Corporate And Business Law

Corporation | Legal Personalities |Corporate and business law | ACCA F4

Corporation | Legal Personalities |Corporate and business law | ACCA F4

A “Company is a separate legal entity from his owner whether if it is shareholders or employees of the company. In this post we will cover “Corporation and legal personalities”.

As soon as a company is register it becomes separate legal entity and the term used for this process is “Doctrine and veil of Incorporation“.

Corporation

A corporation has a large business and size as compare to a company, This is the only difference between a “Corporation” and a “Company”.

Incorporation Consequences

1. Limited liability: They are liable to pay only limited amount means up to their investment only.

2. Company take action and can file a case to any third part or third party can also file a case to company but can not file a case on directors.

3. Company owns their own property

4. If a shareholder becomes no longer in a business or pass away company will still operate.

5. Management and owners are separate (directors are the management and shareholders are the owner of the company).

6. Foss v Harbottle: If a company face loss or damage then company is only responsible for it recovery.

Note: Court has authority to make the debts payment from directors or shareholders from their own pocket this is known as “Lifting the Veil of Incorporation“.

Lifting of Veil of Incorporation can be occurred if the directors or shareholders attempt wrongful or fraudulent trading in the business, or if there is no trading certificate for starting operation or making trade, or if a director is not able to direct the company and still trying to direct the company then he is liable for the loss or damage.

LLP (Limited Liability Partnership)

LLP has limited liability but these are not in form of company, A company can take investment from general public but LLP is not allowed to take investment from general public.

A Company and LLP has many features which relates to each other such as all the companies members are not personally bound to pay liability until Lifting of Veil of Incorporation same as it is applied on LLP as well.

How LLP Incorporate

  • Proper documents should send to the registrar including LLP name, address where office is located, name and the address of the members at least two or three.
  • Fulfill all the requirement according to LLP ACT 2000 (Limited liability Partnership Act 2000).
  • After all necessary documentation registrar give the certificate of incorporation.

Membership

  • First or initial members sign on the document of incorporation and if after the incorporation new partner join the business they have to do contract from existing partners.
  • If any member pass away then contract should be check or have look o LLP Act 2000, or finish the membership.
  • Duties and right of a partner is specified in the contract or agreement if not then regulate according to Limited Liability Partnership Regulations 2001.
  • All members must act like an agent for LLP.

Designated Members

  • They perform admins duties and fill the LLP duties as well. (LLP duties such as informing about profit and loss and about financial position to government).
  • In Incorporation documents designated members are specified.
  • There must be at least two designated members if not then all member are designated.

Note: Business who operates as LLP, must end their name with Limited Liability Partnership, LLP or llp. Should pay income tax (incorporation tax is not liable to pay).

Difference between LLP and partnership

LLPPartnership
Have Limited liabilityHave unlimited liability
Need to register and need for incorporate certificate Do not need for incorporate certificate
They have to disclose their final accounts or statements They do not need to disclose their final accounts or statements

Difference between company and partnership

CompanyPartnership
Need to register first with written constitutionNo registration is required
Separate legal entity or personNot a separate legal entity or person
Share are transferableShare are transferable but limited
If borrow loan then can give security in form of fixed asset or in stockIf borrow loan then can give only security in form of fixed asset
Managed by directorsManaged by partners
Members can not withdrew their capitalMembers can withdrew their capital
Have a proper formal procedure for dissolutionHave not formal procedure for dissolution usually done by agreement
Pay corporation taxPay income tax

Types of Company

Following are different types of company

Public Company

General Public can take share and invest their money, usually rise fund by sharing the companies share and offer those shares to general public.

Private Company

General public do not invest or take share from the private companies, usually fund is rise by the owner of the companies or take loan from bank or other third parties. it may be limited by shares or by guarantee or unlimited.

Difference between Public or Private Company

Public CompanyPrivate Company
Registered as a public companyAny company which is not a public company
End with plc in their nameEnd with ltd in their name
Can offer shares to general publicCan not offer shares to general public
Must need for trading certificate before starting operationCan start operation after getting incorporation certificate
Minimum two directors neededMinimum one director needed
Must have a qualified secretaryNo need for secretary
File accounts within 6 months to registrarFile account within 9 months and no need before general meeting
Audit is required Audit is required if turnover exceeds 6.5 millions
Annual general meeting is necessary Annual general meeting is not necessary
Can not pass written resolutionCan pass written resolution

Unlimited Companies

Companies whose liability is not limited or unlimited, means if a business is going to shut or at the position of liquidation and company can not pay the liability even after selling all the assets of a company then shareholders have to pay liability from their own pocket or from their personal wealth.

They do not need audit for their account or they are not liable to submit their documents to registrar.

Community Interest Companies

These are the companies who work for public interest such as blood donating companies. These companies have to first register as limited company whether by shares or guarantee and then regulate with community interest company status.

Promoter is/are the person or persons who help to grow the companies by advertising or spreading the name of company.

Duties of a promoter

  • Disclose interest or not make secret profit
  • Disclose all benefits acquired from the company

If the promoter make secret profit the company can:

  • Cancel the contract
  • Can claim the damages made by promoter
  • Can recover the secret profit made by promoter

Note: If a person/promoter or a company enters in a contract before company is registered then it is called pre-incorporation contract.

Government can cancel those contract which taken place in the past before the incorporation.

Promoter can protect the contract by:

  • If he is mentioned that company will sue the contract once all the process of registration or incorporation is done.
  • Postponed the contract until company is properly incorporated.
  • Agreement for new contract once the company formed.
  • Make agreement from the company that he is not personally liable
  • Off-The-Shelf-Companies means buy the company already formed or incorporated and sign for the contract.

How to register a company

Following are the document which requires to form a company.

Memorandum of Association (MOA)

It is a legal document which represent the relation between shareholder and a company, it includes rules and objectives of company and show written agreement of a company.

  • It shows the agreement between the company and shareholders.
  • Share holders must take at least one share to become a share holder in the company.
  • Shareholders are required to sign to become the member of the company.
  • Once the memorandum is created or submitted it can not be changed.

Application for Registration

According to the “Company Act 2006” all the necessary information must be delivered to the registrar for making the company, It includes:

  • Names of the company
  • Whether it is limited by shares or guarantee
  • Whether it is a private or a public company
  • Address of the registered office

Documents that must be sent along with application of registration:

1. Statement of initial capital or shareholding

It must includes:

  • Total number of the shares taken by the memorandum subscriber
  • Nominal value of the shares
  • Class of share whether (Equity or preference)
  • Total unpaid amount of shares
  • Contract address of each subscriber or shareholders

Statement of Guarantee

Maximum amount each shares can contribute in case of winding up.

Statement of consent to act

Company’s confirm the director and the secretary for some act.

Statement of compliance

It is the confirmation that “Companies Act 2006” is properly applied, It may be in form of paper or an electronic form.

And also pay registration fee

Name of a Company

  • Company must includes LTD or PLC with its name
  • Name must be unique not identical or already exist
  • Must not use illegal words in the company’s name
  • Any word which makes connection to government then it must take suggestion from the secretary
  • Tort of passing should be avoided

Note: Tort of passing is already discussed in “Law of Tort” chapter.

Secretary can force a company to change its name if following condition occurred:

  • The company name already exist
  • Name misleads or cause damage to general public
  • Wrong information is provided when take approval for the name

Special Resolution: It is a document which is can be used when a company want to change its name.

Note: If a company is already exist and a new company formed recently and has very identical name with the old company then old company can file a case or can request to adjudicator for changing the the name of the new company.

Article of Association

It is an internal constitution which defines:

  • Manners by which company must govern
  • Control or manage the relation among the company, shareholders and its directors.

Model Article: It is a draft article which companies has to submit to secretary, Following companies are entitled to submit the “Model Article“.

  • private companies limited by share or by guarantee
  • Public companies

Contents Article: (Companies Act 2006) It is a document which defines that what information should be included in the an article, Following are the important content for this article

  • Directors appointment and their dismissal
  • Directors rules, responsibilities and for what they are liable for
  • Members Right
  • Dividends
  • Director’s Meeting
  • How to communicate with members
  • Records and document
  • Share issues

Annual Confirmation Statement: It is a statement which a company has to submit to registrar for every 12 months and must fill all the requirement for it. If a new company is formed recently it has to submit “Annual Confirmation Statement” within 12 months. This statement should be provided within 14 days after expiry of 12 months (For every period).

The Annual Confirmation Statement show these changes (If Occur)

  • Address of the registered office
  • Company type
  • Business activities principal
  • Secretary and directors details if necessary or required
  • Capital statement
  • Return date of the member in the company

Registrar duties

  • Inspect the documents
  • Issue certificate of incorporation

Note: Public can not start their trading or operation until they get their trading certificate.

Accounting Records in Corporation

Corporation must records all the transaction and event or a sufficient amount of record of data that can be sent to registrar or government if they required.

It should disclose:

  • Corporation financial position accurately
  • Records must follow the proper standard of IAS (International Accounting Standard).
  • It should be record according to Companies Act 2006.

Hopefully you like “Corporation and Legal Personalities” Notes, Must share it and also attempt the practice question of “Corporation and Legal Personalities”.

“Corporation and Legal Personalities” is very important topic for F4 exam you should practice more and more specially for this chapter.

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