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
| LLP | Partnership |
| Have Limited liability | Have 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
| Company | Partnership |
| Need to register first with written constitution | No registration is required |
| Separate legal entity or person | Not a separate legal entity or person |
| Share are transferable | Share are transferable but limited |
| If borrow loan then can give security in form of fixed asset or in stock | If borrow loan then can give only security in form of fixed asset |
| Managed by directors | Managed by partners |
| Members can not withdrew their capital | Members can withdrew their capital |
| Have a proper formal procedure for dissolution | Have not formal procedure for dissolution usually done by agreement |
| Pay corporation tax | Pay 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 Company | Private Company |
| Registered as a public company | Any company which is not a public company |
| End with plc in their name | End with ltd in their name |
| Can offer shares to general public | Can not offer shares to general public |
| Must need for trading certificate before starting operation | Can start operation after getting incorporation certificate |
| Minimum two directors needed | Minimum one director needed |
| Must have a qualified secretary | No need for secretary |
| File accounts within 6 months to registrar | File 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 resolution | Can 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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