LAW OF ORGANISATIONS REVISION
Business Structures ................................................................................................................................................4
Other types of business medium ..........................................................................................................................7
Suggested practical/commercial factors...............................................................................................................7
General Partnerships .............................................................................................................................................8
Determining a Partnership ...................................................................................................................................8
Reasons to choose a Partnership ..........................................................................................................................8
Partnership Agreement .........................................................................................................................................8
Typical Items to consider in a Partnership Agreement.........................................................................................8
Partners’ Authority to Bind Third Parties Flowchart pto… ...............................................................................13
Winding up a Partnership ...................................................................................................................................15
Limited Liability Partnerships ...........................................................................................................................16
Legal requirements .............................................................................................................................................16
Designated members ..........................................................................................................................................16
Effect of limited liability ....................................................................................................................................16
Duties and responsibilities of members .............................................................................................................16
Authority of members ........................................................................................................................................17
Owning property and granting charges ..............................................................................................................17
Change in Membership ......................................................................................................................................17
LLP Agreement ..................................................................................................................................................17
Advantages of LLP ............................................................................................................................................18
Disadvantages ....................................................................................................................................................18
A Comparison of Default Provisions of Partnerships and LLPs .....................................................................19
Business Contracts – Parties, Agency and Capacity .........................................................................................20
Identify the parties .............................................................................................................................................20
Capacity .............................................................................................................................................................20
Authority ............................................................................................................................................................20
Liability in agency .............................................................................................................................................21
Companies – authority of directors ....................................................................................................................21
Company director authorities (some repeats) ....................................................................................................21
Partnerships – authority of partners ...................................................................................................................22
Limited Liability Partnerships – authority of members .....................................................................................22
Setting up a Company..........................................................................................................................................23
Types of Company .............................................................................................................................................23
Company Constitution .......................................................................................................................................23
The Procedure of Setting up a Company ...........................................................................................................25
The Practicalities ................................................................................................................................................30
Certificate of Incorporation ................................................................................................................................31
Model Articles – Private Company Limited by Shares......................................................................................31
Post-incorporation Steps ....................................................................................................................................33
Directors ................................................................................................................................................................36
Corporate Governance .......................................................................................................................................36
1
, Directors .............................................................................................................................................................36
Directorship requirements ..................................................................................................................................37
Types of directors ...............................................................................................................................................37
Appointment of directors ...................................................................................................................................38
Directors Duties NOT GONE THROUGH LEE ROACH CHAPTERS – DO IF IN ASSESSMENT .............38
Directors’ liability breach of duty ......................................................................................................................43
Means to avoid liability......................................................................................................................................43
Directors’ liability for torts and crime – general ................................................................................................43
Enlighted Shareholder Value - who is the company governed for? Expansion of s 172 director’s duty ...........43
Director’s Meetings ..............................................................................................................................................45
Board Meeting Procedural Requirements ..........................................................................................................45
Reconvened Board Meeting Procedure..............................................................................................................46
Service contracts ................................................................................................................................................46
Ending directorship ............................................................................................................................................46
Notification requirements ..................................................................................................................................47
Equity Finance......................................................................................................................................................48
• Dividends .................................................................................................................................................48
Classes of shares/holders ...................................................................................................................................48
Ability to acquire shares ....................................................................................................................................49
Procedures ..........................................................................................................................................................50
Shareholders .........................................................................................................................................................51
Shareholders .......................................................................................................................................................51
Shareholder’s Rights under a Shareholder Agreement (in a private company limited by shares) .....................51
Types of Shareholders ........................................................................................................................................54
Shareholder’s Meetings .......................................................................................................................................55
Shareholder Resolutions ....................................................................................................................................55
Determining Responsibility for Decision-Making .............................................................................................55
Transactions requiring Shareholder Resolution for Approval............................................................................55
DETAILS, Transactions requiring Shareholder Resolution ...............................................................................58
Post-meeting Administration..............................................................................................................................62
Written Resolution Procedure ............................................................................................................................63
Shareholder Activism .........................................................................................................................................64
Debt Finance .........................................................................................................................................................65
Sources of borrowing .........................................................................................................................................65
Securities ............................................................................................................................................................66
Types of Assets ...................................................................................................................................................67
Types of Security................................................................................................................................................67
Mortgages...........................................................................................................................................................68
Charges ...............................................................................................................................................................68
Registration of Charges ......................................................................................................................................69
Priority of charges/creditors ...............................................................................................................................70
Comparison of equity and debt finance ............................................................. Error! Bookmark not defined.
2
,Insolvency .............................................................................................................................................................71
Determining Insolvency .....................................................................................................................................71
Insolvency Procedures .......................................................................................................................................71
Liquidation .........................................................................................................................................................71
Functions of the liquidator .................................................................................................................................72
Creditor’s rights, before liquidation ...................................................................................................................74
Creditor’s rights, after liquidation – statutory order of reimbursement .............................................................74
Other Insolvency Proceedings ...........................................................................................................................75
Options for Secured Creditors – receivership ....................................................................................................78
Directors’ Liabilities...........................................................................................................................................79
Wrongful Trading (s.214 Insolvency Act 1986).................................................................................................79
Fraudulent Trading, s 213 Insolvency Act 1986 ................................................................................................80
Misfeasance (s 212 Insolvency Act 1986) .........................................................................................................80
Company Directors’ Disqualification Act 1986 (‘CDDA’) ................................................................................81
3
, Business Structures
Comparison
Sole trader General LPs LLPs Companies
with Partnerships
employees
General No dedicated S 1 Partnership Limited Formed under Types –
information legislation for – Act 1890, two Partnerships Limited private/public,
governed by or more people Act 1907 Liability limited by
parts of others are ‘carrying on Partnerships shares/guarante
a business in Act 2000 e (focus on
common with a private limited
view of profit’ Two or more by shares)
people are
Sometimes ‘carrying on a S 755 CA 2006
‘sleeping business in prohibited from
partners’ – not common with a offering shares
involved in view of profit’ to public in
day-to-day, private
only company
fundamental
decisions S 756 CA 2006,
offer shares to
An person already
unincorporated connected to
legal entity company/other
targeted
individuals
Separate legal No SLP, assets No SLP, No SLP, Yes SLP, LLP Yes SLP, owns
personality/ are owned partners own partners own owns assets assets in own
ownership of personally assets, not right
assets distinct from ß similar
Sole trader sells owners
assets/the
business upon Multiple people
retirement etc. own assets –
‘partnership
assets’
‘Partnership
property’ –
items purchased
for the
partnership,
likely shared
equally
between
partners
Liability/Risk Trader takes Partners have S 4(2) LPA Members have Shareholders
risk, no liability unlimited 1907, need one a limited have limited
on employees liability general partner liability liability
with unlimited
Benefits from Can sue firm or liability for Big advantage Directors
profit and bears partners debts, protected by
losses individually separate legal
LPs limited to personality,
Unlimited Civil Liability amount initially ***Saloman v
liability (Contribution) invested in Saloman
Act 1978 business
4
Business Structures ................................................................................................................................................4
Other types of business medium ..........................................................................................................................7
Suggested practical/commercial factors...............................................................................................................7
General Partnerships .............................................................................................................................................8
Determining a Partnership ...................................................................................................................................8
Reasons to choose a Partnership ..........................................................................................................................8
Partnership Agreement .........................................................................................................................................8
Typical Items to consider in a Partnership Agreement.........................................................................................8
Partners’ Authority to Bind Third Parties Flowchart pto… ...............................................................................13
Winding up a Partnership ...................................................................................................................................15
Limited Liability Partnerships ...........................................................................................................................16
Legal requirements .............................................................................................................................................16
Designated members ..........................................................................................................................................16
Effect of limited liability ....................................................................................................................................16
Duties and responsibilities of members .............................................................................................................16
Authority of members ........................................................................................................................................17
Owning property and granting charges ..............................................................................................................17
Change in Membership ......................................................................................................................................17
LLP Agreement ..................................................................................................................................................17
Advantages of LLP ............................................................................................................................................18
Disadvantages ....................................................................................................................................................18
A Comparison of Default Provisions of Partnerships and LLPs .....................................................................19
Business Contracts – Parties, Agency and Capacity .........................................................................................20
Identify the parties .............................................................................................................................................20
Capacity .............................................................................................................................................................20
Authority ............................................................................................................................................................20
Liability in agency .............................................................................................................................................21
Companies – authority of directors ....................................................................................................................21
Company director authorities (some repeats) ....................................................................................................21
Partnerships – authority of partners ...................................................................................................................22
Limited Liability Partnerships – authority of members .....................................................................................22
Setting up a Company..........................................................................................................................................23
Types of Company .............................................................................................................................................23
Company Constitution .......................................................................................................................................23
The Procedure of Setting up a Company ...........................................................................................................25
The Practicalities ................................................................................................................................................30
Certificate of Incorporation ................................................................................................................................31
Model Articles – Private Company Limited by Shares......................................................................................31
Post-incorporation Steps ....................................................................................................................................33
Directors ................................................................................................................................................................36
Corporate Governance .......................................................................................................................................36
1
, Directors .............................................................................................................................................................36
Directorship requirements ..................................................................................................................................37
Types of directors ...............................................................................................................................................37
Appointment of directors ...................................................................................................................................38
Directors Duties NOT GONE THROUGH LEE ROACH CHAPTERS – DO IF IN ASSESSMENT .............38
Directors’ liability breach of duty ......................................................................................................................43
Means to avoid liability......................................................................................................................................43
Directors’ liability for torts and crime – general ................................................................................................43
Enlighted Shareholder Value - who is the company governed for? Expansion of s 172 director’s duty ...........43
Director’s Meetings ..............................................................................................................................................45
Board Meeting Procedural Requirements ..........................................................................................................45
Reconvened Board Meeting Procedure..............................................................................................................46
Service contracts ................................................................................................................................................46
Ending directorship ............................................................................................................................................46
Notification requirements ..................................................................................................................................47
Equity Finance......................................................................................................................................................48
• Dividends .................................................................................................................................................48
Classes of shares/holders ...................................................................................................................................48
Ability to acquire shares ....................................................................................................................................49
Procedures ..........................................................................................................................................................50
Shareholders .........................................................................................................................................................51
Shareholders .......................................................................................................................................................51
Shareholder’s Rights under a Shareholder Agreement (in a private company limited by shares) .....................51
Types of Shareholders ........................................................................................................................................54
Shareholder’s Meetings .......................................................................................................................................55
Shareholder Resolutions ....................................................................................................................................55
Determining Responsibility for Decision-Making .............................................................................................55
Transactions requiring Shareholder Resolution for Approval............................................................................55
DETAILS, Transactions requiring Shareholder Resolution ...............................................................................58
Post-meeting Administration..............................................................................................................................62
Written Resolution Procedure ............................................................................................................................63
Shareholder Activism .........................................................................................................................................64
Debt Finance .........................................................................................................................................................65
Sources of borrowing .........................................................................................................................................65
Securities ............................................................................................................................................................66
Types of Assets ...................................................................................................................................................67
Types of Security................................................................................................................................................67
Mortgages...........................................................................................................................................................68
Charges ...............................................................................................................................................................68
Registration of Charges ......................................................................................................................................69
Priority of charges/creditors ...............................................................................................................................70
Comparison of equity and debt finance ............................................................. Error! Bookmark not defined.
2
,Insolvency .............................................................................................................................................................71
Determining Insolvency .....................................................................................................................................71
Insolvency Procedures .......................................................................................................................................71
Liquidation .........................................................................................................................................................71
Functions of the liquidator .................................................................................................................................72
Creditor’s rights, before liquidation ...................................................................................................................74
Creditor’s rights, after liquidation – statutory order of reimbursement .............................................................74
Other Insolvency Proceedings ...........................................................................................................................75
Options for Secured Creditors – receivership ....................................................................................................78
Directors’ Liabilities...........................................................................................................................................79
Wrongful Trading (s.214 Insolvency Act 1986).................................................................................................79
Fraudulent Trading, s 213 Insolvency Act 1986 ................................................................................................80
Misfeasance (s 212 Insolvency Act 1986) .........................................................................................................80
Company Directors’ Disqualification Act 1986 (‘CDDA’) ................................................................................81
3
, Business Structures
Comparison
Sole trader General LPs LLPs Companies
with Partnerships
employees
General No dedicated S 1 Partnership Limited Formed under Types –
information legislation for – Act 1890, two Partnerships Limited private/public,
governed by or more people Act 1907 Liability limited by
parts of others are ‘carrying on Partnerships shares/guarante
a business in Act 2000 e (focus on
common with a private limited
view of profit’ Two or more by shares)
people are
Sometimes ‘carrying on a S 755 CA 2006
‘sleeping business in prohibited from
partners’ – not common with a offering shares
involved in view of profit’ to public in
day-to-day, private
only company
fundamental
decisions S 756 CA 2006,
offer shares to
An person already
unincorporated connected to
legal entity company/other
targeted
individuals
Separate legal No SLP, assets No SLP, No SLP, Yes SLP, LLP Yes SLP, owns
personality/ are owned partners own partners own owns assets assets in own
ownership of personally assets, not right
assets distinct from ß similar
Sole trader sells owners
assets/the
business upon Multiple people
retirement etc. own assets –
‘partnership
assets’
‘Partnership
property’ –
items purchased
for the
partnership,
likely shared
equally
between
partners
Liability/Risk Trader takes Partners have S 4(2) LPA Members have Shareholders
risk, no liability unlimited 1907, need one a limited have limited
on employees liability general partner liability liability
with unlimited
Benefits from Can sue firm or liability for Big advantage Directors
profit and bears partners debts, protected by
losses individually separate legal
LPs limited to personality,
Unlimited Civil Liability amount initially ***Saloman v
liability (Contribution) invested in Saloman
Act 1978 business
4
