community social welfare. Companies Act 2006, Part 2: Effect of registration 1. The registration of a company has the following effects as from the date of incorporation: 2. The subscribers to the memorandum, together with such other persons as may from time to time become members of the company, are a body corporate by the name stated in the certificate of incorporation. 3. That body corporate is capable of exercising all the functions of an incorporated company. 4. The status and registered office of the company are as stated in, or in connection with, the application for registration. 5. In the case of a company having a share capital, the subscribers to the memorandum become holders of the shares specified in the statement of capital and initial shareholdings. 6. The persons named in the statement of proposed officers— (a) as director, or (b) as secretary or joint secretary of the company, are deemed to have been appointed to that office. 6. What is a ‘public company’ and how does this differ from a private company?  Private company – has ‘Ltd’ after its name. Its shares can only be sold to those who have subscribed to the constitution of the company. When the company was registered, in its articles of association, it would say that it was a private company. Its shares are restricted to the existing members. If they wanted to start selling shares to the public, they’d have to re-register as a public company.  Public company – has Plc’ after its name. If a director or shareholder died, the company wouldn’t be effected. This is because the company is a separate legal entity to its people, so it’s not impacted. This is a contrast to a partnership, where the p...