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Companies under the Companies Act

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Introduction

LAW ESSAY Part A James wants to change his business into a company; James will receive many benefits if he chooses to take this option. I am going to talk about the main advantages of changing his business into a company which includes the limited liability that James will be entitled to. A company is a business organisation that is registered under the Companies Act 19651, this legislation means that the organisation created is subject to different rules. If James incorporates his business into a company it will have two legal effects. The two legal effects are; the company becomes a separate entity or a legal person and secondly the company has perpetual succession which means the company will last until it is liquidated by an order of court. The law treats the persons who own and control the company as separate from the company itself. A company is an artificial person as opposed to a human who is a natural person. Most of the advantages which I am going to talk about stem from this separate entity which is created by means of incorporation. A company does not die but continues to exist until its name is struck off or dissolved through a legal process known as winding up or liquidation even though without any of its stakeholders. Perpetuity is a major advantage of incorporation as the company can live forever even without its stakeholders. In Re Noel Tedman Holding Pty Ltd (1967) the only two shareholders and directors of the company, a husband and wife died in a traffic accident. The company's articles required the approval of the directors before shares could be transferred. Since the company still exists, the court allowed the personal representatives of the deceased members to appoint the directors. The main advantage of incorporating is the limited liability of the company. Unlike a sole trader where the business owner assumes all of the liability, when a business becomes incorporated an individual shareholder's liability is limited to the amount he or she has invested in the company. ...read more.

Middle

It is not compulsory for a Plc to float its shares as some Plc's retain ownership of their entire share. Another difference between a Plc and Limited Company is that a Plc has far more capital available, which it can raise through selling its shares to the public on the Stock Market. This means it can develop and expand the business more easily than a Limited Company, which doesn't have the financial resources. It can also benefit from economies of scale because of it's a large size; all of this should reduce costs and improve efficiency. Other differences are the setup costs with a Plc being more expensive to set up. The set up costs are a major reason why most companies begin as a Limited Company rather than a Plc. As James needs another �70,000 it would be better for him to start as a Limited company as it is inexpensive to set up and he does not have enough capital to start up a Plc. In a Limited Company the ownership is closely controlled and connected, with usually the board of directors being the shareholders, this can result in faster decision making. A Limited Company can also lack capital because they have no share issue and cannot benefit from economies of scale like a Plc. A Plc can have conflicts of interest amongst the shareholders and the board of directors and there is also the possibility of a takeover or merger from anyone who buys shares in the company. Another reason why companies begin as a Limited Company is that a Plc requires two people. An Unlimited company makes members of the company completely liable for any debts and not the company. This type of company is rare and will have a separate legal body that exists for making contracts and holding property, this will allow changes in company members if there is a resignation or death. ...read more.

Conclusion

AC 12 was all about Mr Lee who was the director of the company who also owned all the shares in the company. Mr Lee died and his wife tried to claim compensation for the death. The courts argued that Mr Lee was not a worker. The case was bought to another court who found that Mr Lee was an employee due to contract obligations. This case shows that the company and its employee are distinct legal entities and therefore capable of entering into legal relations with one another. This case shows that even if the employee owns all the shares in the company he is still separate from the company. I have shown why it is important for James to insure the factory to the company as well as under his name. It will be important because the courts would argue that the company belongs to the company and not to James, even if he owns all the shares in the company. The case of Macaura v Northern Assurance Co. (1925) AC 619 is a clear example of how the courts interpret the separate personality of the company. There have been other cases where the courts have demonstrated the significance of having an artificial legal personality, such as in Lee v Lee's Air Farming (1961) AC 128. In this case the court had to decide whether the company had employed Mr Lee as a worker and whether Mr Lee's wife was entitled to compensation from the company which was owned by her husband. I think this separate personality has many effects such as limited liability which we talked about earlier in this essay and perpetual succession, which means companies can exist indefinitely. Limited liability and separate legal personality is not the same thing as limited liability is the logical consequence of the existence of the separate personality. It was not until the celebrated case of Salomon v Salomon & Co. [1897] A.C22 that the House of Lords held that a company was in the eyes of the law a different personality from its members. ...read more.

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