Company Law - Introduction to Incorporation
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Questions and Answers

What document must be signed unless submitted electronically when forming a company?

  • Memorandum of Association (correct)
  • Statutory Declaration
  • Statement of Compliance
  • Articles of Association

    • Which of the following documents is NOT required for incorporation according to the Companies Act 1985?

  • Statutory Declaration of Compliance
  • Financial Statements (correct)
  • Articles of Association
  • Memorandum of Association

    • What is the registration fee currently stated for forming a company?

  • £100
  • £50
  • £10
  • £20 (correct)

    • What is the purpose of the Certificate of Incorporation?

    <p>It is a birth certificate confirming registration of the company.</p> Signup and view all the answers

    Who must sign the statutory declaration of compliance during the incorporation process?

    <p>A solicitor involved in the formation or a named director or secretary</p> Signup and view all the answers

    Which regulations provide suggested forms for memoranda and articles for different types of companies?

    <p>Companies (Tables A-F) Regulations 1985</p> Signup and view all the answers

    What is required in the memorandum regarding share subscriptions?

    <p>The number of shares each subscriber is taking</p> Signup and view all the answers

    What is the role of the Registrar upon reviewing the incorporation documents?

    <p>To register the documents and issue a certificate of incorporation if requirements are met</p> Signup and view all the answers

    Which of the following statements about unlimited companies is true?

    <p>Members have unlimited liability in the event of winding up.</p> Signup and view all the answers

    What is a key characteristic of companies limited by guarantee?

    <p>The total payable amount by members is known as the 'guarantee fund'.</p> Signup and view all the answers

    In the formation of a company, what does 'limited liability' specifically refer to?

    <p>The liability of the members is limited to the amount unpaid on their shares.</p> Signup and view all the answers

    Which type of company cannot be categorized as a public company?

    <p>Unlimited companies.</p> Signup and view all the answers

    How does the liability of members differ in companies limited by shares compared to unlimited companies?

    <p>Members' liability in limited companies is determined by their share ownership.</p> Signup and view all the answers

    What is a key reason why a registrar may refuse to register a company?

    <p>The company has been formed for an unlawful purpose.</p> Signup and view all the answers

    What type of certificate must a public company obtain before it can begin trading?

    <p>s.117 Certificate or Trading Certificate</p> Signup and view all the answers

    How does incorporation affect the liability of members in a company?

    <p>Members are only liable to the company, not to individual creditors.</p> Signup and view all the answers

    What legal status does a company acquire upon incorporation?

    <p>It becomes a separate legal entity from its members.</p> Signup and view all the answers

    In which case was the principle of separate legal personality established?

    <p>Salomon v A Salomon &amp; Co Ltd</p> Signup and view all the answers

    What happens if a public company trades without a s.117 certificate?

    <p>Both the company and responsible directors may be convicted.</p> Signup and view all the answers

    What is the significance of limited liability for shareholders in a company?

    <p>Shareholders' liability is limited to their investments in the company.</p> Signup and view all the answers

    Which aspect of corporate law ensures that a company can own property in its own name?

    <p>Separate Legal Personality</p> Signup and view all the answers

    What is the implication of a company having full contractual capacity?

    <p>The company can enforce its contracts without member approval.</p> Signup and view all the answers

    What is the main effect of section 216 of the Insolvency Act 1986 on directors of an insolvent company?

    <p>Directors are barred from managing any business with the same name as the insolvent company.</p> Signup and view all the answers

    Which of the following statements about changing a company's name is accurate?

    <p>A special resolution requires approval from 75% of shareholders.</p> Signup and view all the answers

    What determines a company's nationality according to CA 1985 s.2?

    <p>The registered office's physical location.</p> Signup and view all the answers

    Why is maintaining a registered office important for a company?

    <p>It determines the jurisdiction for legal proceedings.</p> Signup and view all the answers

    What does the ultra vires rule imply for a company's actions?

    <p>Transactions beyond its objects clause are void.</p> Signup and view all the answers

    How has the law changed regarding the ultra vires rule for third parties?

    <p>The validity of acts by a company cannot be challenged on the grounds of lack of capacity.</p> Signup and view all the answers

    What must a company's memorandum contain to comply with regulations?

    <p>An objects clause stating the company’s purposes.</p> Signup and view all the answers

    Which clause allows a company to change its registered office after formation?

    <p>Registered Office Clause.</p> Signup and view all the answers

    What action can a shareholder take if a company attempts an ultra vires act?

    <p>Bring an action to restrain the act.</p> Signup and view all the answers

    Within what timeframe can the Secretary of State order a compulsory name change after registration if the name is misleading?

    <p>Within 12 months of registration.</p> Signup and view all the answers

    Under which circumstance does the Companies Act 1985 s.24 apply?

    <p>When membership of a company falls below two for more than six months.</p> Signup and view all the answers

    What is the consequence for a public company trading without a trading certificate under Companies Act 1985, s.117(8)?

    <p>Directors are personally liable if the company fails to meet obligations.</p> Signup and view all the answers

    What does Companies Act 1985, s.349 stipulate regarding personal liability?

    <p>Individuals are personally liable if they authorize documents without the correct company name.</p> Signup and view all the answers

    What is one of the conditions under which the court can order directors to contribute to company assets according to Insolvency Act 1986, ss.213 & 214?

    <p>The directors must have acted with intent to defraud creditors.</p> Signup and view all the answers

    What restriction does the Insolvency Act 1986, s.216 place on a director?

    <p>Directors cannot form new companies for five years following insolvency.</p> Signup and view all the answers

    Which provision requires that a member who continues to trade alone after becoming the sole member of a company is jointly liable?

    <p>Companies Act 1985 s.24.</p> Signup and view all the answers

    What is the presumption regarding corporate personality as stated in legal principles?

    <p>The law generally favors the concept of separate corporate personality.</p> Signup and view all the answers

    Which party bears personal liability under Companies Act 1985, s.349 if documentation is improperly signed?

    <p>The person who signed the document improperly.</p> Signup and view all the answers

    Which situation allows for the piercing of the corporate veil due to non-compliance with statutory obligations?

    <p>If directors do not take steps to avoid insolvency.</p> Signup and view all the answers

    What is a fundamental distinction between a company and a partnership in terms of formation requirements?

    <p>A partnership can be formed without any formalities.</p> Signup and view all the answers

    Which statement accurately reflects the legal personality of a company?

    <p>A company is distinct from its members.</p> Signup and view all the answers

    How does financial liability differ for members of a company compared to partners in a partnership?

    <p>Members usually have limited liability for company debts.</p> Signup and view all the answers

    Which aspect regarding share transferability distinguishes companies from partnerships?

    <p>Company shares must be transferable in a public company.</p> Signup and view all the answers

    What regulatory framework closely oversees the powers and responsibilities of a company?

    <p>The Companies Acts and the company’s own constitution.</p> Signup and view all the answers

    What legal role do partners in a partnership hold that members of a company do not?

    <p>Partners are agents of the firm and can bind the firm by their actions.</p> Signup and view all the answers

    In what way does a company’s membership differ from that of a partnership regarding member count?

    <p>Companies can exist with as little as one member without an upper limit.</p> Signup and view all the answers

    What happens if an alteration to the articles conflicts with the memorandum?

    <p>The alteration is considered void.</p> Signup and view all the answers

    Under what condition can a member challenge an alteration to the articles?

    <p>If the alteration was not made in good faith.</p> Signup and view all the answers

    What is the legal effect of the memorandum and articles in relation to members?

    <p>They create a binding contract between company and members.</p> Signup and view all the answers

    In what scenario might provisions of the memorandum or articles form part of a contract with an outsider?

    <p>When they are expressly included in a contract with the outsider.</p> Signup and view all the answers

    Which case illustrated that alterations to the articles must benefit the company as a whole?

    <p>Allen v Gold Reefs of West Africa Ltd</p> Signup and view all the answers

    What must a public company have as a minimum allotted share capital to be registered?

    <p>£50,000, with at least one quarter paid</p> Signup and view all the answers

    Which of the following statements is true regarding private companies?

    <p>Private companies can be formed with just one member and one director.</p> Signup and view all the answers

    In which case was the role of a promoter defined as a matter of fact rather than a matter of law?

    <p>Twycross v Grant</p> Signup and view all the answers

    What is the liability of a shareholder when a company is wound up?

    <p>Only for unpaid nominal share value</p> Signup and view all the answers

    Which type of company is allowed to list its shares on the Stock Exchange?

    <p>Public Companies</p> Signup and view all the answers

    What is the minimum number of shareholders required for a public company?

    <p>At least two shareholders</p> Signup and view all the answers

    What constitutes the registered capital of a company?

    <p>The total nominal value of all issued shares</p> Signup and view all the answers

    What describes the requirements for a company to be classified as a public company under CA 1985?

    <p>Must state it is a public company and have at least £50,000 allotted capital</p> Signup and view all the answers

    When a company is formed, what is the primary function of promoters?

    <p>To take necessary steps for incorporation</p> Signup and view all the answers

    What must be included in the statement regarding the company’s registered office and directors during registration?

    <p>Name, address, nationality, occupation, and date of birth of directors and secretary</p> Signup and view all the answers

    Which of the following statements correctly describes the purpose of a statutory declaration during company registration?

    <p>To confirm compliance with registration requirements</p> Signup and view all the answers

    What is considered conclusive evidence of meeting registration requirements for a company?

    <p>The certificate of incorporation</p> Signup and view all the answers

    What must a memorandum of association display regarding shares?

    <p>The number of shares each subscriber is taking</p> Signup and view all the answers

    Which of the following regulations governs the forms for memoranda and articles for varying types of companies?

    <p>Companies (Tables A - F) Regulations 1985</p> Signup and view all the answers

    What must the statutory declaration of compliance be signed by?

    <p>A solicitor or one of the named directors/secretary</p> Signup and view all the answers

    Under what condition does a public company's memorandum have specific content requirements?

    <p>If it must comply with Table F of the regulations</p> Signup and view all the answers

    What information must be provided in the documents at registration aside from the memorandum and articles?

    <p>The names and personal details of the first directors and secretary</p> Signup and view all the answers

    What is the current registration fee for incorporating a company under the Companies Act?

    <p>£20</p> Signup and view all the answers

    What happens if the Registrar is satisfied with the submitted documents for incorporation?

    <p>The Registrar issues a certificate of incorporation</p> Signup and view all the answers

    What is a significant consequence of a company being considered a separate legal person?

    <p>The company is responsible for its own debts.</p> Signup and view all the answers

    Which of the following statements regarding a public company's trading certificate is true?

    <p>A public company may be penalized for trading without a valid certificate.</p> Signup and view all the answers

    What effect does the separation of legal personality have on a shareholder's interest in a company's property?

    <p>Shareholders have no legal claim over company property.</p> Signup and view all the answers

    What legal implication does limited liability provide to shareholders in a company?

    <p>Shareholders are only liable for unpaid shares.</p> Signup and view all the answers

    In which situation can a court cancel a company's registration after it has been established?

    <p>If the company is registered for purposes contrary to public policy.</p> Signup and view all the answers

    What is a potential consequence for a public company commencing trading without obtaining a trading certificate?

    <p>Directors of the company may face criminal charges.</p> Signup and view all the answers

    What does the phrase 'company's liability is always unlimited' signify?

    <p>The company's obligations extend beyond its assets.</p> Signup and view all the answers

    Why is it incorrect to say that shareholders can insure the company's property?

    <p>The company owns its property independently of shareholders.</p> Signup and view all the answers

    What must a registrar ensure before issuing a s.117 certificate for a public company?

    <p>That the minimum capital requirements have been fulfilled.</p> Signup and view all the answers

    Which case established the principle of separate legal personality for a company?

    <p>Salomon v A Salomon &amp; Co Ltd</p> Signup and view all the answers

    Study Notes

    Company Law - Introduction to Incorporation

    • A company is a "corporation" - an artificial person created by law.
    • A human being is a "natural" person.
    • A company is a "legal" person.
    • A company has legal rights and obligations in the same way as a natural person.

    Companies and Partnerships Compared

    • A company is created by prescribed methods, typically registration under the Companies Act 1985. A partnership is created by agreement of the parties, with no formal requirements, or a written agreement.
    • A company incurs greater expenses at formation, during its life, and on dissolution.
    • A company is considered an artificial legal person separate from its members. A Scottish partnership has a separate legal personality, but it is more limited than that of a company.
    • A company's membership can be as small as one person, with no upper limit. Partnerships require at least two members and usually a limit of 20 (with exceptions).
    • Company shares are normally transferable, essential for a public company. Partnership shares cannot be transferred without the consent of all other partners.
    • Company members cannot manage the company unless they are also directors. All partners are entitled to take part in management.

    Types of Company

    • By Royal Charter (Chartered Companies): Formed by grant of a charter by the Crown. Used to incorporate learned societies and professional bodies, but not trading companies.
    • By Act of Parliament (Statutory Companies): Formed by private Act of Parliament. Used to incorporate public utilities (gas, electricity, railways). Now, privatised utilities are usually registered companies.
    • By Registration (Registered Companies): Formed by registration under the Companies Act 1985. This is the most common method for forming a company, especially trading companies.
      • CA 1985, s.1(1): "Any two or more persons associated for a lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company, with or without limited liability."

    Unlimited Companies

    • Company and members are liable to the full extent of the company's debts.
    • Members are liable for company debts if the company is being wound up.
    • Cannot be public companies.
    • Can be set up with or without a share capital.
    • Do not normally have to file annual accounts.

    Companies Limited by Guarantee

    • Company members agree to pay a specified amount to the company's assets during a winding up.
    • Members do not have to pay anything as long as the company is operating.
    • Are not normally formed for business ventures.
    • Prior to 1980, these companies could have share capital.

    Companies Limited by Shares

    • Members take shares that are issued by the company.
    • Each share has a nominal value.
    • Members can agree to pay a premium.
    • A Company's memorandum must state the total nominal value of all its shares issued, called the registered or authorized capital.
    • Shareholder liability is limited to the unpaid portion of share price.

    Public Companies

    • CA 1985, s.1(3): "a company limited by shares which has a memorandum stating that it is to be a public company..."
    • A company must have a minimum allotted share capital of £50,000, with at least a quarter paid.
    • Must have at least two shareholders and two directors.

    Private Companies

    • A private company is any company that is not a public company, with no minimum share capital requirements.
    • Can be formed with only one director and one member.

    Promotion of a Company

    • Promoters take necessary steps for incorporation.
    • Promoters have a fiduciary duty (to the company or its shareholders) if they sell property to a newly formed company at a higher price than it is worth.
    • They must disclose any conflict of interest to board of directors and/or shareholders.

    Pre-Incorporation Contracts

    • A company has no contractual capacity before incorporation. No contracts regarding the company can be made, though some contracts made on behalf of an anticipated company can be ratified after incorporation.
    • If a third party was aware that a company didn't formally exist (didn't have legal capacity to contract), the agent acting on behalf of the proposed company can be held liable. An existing company can only ratify any contract it may benefit from being made.
    • Exceptions exist for companies bought "off the shelf" or where the company was struck off the register and didn't exist at contract formation.

    Registration of a Company

    • Filing documents with the Registrar of Companies, a public official appointed by the Secretary of State.
    • Filing details such as company files and overseeing compliance.
    • Requires a memorandum of association and articles of association outlining company constitution and other details.

    Certificate of Incorporation

    • Issue when requirements of the Act are satisfied.
    • Evidence of registration.
    • Important for a company's "birth certificate".

    Consequences of Incorporation

    • Separate Legal Personality: Company is a separate legal person distinct from its members.
    • Company Liability: Company is responsible for its own debts, not its members.
    • Shareholder Liability: Shareholders are not liable for company debts, but can be debtors to or creditors of the company.

    Company Property

    • A company owns its own property, and shareholders have no direct right or share in it.
    • A company is liable for its own debts regardless of who controls it.,

    Piercing the Corporate Veil

    • Courts can "pierce" the veil in specific circumstances
    • This is done when the company is being used for an illegal purpose, or to avoid legal obligations.

    Majority Rule and Minority Protection

    • The wishes of the majority usually prevail in company decisions, but significant exceptions exist for protecting minority shareholder interests.
    • Foss v Harbottle: If a wrong is done to a company, the company, and not its members, should initiate legal action.
    • Exceptions exist to Foss v Harbottle when members are treated unfairly, harmed, or disadvantaged fraudulently.
    • The courts can rule on company mismanagement to protect a minority.

    Capital and Shares

    • Share: A unit of measure for a member's company interest.
    • Share Capital: The company's authorized amount that can be allotted as shares. Allotted amount is the total amount of shares that have been issued.
    • Paid-up Share Capital: Amount of money collected from issuing shares, excluding a premium.
    • Uncalled Capital: The remaining amount on partly paid shares that haven't yet been collected by the company.

    Classes of Shares

    • Ordinary Shares: Voting rights, proportional dividends, and participation in a company surplus.
    • Preference Shares: Preference for dividends and other considerations, as established in company articles.

    Allotment of Shares

    • Contracts: Using the conventional contracting principles.
    • Authorisation: Compliance with existing shareholder or companies' articles.
    • Pre-emption Rights: Preferred opportunity for existing shareholders to acquire new shares.

    Transfer of Shares

    • Unlisted Shares: Specific transfer terms are usually established in the articles of association.
    • Listed Shares: Company shares that are traded on stock exchanges.
    • Transmission: Transfer by operation of law/legal process. This can occur because of death, insanity, or bankruptcy of the shareholder.

    Capital Maintenance

    • Companies can't return capital to their shareholders typically.
    • There are specific legal processes for reducing company capital.
    • Other methods such as issuing redeemable shares, and companies' purchasing their own shares are also addressed.

    Meetings of Shareholders

    • Procedures and rules for holding shareholder meetings.
    • Methods for voting.

    Directors

    • Directors' roles and responsibilities, including appointing directors and other associated responsibilities.

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    Description

    Explore the fundamental concepts of company law, focusing on the distinction between companies and partnerships. Understand the legal principles behind a company's status as an artificial person and its implications for rights and obligations. This quiz delves into the incorporation process, the legal personality of companies, and key differences with partnerships.

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