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Corporate Law > Chapter 3 - Promoters & Company Formation > Flashcards

Chapter 3 - Promoters & Company Formation Flashcards

1
Q

Identify 5 acts typically performed by a promoter.

A
  • raising the idea of forming a company for a given purpose
  • soliciting the interest of others
  • finding directors, shareholders and other investors
  • acquiring business assets for use by the company
  • negotiating business contracts on behalf of the company.
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2
Q

What have displaced fiduciary duties as the key protection for investors seeking to invest in companies?

A

Securities regulations, including the Prospectus Rules, replace fiduciary duties.

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3
Q

What, if any, remedies are available to whom if a promoter sells property he owns personally to a newly formed company he has promoted?

A

The members can rescind the contract if the promoter has not fully disclosed his interests. The promoter could be liable to pay compensation.

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4
Q

What were the key facts in Erlanger v New Sombrero Phosphate Co?

A

Erlanger was a promoter. The company bought land from Erlanger at a premium. The board approved this purchase, but most were not independent of Erlanger. Held: the contract should be set aside.

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5
Q

What were the facts in Lagunas Nitrate Co v Lagunas Syndicate?

A

Two promoters were also the only directors and shareholders and so there was no independent board. However, when selling shares to the public, the interest of the promoters was made clear. Held: there was no breach of fiduciary duty.

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6
Q

What were the facts in Lagunas Nitrate Co v Lagunas Syndicate?

A

Two promoters were also the only directors and shareholders and so there was no independent board. However, when selling shares to the public, the interest of the promoters was made clear. Held: there was no breach of fiduciary duty.

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7
Q

What is a pre-incorporation contract?

A

A contact to which the company appears to be a party, that has been entered into before the company has been registered.

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8
Q

What is the basic common law agency principle that applies to a contract purportedly entered into by a non-existent principle?

A

S51 CA:
“A contract that purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the contract, as one made with the person purporting to act for the company or as an agent for it, and he is personally liable on the contract accordingly.”

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9
Q

What is the principle of law that came out of the litigiation involving the pop group Cheap, Mean and Nasty?

A

Phonogram Ltd v Lane:
Lane signed a contract on behalf of Fragile Management Limited. The sum became payable and Phonogram sued lane for the amount. Held: Lane was ordered to pay the money, as he is personally liable however he expressed his signature.

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10
Q

What was the practical issue at stake in Braymist v Wise Finance Co Ltd, and how was it resolved?

A

A firm of solicitors signed a pre-incorporation contract with Wise Finance Co Ltd on behalf of Braymist, which did not yet exist. The solicitors were able to enforce the contract as they were liable under s51 CA,

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11
Q

Is it possible for a company to adopt a pre-incorporation contact by the board of directors deciding to adopt it?

A

No (Re Northumberland Avenue Hotel Co)

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12
Q

What is the text of s51 CA?

A

“A contract that purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the contract, as one made with the person purporting to act for the company or as an agent for it, and he is personally liable on the contract accordingly.”

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13
Q

Is a person made liable by the CA s51 able to enforce the contract?

A

Yes, as per Braymist v Wise Finance Co Ltd.

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14
Q

What were the facts of Re Northumberland Avenue Hotel Co?

A

Doyle as agent for a hotel company entered into an agreement with Wallis to lease property to build upon. The company was incorporated after the contract and took possession of the land, assuming the contract was binding on it. The building was never completed and the company went into liquidation, and Wallis claimed against the company. Held: the contract did not bind the company.

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15
Q

How can a company become party to a pre-incorporation contract?

A

By entering into a contract of novation, signed by the original parties of the contract, and the new company, as in Braymist.

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16
Q

What is the significance of Howard v Patent Ivory Manufacturing CO?

A

A new agreement can be found to exist by changes agreed by the third party and the company, allowing a company to adopt a pre-incorporation contract.

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17
Q

Which law (English, Scottish, NI) will govern the internal affairs of a UK registered company?

A

The laws of the region in which the company is registered with govern it.

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18
Q

List what must be included in the application to register a company, and under which section of the CA?

A

S 9.

  • proposed company name
  • address of registered office
  • whether limited by shares of guarantee
  • whether the company is private or public
  • a statement of share capital and initial share holding or
  • a statement of guarantee
  • a statement of the proposed officers and secretary
  • a statement of PSCs
  • memorandum of association
  • proposed articles of association
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19
Q

Is it necessary to send hard copy documents to the Resgistrar of Companies to register a company?

A

No, online registration is acceptable, and encouraged by a lower fee (only £12).

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20
Q

What happens if no articles of association are included in the application to register a company?

A

The Model Articles will be adopted by default.

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21
Q

To which registrar must a company’s documents be delivered?

A

To that governing its registered office location (s 9 CA)

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22
Q

Which sections of the CA set out the registration requirements for a company?

A

ss. 9-13.

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23
Q

Is the certificate of incorporation conclusive evidence that the company has been formed for a lawful purpose?

A

No, as the company no longer needs to define its objects, and so the registrar cannot know the purpose for which the company was established.

24
Q

Which form is used for incorporation of a company?

A

IN01.

25
Q

When is a certificate of incorporation issued and by whom, and what is the relevant CA section??

A

“On the registration of a company, the Registrar of Companies will give a certificate that the company is incorporated” (s15)

26
Q

Which registered companies are required to have a trading certificate?

A

A public company must not do business without having a trading certificate (s761).

27
Q

What condition must be satisfied before the Registrar of Companies will issue a trading certificate?

A

A plc must have the minimum nominal value of issued shares (£50000), of which a quarter must be paid up (s763)

28
Q

What are the consequences of a public company doing business without having a trading certificate?

A

Contravention of s761, directors are jointly and severally liable to indemnify the other party in respect of any loss or damage suffered.

29
Q

IF a company is re-registered, does it require a new certificate of incorporation?

A

Yes, a new certificate will be issued on re-registration.

30
Q

Can a company ever change its name or number?

A

During its existence, the company may change its name, but never its number.

31
Q

Which provisions of the CA 2006 need to be taken into account when choosing a company name?

A
  • the Registrar can refuse to register certain company names.
  • the SoS can direct that company name be changed in certain circumstances.
  • a company names adjudicator can order that a name be changed upon the successful application of a person with goodwill.
32
Q

What is the procedure for changing a company name?

A

ss77-81:
Company:
- passes special resolution
- forwards a copy to the Registrar
- gives notice of name change to Registrar
Registrar:
- satisfies himself that the new name is compliant with the Act
- enters new name into the register of companies
- issues a new certificate of incorporation.

33
Q

Where are the rules governing business names used by companies to be found?

A

Business Names Act 1985.

34
Q

Which part and sections of the CA governs company names?

A

Part 5, ss 53-76.

35
Q

What is a passing off action?

A

An action brought against somebody who misrepresents to the public that they are associated with the claimant trader, thereby causing damage the that trader.

36
Q

What key element must be proven in a successful passing off action?

A

The claimant trader must be able to demonstrate that goodwill has been damaged.

37
Q

What are the defences to a passing-off action?

A
  • ## that the name was registered before the commencement of the activities on which the applicant relies to show good will.
38
Q

What are the defences to a passing-off action?

A
  • that the name was registered before the commencement of the activities on which the applicant relies to show good will.
  • the company is already operating under the name, or has incurred significant start up costs.
  • the name was adopted in good faith
  • the interests of the applicant are not adversely affected.
39
Q

Where must a company display its name?

A
  • its registered office
  • any place it keeps records
  • any place where is carries out business
  • all websites, letters, bills, receipts, etc.
40
Q

Where are business names registered?

A

They are not registered.

41
Q

Where are business names registered?

A

They are not registered.

42
Q

What is the most common reason for a private company seeking to re-register as a public company?

A

To enable it to offer shares to the public (s 755)

43
Q

Describe the process by which a company may re-register from private to public.

A

Deliver the following to the Registrar:

  • a statement of the company’s proposed name on re-registration
  • a statement of the proposed secretary
  • a copy of the special resolution to re-register
  • a copy of the company’s balance sheet with an unqualified audit report
  • a statement of compliance that the re-registration requirements have been complied with.
44
Q

Is a trading certificate required before a re-registered company can conduct business, and why?

A

No, because the £50,000 and 1/4 paid up share requirements are covered off in the re-registration process (s91).

45
Q

Why might a public company be re-registered as private?

A
  • in order to restructure
  • because the share capital has fallen below the mandatory £50,000.
  • to avoid securities regulations.
46
Q

Who may apply to court to cancel a re-registration as a private company? What is the remedy?

A

Shareholders who together hold 5% of the share value, provided they did not vote for the re-registration, and that they do so within 28 days of the resolution. Court can provide for the company to purchase the minority’s shares (s98).

47
Q

Identify the basic documentary records a company must keep apart from its statutory registers.

A
  • certificate of incorporation
  • trading certificate
  • memorandum or association
  • current statement of capital
  • articles of association
  • copies of resolutions of members (s355)
  • minutes of meetings of the members (355) and classes of members (s359)
  • minutes of meetings of the board (s248)
48
Q

Which registers must a company keep (or elect Companies House to keep)?

A
  • register of members (113-121)
  • register of directors (s162)
  • register of secretaries (s275)
  • register of PSCs
  • register of interests
  • register of debentures
49
Q

What makes up an individual company’s annual report and accounts?

A

s 471:

  • annual accounts
  • strategic report
  • directors’ report
  • auditors report on the accounts
50
Q

What registered companies must prepare a strategic report?

A

Any company that is not exempt (i.e. small)

51
Q

How do the annual reports and accounts of a quoted company differ from that of an unquoted one?

A

Quoted companies must also prepare a director’s remuneration report (s 471)

52
Q

What is a confirmation statement?

A

A statement to the Registrar confirming that all required information has been delivered, including

  • notification of certain events such as change of address, appointment of directors etc.
  • notification of other special information such as change in PSCs or the principal business activities.
53
Q

What are the reporting requirements for company groups?

A

A group must prepare group accounts in addition to individual company accounts. (s 404).

54
Q

What must the strategic report contain?

A
  • review of the company’s business
  • a description of the principal risks and uncertainties.
  • main trends and factors affecting future development
  • environmental matters
55
Q

What additional disclosure requirements are placed on those companies with listed securities?

A

Disclosure and Transparency Rules (under FSMA 2000)

  • annual financial reports
  • half yearly financial reports
  • inside information disclosures

Corporate Law (19 decks)

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