Company Incorporation and Legal Personality
60 Questions
3 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the consequence of a company being registered at companies house?

  • The subscribers lose their liability for company debts.
  • The company can enter into pre-incorporation contracts.
  • The company acquires separate legal personality. (correct)
  • The company can immediately start trading without limitations.

    • In which case was the corporate veil successfully pierced?

  • Gilford v Motor Co Ltd (correct)
  • Saloman v Saloman
  • Jones v Lipman (correct)
  • Prest v Petrodel Resources

    • What must occur for a person to be relieved of liability for a pre-incorporation contract?

  • The other party must file a claim for fulfillment.
  • Novation or mutual termination must take place. (correct)
  • The company's director must authorize it.
  • The company must enter into the contract upon incorporation.

    • Which section of the Companies Act 2006 relates to the incorporation of a company?

    <p>Section 7-16</p> Signup and view all the answers

    What happens to the liability of subscribers once a company is incorporated?

    <p>Their liability is limited to the amount unpaid on shares.</p> Signup and view all the answers

    What is a key requirement for the memorandum of association post-CA 2006?

    <p>It must be authenticated by each subscriber and be in the prescribed format.</p> Signup and view all the answers

    Which of the following documents is NOT included in a company's constitution according to S17?

    <p>Memorandum of association</p> Signup and view all the answers

    What role do articles of association play in a company?

    <p>They provide a mechanism for shareholders to govern the company's management.</p> Signup and view all the answers

    Under what condition can model articles be modified within a company's articles of association?

    <p>They can be changed as long as they do not contradict existing laws.</p> Signup and view all the answers

    What is the primary purpose of shareholder agreements?

    <p>To govern the relations among a specific group of shareholders.</p> Signup and view all the answers

    Which of the following statements regarding the effect of a company’s constitution is accurate?

    <p>It binds the company and its members as if there were covenants for compliance.</p> Signup and view all the answers

    What can be concluded about the articles of association and the directors’ powers?

    <p>Directors may delegate some powers as defined by the articles of association.</p> Signup and view all the answers

    What is a requirement for the breach of articles of association to be actionable by a member against a director?

    <p>The breach must be personal to the member.</p> Signup and view all the answers

    How can entrenchment in articles of association primarily be described?

    <p>Provisions that make it more challenging to alter or remove certain clauses.</p> Signup and view all the answers

    What is the primary outcome of a certificate of incorporation?

    <p>Evidence that the company has met all legal requirements prior to registration.</p> Signup and view all the answers

    According to the Companies Act 2006, what power does a general meeting hold regarding directors?

    <p>It has the power to remove directors by ordinary resolution with special notice.</p> Signup and view all the answers

    What must shareholders do if they wish to change a limitation on their powers as outlined in the Articles of Association?

    <p>Alter the articles by special resolution</p> Signup and view all the answers

    What is a significant limitation on shareholders' power detailed in the articles of association?

    <p>Shareholders cannot ignore article limitations without formal amendments.</p> Signup and view all the answers

    In the case of Automatic Self-cleansing filter syndicate co ltd v Cuninghame, what did the court rule regarding the directors' response to the ordinary resolution passed by shareholders?

    <p>The directors could choose to ignore the resolution</p> Signup and view all the answers

    Which of the following is a fundamental aspect of distributing decision-making power within a company?

    <p>The articles of association determine how power is distributed.</p> Signup and view all the answers

    If shareholders pass a resolution directing the board to take a specific action, under what condition must the board comply?

    <p>When the company's articles are amended to grant that power to shareholders</p> Signup and view all the answers

    In the context of breaches arising from articles of association, what is true regarding the pursuit of claims?

    <p>Only the company itself can pursue breaches against directors.</p> Signup and view all the answers

    What is indicated by case law regarding the relationship between directors and shareholders?

    <p>Directors possess independent management authority</p> Signup and view all the answers

    What is an essential feature of the Model Articles regulations 2008 regarding directors' authority?

    <p>Directors have general authority to manage the company as per the articles.</p> Signup and view all the answers

    What does the term 'quorum' refer to in the context of company meetings?

    <p>The minimum number of members needed to validate proceedings</p> Signup and view all the answers

    What does the term 'negative resolution' refer to in shareholder meetings?

    <p>A resolution that automatically takes effect unless opposed.</p> Signup and view all the answers

    In John Shaw & Sons (Salford) Ltd v Shaw, what did the court rule regarding shareholders directing the board to discontinue legal proceedings?

    <p>Shareholders do not have the authority to control management decisions</p> Signup and view all the answers

    Under what circumstance may members exercise the power of the board, according to the content?

    <p>In cases of a decision-making deadlock</p> Signup and view all the answers

    If a company's board of directors is evenly split on a crucial decision, what is their recourse according to the governing principles?

    <p>Request a general meeting for appointing new directors</p> Signup and view all the answers

    What is the effect of a limitation on members' powers as specified in the Articles of Association?

    <p>These limitations must be amended for compliance</p> Signup and view all the answers

    The incorporation of a company does not create a separate legal entity.

    <p>False</p> Signup and view all the answers

    In the case of Gilford v Motor Co Ltd, the court successfully pierced the corporate veil.

    <p>True</p> Signup and view all the answers

    Under S51 CA 2006, a company can ratify pre-incorporation contracts after its registration.

    <p>False</p> Signup and view all the answers

    Only two cases successfully pierced the corporate veil in legal history.

    <p>True</p> Signup and view all the answers

    Subscribers to the memorandum remain personally liable once a company is incorporated.

    <p>False</p> Signup and view all the answers

    A company can only be formed by natural persons and cannot include legal persons.

    <p>False</p> Signup and view all the answers

    The memorandum of association is included in a company's constitution according to the Companies Act 2006.

    <p>False</p> Signup and view all the answers

    Articles of association serve as a binding contract between the company and its members.

    <p>True</p> Signup and view all the answers

    Shareholder agreements can cover every detail outlined within the articles of association.

    <p>False</p> Signup and view all the answers

    Model Articles cannot be changed unless they contradict the Companies Act 2006.

    <p>True</p> Signup and view all the answers

    A significant aspect of the memorandum of association prior to CA 2006 included lists of objects that a company could engage in.

    <p>True</p> Signup and view all the answers

    The Companies Act 2006 allows for a single member company to have multiple shareholders.

    <p>False</p> Signup and view all the answers

    A director being removed while also being a shareholder constitutes a breach of the articles.

    <p>False</p> Signup and view all the answers

    The company's articles of association must be formally amended before limitations on members' power can be disregarded.

    <p>True</p> Signup and view all the answers

    Entrenchment provisions can increase a member's liability without their consent after the alteration.

    <p>False</p> Signup and view all the answers

    The distribution of decision-making power in a company can be limited by the Companies Act 2006.

    <p>True</p> Signup and view all the answers

    A trading certificate is evidence that the company has not met the requirements of the Act regarding registration.

    <p>False</p> Signup and view all the answers

    Directors can be validly removed from office at a general meeting even if such action violates the company's articles.

    <p>False</p> Signup and view all the answers

    A unanimous agreement of all shareholders can override any provision for entrenchment in the articles.

    <p>True</p> Signup and view all the answers

    A breach of articles by a single member can be pursued directly against that member.

    <p>False</p> Signup and view all the answers

    The Model Articles regulations 2008 allow directors to exercise all powers of the company subject to the articles.

    <p>True</p> Signup and view all the answers

    Members can direct the board to make decisions without amending the company’s articles of association.

    <p>False</p> Signup and view all the answers

    If a company’s articles provide for the exclusive authority of directors, shareholders can still overrule a decision made by the board.

    <p>False</p> Signup and view all the answers

    In Barron v Potter, the court ruled that the power to conduct company affairs could not revert to the general meeting when the board cannot act.

    <p>False</p> Signup and view all the answers

    A resolution passed at a shareholders' meeting can compel the directors to sell company assets regardless of the articles’ stipulations.

    <p>False</p> Signup and view all the answers

    If a quorum is not met for a board meeting, the existing directors can still make binding decisions.

    <p>False</p> Signup and view all the answers

    In the case of John Shaw & Sons, the court found that shareholders could take over management powers by simply passing a resolution.

    <p>False</p> Signup and view all the answers

    A group of shareholders representing a simple majority can change a company's articles of association without a special resolution.

    <p>False</p> Signup and view all the answers

    The principle established by Automatic Self-cleansing filter syndicate co ltd v Cuninghame confirms that directors must follow majority shareholder resolutions.

    <p>False</p> Signup and view all the answers

    A resolution can compel directors to reverse a strategic decision if the shareholders hold a majority stake in the company.

    <p>False</p> Signup and view all the answers

    Study Notes

    Company Incorporation

    • Separate Legal Personality: Company registration transforms subscribers into shareholders, creating a separate legal entity with its own rights, obligations, and duties. This is an inevitable consequence of incorporation.
    • Salomon v Salomon & Co. Ltd. (1897): This case established the "corporate veil," meaning a company is a distinct legal entity separate from its owners. Shareholders have limited liability.
    • Piercing the Corporate Veil: Courts can disregard the corporate veil in exceptional situations, holding shareholders personally liable. This is an exception to the general rule of limited liability. Notable cases include Gilford Motor Co Ltd and Jones v Lipman, showing successful piercing. Prest v Petrodel Resources was unsuccessful.

    Pre-Incorporation Contracts

    • Liability: A company cannot enter contracts before incorporation. Those entering pre-incorporation contracts are personally liable, unless novated or the other party agrees to termination.
    • Section 51, Companies Act 2006: Legislation outlining the conditions for liability in pre-incorporation contracts. It highlights the non-existence of the company before formal registration.

    Company Incorporation Process (Registration)

    • Eligibility: Private companies can be incorporated by one or more natural or legal persons.
    • Registration Location: Companies are registered at Companies House (executive agency of the Department for Business, Energy, and Industrial Strategy) in England, Wales, Northern Ireland, and Scotland.
    • Registration Documents: The registrar requires the memorandum of association, articles of association (default are Model Articles of Association), application for registration, statement of company type, and a statement of compliance.

    Memorandum of Association (Pre-2006 vs Post-2006)

    • Pre-2006: A crucial constitutional document listing the company's objects. Exceeding these "objects" (ultra vires) could make transactions void and directors liable. Often extensive lists to allow flexibility.
    • Post-2006: Section 8 defines the Memorandum—a document confirming the subscribers' intention to form a company and become members, with each taking at least one share. It must be in a prescribed format and authenticated. Section 17 clarifies the company's constitution, primarily consisting of articles of association, not the memorandum. Previous Memoranda are treated as provisions of articles.

    Articles of Association

    • Company Rulebook: Articles, a key part of the company's constitution, function as an internal rulebook outlining company operations and procedures. Publicly accessible.
    • Default Rules: The Companies (Model Articles) Regulations 2008 provide default articles if none are specified. These articles cannot contradict the Companies Act 2006.
    • Amendment: Articles can be amended by a special resolution of members (section 21, Companies Act 2006).

    Shareholder Agreements

    • Complementary Role: Shareholder agreements are private contracts among stakeholders, particularly useful for addressing nuances articles cannot cover. These contracts supplement the articles.
    • Enforceability: Breaches of terms in a shareholder agreement can invite legal action by other shareholders.

    Entrenchment and Minority Shareholders

    • Protecting Minority Interests: Entrenchment, sometimes embedded in articles, can make certain clauses harder to alter, potentially safeguarding minority shareholders. Section 22 provides guidelines for this.
    • Circumvention: Unanimous shareholder agreement or court order can override entrenchment provisions.

    Certificate of Incorporation

    • Conclusive Evidence: The certificate is conclusive evidence that the company's registration meets the Act's requirements.

    Company Decision-Making

    • Distinction Between Actions: Companies, as legal entities, act through their representatives (directors, officers, and agents). Differentiating company actions from those taken on the company's behalf is vital.
    • Decision-Making Organs: The Articles of Association and the Companies Act 2006 allocate decision-making authority to the board of directors and general meetings of shareholders.
    • Companies (Model Articles) Regulations 2008: Defines how directors exercise powers (MA 3). Shareholders' reserve power (MA 4) to direct actions, but not invalidate past actions.
    • Overriding Articles: Members can't disregard article limitations or usurp board powers without formal amendment.

    General Meetings and Resolutions

    • Resolution Types: Ordinary resolutions require a simple majority (over 50%), while special resolutions need at least 75% approval.
    • Duomatic Principle: All shareholders, ideally in writing or through consent where possible, can effectively enact decisions.
    • Limitations: The Duomatic principle strictly requires agreement from all voting members. Consent must be demonstrably real and verifiable.

    Board Meetings

    • Power Distribution: The power allocation for company decision-making is in the Articles. The Company Act 2006 provides additional decision making powers
    • Default rules: Default power distribution is defined by the Companies (Model Articles) Regulations 2008.
    • Resolution Process: Model Articles often grant decision-making power to the board via a simple majority.

    Removing Directors

    • Procedure: Directors can be removed by a special resolution, but shareholders need to provide sufficient notice.

    Changing Company Name

    • Approval Method: Company name changes require special resolutions and compliance with stated articles.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Description

    This quiz explores the concept of company incorporation, focusing on the creation of separate legal personality and the implications of the corporate veil. It also examines pre-incorporation contracts and the liabilities involved. Test your knowledge of key cases and principles regarding corporate law.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser