Company Incorporation Overview
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Questions and Answers

What is an outcome of registering a company at Companies House?

  • All members lose personal liability.
  • The company can freely enter contracts immediately.
  • The company has an unlimited lifespan.
  • Members become shareholders with limited liability. (correct)

Once a company is incorporated, its members are always shielded from personal liability.

False (B)

What must happen for a pre-incorporation contract to be valid?

The company must be incorporated.

The case __________ established that incorporation creates a new and separate legal entity.

<p>Saloman v Saloman</p> Signup and view all the answers

Match the following cases with their outcomes regarding piercing the corporate veil:

<p>Gilford v Motor Co Ltd = Successful Jones v Lipman = Successful Prest v Petrodel Resources = Not Successful</p> Signup and view all the answers

Under which section of the Companies Act 2006 can a company enter into pre-incorporation contracts?

<p>Section 51 (D)</p> Signup and view all the answers

Directors can ratify pre-incorporation contracts after the company is registered.

<p>False (B)</p> Signup and view all the answers

What is the process by which a party can be released from a pre-incorporation contract?

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

Upon registration of a company, it achieves __________ legal personality.

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

Who can incorporate a private company?

<p>Anyone who meets the legal criteria (D)</p> Signup and view all the answers

What is the primary document that must be delivered to the registrar for company registration?

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

A company can be formed by a single person under the companies act 2006.

<p>True (A)</p> Signup and view all the answers

What is the role of the Articles of Association within a company?

<p>It serves as the rulebook for the operation of the company.</p> Signup and view all the answers

The ____________ is a document stating that the subscribers wish to form a company under the CA 2006.

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

Match the following terms with their correct definitions:

<p>Memorandum of Association = Indicates the wish to form a company and agree to membership Articles of Association = Rulebook for company operation Shareholder Agreement = Private contract among some shareholders Companies House = Authority for company registration</p> Signup and view all the answers

Which of the following statements about shareholder agreements is true?

<p>They are binding contracts among shareholders. (D)</p> Signup and view all the answers

The Memorandum of Association is included in a company's constitution as per the CA 2006.

<p>False (B)</p> Signup and view all the answers

What must directors do according to MA 3 of the Model Articles?

<p>Directors exercise all the powers of the company on behalf of the shareholders.</p> Signup and view all the answers

The ____________ includes any resolutions and agreements that affect a company’s constitution.

<p>Articles of Association</p> Signup and view all the answers

Match the following sections with their descriptions from the Companies Act 2006:

<p>S8 = Memorandum stating the subscribers wish to form a company S33 = Provisions binding the company and its members S17 = Company’s constitution does not include the memorandum S7 = Establishment of single member companies</p> Signup and view all the answers

What must occur for a breach by a single member to be pursued?

<p>It must be pursued through the company. (C)</p> Signup and view all the answers

A company can amend its Articles of Association by a simple majority vote among members.

<p>False (B)</p> Signup and view all the answers

What is the purpose of entrenchment in the Articles of Association?

<p>To make it more difficult to amend or remove certain provisions.</p> Signup and view all the answers

A __________ certificate serves as conclusive evidence that a company is entitled to do business.

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

Match the following provisions with their definitions:

<p>Articles of Association = Rules governing a company's internal affairs Special Resolution = A resolution passed by a specified majority Entrenchment = Provisions that are difficult to amend Certificate of Incorporation = Evidence of compliance with registration requirements</p> Signup and view all the answers

Which right allows a member to purchase shares before an outside investor?

<p>Pre-emption rights (C)</p> Signup and view all the answers

If a member’s right is personal, they can take direct action against the company.

<p>True (A)</p> Signup and view all the answers

What is the section number in CA 2006 that allows members to amend the Articles of Association?

<p>s21</p> Signup and view all the answers

An amendment to the Articles cannot bind a member to take up more shares than they held at the date of __________.

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

How can entrenchment provisions be overridden?

<p>If all shareholders agree unanimously or by court order (C)</p> Signup and view all the answers

Flashcards

Company Incorporation

The legal process of forming a company, creating a separate legal entity distinct from its owners.

Separate Legal Personality

A company is a separate legal entity, distinct from its owners (shareholders).

Corporate Veil

The legal concept that shields company owners from personal liability for the company's debts and obligations.

Piercing the Corporate Veil

An exception where courts hold owners personally liable for company debts, despite the corporate veil.

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Pre-incorporation Contracts

Contracts entered into before a company is legally formed.

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Liability of individuals for pre-incorporation

Persons acting on behalf of a company before its creation are personally liable. Only ways out is novation or termination agreed by the other party.

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Salomon v Salomon

Landmark case establishing the principle of separate legal personality for companies.

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Companies Act 2006

The UK law governing company formation and operation.

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Private Company

A company restricted to a small number of shareholders and not publicly traded.

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Part 2 of CA 2006

Section 7-16, focuses on the Incorporation process.

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Breach of Articles of Association

A violation of the rules outlined in a company's articles, potentially by a director or officer against a shareholder.

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Entrenchment (Articles)

Making it harder to change specific provisions in a company's articles of association.

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Special Resolution

A decision made by a company's members that requires a specific majority vote (e.g., 75%).

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Minority Shareholder

A shareholder owning a smaller portion of a company's shares compared to others.

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Certificate of Incorporation

Official document confirming a company's legal existence and registration.

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Pre-emption Rights

Shareholder's right to buy company shares before they are offered to outsiders.

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Trading Certificate

Official document confirming a company's right to operate commercially.

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Internal Irregularity

A violation of company rules but not severe enough to be a full-scale breach of the articles of association.

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Direct Action (Articles)

A legal claim by one shareholder directly against another for breach of articles of association.

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Registration of Articles (Entrenchment)

A formal action recording the entrenchment details in the public records by informing the Registrar.

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Memorandum of Association

A document stating the subscribers' intention to form a company and become members; it outlines the company's initial agreement for shareholders.

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Articles of Association

The rulebook for a company's operation; it outlines the details of how the company is structured and managed. It helps to specify how the company should conduct business.

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Company Registration (UK)

Companies are registered with Companies House, an agency of the UK government responsible for company registry.

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Shareholder Agreement

A private contract among shareholders that outlines specific terms to complement (but not contradict) the articles of association.

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Ultra Vires

Company actions exceeding its stated purpose, potentially rendering those actions void.

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Company's Constitution

The set of rules governing a company's operations, including the articles of association and relevant resolutions and shareholder agreements

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Model Articles

Default rules that define the articles of association for a company, if there are no changes made.

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One-Member Company

A company formed by only one person.

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Company Objects

The main purpose or area of operation for a company.

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Private Company Limited by Shares

A specific type of company format (as stated in the relevant documents and registration forms) that restricts the sale of shares and shares ownership

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Study Notes

Company Incorporation: Birth of a Company

  • Registration at Companies House transforms subscribers into shareholders of a separate legal entity.
  • Separate legal personality is a direct result of incorporation.
  • Salomon v. Salomon & Co. Ltd. (1897) established the concept of the corporate veil, shielding members from liability.

Piercing the Corporate Veil

  • Exceptions to limited liability allow courts to look behind the company structure.
  • Courts pierce the corporate veil in limited circumstances (e.g., Gilford Motor Co. Ltd. v. Horne; Jones v. Lipman).
  • Prest v. Petrodel Resources Ltd failed to pierce the corporate veil.

Pre-Incorporation Contracts

  • A company cannot enter into contracts before incorporation.
  • Directors or others signing pre-incorporation contracts face personal liability.
  • Liability can be avoided through novation or the other party's agreement to cancel the contract.

Company Incorporation Process (Companies Act 2006)

  • Private companies can be incorporated by one or more persons (individuals or companies).
  • Registration is processed via Companies House (England, Wales, Northern Ireland, Scotland).
  • Key documents for registration include:
    • Memorandum of Association
    • Articles of Association (default provisions are "Model Articles")
    • Application for registration
    • Compliance statement (specifying the type of company).

Memorandum of Association (Pre- and Post-2006)

  • Pre-2006: Significant document outlining company objectives. Ultra vires actions (exceeding those objectives) could be void.
  • Post-2006: States subscribers' intent to form a company and become members. No longer the company's constitution. Instead, the company's constitution includes the articles of association and related documents.

Articles of Association

  • Company's internal rulebook, contract between company & members, & members inter se.
  • Accessible to the public via Companies House.
  • Default rule: Companies (Model Articles) Regulations 2008 apply.
  • Directors' powers derived from articles, supplementing CA 2006.
  • Shareholders' decisions dictated by the Companies Act and their decisions, and directors follow the Model Articles.

Shareholder Agreements

  • Supplement articles, often used for specific terms.
  • Example terms: restrictions on outside share sales, coordinated voting, specific sale conditions when leaving the company.

Amendment of Articles

  • Amendments require a special resolution of members (s21 CA 2006).
  • Any restrictions to amendment, such as entrenchment provisions, can be overridden if agreed by all shareholders or a court order.
  • Entrenchment (s22) aims to protect minority shareholders by making amendment more difficult. This is rare today

Certificate of Incorporation

  • Proof that the company registration process was successfully completed.
  • Trading Certificate validates the company's right to carry out business activities.

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Description

This quiz covers essential topics related to company incorporation, including the transition of subscribers to shareholders, the implications of separate legal personality, and key case law affecting limited liability. Analyze important concepts such as piercing the corporate veil and the processes involving pre-incorporation contracts under the Companies Act 2006.

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