Company Law – Essential Reading
Outline of Syllabus
-General Introduction - Forms of business organisation
-An introduction to Partnerships and Partnership law
-Types and Classification of Companies
-Formation, Constitution and Governance Structure of Companies
-Corporate Personality and Corporate groups
-Financing: raising capital by issuing shares: Nature of Equity Capital
and Shares, Types of Shares and variation of rights.
-Constituting and maintaining the company’s capital
-Company’s Officers: Directors: Role, Appointment, Removal, Duties and
Responsibilities: Disqualification of Directors
-Enforcement of Directors’ Duties: Majority Rule and Shareholder
Litigation, Minority Shareholder protection
Textbook
- Sealy and Worthington Text, Cases and Materials in Company law
- In Partnership and LLP Law Jeffrey Morse
Topic 1
- Sealy and Worthington Chapter 1
Topic 2
- Partnership and LLP 1-5, 9-10
Topic 3
- Sealy and Worthington Chapter 2
Topic 4
- Sealey and Worthington, Chapters 4, 5 and 6
Topic 1
Chapter 1
The companies act recognises a number of types and classifications of
company
Companies in action: special features and key parties
Company law is about the interaction between a company (as a legal
person in its own right) the company members (usually shareholders), its
directors and its creditors
- The key players in all of this are the directors and the members,
the directors generally act collectively, via a board of directors
- Members are not often closely involved in the day to day
management unless they are also directors but they do exercise
ultimate control over the company they have the power to dismiss
and appoint directors. These rights are a matter of contract agreed
in the company’s constitution
The fact that a company is a legal person in its own right ensures that it
can own property, contract with third parties, be owed duties by directors
,this allows the business assets and liabilities to be segregated from the
personal assets of the company’s members and directors
- Where a company’s liability is limited it means creditors cannot
seek satisfaction from company members personally
European Law
The EU’s company law harmonisation programme is underpinned by a
series of directives, these do not immediately or directly affect the
member state as a source of law and instead require implementation
through domestic legislation however
- If a directive has been implemented by local legislation recourse
may be had to the directive as an aid to resolve any questions of
statutory interpretation this will normally require the court to give a
purposive rather than restrictive construction to the statute or
regulations (Litster v Forth Dry Dock 1990 HL)
- Even where local legislation does not implement a directive but
covers similar ground it must be read in light of the wording and
purpose of the directive (Marleasing SA v La Comercial) although
not where this would distort the natural meaning of the legislation
(Duke v GEC Reliance 1988)
The relevance of EU law after Brexit
The Withdrawal Act provided for the retention of some EU law , this
included EU-derived legislation which gave effect to EU directives,
regulations already directly effective in EU law thus any pre-existing
regulations or legislation implementing directives has retained its status
Classification of companies
Limited and unlimited companies
CRA 2006 s3
A limited company is one which may be limited by shares or by
guarantee by an appropriate limiting provision in the company’s
constitution. Where there is no limiting provision on the liability of
company members it is an unlimited company
Companies limited by shares and companies limited by guarantee
There are two types of limited company. In a company limited by shares
a member is not liable for the company debts beyond the amount
remaining unpaid on his shares
- If a company allots a share for a price of £1 and the buyer pays 60
p the maximum potentially liability to meet the companies debts
would be 40p for that share holder
If a company is limited by guarantee a member is only liable to make a
contribution to the assets of the company in the event of it being up and
the amount of this contribution is fixed by the company’s contribution
, - These are mainly non-profit. Since they must be formed without
share capital they must look elsewhere for funding e.g.,
subscription fees
Public and private companies
CRA 2006 s4
A private company is a company that is not a public company and a
public company is a company with a certificate of incorporation that
states it is a public company and has complied with all the conditions of
the act regarding registration as a public company
- There is a minimum share capital amount currently £50,000 (CA
2006 ss761)
Only a company limited by shares may be a public company, they have
the advantage of being able to offer these for investment (s755) but are
under greater regulation by the law
- English company law deals with private and public companies in
the same Act it has been suggested they should be separate to
cater for the needs of smaller businesses
Change of company status
A company may do this through re-registration (CRA 2006 ss 89 ff) in
each case conditions must be met
- A certain percentage of the members must agree
- Satisfying the conditions necessary for the new status
- Ensuring there are no historical circumstances that mitigate
against the change
Charitable and community-interest companies
A company of the types mentioned may also be a charity or a community
interest company
- A limited company wishing to register as a CIC must meet the
‘community interest’ test, to meet this test a reasonable person
might consider that its activities are being carried out for the
benefit of the community (C(AICE)A 2004 s35(2)))
- They must also not be an excluded company these are companies
devoted to political campaigning
Classification based on size
In addition to the already mentioned classifications a division of private
companies is made on the basis of size, dispensations from certain
accounting requirements are given to small and medium-sized
companies (ss444 and 465ff), small companies are also exempt from the
obligation to have their accounts audited (CRA 475 ff)
- Definitions of size are provided in SBEEA 2015 s33
Single member companies
Companies can have one single member however the decisions taken
by that single member must be recorded in writing (CA 2006 s357)
, Parent and subsidiary companies
Larger enterprises often operate as corporate groups where the parent
company owns a number of subsidiary companies
CA 2006 s1159
One company is a subsidiary of another where the holding company
- Holds a majority of voting rights in it
- Is a member and has a right to appoint or remove a majority of
directors
- Is a member and controls alone
- Is a subsidiary of a company which is itself a subsidiary of the
holding company
Enviroco ltd v Farstad Supply 2011
A contractor and its affiliates were all cover covered by an indemnity
clause at the time the damage occurred the parent company mortgaged
the shares it owned in the subsidiary so the lender was the registered
legal owner. This was enough to deny the relationship of parent and
subsidiary according to the statutory definition
The companies and other business structures
The most important alternatives to adopting a corporate structure are
sole traders and partnerships.
Partnerships can be divided into three categories:
- Ordinary partnerships in which every member has unlimited liability
for the debts and obligations
- Limited partnerships in which active partners have unlimited
liability but sleeping partners are limited
- Limited liability partnerships formed and registered under the LLP
Act 2000 which have separate personality and members have
limited liability
Incorporation, registration and the role of the registrar
Incorporation
To incorporate a company under CA 2006 ss 7ff, must draw up two
documents the memorandum of association and the company
constitution
- The memorandum must be signed or authenticated by the first
member or members and delivered by them or their agent (can be
done electronically) to the registrar of companies. With supporting
documents including whether liability is limited, proposed directors,
initial share capital, company name ect
If the registrar is satisfied that the requirements of the act as to
registration are he met he will register the documents (s14) a company
cannot be formed for an unlawful purpose so this could be grounds for
refusal (s7(2))
Outline of Syllabus
-General Introduction - Forms of business organisation
-An introduction to Partnerships and Partnership law
-Types and Classification of Companies
-Formation, Constitution and Governance Structure of Companies
-Corporate Personality and Corporate groups
-Financing: raising capital by issuing shares: Nature of Equity Capital
and Shares, Types of Shares and variation of rights.
-Constituting and maintaining the company’s capital
-Company’s Officers: Directors: Role, Appointment, Removal, Duties and
Responsibilities: Disqualification of Directors
-Enforcement of Directors’ Duties: Majority Rule and Shareholder
Litigation, Minority Shareholder protection
Textbook
- Sealy and Worthington Text, Cases and Materials in Company law
- In Partnership and LLP Law Jeffrey Morse
Topic 1
- Sealy and Worthington Chapter 1
Topic 2
- Partnership and LLP 1-5, 9-10
Topic 3
- Sealy and Worthington Chapter 2
Topic 4
- Sealey and Worthington, Chapters 4, 5 and 6
Topic 1
Chapter 1
The companies act recognises a number of types and classifications of
company
Companies in action: special features and key parties
Company law is about the interaction between a company (as a legal
person in its own right) the company members (usually shareholders), its
directors and its creditors
- The key players in all of this are the directors and the members,
the directors generally act collectively, via a board of directors
- Members are not often closely involved in the day to day
management unless they are also directors but they do exercise
ultimate control over the company they have the power to dismiss
and appoint directors. These rights are a matter of contract agreed
in the company’s constitution
The fact that a company is a legal person in its own right ensures that it
can own property, contract with third parties, be owed duties by directors
,this allows the business assets and liabilities to be segregated from the
personal assets of the company’s members and directors
- Where a company’s liability is limited it means creditors cannot
seek satisfaction from company members personally
European Law
The EU’s company law harmonisation programme is underpinned by a
series of directives, these do not immediately or directly affect the
member state as a source of law and instead require implementation
through domestic legislation however
- If a directive has been implemented by local legislation recourse
may be had to the directive as an aid to resolve any questions of
statutory interpretation this will normally require the court to give a
purposive rather than restrictive construction to the statute or
regulations (Litster v Forth Dry Dock 1990 HL)
- Even where local legislation does not implement a directive but
covers similar ground it must be read in light of the wording and
purpose of the directive (Marleasing SA v La Comercial) although
not where this would distort the natural meaning of the legislation
(Duke v GEC Reliance 1988)
The relevance of EU law after Brexit
The Withdrawal Act provided for the retention of some EU law , this
included EU-derived legislation which gave effect to EU directives,
regulations already directly effective in EU law thus any pre-existing
regulations or legislation implementing directives has retained its status
Classification of companies
Limited and unlimited companies
CRA 2006 s3
A limited company is one which may be limited by shares or by
guarantee by an appropriate limiting provision in the company’s
constitution. Where there is no limiting provision on the liability of
company members it is an unlimited company
Companies limited by shares and companies limited by guarantee
There are two types of limited company. In a company limited by shares
a member is not liable for the company debts beyond the amount
remaining unpaid on his shares
- If a company allots a share for a price of £1 and the buyer pays 60
p the maximum potentially liability to meet the companies debts
would be 40p for that share holder
If a company is limited by guarantee a member is only liable to make a
contribution to the assets of the company in the event of it being up and
the amount of this contribution is fixed by the company’s contribution
, - These are mainly non-profit. Since they must be formed without
share capital they must look elsewhere for funding e.g.,
subscription fees
Public and private companies
CRA 2006 s4
A private company is a company that is not a public company and a
public company is a company with a certificate of incorporation that
states it is a public company and has complied with all the conditions of
the act regarding registration as a public company
- There is a minimum share capital amount currently £50,000 (CA
2006 ss761)
Only a company limited by shares may be a public company, they have
the advantage of being able to offer these for investment (s755) but are
under greater regulation by the law
- English company law deals with private and public companies in
the same Act it has been suggested they should be separate to
cater for the needs of smaller businesses
Change of company status
A company may do this through re-registration (CRA 2006 ss 89 ff) in
each case conditions must be met
- A certain percentage of the members must agree
- Satisfying the conditions necessary for the new status
- Ensuring there are no historical circumstances that mitigate
against the change
Charitable and community-interest companies
A company of the types mentioned may also be a charity or a community
interest company
- A limited company wishing to register as a CIC must meet the
‘community interest’ test, to meet this test a reasonable person
might consider that its activities are being carried out for the
benefit of the community (C(AICE)A 2004 s35(2)))
- They must also not be an excluded company these are companies
devoted to political campaigning
Classification based on size
In addition to the already mentioned classifications a division of private
companies is made on the basis of size, dispensations from certain
accounting requirements are given to small and medium-sized
companies (ss444 and 465ff), small companies are also exempt from the
obligation to have their accounts audited (CRA 475 ff)
- Definitions of size are provided in SBEEA 2015 s33
Single member companies
Companies can have one single member however the decisions taken
by that single member must be recorded in writing (CA 2006 s357)
, Parent and subsidiary companies
Larger enterprises often operate as corporate groups where the parent
company owns a number of subsidiary companies
CA 2006 s1159
One company is a subsidiary of another where the holding company
- Holds a majority of voting rights in it
- Is a member and has a right to appoint or remove a majority of
directors
- Is a member and controls alone
- Is a subsidiary of a company which is itself a subsidiary of the
holding company
Enviroco ltd v Farstad Supply 2011
A contractor and its affiliates were all cover covered by an indemnity
clause at the time the damage occurred the parent company mortgaged
the shares it owned in the subsidiary so the lender was the registered
legal owner. This was enough to deny the relationship of parent and
subsidiary according to the statutory definition
The companies and other business structures
The most important alternatives to adopting a corporate structure are
sole traders and partnerships.
Partnerships can be divided into three categories:
- Ordinary partnerships in which every member has unlimited liability
for the debts and obligations
- Limited partnerships in which active partners have unlimited
liability but sleeping partners are limited
- Limited liability partnerships formed and registered under the LLP
Act 2000 which have separate personality and members have
limited liability
Incorporation, registration and the role of the registrar
Incorporation
To incorporate a company under CA 2006 ss 7ff, must draw up two
documents the memorandum of association and the company
constitution
- The memorandum must be signed or authenticated by the first
member or members and delivered by them or their agent (can be
done electronically) to the registrar of companies. With supporting
documents including whether liability is limited, proposed directors,
initial share capital, company name ect
If the registrar is satisfied that the requirements of the act as to
registration are he met he will register the documents (s14) a company
cannot be formed for an unlawful purpose so this could be grounds for
refusal (s7(2))
