Company Law 1 - University of Wolverhampton

Practice Question and SuggestedAnswerThe following test is designed for practice only and does NOT count aspart of the assessment regime. A Suggested Solution is, however,offered in the following section. Students are advised not to consultthis solution until they have completed the test. It is expected that youwill return your answer to the College for marking and feedback.Unless you undertake such work you will not gain an insight into youracademic strengths and weaknesses before you attempt theexamination.Before attempting your answer, please ensure that you understandthe assessment criteria explained in the Award Guide, and theguidance contained in the section of the Module Planner headed ‘Skillsto be Developed and Examined’.QuestionBarnaby and Alexon are presently carrying on business in partnership. They are thinking aboutincorporating but are not sure about the different options which are available. They also need toknow what documentation is involved and what the quickest method of incorporation is. Theywould like to use the name ‘Big Company’ and also need to know in general whether there are anyrestrictions on the choice and use of a company name.Barnaby is to be issued with 100 £1 ordinary shares issued at nominal value and 500 ‘A’ preferenceshares to be issued at a premium of 50p per share. He would like to know what his maximumliability would be in the event of the company entering insolvent liquidation. Alexon wasrecently involved in the management of another company called Starlight Limited. Whilst she wasin the process of forming this company she sold some assets to the company at an inflated priceand also entered into contracts on behalf of the proposed company, which the board of Starlighthas since refused to adopt. Alexon believes that as she was never appointed as a director of thiscompany that there should be no problem. She is also angry that the board has refused to pay hercompany’s formation expenses. Advise Barnaby and Alexon.(WolverhamptonLLB by Distance Learning, May 2001, Question 2.)Suggested Answer to Practice QuestionNB: Do not consult this solution until you have completed the test.Outline Answer• Various types of companies and other types of business organisations.• Necessary documentation delivered to Registrar – memorandum, articles, statement of directorsand secretaries, statutorydeclaration.• Index of names.• Various statutory restrictions on names.• Common law restriction – tort of passing off.• Maximum liability as shareholder – nominal value of shares.• Alexon – sale of assets by promoter.• Personal liability for prior incorporation contracts.• No claim for company’s formation expenses.Answer