Company Law 1 - University of Wolverhampton

Note: this answer is based on one written by a distance learning student covering the question setas part of an examination.There are a number of forms of business, one being the partnershipthey currently have, where the company has no legal personality andthe two partners are liable for debts. There is a limit of 20 partners ina partnership, with the exception of professional organisations.There is a limited partnership, where two partners must be liable,and the others have limited liability, again with no legal personality.There is a sole trader, who can carry on business as he wishes, butwith full liability.There is an unincorporated association, whose members (not morethan 20) have full liability.The Limited Liability Partnership Act 2000 was introduced, which will allow limited liability partnerships(LLPs) to be formed in 2001. This allows all the partners to have limited liability, and thepartnership has legal personality, although two partners are general associates, who deal with alladministration. Then there is the distinction between a private or public company. A public companyhas a minimum of £50,000 capital reserves and takes a while to get incorporated. A privatecompany can be unlimited, allowing secrecy of accounts, or limited (Ltd) either by guarantee (acertain limit will be stated as maximum liability) or by shares. If Barnaby is issued with 100 £1 ordinaryshares at nominal value and 500 ‘A’ preference shares at a premium of 50p, then the maximumliability would be the value of the shares he owns, plus any premium. If the shares are fullypaid, he will be liable to pay nothing extra. If the shares are partly paid (ie 25 per cent of the valueplus the premium) he would be liable for the amount not yet paid. The documents required to setup a company are elaborated in s10 CA 1985. These are the memorandum, stating the objects ofthe company, the name of the company and the registered office (s2). It must also include thenumber of shares and to whom they are issued. A copy of the company articles must be sent tothe Registrar, as well as a statement as to the first Director and Secretary of the company, Form10 and Form 12. The quickest method of incorporation would be to form a private company limitedby shares. Restrictions on a company name are covered by s26 CA 1985. Briefly, the name mustnot include the words Ltd or plc, except at the end, if it is a limited, or public limited, company. Thename must not be the same as an existing company, and it must not constitute a criminal offenceor be offensive.Alexon appears to have been a promoter of Starlight, and as such, when she sold assets to Starlightat an inflated price, these were secret profits. Whilst secret profits can be made, they must bedisclosed to all members of the company, perhaps by way of a prospectus, otherwise the profitscan be claimed back from Alexon: see Gluckstein v Barnes (1900). Alexon entered into contractson behalf of Starlight, and whether she is a Director or not, she will be liable. Formation expensesare between her and the company. The company cannot enter into a contract, because it does notexist, and a further contract, ratified, could only be done under deed. Normally a promoter will alsobe a Director and this problem would not arise. The only other course would be to look atStarlight’s articles, to see if anything is there that would assist Alexon.Marker’s comment on Student AnswerA well written, competent answer which deserved an Upper Second award. Additional detail regardingthe name of the company would have enhanced the answer.