They don’t need to reveal the business’s financial situation to anyone apart from the Inland Revenue for personal tax purposes and Customs and Excise for V.A.T. for turnover in excess of £49,000 (April 1998).
B) The most important consideration on forming a company is the protection of limited liability. As the corporation is a legal person in its own right its distinct and separate from its members or holder Salomon v Salomon & Co [1987]. Only the corporation’s assets may be used to pay its debts. Once the company’s assets have been used up and there is no other fund for repayment of the debts, the company will be wound up if there are still outstanding debts. Those debts would then be legally extinguished. Stan or Bill wouldn’t have the threat of losing their personal fortune.
Most registered companies are “limited by shares”. The liability of members is that once their shares are paid up they cannot be asked to pay any more. This is the case even if the company goes into insolvent liquidation and is wound up not having paid all its debts. The company itself is not limited in that it’s legally liable to pay its debts in full if the funds are there.
Some companies are limited by guarantee. This means members are liable to the amount on which they have agreed this is stated in the Memorandum of the company. These companies can’t be registered with a share capital; therefore they must be private companies.
The corporation would own all the assets and profits, owe all the debts and can be sued for violation of the contract or make it liable for torts committed by its servants. As a company is not a natural person it can only act trough human beings but the resulting contract is with the company and not the individual.
A company will find it easier to raise loan capital since it’s permitted to give security in the form of a floating charge on its assets. A floating charge hovers over described assets and is useful when a company has no fixed assets like land.
It’s relatively easy to form a partnership but on forming a company expenses are incurred e.g. in it’s registration with the Registrar of Companies. A drawback of having a company is that law strictly regulates it. It must produce annual accounts in a set format and have them audited by the Registrar of Companies, for this reason the administration of a company is often more burdensome than that of a partnership. A partnership has the power to engage in any business it likes, companies on the other hand are restricted by the ‘objects’ clause in its Memorandum of Association.
As the public are invited to invest in companies by buying shares the company is legally obligated to provide information to the public about itself, e.g. who owns it, who are its manages and what was its financial position at the date of its last accounts. This is done via its files at the Companies Registration Office. The company must produce a balance sheet and profit and loss account, sec 226. The Companies Act also requires a company to keep various registers.
The company can raise finance by selling shares or debenture stock. Shares give the holder part ownership of the company and carry with them aright to vote at the General Meeting, unless they are non-voting shares, and a right to a dividend if the directors declare one.
Unless any other arrangement has been made the death or bankruptcy of a partner will dissolve the partnership. A company on the other hand, continues irrespective of death or bankruptcy of its shareholders.
Most companies are created by Registration under the Companies Act 1985. To set up a company Stan and Bill must send to the Registrar of Companies A Memorandum of Association. Articles of Association, a company may produce its own or adopt those in Table A from the Companies (Tables A-F Regulations) 1985. A Statutory Declaration on form 12 and a statement of the company’s first directors and secretary on form 10.
Once satisfied with these documents the Registrar will issue a Certificate of Incorporation and the company’s legal life will begin.
An alternative to the registration process would be to buy a “shelf” company for about £150 in about twenty minutes. The companies have already been registered but are not trading.
Once the company is registered sec 351 requires the company’s place of registration and its registration number and the fact that it’s a limited company to be displayed on all business letters and order forms.
C) A company name is something by which people dealing with the company can identify and distinguish it from other companies.
According to the Business Names Act 1985 the requirements of a private limited company name are it must have limited or Ltd at the end. A public company must end in public limited company or PLC. It mustn’t have the same name as one already on the Registrars index. A change would be required within twelve months of Registration if the name were found to be too similar to another company name, or five years if misleading information has been given.
The tort of passing off states no trader should carry out business in such a way that the public may mistake the company’s goods or services for another. This can be used at any time irrespective of when the company was registered. The name must not be offensive or a criminal offence. And it must not be ultra vires, anything outside of the company’s objects clause.
The company name must not imply government or Royal approval without consent and must not imply national pre-eminence.
The company name and serial number must be displayed on letterheads and other business stationary and forms, on cheques, promissory notes, bills of exchange and orders for goods or money. It must appear in a prominent position in easily legible lettering outside every office and place of business and on its common seal. The failure to comply is that the company officer in default is liable to a fine.
If Stan and Bill wanted to call their company Wicks Property Maintenance it may be interpreted that they are misleading the public into thinking they offer a wider range of building services. As the other companies that I have found to have Property Maintenance in their name provide roofing services, carpentry joinery, lay kitchens and bathrooms and do plumbing, decorating, painting and tiling. Stan and Bill on the other hand do repairs and improvements with nothing bigger than an extension. Wicks Home Improvements Co Ltd may be a more appropriate name for the service they provide.
Wicks Property Maintenance & Co Ltd may be available the most similar company name is Wicks Services Limited (www.igp.co.uk).
The name Stability Builders & Co Ltd may be available. The company name most similar is Stability Investments (UK) Limited (www.igp.co.uk).
D) When a dispute takes place as to whether the firm is bound by the act of a partner the question to ask is “Was the act one which, a third party would judge as being in the usual authority of the partner?” If the answer is “Yes” then the question of actual authority is irrelevant.
The Partnership Act 1890 sec. 5 means all partners are agents of the firm and the acts of each partner bind the firm and its partners unless the partner acting for the firm has no authority to act in that particular way and the person he is dealing with knows he has no authority.
In order for a third party to hold the firm or another partner liable the act must be done in relation to the partnership business; be an act which is carrying on in the usual way and the act must be done as a partner and not as an individual.
When Bill signed for the truck in Stability Builders name Stan could refuse to sign the cheque and say that Bill was merely an employee and not a partner and that he was acting with no authority. While the third party the truck contract was signed with would say that the contract Bill signed was related to the business and he represented himself as a partner i.e. he was an agent of the firm and Stan. Similarly in the case Mercantile Credit Co Ltd v Garrod [1962] where Garrod lost for selling a car to the company so it could let it out on higher purchase. As the firm was carrying on in business in the usual way, within the meaning of the Partnership Act 1890, sec 5, the firm was as a result bound. Making the firm liable for the contract.
When Stan signed the contract for the wicker furniture in Stability Builders name Bill could refuse to sign the cheque and say that Stan was not carrying on business in the usual way meaning therefore that the firm could not be bound by the contract. However Like in Mercantile Credit v Garrod [1962] the firm would be liable as the third party doesn’t know what arrangements Stan and Bill have.
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If however the company had been in the process of forming and had ordered in the name that had been submitted to the Registrar of Companies the person who signs the contract makes themselves personally liable as the company doesn’t exist like in the case of Spicer (Keith) Ltd v Mansell [1970]. Spicer finally lost because they were not “carrying on business” yet.
- Every company in its memorandum is required to ‘state the objects of the company’ if a company enters into a contract that exceeds its objects then the transaction may be void. This is known as the ultra vires doctrine. The third party may still sue if he acted in ‘good faith’ and misunderstood the objects clause. However Stan and Bill would have the protection of the company and would have limited liability meaning once all the company funds had been used the company would be wound up and Stan and Bill will still have their personal fortune. As the contract is made with the company not the individual.
Bibliography
Texts
- David Milman and Terence Flanagan, Modern Partnership Law, (1983) Guilford, Biddles Ltd.
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E.R. Hardy Ivamy, Underhill’s Principles of the Law of Partnership, 12th edition (1986) London, Butterworth & Co (Publishers) Ltd.
- Geoffrey Morse, An Introduction to Partnership Law, (1986) London, Financial Training Publications Ltd.
- Smith and Keenan, Company Law, 12th edition (2002) Gosport, Ashford Colour Press Ltd.
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Susan Barber, Company Law, 3rd edition (2001) London, Old Bailey Press.
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