14 The company form

1 Introduction

A company is an example of a 'corporation'.

There are two types of corporation:

1.1 Sole: where a person has a separate legal identity because they occupy a certain office. (eg Lord Mayor of London).

1.2 Aggregate: where a number of persons are associated so as to form a separate legal entity.

There are three types of corporation aggregate

(a) Chartered – formed by Royal Charter.

(e.g. BBC)

(b) Statutory – formed by Act of Parliament.

(e.g. British Coal)

(c) Registered – formed by registration under the Companies Act.

(e.g. BPP Holdings plc).

2 Types of company

2.1 Limited by shares

Members' liability is limited to the amount unpaid on their shares.

2.2 Limited by guarantee

(a) Members' liability is limited to such amount as they "undertake to contribute to the assets of the company in the event of its being wound up".

(b) Guarantee companies are typically charities.

They have the advantage of not having to include the word "limited” in the name, although it still must appear on some business documentation.

2.3 Unlimited

(a) Members' liability is unlimited.

(b) Benefit to member is privacy as accounts must be prepared and audited but need not be filed.

2.4 Change of status

(a) A company may change from limited to unlimited or vice versa, but once re?registered may not change back again.

(b) s.49 CA 1985. A limited company may re?register as unlimited.

(100% majority required)

(c) s.51 CA 1985. An unlimited company may re?register as limited.

(special resolution)

Private/Public/Listed

2.5 Private

Tend to be small. They cannot issue shares to the 'public'.

2.6 Public

Must have an issued share capital of at least ￡50,000 (25% paid up and the whole of any premium). They can issue shares to the public (whether or not they are 'listed').

2.7 Listed

Shares are 'quoted' on the Stock Exchange and thus can be traded on the open market. Their shares must have a market value of at least ￡700,000 (usually more) before a 'listing' can be obtained.

3 Advantages and disadvantages of incorporation

Advantages

3.1 (a) Separate Legal Personality: Salomon & Salomon & Co Ltd

(i) the ability of a company to contract in its own name;

(ii) the ability to sue and be sued.

(b) Limited Liability

The liabilities of the company are distinct from those of its members.

(c) Perpetual Succession

A member's death or the sale of his shares leaves the company unaffected.

(d) Transferability of shares

Shares can be easily transferred (unlike assets, especially land).

(e) Ease of raising finance

(i) the ability of a company to grant a floating charge when borrowing

(ii) issuing shares is more flexible than admitting more partners.

(f) Distinction of property

Company property stays within the company

regardless of what happens to the shares. No

problems owning land

(g) Revenue.

Disadvantages

3.2 (a) Documents and Formalities

Statute (particularly CA '85) imposes strict rules on companies:

(i) Memorandum and articles;

(ii) need to register and prepare audited accounts;

(iii) rules governing share issues;

(iv) meetings and resolutions;

(v) payments to members;

(vi) winding up.

(b) Expense

(i) auditors;

(ii) solicitors (greater involvement with law);

(iii) compliance with statute;

(iv) Registrar's fees.

(c) Publicity and disclosure

(i) details of directors (e.g. emoluments);

(ii) business details.

4 Concept of separate legal personality

Basic rule

4.1 A company is a separate legal entity as distinct from its members:

Salomon v. Salomon & Co Ltd.

This is the main advantage of trading via a company rather than via a partnership or as a sole trader.