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47 Cards in this Set
- Front
- Back
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What is a Company? |
- A form of business ownership -Primary objective of most companies is to make money |
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Where are Companies Registered? |
With the Registrar of Companies under the Companies Act 2006 |
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Why are Companies so Popular? |
-They are a separate legal entity, operate a business, own, buy and sell property, borrow money, sue and be sued ad enter into contracts - Limited liability |
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Companies Act 2006 |
-The most extensive revision of company law, 7 year consultation process -1300 sections and 16 schedules -Implemented fully by 1st October 2009 -Law applying to private companies comes first with additional requirements for public companies in different sections |
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What are the 5 Types of Company in the CA 2006? |
1. Public Limited Company 2. Private Company Limited by Shares 3. Private Company Limited by Guarantee 4. Unlimited Company with Share Capital 5. Unlimited Company without Share Capital |
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What 3 Characteristics Determine the Type of Company? |
1. Limited or unlimited liability s.3 CA 2006 2. Whether the company has share capital 3. Public or private company s.4 CA 2006 |
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What is Limited Liability? |
-You will only lose what you invest -If company becomes insolvent, shareholders will normally only be liable to contribute up to the unpaid nominal amount of their shares -As shares are normally paid for in full the shareholder will not normally have to contribute anything but will lose their investment |
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What are Shares? |
-A unit of account for measuring a shareholder's interest in a company -Usually entitle a shareholder to a share of profits, any surplus if the company is wound up and to participate in the governance of the company -Each share has a nominal value |
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What is the Difference between a Public Limited Company and a Private Company Limited by Shares? |
-Public company can offer its shares to the public -More restrictions on share transfers in private companies -Public are subject to a more rigorous regulatory regime i.e. accounting, capital requirements and governance |
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Can you Change the Type of Company? |
Yes, under the 2006 Act you can re-register subject to the satisfaction of certain conditions s.89 CA 2006 |
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What is a Public Limited Company? s.4 CA 2006 |
-Must state it is plc s.58(1) CA 2006 -Limited liability -Limited by shares -Authorised minimum capital of £50000 -Have a secretary and at least 2 directors -SH only have to pay 1/4 of nominal value of each share -File accounts and reports with RoC |
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What is the Information on the Registrar of Companies used for? |
-Banks thinking of giving a loan -Potential investors |
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What is a Private Company Limited by Shares? |
-Must state it is Ltd s.59 CA 2006 -Most popular type of company -Limited liability -Share capital and SH -Prohibited from offering shares to public and listing on stock exchange -File accounts and reports to RoC -Secretary is optional |
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What is a Private Company Limited by Guarantee? s.3(1) and s.3(3) CA 2006 |
-Must normally have 'Ltd' in name s.59 CA 2006 -Does not have share capital -Does not have SH, has members -Limited liability -Statement of Guarantee s.9(4)(b) CA 2006 -Files accounts and reports to RoC |
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What are Unlimited Companies with and without Share Capital? |
-Unlimited liability s.34 CA 2006 -May or may not have share capital -Must be private -Exempt from obligation to file accounts and reports s.448 CA 2006 -Rare in practice |
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What is a Stock Market? |
-The market in which shares of publicly held companies are issued and traded
-Example - London Stock Exchange has two markets, the official list (for established large companies) and the Alternative Investment Market (younger companies) |
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Registration Formalities |
-Formation and registration s.7-16 CA 2006 -Cannot be formed for unlawful purpose s.7(2) -Must provide Memo of Association, application, documents in s.9 and statement of compliance s.13 with registration fee |
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How Many People need to be Involved to Form Company? |
Members - can have single member plc and Ltd Directors - Ltd can have sole director s.154(1) CA 2006 and plc must have at least 2 s.154(2) |
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What must Application of Registration State? s.9(2) CA 2006 |
-Company's proposed name -Situation of company's registered office -Whether the liability of members is to be limited and, if so, whether it is limited by shares or guarantee -Whether company is plc or ltd -Statement of capital and initial SH where company has share capital s.10 CA 2006 |
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Application of Registration (2) |
-Statement of guarantee (for companies limited by guarantee) s.11 CA 2006 -Statement of company's proposed officers s.12 CA 2006 -Copy of any proposed articles of association s.20 CA 2006 unless model articles apply |
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Registration and Certificate of Incorporation |
-RoC must register the documents and issue certificate if satisfied that legal formalities have been complied with s.14 CA 2006 -Company must be allocated a register number s.1066 CA 2006 |
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Effect of Registration |
-Exists from date on Cert. of Incorporation -The registered office becomes official s.16(4) CA 2006 -Proposed officers are deemed to have been appointed to office s.16(6) CA 2006 -Becomes separate legal personality |
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Company's Constitution |
-Where internal rules and regulations are set out -Public document |
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Corporate Objects |
-Will be unrestricted unless company specifically restricts its objects in articles s.31 CA 2006 -Existing companies formed under earlier acts may delete contents of objects clause by passing special resolution |
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Memorandum of Association |
-For existing companies, provision in MoA are deemed to now be treated as provisions of AoA s.28 CA 2006 Document stating s.8(1): -that subscribers wish to form a company under CA 2006 and -agree to become members of the company and in the case of a company with share capital, to take at least one share each |
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Articles of Association |
-Key constitutional document -Model articles for companies limited by shares, plcs and companies limited by guarantee -A limited company will be treated as having adopted the relevant model articles as in force at the date on which the company is registered except to the extent they are excluded or modified s.20 CA 2006 |
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Amendments to Articles of Association |
-May amend articles by special resolution s.21(1) CA 2006 -Requires at least a 75% majority -Must notify Companies House of the amendment and provide a copy of the amended articles - A company's power to amend it's articles is limited by the provisions of s.25(2) CA 2006 |
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Advantages of a Company |
-Limited liability -Perpetual succession i.e. only dies when formally wound up -Easier to raise finance that through sole trader/partnership -Can make contracts in its own right -More tax benefits are available -Prestige |
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Disadvantages of a Company |
-Much greater administration requirments than other forms of business organisations (save LLPs) -Filing requirements make info public -Generally more expensive to set up and run -No automatic right to participate in management of company |
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Other Forms of Business Ownership |
1. Sole Traders 2. Partnerships governed by Partnership Act 1890 3. Limited Liability Partnerships (LLPs) |
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Sole Traders |
-One-person operation -No legal filing requirements other than tax returns -Pay income tax and national insurance -No legal seperation -Unlimited liability -Informal structure -May use a business name |
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Advantages of being a Sole Trader |
-Easy to set up and operate -Cheaper to set up and operate than a company -No filing requirements -Flexibility |
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Disadvantages of being a Sole Trader |
-Unlimited liability -Succession issues -Complete Responsibility |
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Partnerships governed by the Partnership Act 1890 |
3 Elements s.1(1) PA 1890: 1. A business 2. Which is carried on by two or more persons in common (may be individuals or corporations) 3. With a view to making profit |
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Creation of Partnerships governed by PA 1890 |
-Simple to create and dissolve - no specific formalities or registration although HMRC must be informed person is a partner -Can start trading immediately (subject to any professional restrictions) -There are some restrictions on the partnership name (can't use plc, ltd etc.) -Advisable to draw up partnership agreement |
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Fundamental Aspects of Partnership Law |
-No separate legal personality; assets, contracts, staff, tax etc. -Unlimited liability |
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Partnership Agreements |
-PA 1890 is framework for the rights and responsibilities of partners -Common for partners to enter into a partnership agreement -Provisions frequently include: sharing of profits and losses, remuneration, retirement of a partner |
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Advantages of Partnership |
-Organisational flexibility -No filing requirements -Agreement is a private document -Cheaper to set up and operate -May be better for facilitating investment -Partners may share the work of the business ad liabilities |
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Disadvantages of a Partnership |
-Unlimited liability -Partners may create liabilities for other partners and the firm -Shared profits -Unless agreed to the contrary, partnership may automatically dissolve on the happening of a number of events i.e. bankruptcy or death |
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Limited Liability Partnerships Background
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-Mixes characteristics of traditional partnership and a company -Allows people the protection of limited liability whilst preserving flexibility of partnership structure -Pressure for creation came mostly from large professional partnerships such as law firms |
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Limited Liability Partnerships Legal Framework
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-Limited Liability Partnership Act 2000 -An incorporation document and statement of compliance is needed and filed with Roc to satisfy formation requirements -Regulated in similar ways to a company and are subject to some aspects of CA 2006 |
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Key Characteristics of Limited Liability Partnerships
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Registration - Created by sending docs to RoC. Separate Legal Entity - is a body corporate. Limited Liability - Members not normally liable for LLP's liabilities. Disclosure Requirements - LLPs have similar filing requirements to companies. Financing - Can grant floating charges over assets as security for borrowings. |
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Key Characteristics of an LLP Continued
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Minimum Number of Members - Two or more people. Designated Members (s.8 LLPA 2000) - Must always be a minimum of two designated members who must: -Appoint an auditor -Sign off accounts and file with RoC -Ensure LLP complies with statutory filing |
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Key Characteristics of LLP Continued
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Taxation - Members are taxed on their share of the profits. Organisational Flexibility - LLP agreement is private document confidential to members |
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Advantages of LLP
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-Limited liability -Organisational flexibility -LLP agreement is private |
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Disadvantages of LLP
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-Accounting and filing requirements -More expensive to operate than partnership |
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