Problem Questions and Answers on Company Law

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Coursework 1 Adam, Belle, Claire and Dennis have decided to set up a new company which is private, limited by shares. Section 1 – Incorporation Documentation Memorandum of Association (MoA)
  1. Under the Companies Act 1985[1] the Memorandum of Association[2] sets out a company’s constitution and objectives. Ιt also forms the basis of a company’s existence, by regulating external affairs (ss 2-6, CA85)[3].
The MoA was significantly simplified later by the Companies Act 2006[4]. Now, it requires the names of the first subscribers. Also under s 8 (1)(b)[5] it states that the first subscribers must be allotted with at least one share and automatically become members of the company. The new act merely evidences the subscribers` intention to form a new company and thus upon registration, the members need to authenticate it[6]. IN01 Form
  1. Along with the MoA, an application for registration and a statement of compliance must be delivered to the Companies House; referred to as the IN01 Form.
The CA85 replaced various requirements of the MoA with the Application for Registration[7] (s. 9, CA06)[8], as well as speeding the manual process of the MoA`s content (ss 2 and 10, CA85)[9]. The information required is included in s 9(2), s 9(4), s 9(5) and 9(6) of CA06[10], and briefly this includes the company`s details such as the name, place of registered office, shares, capital, proposed officers and a copy of the company`s AoA. All these need to be delivered to the relevant registrar with the required fee[11]. Part 1
  1. The company is identified by its name and serial number, hence they both need to be unique. As this is a private company, limited by shares, the correct suffix must be placed at the end; “Limited” or “Ltd” (s 59 (1), CA06)[12]. The name on the index can be checked by the WebCheck[13].
  1. “ABCD Limited” is not available as it is already on the registrar. s 66(1), CA06[14] clearly states that a company cannot be registered by the same name as another company in the index of company names(s 1099)[15].
  2. “4 Friends Ltd” is free in the registrar. However, it is not advised to use this name as a company “FOURFRIENDS LTD” is in the registrar’s index. Technically, you can use “4 Friends Ltd” but under s 67(1), CA06[16], the Secretary of State[17] may judge that this will be passed off as a similar name. In that case, the company will have to change its name within 12 months of registration (s 68(2), CA06)[18], unless “FOURFRIENDS LTD” has given consent for the proposed name to be used.
  3. “Adam & Company Limited” is available on the registrar, but in the index a company under the name “ADAM & COMPANY PUBLIC LIMITED COMPANY” is registered. Thus, as stated in Part 1 C. II, this is a matter of the SoS to decide upon.
  4. “A Thru D Ltd” is available on the registrar.
  5. “Belle & Co Ltd” is already on the index and thus it cannot be used. See Part 1 C. I.
  6. “The Red Cross Federation Limited” cannot be used. To begin with, this will be interpreted as a misleading name (s 76(1), CA06)[19], as the company has nothing to do with the non-profit Red Cross organisation.
In addition, even if the name is not interpreted as misleading, then under the Geneva Conventions Act 1957[20] it cannot be used under any circumstances. s 6(3)[21] Clearly prohibits anyone to use wording that is associated with the Red Cross Organisation[22].
  1. Registered office (s 9 (2)(b), CA06[23])
  1. A company requires a registered office at all times because this is where all communications and notices will be addressed[24]. In addition, under s 86, CA06[25] the registered office is the address stated available for inspection for any register, index or other document; and, that all documents by said company have the address mentioned[26].
  2. A company that is registered in “England and Wales” cannot have a registered office in Scotland or Northern Ireland. It’s a different jurisdiction and upon registration they will have to state in what jurisdiction the company will be; A5 of the IN01 form (s 15 (2)(e), CA06)[27]. If a registered office is required in Scotland or in Northern Ireland, then a new company will have to be formed under the specific jurisdiction[28].
  1. Articles of Association
  1. The Articles of Association[29] are the rules of a company and govern its internal affairs. In other words this is the constitution of the company (s 18, CA06[30]). In addition, it forms a statutory contract between its members and the company (s 33[31]).
The first Option available on A7 of the IN01 form is to obtain model articles, also known as “off the shelf” (The Companies (Model Articles) Regulations 2008[32]). Option 2 again has to do with “off the shelf” articles but, you can add and/or amend provisions. The additional and/or amended provisions must be attached to the IN01 form. As opposed to Options 1 and 2, Option 3 is entirely new articles. For instance, all the provisions are drafted from scratch, known as bespoke articles; a copy of the bespoke must be submitted with the IN01 form[33].
  1. As they want to amend certain articles, it is advised to use Option 2 and tick the first box (Private limited by shares)
  2. Section A8 of the IN01 form refers to entrenched articles. Entrenched articles are specified provisions which may be amended if conditions are met. However, they are more restrictive than those which only require a special resolution. Entrenchment may be made by the articles on formation or an amendment which is agreed by all the members of the company. However, the court can still order a company to alter its articles, even though they are entrenched (ss 22, 23, 24, CA06[34]).
Part 2
  1. Proposed Officers
  1. A Private company under s 270(1), CA06[35] does not require a company secretary. This however, was not the case before 1st of October 2009, when the CA06 came into force. Under s 283, CA85[36], every company was required to have a secretary.
The functions of a company’s secretary are not defined in the acts. However, a better understanding is made in the case of Re Maidstone Buildings Provisions Ltd[37]. The judgment held that “A secretary is not concerned in the management of the company. Equally, I think he is not concerned in carrying on the business of the company … a person who holds the office of secretary may in some other capacity be concerned in the management of the company`s business[38].”
  1. A corporate secretary ensures the integrity of the governance framework, and for the efficient administration, for example, ensuring compliance with statutory and regulatory requirements and implementing decisions made by the board. The corporate secretary is not necessarily a human being.
As a company secretary is not defined in the act, then for now they might not need a corporate secretary.
  1. Yes, everyone can be a director as s 154, CA06[39] states that a private company must have at least one director. Hence, it is possible to have 4 directors.
  2. A corporate director is a natural person acting as a director of the company.
From the 1st of October 2010 all companies are required to have at least one natural director (s 155, CA06[40]) and his details must be stated in E1 of the IN01 form
  1. The “Usual Residential Address[41]” it the usual home address of the natural person acting as the director and will not be available to the public record. Whereas, the “Service Address” can be used to receive communications by third parties.
The “Service Address” can technically be the same as the “URA”. However, as the “Service Address” is publicly recorded, it is advised to use a different “URA” so that the information is disclosed from the public. This has replaced the old system where only officers at serious risk could have their residential addresses kept off the public record; and with the old system the registered office could be the same as the “URA”[42]. The necessary information is given in sections D1-D5 of the IN01 Form and it is in accordance with s 165, CA06[43]. Part 3
  1. Statement of Capital
  1. As soon as the Companies Act 1985 was in force, a company was required to have a nominal value of shares. This is a fixed amount prescribed by members (s 542, CA06)[44]; in our case, the nominal value is £1. The Shares can never be issued at a discount (ss 552 and 580, CA06)[45], in other words, lower than their nominal value. The case of Ooregum Gold Mining Co v Roper [1892][46] illustrates this point when it refers to a “Fixed amount” for nominal value.
On the other hand, the share premium is the amount received over and above the face value of the shares (anything over £1) (s 610, CA06)[47]. Generally speaking there are no restrictions on who holds shares, but the company which cannot be a member of itself (Trevor v Whitworth (1887)[48]. However, there are some exceptions stated in s 659, CA06[49]:
  • Treasury shares (s 724, CA06)[50].
  • Shares may be acquired for the purpose of capital maintenance.
  1. Ordinary shares are used to describe the shares of a company with only one class of shares. In the CA06 they are known as “equity shares”. They are the simplest form of shares and generally carry one vote per share, but have no dividend rights attached to them (s 560)[51].
In contrast, Preference shares give the holder preferential rights, usually in dividends and/or return of capital when winding up the company. Preference shares are not defined in the Act, however, they are eligible to receive automatic “Fixed preferential cumulative dividend”. In other words, shareholders with Preference shares are entitled of any dividends that have been omitted in the past, and if more dividends are left then common shareholders receive those rights[52]. The statement of capital must be completed in F1-F5 of the IN01 form. H. Initial Shareholdings.
  1. When filling in section F5 all they need to be aware of is who has ownership of the company. The ownership is determined by the percentage of issued share capital that each shareholder owns.
Parts 4 and 5 I. They do not need to complete both parts as part 4 is just for companies limited by guarantee (Charities). However, Part 5 needs to be completed by all companies (Statement of compliance). Final Page J. The fee owed to the companies house for registering depends if it is submitted electronically or by paper and if you need the same-day incorporation service. Below is a breakdown of the fees[53]: Electronic (Software)
  • Same-day: £30
  • Normal: £13
Electronic (Web incorporation Service
  • Normal: £15
Paper
  • Same-day: £100
  • Normal: £40
*Fees are subject to periodic change. You should always check the Companies House for current fees[54]. Articles of Association K. Tweaking the Articles
  1. Yes, referring back to E. II., our clients have chosen to use model articles with certain amendments of provisions. It is permissible to delete the reference to Article 8[55] in 7(1)[56] and Article 8 as long as they attach a copy of the changes before submission.
However, Deleting Article 8 might interfere with Article 15[57] in the future. Thus, it is not advised to delete Article 8.
  1. Yes, they can change it but it’s irrelevant because Article 11(2)[58] states that “it must never be less than two”. Therefore, this already meets their requirements.
  2. Yes, they will have to amend/remove Article 17(1)(a)[59].
  3. Article 26(5) of the model articles ensures that the directors have the authority to refuse anyone to register the transfer of a share. And, under Article 27(2)(a)[60], they may choose to become holder of these shares or have them transferred to another person.
  4. The default is two qualifying persons at a meeting (s 318 (2), CA06)[61]. In the scenario that they want to set the quorum at 3, then they will have to add that provision to article 38 of the model articles and again ensure that they attach the copy before registration.
  5. The directors have the authority if they decide to use a company seal or not (Article 49 (1))[62]. In that case, there is no need to remove this provision.
L. After registration the company still has the power to amend any of its AoA (s 21, CA06[63]), which can be done under a special resolution (must be a resolution by the members passed by 75%) (s 283[64]). However, there are some limitations. For example, a clause limiting the company from amending is invalid as seen in the case of Punt v Symonds & Co Ltd[65]. The alterations must be “for the benefit of the company and the members as a whole”[66]. Allen v Gold Reefs Of West Of Africa Ltd[67], in which it was held that alterations could not be inferred with the court unless the amendments were bona fide for the goodwill of the company, illustrates this point. Any amendments of the articles must again be sent to the registrar (s 26(1), CA06) and published (ss 1077/1078, CA06[68]). M. They should include a clause in the AoA about Erin. However, will she be bound by it? Case law suggests that she won’t be bound it. The test is provided in Hickman v Kent or Romney Marsh Sheep-Breeders Association[69], and it stated that “an outsider to whom rights purport to be given by the articles in his capacity as such outsider, whether he is or subsequently becomes a member, cannot sue on those articles treating them as contracts between himself and the company to enforce those rights”[70]. As Erin is Adam`s daughter, she might argue that she is not an outsider. However, in the eyes of the law she is not a member and thus an outsider. She might gain some third party rights under s 6(2) of Contracts (Rights of Third Parties) Act 1999[71] but, this act does not apply to statutory contracts. The only scenario where Erin has rights, is if she creates a separate contract with the company outside the articles. Section 2 – Pre-incorporation Business N. Yes, s 51, CA06[72] allows for pre-incorporation contracts to be entered into.
  1. Prior to incorporation, the company does not yet exist, and an attempt to act on behalf of the company before the birth certificate[73] has no legal effect as the company may never be formed. A promoter needs to be assigned in order for the company to enter pre-incorporation contracts. The term “promoter” is defined by Lord Cockburn CJ as “one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose”[74].
When signing contracts “for and behalf of” the company, the person authorizing it (promoter) will be usually held liable as seen in the case of Kelner v Baxter (1866-87)[75].
  1. Promoters may exclude liability and still ensure that the contract is valid through two procedures. The first requires an express term in the pre-incorporated contract to exclude personal liability which may be done under the relevant section[76]. This option terminates the promoter’s personal liability once the company is incorporated. As confirmed in Phonogram Ltd v Lane [1982], where the words “subject to any agreement to the contrary” [77] were analyzed, and interpreted as “unless otherwise agreed”[78]. Hence an exclusion of personal liability must be given[79] .However the promoter must never sign a contract in the name of the company prior to incorporation. As Goddard CJ stated in the case of Newborne v Sensolid Ltd (1954): “as the company was not in existence when the contract was signed there was never a contract” [80].
The Second Procedure is called “Novation”. The newly formed company must create a new contract with the same previous terms. Ratification is not enough as it is now a different contract with the incorporated company instead of the promoter[81]. Section 3 – The Corporate Entity O. It is important to remind ourselves, that this is a company private limited by shares. With that noted, the idea that their personal assets will be protected stems from the landmark case of Salomon v Salomon & Co [1897][82]. The main principle of Salomon derives from the wording “separate Legal Entity”. To form a better understanding, “separate legal entity” means that the company acts as a juristic person in the eyes of the law thus, the individuals involved in the company are not personally liable if something should go wrong[83]. The company as its own legal person is liable for all its debts, not the owners. Therefore, only the company can be sued and not the members; risk only arises to the members if assets were purchased illegally. However, there are exceptions to this principle and this aspect is one of the most ambiguous areas in company law. This is where a court decides to ignore the “separate legal personality”; and it was created by the landmark case through the wording “the veil of incorporation”. There is no general principle on how a judge might decide to lift the corporate veil[84]. However, the corporate veil might be lifted where there is clear abuse of the corporate form. This was illustrated in the case of Jones v Lipman [1962][85] where an unlawful refusal to sell a house was made due to the sham transfer of the house to a company controlled by Lipman[86]. Thus abysmal circumstances might lead to personal liability if decided so by the judges. Bibliography
  • Primary sources
  • Cases
  • Allen v Gold Reefs Of West Of Africa Ltd [1900] 1 Ch 656
  • Hickman v Kent or Romney Marsh Sheep-Breeders Association [1915] 1 Ch 88a
  • Jones v Lipman[1962] 1 ALL 442 (ER)
  • Kelner v Baxter[1866-87] 2 LR 174 (CP)
  • Newborne v Sensolid (Great Britain) Ltd[1954] 1 QB 45
  • Ooregum Gold Mining Co v Roper [1892] AC 125
  • Phonogram Ltd v Lane[1982] QB 938
  • Punt v Symonds & Co Ltd [1903] 2 Ch 506
  • Re Maidstone Buildings Provisions Ltd [1971] 1 WLR 1085
  • Re Northumberland Avenue Hotel Co Ltd[1886] 38 ChD 156
  • Salomon v Salomon & Co [1897] 22 AC
  • Supplies Ltd v Jerry Creighton Ltd[1951] 1 KB 42
  • Trevor v Whitworth (1887) 12 App Cas 409
  • Legislation
  • Companies (Model Articles) Regulations 2008/3229
  • Companies Act 1985
  • Companies Act 2006
  • Contracts (Rights of Third Parties) Act 1999
  • Geneva Conventions Act 1957
  • The Companies (Model Articles) Regulations 2008
  • Secondary Sources
  • Books
  • Alexis Mavrikakis, Helen Watson, Christopher Morris and Nick Hancock,CLP Legal Practice Guides: Business and Company Legislation(College of Law Publishing, UK 2014/15)
  • Alexis Mavrikakis, Helen Watson, Christopher Morris and Nick Hancock,CLP Legal Practice Guides: Business and Company Legislation(College of Law Publishing, UK 2012/13)
  • Boyle and Birds,Company Law(8th, Jprdan Publishing Limited, Bristol 2011)
  • Charles Wild and Stuart Weinstein,Company Law(16th, Pearson Education Limited, Edinburgh gate 2013) 74-77
  • L.S. Sealy,Cases And Materials In Company Law(Cambridge University Press, Cambridge 1971)
  • Sealy and Worthingtons,Cases And Materials In Company Law(10th, Oxford, UK 2013
  • Susan McLaughlin,Unlocking Company Law(2nd, Routledge, Oxon 2013)
  • Journals
  • A Daehnert, 'The minimum capital requirement - an anachronism under conservation: Part 1' [2009] Comp. Law
  • G Scanlan, 'The Company Names Adjudicator - A New Regime - New Principles' [2007] Comp. Law, 172
  • S Ottolengthi, ''From Peeping behind the Corporate Veil, to Ignoring It Completely' [1990] Modern Law Review
  • Tan Cheng-Han, 'Veil piercing - a fresh start' [2015] Journal of Business Law
  • Dictionaries
  • Woodley, M. G,Osborn's concise law dictionary.(11th, Mick Woodley, London : Sweet & Maxwell/Thomson Reuters 2009)
  • Websites

[1] CA85 [2] MoA [3] Companies Act 1985 s 2-6 [4] CA06 [5] Companies Act 2006 s 8(1)(b) [6] Woodley, M. G,Osborn's concise law dictionary.(11th, Mick Woodley, London : Sweet & Maxwell/Thomson Reuters 2009 ) 42 [7] IN01 Form [8] Companies Act 2006 s 9 [9] Companies Act 2006 s 2,10 [10] Companies Act 2006 s 9(2), 9(4), 9(5) and 9(6) [11] Charles Wild and Stuart Weinstein,Company Law(16th, Pearson Education Limited, Edinburgh gate 2013) 74-77 [12] Companies Act 2006 s 59(1) [13] http://wck2.companieshouse.gov.uk/ (WebCheck) [14] Companies Act 2006 s 66(1) [15] Companies Act 2006 s 1099 [16] Companies Act 2006 s 67(1) [17] SoS [18] Companies Act 2006 s 68(2) [19] Companies Act 2006 s 76(1) [20] Geneva Conventions Act 1957 [21] Geneva Conventions Act 1957 s 6(3) [22] G Scanlan, 'The Company Names Adjudicator - A New Regime - New Principles' [2007] Comp. Law, 172 [23] Companies Act 2006 s 9(2)(b) [24] Supplies Ltd v Jerry Creighton Ltd[1951] 1 KB 42 [25] Companies Act 2006 s 86 [26] Charles Wild and Stuart Weinstein,Company Law(16th, Pearson Education Limited, Edinburgh gate 2013) 98 [27] Companies Act 2006 s 15(2)(e) [28] Charles Wild and Stuart Weinstein,Company Law(16th, Pearson Education Limited, Edinburgh gate 2013) 97 [29] AoA [30] Companies Act 2006 s 18 [31] Companies Act 2006 s 33 [32] The Companies (Model Articles) Regulations 2008 [33] Alexis Mavrikakis, Helen Watson, Christopher Morris and Nick Hancock,CLP Legal Practice Guides: Business and Company Legislation(College of Law Publishing, UK 2014/15) 59 [34] Companies Act 2006 s 22,23 and 24 [35] Companies Act 2006 s 270(1) [36] Companies Act 1985 s 283 [37] Re Maidstone Buildings Provisions Ltd [1971] 1 WLR 1085 [38] Susan McLaughlin,Unlocking Company Law(2nd, Routledge, Oxon 2013) 235-236 [39] Companies Act 2006 s 154 [40] Companies Act 2006 s 155 [41] URA [42] Alexis Mavrikakis, Helen Watson, Christopher Morris and Nick Hancock,CLP Legal Practice Guides: Business and Company Legislation(College of Law Publishing, UK 2012/13) 125-126 [43] Companies Act 2006 s 165 [44] Companies Act 2006 s 542 [45] Companies Act 2006 s 552 and 580 [46] Ooregum Gold Mining Co v Roper [1892] AC 125 [47] Companies Act 2006 s 610 [48] Trevor v Whitworth (1887) 12 App Cas 409 [49] Companies Act 2006 s 659 [50] Companies Act 2006 s 724 [51] Companies Act 2006 s 560 [52] Charles Wild and Stuart Weinstein,Company Law(16th, Pearson Education Limited, Edinburgh gate 2013) 157-60 [53] Companies Act 2006 s 1063 [54] http://www.companieshouse.gov.uk/toolsToHelp/ourPrices.shtml [55] Companies (Model Articles) Regulations 2008/3229 Article 8 [56] Companies (Model Articles) Regulations 2008/3229 Article 7(1) [57] Companies (Model Articles) Regulations 2008/3229 Article 15 [58] Companies (Model Articles) Regulations 2008/3229 Article 11(2) [59] Companies (Model Articles) Regulations 2008/3229 Article 17(1)(a) [60] Companies (Model Articles) Regulations 2008/3229 Article 27(2)(a) [61] Companies Act 2006 s 318(2) [62] Companies (Model Articles) Regulations 2008/3229 Article 49(1) [63] Companies Act 2006 s 21 [64] Companies Act 2006 s 283 [65] Punt v Symonds & Co Ltd [1903] 2 Ch 506 [66] Boyle and Birds,Company Law(8th, Jprdan Publishing Limited, Bristol 2011) 123-130 [67] Allen v Gold Reefs Of West Of Africa Ltd [1900] 1 Ch 656 [68] Companies Act 2006 ss 1077/1078 [69] Hickman v Kent or Romney Marsh Sheep-Breeders Association [1915] 1 Ch 88a [70] Sealy and Worthingtons,Cases And Materials In Company Law(10th, Oxford, UK 2013) 254 [71] Contracts (Rights of Third Parties) Act 1999 s 6(2) [72] Companies Act 2006 s 51 [73] s 15, Companies Act 2006 [74] L.S. Sealy,Cases And Materials In Company Law(Cambridge University Press, Cambridge 1971) 19 [75] Kelner v Baxter[1866-87] 2 LR 174 (CP) [76] s 51, Companies Act 2006 [77] Phonogram Ltd v Lane[1982] QB 938 [78] Charles Wild and Stuart Weinstein,Company Law(16th, Pearson Education Limited, Edinburgh gate 2013) 71 [79] S 51, Companies Act 2006 [80] Newborne v Sensolid (Great Britain) Ltd[1954] 1 QB 45 [81] Re Northumberland Avenue Hotel Co Ltd[1886] 38 ChD 156 [82] Salomon v Salomon & Co [1897] 22 AC [83] Susan McLaughlin,Unlocking Company Law(2nd, Routledge, Oxon 2013) 64-68 [84] S Ottolengthi, ''From Peeping behind the Corporate Veil, to Ignoring It Completely' [1990] Modern Law Review 338-350, 338 [85] Jones v Lipman[1962] 1 ALL 442 (ER) [86] Charles Wild and Stuart Weinstein,Company Law(16th, Pearson Education Limited, Edinburgh gate 2013) 35-48
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