UK Company Law Notes- Achieved First Class

Foundations of Company Law (LAW3109) – Notes



Lecture 1 – Introduction, Forms of business
organisation, Separate corporate personality, Limited
liability, and Piercing the veil of incorporation
Introduction
 Main parts
o Formation + features
o Operation + control
o Finance
o End
 Statute (mainly statute based)
o Companies Act 2006
o Insolvency Act 1986
o Partnership Acts
 Case Law
o Contract, Tort, and Trusts
Forms of Business Organisation
 Business organisations include
o Sole Traders
 No limited liability
o Partnerships (usually no separate personality – although do in Scotland)
 General/ Simple
 Every member has unlimited liability
 Limited
 Active partners have unlimited liability
 ‘sleeping’ partners liability is limited
 Limited Liability
 Have separate personality
 Limited liability
o Registered companies
 Limited/ Unlimited s.3 CA 2006
 Limited
o By shares
o By guarantee (usually started without funding – for
non-profit making purposes)
 Public/ Private s.4 CA 2006
 Public
o Minimum share capital of £50,000
o Greater degree of regulation by the law
o At least two directors
 Private
o Possible to have a single member
 Comparison
o Advantages
o Disadvantages



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,Foundations of Company Law (LAW3109) – Notes


 Most appropriate
 Relevant factors
o Formality involved in establishing and operating it
o Complexity of structures
o Degree of involvement
 Participation in management or decision-making
o Financing
 Pooling of resources or expansion
o Limitation of liability for debts
Sole traders
 One-person business
 No formalities involved in the form of legal filing requirements or fees
 Personal savings or bank loan used as capital
 No legal separation between sole trader’s personal and business capacity and assets,
therefore
o All profits and losses belong to sole trader
o Sole trader bears personal liability for all debts
 Advantages
 Disadvantages
Partnerships
General partnerships
 A partnership involves two or more people coming together to establish a business
 Governed by The Partnership Act 1890
 PA 1890, s.1
o Defines a partnership as ‘the relation which subsists between persons
carrying on a business in common with a view to profit’
o Can be by accident
 Partnership without agreement have to share profits equally
o But can agree on how to split the profits
 Normal income tax
 Khan v Miah [2001] 1 All ER 20
o ‘Parties to a joint venture became partners in a business as soon as they
performed part of the joint enterprise in which they had agreed to engage’
 PA 1890, s.4 – meaning of firm
o (1) People who entered a partnership are collectively called a firm
o (2) In Scotland firm is individual
 PA 1890, s.5 – every partner is an agent of the firm and has the power to bind the
firm unless they have no authority to act
 PA 1890, s.6 – partners bound by acts on behalf of the firm
 PA 1890, s.9 – every partner is jointly liable with other partners (in Scotland also
severally), after death the estate is severally liable (in England/ Ireland subject to the
prior payment of his separate debts)
 PA 1890, s.10 – liability of the firm for wrongs for loss/ injury to a person not a
partner OR any penalty incurred
 PA 1890, s.12 – every partner liable jointly (with co-partners) + severally (for
everything for which the firm while he is a partner)



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, Foundations of Company Law (LAW3109) – Notes


 PA 1890, s.32 – dissolution of partnerships
o (a) If entered into a fixed term by expiration of the term
o (b) If entered into an event by termination of the event
o (c) If entered for an undefined duration by notice by date on notice, or if no
date then by date of communication of notice
 PA 1890, s.33 – dissolution of partnerships
o (1) Subject to the agreement, partnerships are dissolved either by death or
bankruptcy
o (2) If any partner is charged for his share, then the other partners have the
option to dissolved
 Minimum membership of 2, no maximum
 Assets (capital and profit) belong to the partners
 Partners generally have the right to participate in the management of the firm and
may bind the partnership through the exercise of actual or apparent authority
 Dissolution by notice, death, bankruptcy PA 1890, ss.32-33
 Joint liability for all debts and obligations PA 1890, s.9
 Partners’ unlimited liability for partnership debts PA 1890, s.10
o Each can be sued for total debts of partnership
 Joint and several liability for all wrongs PA 1890, s.12
 Ilott v Williams [2013] EWCA Civ 645
o ‘A former participant in an asset management business was not entitled to a
share of the profits as he had not been in partnership with the other parties
and he could not claim under the terms of the agreement the participants
had made with the partnership they had later joined.’
o ‘Partnerships are uniquely flexible business vehicles and one of their
advantages is the informality with which they can be created. However, this
lack of required process or any technical registration procedure means it may
not always be totally clear whether, or when, a partnership has been
established and further clarification of the Courts' approach is to be
welcomed.’
 http://www.farrer.co.uk/News/Briefings/When-is-a-partnership-not-
a-partnership/
 See UCB Home Loans Corp Ltd v Soni [2013] EWCA Civ 62 for an insight into the
liability issues which can arise in a general partnership
o ‘A partner in a solicitor's firm was not liable under the Partnership Act 1890
s.14 for fraudulent representations made by another partner to a mortgagee
as the misrepresentations were not made, authorised or knowingly suffered
by her.’
 Advantages
 Disadvantages
Limited partnerships
 Governed by Limited Partnership Act 1907
o Note: Private Fund Limited Partnerships
o (Private equity and venture capital funds)
o Used as investment fund vehicles
 Requires 1/more ‘general’ partners, and 1/more ‘limited’ partners
 General partners liable for all debts of the partnership


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