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57 Cards in this Set
- Front
- Back
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What is the difference between a company and a partnership in terms of liability? |
Partners are joint an severally liable. This is not the case with a company. It encourages commerce because people will set up high risk companies. Note that because of this most countries in the world have a similar procedure.
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What to companies have to do which partnerships do not? |
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What is the importance of registration? |
A company does not exist before it is registered |
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Who do companies register with? |
The registrar of companies |
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What are shares and shareholders? |
A person who owns a bit of a company. They are given a nominal value e.g. 100p. Unless you don’t pay in full you then have no liability to the company. In the hope that there is capital appreciation. (profit)
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Who are directors? |
Day to day management people |
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Who are auditors? |
Independent accountants sent to check whether the accounts represent a true picture of the companies financial state.
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Who is a company secretary? |
A person to keep up with the legal side of things. In house council etc.
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Who are members? |
In some companies there are only members, no shareholders. All companies have members.
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What is a private limited company? |
Day to day standard company |
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What is a public limited company (PLC) ? |
These are less common and have many more complex rules. The reason for this is because it is a higher status if you are a plc. They also have greater minimum capital
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What is a guarantee company and what is it most used for? |
These are commonly used for charities. They have members instead of shareholders, they have liability for a predetermined amount of money if the company goes bust.
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What is an unlimited company? |
personally liable for the companies debts. However you don’t need to publish accounts. It’s like a partnership but for one person. There are members. Smart to put money into an unlimited company if you want to hide how much you are putting into it.
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What is a listed company and where is it listed? |
Official List of the Stock Exchange). There are hoops to jump through and you must be a plc. You must always comply with the restrictions. You have access to a large amount of capital if the public keep buying shares. It also allows the founders of a company to sell some of their shares. The accounts must be squeaky clean and follow the corporate governance rules.
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What is the Alternative Investment Market? |
This is the younger brother of the FTSE. This is where the companies are riskier investments. The standards are lower. Many football clubs are listed there e.g. Celtic.
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What is a dividend? |
A share of the post tax profits of a company |
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What is share capital? |
Money that is put into a company and then repaid. |
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What happens when a company is liquidated? |
The assets of a company are turned into cashola and then the creditors are paid off |
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What is a floating charge? |
A company can lend money against it’s moveable assets without giving them to the creditor. The assets can be changed. A floating charge is like an umbrella. It hovers over all the assets and stays there until the company, pays up, defaults or meets some other obligation. If the company gets into financial difficulties then the floating charge will fall on any and all of the company’s moveable assets. This is known as attachment. Once this happens the company goes into administration. A floating charge is granted by a bank. Attachment usually happens when the company defaults on the interest payments, or on any other obligation in the loan documentation. Floating charges (and standard securities) must be registered with the registrar of companies.
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What is receivership? |
What used to happen on when a company defaults on a floating charge
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What is administration? |
What now happens when a company defaults on a floating charge. The administration tries to sell the company etc. Until the floating charge is paid off.
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What are the two conflicting aims within company law? |
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What are the important bits of company legislation? |
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Saloman or Soloman? |
Saloman you fukin mongo |
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What happened in the case of Saloman v A. Saloman & Co. Ltd? |
This case featured a boot maker. Mr Saloman had a successful business in London. He decided that he was going to set up a company to take away the risk. Back in the 1890s you had to have 7 shareholders. He gave his wife and someone else one share each. He as the majority shareholder appointed himself as managing director. He drew up a contract for the sale of his business from himself, to his company. He would have had to sign the contract twice. Once as his personal self and once as a director. He sold the business to his company for a very high price. The agreement included a clause that said the company would pay in instalments. To make sure he got his money back he drafted a denature. It also had to be signed. I was effectively an undertaking for the company to pay him. This put him in a very good position compared to the other creditors.The company traded for a while, however the market changed and the company got into difficulty. He tried to sell it but couldn't. The company was liquidated. The other creditors raised an action because they were unhappy at the preference. They took Saloman to court, they said that they hadn’t set up the company properly, sold it for too high a price and didn't do the debenture properly. The House of Lords eventually decided that Mr Saloman had done everything by the book. This proves the separate legal identity of a company.
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What was the ratio in the case of Lee v Lee's Air Farming Ltd? |
This case involved a company that was involved with crop spraying. Mr Lee set up the company, he was the managing director and gave himself 99 shares and his wife one. He appointed himself as the companies pilot. He then hopped in the plane and sang the theme from the dam busters movie. He was flying around and flew into a mountain. His widow had to prove that he was in the course of his employment. The matter went to the privy council of New Zealand and said following Saloman they said that he was in the course of his employment because of the separate identity of the company.
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What was the ratio in the case of MacAura v Northern Assurance Co. Ltd? |
Proved separate legal identity of a company. |
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What happened in the case of Gilford Motor Co Ltd v Horne? |
Horne was the former managing director of Gilford, he signed a restrictive covenant when he left the company. He missed his old life as a salesman. One day he had a cunning plan. He would get his family to set up a company and he would be able to sell cars again. The company was duly set up and he then tried to seek business from his former customers. Gilford was not happy and took out an injunction against him and his company. He went to court to have it lifted. They did not lift it. The reason for this is because if they had lifted it there would be precedent that if you wanted to avoid something like a restrictive covenant then that would allow people to do some shady_shit through the company.
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What happened in the case of Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd? |
This involved the British subsidiary of Continental tyres. Several of the directors of continental were German. Daimler refused to pay because they would be helping what is nearly a German company. Continental won up to the court of appeal however; the House of Lords took a public policy view and said that it would make no sense for a British company to subsidise the German war effort
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What was held in the case of Woolfson v Strathclyde Regional Council? |
Woolfson owned businesses and shops in Glasgow. The shops sold stuff for weddings. One of the shops was going to be demolished because of the regeneration in Glasgow at the time. He realised that he was going to get a large sum. He requested that the money be paid to him directly. In his court argument he used an English case that was heard a few years earlier. When the case went to the House of Lords they were not prepared to treat the companies as extensions of Woolfson, hey had their own identities. They also said the English case was a poor decision. As the companies were all valid the money had to go to them.
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What was said in the case of Prest v Petrodel Resources Ltd? |
Lord Sumption talked about the corporate veil in length he said that in general the corporate veil should only be lifted where it is being use to“evade a legal obligation or frustrate the operation of law.” He used the case of Gilford to illustrate this
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Who can make a company? |
solicitors, registrars or yourself |
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How do make a company? |
Requisite forms and Articles of Association (and a fee !)
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What happens if you jump the gun with a company
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Contracts are void. CA 2006 s.51 - pre-incorporation contracts. Phonogram v Lanq
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What are the articles of a company? |
The Articles are the internal constitution of the company, and regulate the rights of the company, the directors and the members to each other (broadly speaking). You have to live with the terms of the Articles (CA 2006 s.33), get out (if you can) or change the articles (if you can). In order to change them you must obtain a special resolution (requiring 75% agreement) You can draft them yourself.
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What happened in the case of Hickman v Kent and Romney Marsh Sheepbreeders Assn? |
This case involved a farmer who bred sheep for this company. They're was an article which said in any dispute there must be arbitration first. The farmer in question went to court straight away. The court said that he should have followed the articles.
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What do sections 212 - 216 of the Insolvency Act say about director's liability? |
If the company goes into insolvent liquidation, under certain circumstances the directors may sometimes be held liable to compensate the company for its losses
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Do directors have a fiduciary duty to their company? |
Yes. (Companies Act 2006 s.172, Boston Deep Sea Fishing Co Ltd v Ansell |
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What happened in the case of Dorchester Finance Co Ltd v Stebbing. And to what did it relate?
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They have a duty to act with due skill and care (Companies Act 2006 s.174). - This was a money management company run by three accountants. Stebbing was the main man. The other two came in on Fridays to sign cheques etc. They pre-signed loads of cheques so that they didn’t have to come in. It was very easy for him to steal money. H spent it on fags, women and booze. The court held them all liable because they should have been more prudent, especially because they were accountants.
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What case and statute is applicable to a director's duty to act in good faith and in the best interests of the company as a whole with no conflicts of interest? |
(Companies Act 2006 s. 175, Odyssey Entertainment Ltd (In Liquidation) v Kamp. - It turned out that a director had diverted business from the company to him and his family.
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What does s. 197 of the CA say about director's loans? |
There are further statutory duties owed by a director to the company, such as not taking loans in excess of £10,000 from their company without approval of the members
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What was the ratio of Multinational Gas and Petrochemical Co Ltd v Multinational Gas and Petrochemical Services Ltd and ors.? |
No duty of care owed by directors to creditors whilst still solvent. |
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What happened in the case of Williams v Natural Life Health foods? |
This was a case where a director acted negligently. There was a couple who wanted to buy a health food shop. They found a company who could advise them, The company was run by a Mr Mistlin. He provided the advice, sometimes he did it on headed paper, sometimes on scraps of paper and through fax. It turned out that his advice was shite. They attempted to sue him and the company. The House of Lords held that he was acting in his professional capacity because he was being incompetent through the company. Therefore only the company was liable.
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Is a director liable to the creditors of a company? |
A director is not normally liable to creditors of his company unless he chooses to accept responsibility for them. He may have acted negligently to his creditors, but provided he does so through the company, that will be a problem for the company’s creditors rather than for him
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What was held in the case of Standard Chartered Bank v Pakistan National Shipping Corporation and Ors |
If the director is deliberately acting fraudulently, albeit through his company, his fraud removes his protection and he may become jointly and severally liable with the company for his fraud. This case involved a fraud on the Vietnamese government involving bitumen. There was a fraudster at the heart and a man had a company called oak. Mr Mechra falsely dated stuff. He argued that it was his company but not him.
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What is the purpose of an AGM and an EGM? |
Exercising control over directors is through general meetings on which occasions the directors need to seek approval of such things as the accounts, the directors' reports and any other matters which require the approval of the company. It is also a method of calling the directors to account if the members are unhappy with them. Where the directors themselves are shareholders, the control of directors may be less effective. Private companies do not need to have general meetings in person: they may conduct all their decision-making in writing. The directors are held accountable to the shareholders.
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How does the Insolvency Act 1986 apply to companies? |
When a company finds itself unable to pay its bills, it may either choose to put itself into liquidation or may compulsorily be put into liquidation in much the same manner as a private individual can be sequestrated. The grounds are pretty similar.
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What happens when a company is liquidated? |
On liquidation, a liquidator is appointed and it is his task to repay the creditors (with secured creditors taking their whack first), and then dividing the rest up between the members in accordance with the terms of the articles. Of the secured creditors, fixed charge creditors receive their money first, then the preferential creditors, then the floating charge holders. Then he pays the ordinary creditors.
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What happens when a company grants a security? |
the security must also be registered in the company’s own Register of Charges at Companies House. This is so that people who are lending money to a company can know what securities are already granted
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What happens when a company defaults on a floating charge or goes into liquidation with a floating charge having been granted? |
If the company goes into liquidation the floating charge to “attach” or crystallise, so that it becomes a fixed charge and the net traps all the assets at the time in the company’s ownership and not secured elsewhere. The liquidator must then ensure that the floating charge holder gets the secured assets.
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Who may a floating charge holder appoint on crystallisation? |
When a company gets into financial difficulties, the floating charge holder entitles the floating charge holder to appoint an administrator. An administrator’s job is to rescue the company as a going concern, for everyone’s benefit, as opposed to a receiver’s job which is to get money back for the floating charge holder.
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What act introduced Limited Liability Partnerships? |
The Limited Liability Partnerships Act 2000 |
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What is beneficial about an LLP? |
The members (not “partners”) of a LLP are not normally liable for the debts of a limited liability partnership except to the extent of the capital they have contributed. However members may be liable for the LPP’s debts if the members have transgressed the rules in the Insolvency Act 1986 ss.212-217 (see Company law next year). In addition a liquidator may recover withdrawals of property (including salary) by a member (i.e. a partner) in the last two years before liquidation if the member had reasonable grounds for believing that the LLP was insolvent or would be made insolvent by the withdrawal (cf. Insolvency Act 1986 s.214) - clawback provision (IA 1986 s.214A).
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What was held in the case of Williams v (1) Natural Life Health Foods Ltd and (2) Mistlin? |
There may be issues to do with personal liability in negligence actions, so it is important that the members are always seen to act on behalf of the LLP
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What are members of an LLP treated as? |
Self employed |
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How are LLPs flexible |
Private arrangements between the members are acceptable and up to the members to negotiate between themselves. In default of this paras. 7 and 8 of the regulations apply a standard set of internal arrangements which may be used. Other matters: there are penalties similar to company law for wrongful trading; loss of limited liability if a member loses his membership of a regulated profession etc.
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There is a separate corporate personality |
LLPs can grant floating charges |
