A “Company” is a separate legal entity from its owner whether it is shareholders or employees of the company. In this post, we will cover all the important topics about corporations and legal personalities.
As soon as a company is registered it becomes a separate legal entity and the term used for this process is Doctrine and veil of Incorporation.
What Is Corporation In Business Law
A corporation has a large business and size as compared to a company, This is the only difference between a “Corporation” and a “Company”.
What Are Incorporation Consequences
1. Limited liability: They are liable to pay only a limited amount means up to their investment only.
2. Company takes action and can file a case against any third party or a third party can also file a case against the 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 passes away company will still operate.
5. Management and owners are separate (directors are the management and shareholders are the owners of the company).
6. Foss v Harbottle: If a company faces loss or damage then the company is only responsible for its recovery.
Note: The court has the authority to make the debt payment from directors or shareholders from their own pocket this is known as “Lifting the Veil of Incorporation“.
Lifting of the Veil of Incorporation can occur if the directors or shareholders attempt wrongful or fraudulent trading in the business, if there is no trading certificate for starting an 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.
What Is Limited Liability Partnership In Business Law
LLP has limited liability but these are not in form of a company, A company can take investments from the general public but LLP is not allowed to take investments from the general public.
A Company and LLP have many features which relate to each other such as all the company members are not personally bound to pay liability until the Lifting of the Veil of Incorporation same as is applied to LLP as well.
How LLP Incorporate
- Proper documents should send to the registrar including the LLP name, address where the office is located, and name and address of the members at least two or three.
- Fulfill all the requirements according to LLP ACT 2000 (Limited liability Partnership Act 2000).
- After all necessary documentation registrar give the certificate of incorporation.
Membership In LLP
- First or initial members sign on the document of incorporation and if after the incorporation new partner joins the business they have to do a contract with existing partners.
- If any member passes away then the contract should be checked or have look o LLP Act 2000, or finish the membership.
- The duties and rights of a partner are 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 In LLP
- They perform admins’ duties and fill the LLP duties as well. (LLP duties such as informing about profit and loss and about the financial position of government).
- In Incorporation documents designated members are specified.
- There must be at least two designated members if not then all members are designated.
Note: Business that 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).
What Is the Difference Between LLP And A Partnership
|Have Limited liability||Have unlimited liability|
|Need to register and need an incorporated certificate||Do not need to incorporate certificate|
|They have to disclose their final accounts or statements||They do not need to disclose their final accounts or statements|
What Is The Difference Between a Company And A Partnership
|Need to register first with the 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 borrowing a loan then can give security in form of a fixed asset or in stock||If borrowing a loan then can give only security in form of fixed asset|
|Managed by directors||Managed by partners|
|Members can not withdraw their capital||Members can withdraw their capital|
|Have a proper formal procedure for dissolution||Have no formal procedure for dissolution usually done by agreement|
|Pay corporation tax||Pay income tax|
What Are The Main Types of Companies
The following are the main types of companies in business law.
General Public can take shares and invest their money, usually rise funds by sharing the company’s shares and offering those shares to the general public.
The general public does not invest or take share from private companies, usually, the fund is raised by the owner of the companies or take a loan from a bank or other third parties. it may be limited by shares or by guarantee or unlimited.
Difference between Public and Private Companies
|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 the general public||Can not offer shares to the general public|
|Must need the trading certificate before starting the operation||Can start operation after getting incorporation certificate|
|A minimum of two directors needed||A minimum of one director needed|
|Must have a qualified secretary||No need for a secretary|
|File accounts within 6 months to the registrar||File account within 9 months and no need before the general meeting|
|Audit is required||The audit is required if turnover exceeds 6.5 million|
|The annual general meeting is necessary||The annual general meeting is not necessary|
|Can not pass a written resolution||Can pass a written resolution|
Companies whose liability is not limited or unlimited means if a business is going to shut or at the position of liquidation and the 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 an audit for their account or they are not liable to submit their documents to the registrar.
Community Interest Companies
These are the companies that work for the public interest such as blood-donating companies. These companies have to first register as limited companies whether by shares or guarantee and then regulate with community interest company status.
The promoter is/are the person or persons who help to grow the companies by advertising or spreading the name of the company.
Duties of a promoter
- Disclose interest or not make a secret profit
- Disclose all benefits acquired from the company
If the promoter makes a secret profit the company can:
- Cancel the contract
- Can claim the damages made by the promoter
- Can recover the secret profit made by the promoter
Note: If a person/promoter or a company enters into a contract before the company is registered then it is called a pre-incorporation contract.
Government can cancel those contracts which took place in the past before the incorporation.
The promoter can protect the contract by:
- If he mentioned that the company will sue the contract once all the process of registration or incorporation is done.
- Postponed the contract until the company is properly incorporated.
- Agreement for the new contract once the company is formed.
- Make an agreement with the company that he is not personally liable
- Off-The-Shelf-Companies means buying 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 that represents the relationship between a shareholder and a company, it includes the rules and objectives of the company and shows the written agreement of a company.
- It shows the agreement between the company and shareholders.
- Shareholders must take at least one share to become a shareholder in the company.
- Shareholders are required to sign to become members 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 the application of registration:
1. Statement of initial capital or shareholding
It must include:
- Total number of the shares taken by the memorandum subscriber
- The nominal value of the shares
- Class of share whether (Equity or preference)
- The total unpaid amount of shares
- Contract address of each subscriber or shareholders
2. Statement of Guarantee
Maximum amount each share can contribute in case of winding up.
3. Statement of consent to act
The company confirms the director and the secretary for some act.
4. 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 the registration fee
Name of a Company
- The company must include LTD or PLC with its name
- The name must be unique not identical or already exist
- Must not use illegal words in the company’s name
- Any word which makes a connection to the government then it must take suggestions from the secretary
- The tort of passing should be avoided
Note: Tort of passing is already discussed in the “Law of Tort” chapter.
Secretary can force a company to change its name if the following condition occurred:
- The company name already exists
- Name misleads or causes damage to the general public
- The wrong information is provided when taking approval for the name
Special Resolution: It is a document which is can be used when a company wants to change its name.
Note: If a company already exists and a new company formed recently and has a very identical name to the old company then the old company can file a case or can request an adjudicator for changing the name of the new company.
Article of Association
It is an internal constitution that defines:
- Manners by which the company must govern
- Control or manage the relationships among the company, shareholders, and its directors.
Model Article: It is a draft article that companies have to submit to the 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 that defines what information should be included in the article, Following is the important content for this article
- Director’s appointment and dismissal
- Director’s rules, responsibilities, and for what they are liable for
- Members Right
- Director’s Meeting
- How to communicate with members
- Records and document
- Share issues
Annual Confirmation Statement: It is a statement that a company has to submit to the registrar every 12 months and must fill in all the requirements for it. If a new company is formed recently it has to submit an Annual Confirmation Statement” within 12 months. This statement should be provided within 14 days after the expiry of 12 months (For every period).
The Annual Confirmation Statement shows these changes (If they Occur)
- Address of the registered office
- Company Type
- Business activities principal
- Secretary and directors details if necessary or required
- Capital statement
- The return date of the member in the company
What Are The Registrar’s duties
- Inspect the documents
- Issue certificate of incorporation
Note: The public can not start their trading or operation until they get their trading certificate.
What Is Accounting Records in Corporation
The corporation must record all the transactions and events or a sufficient amount of record data that can be sent to the registrar or government if required.
It should disclose:
- Corporation financial position accurately
- Records must follow the proper standard of IAS (International Accounting Standard).
- It should be recorded according to the Companies Act 2006.