First Class Company Law Notes

Company Law Notes
Table of Contents
TOPIC 1: CORPORATE PERSONALITY, LIMITED LIABILITY AND CONTROLLING THE MISUSE
OF COMPANIES..................................................................................................................2
TOPIC 2: DIRECTORS, SHAREHOLDERS AND THE BALANCE OF POWER..............................26
TOPIC 3: DIRECTORS’ GENERAL DUTIES.............................................................................40
TOPIC 4: ENFORCING DIRECTORS’ DUTIES.........................................................................71
TOPIC 5: SHAREHOLDERS’ RIGHTS AND MINORITY PROTECTION......................................86
TOPIC 6: CORPORATE GOVERNANCE...............................................................................108
TOPIC 7: THE COMPANY’S DEALINGS WITH OUTSIDERS: THE AUTHORITY OF ITS AGENTS
......................................................................................................................................124




1

, TOPIC 1: CORPORATE PERSONALITY, LIMITED LIABILITY AND
CONTROLLING THE MISUSE OF COMPANIES
Essential Reading:
Dignam & Lowry, Chs 1 – 3; Ch 4, paras 4.14 – 4.21 (on pre-incorp. contracts)

Additional Reading:
 Davies, Introduction to Company Law (OUP, 2020), Chapter 1
 Kraakman et al, The Anatomy of Corporate Law (3rd Ed, 2017, OUP) Chapter 1
 Worthingon, Chs 1-3.
 Hannigan, Chs 1 and 3.

1.1 Legal forms for running businesses

 sole traders: You run a business as a sole trader e.g., opening a coffee shop, selling coffee &
paying rent. You borrow money, hire an employee, and receive the coffee beans from a supplier.
 Disadvantages: There is personal liability
 Company law = the law / legal structure on how companies run, - on how businesses are run in
the ‘vehicle’ that is a company.
 Companies are registered forming into an entity referred to a legal custom.




 partnerships - same structure as above however more people own the business therefore
liability is shared between the owners.




2

,  companies- register it as an entity separate from you, the shareholder then run it. The company
borrows money from the bank rather than the shareholder. Therefore, company is liable.




Insolvency Act 1986, section 74:
(1)When a company is wound up, every present and past member is liable to contribute to its assets to any
amount sufficient for payment of its debts and liabilities, and the expenses of the winding up, and for the
adjustment of the rights of the contributories among themselves.
As a shareholder the amount you pay for the share is all you are liable for.

(2) (d) in the case of a company limited by shares, no contribution is required from any member exceeding
the amount (if any) unpaid on the shares in respect of which he is liable as a present or past member;

The companies we shall focus on are ‘registered companies’ ie created by ‘registration’ under the
Companies Act 2006 (or one of its predecessors). There are some other types of company, such as
‘chartered companies’ and ‘statutory companies’. We won’t be addressing those.

Moreover, there are different types of registered company: public limited companies (‘PLCs’); private
limited companies (‘Ltd’); limited by shares; limited by ‘guarantee’; unlimited. Try to get a sense of the
main differences between these types, and why the vast majority are ‘private companies limited by
shares’.

Limited by guarantee – mainly charity companies – its non-profit making. Founders fill a from saying
they guarantee liability of the company to a certain amount. The individual is liable for the amount
they guarantee.




3

, 1. 2 Forming a company

[This section won’t be lectured – make notes!!!].

Understand, from Dignam and Lowry, the basic process for ‘registering’ (ie creating) a company under the
Companies Act 2006.

 The various bits of paperwork that are required (details of directors, shareholders, ‘registered
office’, constitution, and so on, are sent to the Registrar of Companies at Companies House (in
Cardiff). Have a look at the Government’s website for details of the different ways of doing this,
which determine the speed and costs of incorporation:
https://www.gov.uk/topic/company-registration-filing/starting-company

 Essential point: in UK, registration is quick, and cheap. Why?

 It’s tempting to think that all the rules governing companies are found in the law. But often,
company law leaves it to companies themselves to fix their own rules – especially regarding the
‘internal running’ of the company, such as which people (eg shareholders, or directors) take
which decisions, how they hold meetings; etc.

Companies put these rules in their constitutions – formally called ‘articles of association’. Those
forming a company must either draft their own articles or, if they prefer an easier life, can adopt
one of the standard versions that the Government has produced. These are known as the ‘Model
Articles’ (with different versions for private, and for public, companies). The current versions
apply, by default, for companies incorporated from 1/10/2009 onwards.

They are in your statute books – they’re the penultimate statutory instrument.

 Once registration process is completed, and the company has been created, a ‘Certificate of
Registration is issued (CA 2006 – s.15(4)). This is the company’s birth certificate. It proves the
precise date the company came into existence, and its unique number.




 Finally, understand what is meant by a pre-incorporation contract and, crucially, who can be held
liable, and who can enforce, such a contract.

CA 2006, s.51
A contract that purports to be made by or on behalf of a company at a time when the company has not been formed
has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or
as agent for it, and he is personally liable on the contract accordingly.

o Phonogram v Lane [1982] QB 938


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