Company Law – Revision
Topic 1 – Introduction to Company Law
Legal Structures
- How easy is the structure to manage
- Is it easy to raise finance for
- Does it provide protection from risk
Three forms of running a business
The sole trader
The owner/proprietor is the business
- Advantages: convenience and control + income tax/national
insurance
- Disadvantages: unlimited personal liability, may be difficult to
expand the business
The partnership
Two or more people carry on the business together (known as the firm).
- No separate legal personality
- Partners share assets, profits and losses
Partners are agents of each other for conducting the firm’s business,
each partner has unlimited liability for the firm’s debts and liabilities
Forming and operating a partnership
- Formed by agreeing to share in the profits of a business
- Partners collectively manage the business with the partnership
agreement governing the operation
Advantages
- Easy structure to set up: as soon as two or more people start a
business together with a view to share in profits
- Involving more people can bring in extra capital and share
expertise, and responsibility
- Inexpensive to set up and run
- Subject to little regulation
- Privacy
- Partners are self employed so can have tax advantages
Disadvantages
- No separate legal personality leads to organisational and practical
issues
- Joint and several liability for the debts of the firm
- Hard to raise finance to expand the business
Special types of partnership
- Limited Partnership (LP)
- Limited Liability Partnership (LLP)
The company
The company exists as a separate legal person, it owns the business
and its assets in its own right and has its own rights and liabilities
, - Directors manage the company affairs
- Members (shareholders) share its profit
- Shareholders have limited liability for the company’s debts
The company is formed by registration
Directors
In charge of the management of the company
- Appointed and removed by shareholders
- Agents of the company and owe duties to the company
Constitution of the company
Known as the articles of association
- Sets out the powers of the directors and the rights of shareholders
- Can be changed with a special resolution
Financing a company
- Loan may be secured on the company assets and will pay interest
in return
- Equity issue shares in return for this may pay shareholder profits
through dividends
Public and Private Companies
Public
Shares can be traded on the market
Advantages
Shares are listed publicly so easier to buy and sell which increases value
Disadvantage
Subject to tougher rules and regulations
Private
Shares cannot be traded on a share market, and subject to less onerous
regulation
Corporate economy and the significance of company theory
General Importance of the company
Debates concerning corporate governance
- Directors remuneration/ short termism
- Vulnerability of employees/ customers and other ‘stakeholders’
- Who has a legitimate interest in a company’s affairs
Debates Concerning Corporate Social Responsibility
- Excessive risk taking/ outsourcing / tax avoidance ect
- Companies should do more than simply maximise profits
- Companies should behave like responsible citizens
Topic 2 – Partnership
,Forming a partnership
A partnership is an unincorporated structure
Registration is not required however, two or more persons must reach
an agreement that satisfies the legal definition
- This is better done through a written partnership agreement
Legal definition
S1(1) PA 1890 ‘the relationship which subsists between persons
carrying on a business in common with a view of profit’
Essentials of a partnership
Carrying on a business
- Carrying on a business includes ‘every trade, occupation or
profession (s45 PA 1890)
Personal relationship
Difficulties can arise where there is a personal relationship
Palter v Zeller
Ms Lieberman married Mr Zeller and joined his practice. C sought to
recover damages from Liebermann on the basis she was in partnership
with her husband, however, the court found that despite the marriage
there was no evidence of a business partnership.
Ravindran v Rasanagayam
the closer the non-business relationship the less formality was to be
expected in their business relationship.
Single commercial venture
Winsor v Schroeder
A partnership can exist even in a single commercial venture, did not
have enough funds to purchase two houses so agreed with a local
property dealer to purchase jointly and share profits this was a
partnership
- Emphasis is whether it is a commercial venture
Excluded relationships
- Non profit (wise v Perpetual Trustee)
- Co-ownership of a home (s2(1) PA this occurred in
Vekaria v Dabasia
Two individuals purchased a long lease and declared they would
share the profits in the proportion they invested. There was no
agreement to carrying on a business just the distribution of profits
Forming a company or LLP
Keith Spicer v Mansell
Preparing the ground to set up a company was insufficient evidence of
partnership
, United Tankers v Moray Pre-Cast Pty Aus
Intention was to convert an existing partnership into a company. S who
was not a member agreed to invest money in return for a 1/3 interest
when it became a company. He did not become a partner he had taken
an interest when it became a company
Carried on in common
Requires the involvement of two or more persons
Participation in the business and a connection with the business
Strathearn Gordon v Commissioners of Customs and Excise
Company acted as a management consultant and was paid fees + a
share of profits. This was not a partnership as the parties have not made
an agreement to carry on a business together, this was an agreement to
supply services.
Are two or more people carrying on a separate business?
Marshall v Marshall
Two builders traded on their own accounts with their own stock, this was
not a partnership but a sham so one of them could trade without a
license
Thames Cruises v George Wheeler
Two boat companies set up a single ticketing operation working to an
agreed timetable but each maintained their own individual business, not
a business carried on in common but a method contracting with the
public
Participation in the business
Must be joint participation in the common business
Bissell v Cole
the question asked whether an individual had an involvement in the
business and it was said that undue reliance should not be placed on
letterheads and brochures
Control
In distinguishing between a partner and business contact assess
whether the alleged partner has any management control
Mann v D’Arcy
An agreement to join an account for the sale of some potatoes did not
amount to a new and separate partnership. It was a single venture
With a view of profit
With a view of profit means an agreement to share net profits, the
sharing of gross returns does not of itself create a partnership s2(2) PA
Lewis v Narayanasamy 2017
Lewis was being paid from gross returns meaning he is an overhead and
cannot be a partner
Why is sharing in gross returns significant
Topic 1 – Introduction to Company Law
Legal Structures
- How easy is the structure to manage
- Is it easy to raise finance for
- Does it provide protection from risk
Three forms of running a business
The sole trader
The owner/proprietor is the business
- Advantages: convenience and control + income tax/national
insurance
- Disadvantages: unlimited personal liability, may be difficult to
expand the business
The partnership
Two or more people carry on the business together (known as the firm).
- No separate legal personality
- Partners share assets, profits and losses
Partners are agents of each other for conducting the firm’s business,
each partner has unlimited liability for the firm’s debts and liabilities
Forming and operating a partnership
- Formed by agreeing to share in the profits of a business
- Partners collectively manage the business with the partnership
agreement governing the operation
Advantages
- Easy structure to set up: as soon as two or more people start a
business together with a view to share in profits
- Involving more people can bring in extra capital and share
expertise, and responsibility
- Inexpensive to set up and run
- Subject to little regulation
- Privacy
- Partners are self employed so can have tax advantages
Disadvantages
- No separate legal personality leads to organisational and practical
issues
- Joint and several liability for the debts of the firm
- Hard to raise finance to expand the business
Special types of partnership
- Limited Partnership (LP)
- Limited Liability Partnership (LLP)
The company
The company exists as a separate legal person, it owns the business
and its assets in its own right and has its own rights and liabilities
, - Directors manage the company affairs
- Members (shareholders) share its profit
- Shareholders have limited liability for the company’s debts
The company is formed by registration
Directors
In charge of the management of the company
- Appointed and removed by shareholders
- Agents of the company and owe duties to the company
Constitution of the company
Known as the articles of association
- Sets out the powers of the directors and the rights of shareholders
- Can be changed with a special resolution
Financing a company
- Loan may be secured on the company assets and will pay interest
in return
- Equity issue shares in return for this may pay shareholder profits
through dividends
Public and Private Companies
Public
Shares can be traded on the market
Advantages
Shares are listed publicly so easier to buy and sell which increases value
Disadvantage
Subject to tougher rules and regulations
Private
Shares cannot be traded on a share market, and subject to less onerous
regulation
Corporate economy and the significance of company theory
General Importance of the company
Debates concerning corporate governance
- Directors remuneration/ short termism
- Vulnerability of employees/ customers and other ‘stakeholders’
- Who has a legitimate interest in a company’s affairs
Debates Concerning Corporate Social Responsibility
- Excessive risk taking/ outsourcing / tax avoidance ect
- Companies should do more than simply maximise profits
- Companies should behave like responsible citizens
Topic 2 – Partnership
,Forming a partnership
A partnership is an unincorporated structure
Registration is not required however, two or more persons must reach
an agreement that satisfies the legal definition
- This is better done through a written partnership agreement
Legal definition
S1(1) PA 1890 ‘the relationship which subsists between persons
carrying on a business in common with a view of profit’
Essentials of a partnership
Carrying on a business
- Carrying on a business includes ‘every trade, occupation or
profession (s45 PA 1890)
Personal relationship
Difficulties can arise where there is a personal relationship
Palter v Zeller
Ms Lieberman married Mr Zeller and joined his practice. C sought to
recover damages from Liebermann on the basis she was in partnership
with her husband, however, the court found that despite the marriage
there was no evidence of a business partnership.
Ravindran v Rasanagayam
the closer the non-business relationship the less formality was to be
expected in their business relationship.
Single commercial venture
Winsor v Schroeder
A partnership can exist even in a single commercial venture, did not
have enough funds to purchase two houses so agreed with a local
property dealer to purchase jointly and share profits this was a
partnership
- Emphasis is whether it is a commercial venture
Excluded relationships
- Non profit (wise v Perpetual Trustee)
- Co-ownership of a home (s2(1) PA this occurred in
Vekaria v Dabasia
Two individuals purchased a long lease and declared they would
share the profits in the proportion they invested. There was no
agreement to carrying on a business just the distribution of profits
Forming a company or LLP
Keith Spicer v Mansell
Preparing the ground to set up a company was insufficient evidence of
partnership
, United Tankers v Moray Pre-Cast Pty Aus
Intention was to convert an existing partnership into a company. S who
was not a member agreed to invest money in return for a 1/3 interest
when it became a company. He did not become a partner he had taken
an interest when it became a company
Carried on in common
Requires the involvement of two or more persons
Participation in the business and a connection with the business
Strathearn Gordon v Commissioners of Customs and Excise
Company acted as a management consultant and was paid fees + a
share of profits. This was not a partnership as the parties have not made
an agreement to carry on a business together, this was an agreement to
supply services.
Are two or more people carrying on a separate business?
Marshall v Marshall
Two builders traded on their own accounts with their own stock, this was
not a partnership but a sham so one of them could trade without a
license
Thames Cruises v George Wheeler
Two boat companies set up a single ticketing operation working to an
agreed timetable but each maintained their own individual business, not
a business carried on in common but a method contracting with the
public
Participation in the business
Must be joint participation in the common business
Bissell v Cole
the question asked whether an individual had an involvement in the
business and it was said that undue reliance should not be placed on
letterheads and brochures
Control
In distinguishing between a partner and business contact assess
whether the alleged partner has any management control
Mann v D’Arcy
An agreement to join an account for the sale of some potatoes did not
amount to a new and separate partnership. It was a single venture
With a view of profit
With a view of profit means an agreement to share net profits, the
sharing of gross returns does not of itself create a partnership s2(2) PA
Lewis v Narayanasamy 2017
Lewis was being paid from gross returns meaning he is an overhead and
cannot be a partner
Why is sharing in gross returns significant
