SOLUTION: responsibilities under company law (LO4) | My Assignment Tutor

Review an organisation’s systems and processes toensure its officials comply with their roles andresponsibilities under company law (LO4)• The legal types of business organisation and theirformation• Benefits of trading as a company, partnership orlimited liability partnership• The daily management of a company, the role andresponsibilities of company officers and auditors• Responsibilities when raising capital, companymeetings and shareholder protectionSole Proprietorship• The simplest and most common form of businessownership,• Sole proprietorship is a business owned and run bysomeone for their own benefit.• The business’ existence is entirely dependent on theowner’s decisions• When the owner dies, so does the businessAdvantages Disadvantages• All profits are subject to theowner• There is very littleregulation forproprietorships• Owners have total flexibilitywhen running the business• Very few requirements forstarting—often only abusiness license• Owner is 100% liable forbusiness debts• Equity is limited to theowner’s personal resources• Ownership ofproprietorship is difficult totransfer• No distinction betweenpersonal and businessincomeThere are two types: general and limited• General partnerships• both owners invest their money, property, labour,etc. to the business• are both 100% liable for business debts• if you invest a little into a general partnership, youare still potentially responsible for all its debt.• do not require a formal agreement—partnershipscan be verbal or even implied between the twobusiness ownersRead on:1. How to set up a sole trade and make noteshttps://www.gov.uk/set-up-sole-trader• Limited partnerships:• Require a formal agreement between thepartners• Must also file a certificate of partnership• Limited partnerships allow partners to limittheir own liability for business debtsaccording to their portion of ownership orinvestmentAdvantages Disadvantage• Shared resources providesmore capital for thebusiness• Each partner shares thetotal profits of the company• Similar flexibility andsimple design of aproprietorship• Inexpensive to establish abusiness partnership,formal or informal• Each partner is 100%responsible for debts andlosses• Selling the business isdifficult—requires findingnew partner• Partnership ends when anypartner decides to end it. Read on : How to set up a partnershiphttps://www.gov.uk/set-up-business-partnership• The CA 2006 states that any registered company, whichis not a public company, is a private company• It must have ‘limited’/’Ltd’ after its name.• Shareholding in a private company is usually limited toparticipants in the business (and sometimes theirfamilies).• The transfer of the shares will be controlled by thecompany rules.• If a member leaves, he or she may have to sell back his orher shares to existing members of the company, or obtainthe company’s permission before selling them to a thirdpartyAdvantages Disadvantages• Limits liability of the ownerto debts or losses• Profits and losses belong tothe corporation• Can be transferred to newowners fairly easily• Personal assets cannot beseized to pay for businessdebts• Corporate operations arecostly• Establishing a corporationis costly• Start a corporate businessrequires complexpaperwork• With some exceptions,corporate income is taxedtwice• A company is a “limited company” if the liabilityof its members is limited by its constitution.• It may be limited by:• Shares• Guarantee• If their liability is limited to the amount, if any,unpaid on the shares held by them, the company is“limited by shares”.• If their liability is limited to such amount as themembers undertake to contribute to the assets of thecompany in the event of its being wound up, thecompany is “limited by guarantee”.• If there is no limit on the liability of its members, thecompany is an “unlimited company”• Limited by shares companies are usually businessesthat make a profit.• This means the company:• is legally separate from the people who run it hasseparate finances from your personal ones• has shares and shareholders• can keep any profits it makes after paying tax• Advantages of an LLC:• Limits liability to the company owners for debts orlosses• The profits of the LLC are shared by the ownerswithout double-taxation• Disadvantages:• Agreements must be comprehensive and complex• Beginning an LLC has high costs due to legal andfiling fee• Not open to the general public• Has not very many shareholders (some companiescan have shares as well)• Shares are not traded publicly• Liabilities are limited (To the extent of theirinvestment)• Very common• Limited by guarantee companies are usually ‘notfor profit’.• This means the company:• is legally separate from the people who run it• has separate finances from your personal ones• has guarantors and a ‘guaranteed amount’• invests profits it makes back into the company• The ownership of the company is open to thepublic• Usually massive number of shareholders who• Earn dividends, usually at the end of anaccounting year• Liability limited to a fixed sum, usually the valueof investment• £50,000 Value of allotted share needed to startoperation• Set up a Limited Company• https://www.gov.uk/limited-company-formation• Model articles for private companies limited byshares• https://www.gov.uk/government/publications/model-articles-for-private-companies-limitedbyshares/model-articles-for-privatecompanieslimited-by-share• Company law in the UK is mainly set out in theCompanies Act 2006.• Part 15 (sections 380 to 474) sets out requirementsfor the preparation, distribution and filing ofaccounts and reports including the choice ofaccounting framework• A company can be described as a type of artificialperson• Can, for instance, own property, employ people,buy and sell goods and services and enter intocontracts generally and owe money• Can sue and be sued-is legally separate from itsowners (usually referred to as its “members” orwhere applicable “shareholders”)• What documentation must be received by theCompanies Registry before a company can beregistered?• Click on: www.companieshouse.gov.uk/ to explorethe resources at Companies House.• A company is formed with issuance of a unique registrationnumber issued by Companies House.• It is usually abbreviated as ‘CRN’• The purposes of the registration process is to• To check that, before it starts trading, a business isfinancially viable• Business has a reasonable chance of success, and is likely tobe reputably managed for legal purposes• To provide a public record of all such businesses, which maybe inspected by interested parties before trading with orinvesting in them• Proposed company name• Registered office address• Company directors details• Company secretary• The share capital information• People with significant control details• Articles of association• Memorandum of association before trading with orinvesting in them• Memorandum of association is a document thatcontains all the fundamental information which arerequired for the incorporation of the company• Articles of Association is a document containing allthe rules and regulations that governs the company• Articles of association are a governing constitutionaldocument adopted by a limited company when it is formedat Companies House• Includes key information about :• how the company should be run• how decisions are made• who can own and manage the company• the rights and responsibilities of members and directors• and the types of activities and transactions in which thecompany can engage• A company director’s duties can include:• determining and implementing policies and makingdecisions• preparing and filing statutory documents withthe Companies Office or other agencies• calling meetings, including an annual meeting ofshareholders• Establish vision, mission and values• Set strategy and structure• Delegate to management• Exercise accountability to shareholders and beresponsible to relevant stakeholders• Establish vision, mission and values• Set strategy and structure• Delegate to management• Exercise accountability to shareholders and beresponsible to relevant stakeholders• Duty to act within powers• Duty to promote the success of the company• Duty to exercise independent judgment• Duty to exercise reasonable care, skill and diligence• Duty to avoid conflicts of interest• Duty not to accept benefits from third parties• Duty to declare interest in proposed transaction orarrangements• Ensuring procedures, policies, legislation and regulations arecorrectly followed and complied with• Examining company accounts and financial control systems• Gauging levels of financial risk within organisations• Checking that financial reports and records are accurate andreliable• Ensuring that assets are safeguarded• Preparing reports, commentaries and financial statements• Liaising with managerial staff and presenting findings andrecommendations• Undertaking reviews of wage• Businesses can use either debt or equity capital to raisemoney• Debt Capital• Funding by means of debt capital happens when a companyborrows money and agrees to pay it back to the lender at alater date• The most common types of debt capital companies use areloans and bonds• the two most common ways larger companies use to fueltheir expansion plans or to fund new projects.• Smaller businesses may even use credit cards to raise theirown capital• Equity Capital• Equity capital, is generated by selling shares ofcompany stock• a company can raise capital by selling additional shares• can be either common shares or preferred shares• Limited companies• are two types of meetings that can be held by private limitedcompanies:• a board meeting of the directors• and a general meeting of the members (shareholders orguarantors)• There is no statutory requirement in the Companies Act2006 to hold either type of meeting, with the exception of theFirst Board Meeting of the Directors• There are a number of statutory requirements that company must adhere• Minutes must be taken to record the proceedings of the meetings and notethe names of those in attendance• During both types of meetings, it is common for resolutions to be passed• A resolution is simply a majority or unanimous decision taken by thedirectors or members on a particular matter pertaining to the business• Any resolutions that are passed must be recorded and stored at thecompany’s registered office or SAIL address.• A ‘SAIL address’ is a Single Alternative Inspection Location where acompany can keep its statutory records and make them available forpublic inspection)• In many cases, copies of these resolutions will also have to be filed withCompanies House• Limited Liability Partnerships• There are no provisions in the Limited Liability PartnershipsAct 2000 or the Limited Liability Regulations 2001 requiringLLPs to hold any official type of meeting of their members –• the reason being that LLP legislation is intended to providefreedom and flexibility to LLP members with regard theirinternal affairs and management• Company directors collectively form a board• A board meeting is any official meeting of the directors of alimited company• There is no legal requirement to hold any board meetings in aprivate limited company• but it is common practice to hold such meetings at regularintervals if a company has more than one director• it is beneficial to hold a meeting of the directors within onemonth of company formation• this enables the directors to clarify the objectives of the newbusiness and determine their individual duties andresponsibilities• Is a meeting of the members of a limited company• Is more formal than a board meeting of directors, because thecalling and conduct of general meetings is regulated by theCompanies Act 2006• Private limited companies are no longer legally required tohold Annual General Meetings (AGM) unless a provision tothe contrary is included in the articles• Most private companies will only call general meetings whenextraordinary decisions have to be made by the members• It is good practice to hold an AGM to review the company’sperformance, annual accounts and plan ahead for theforthcoming year• A resolution is a legally binding decision made bylimited company directors or shareholders• If a majority vote is achieved in favour of the decision,a resolution is ‘passed’.• Shareholders can pass ordinary resolutions orspecial resolutions at general meetings, or they can passwritten resolutions• Ordinary resolutions – Passed by a simple majority ofshareholders’ votes• Special resolutions – Passed by a 75% majority ofshareholders’ votes at a general meeting. …• Written resolutions – Used when a general meeting is notrequired to pass an ordinary resolution or special resolution.• Example ordinary resolutions• Appointment of an auditor• Appointment of a director• Removal of an auditor• Removal of a director• Change of registered office address• Loan to a director• Example special resolutions• Amend articles of association• Adopt new articles of association• Change company name• Reduction of share capital• Loan to a director• Allotment of shares• Company Act 2006• http://www.legislation.gov.uk/ukpga/2006/46/pdfs/ukpga_20060046_en.pdf• Adams, A. (2018), Law for Business Students, Harlow,Pearson• MacIntyre, E. (2018), Business Law, Harlow, Pearson