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A Complete Guide to Company Law: Unveiling the Legal Landscape

University: King's College London

  • Unit No: 19
  • Level: High school
  • Pages: 14 / Words 3379
  • Paper Type: Assignment
  • Course Code: F/617/4826
  • Downloads: 314
Question :

This sample will let you know about: 

  • What is Company Law
  • Describe the role of licensed insolvency practitioners for advice on corporate insolvency
  • Explain the characteristic of different kinds of business organisations
Answer :
Organization Selected : N/A

INTRODUCTION

Company law is that part of legal system in a country that contains provisions for regulating the corporates. In UK, Companies Act, 2006 has been enacted for governing the matters of entities (Cremers, 2017). This law includes the laws applicable from inception till the winding up of the business. This file highlights the application of legal provisions by analysing features of various type of business organisations, evaluation of different functions of EU companies and regulatory frameworks of incorporation of UK and EU entities. Along with this, assessment of policies, rights of shareholders in different types of companies, identification of legal nature, roles etc. of directors, consequences of breach of director's duties, role of auditor, winding up processes, assessment of priority of creditors and role of licensed insolvency practitioners.

1.1 Analyse the characteristic of different kinds of business organisations

Sole trader

This business is owned and managed by a single individual who is called proprietor. Law does not have any provision for registration as it does not allot any legal identity to this form of business. Decision-making is done by the owner however, there can be additional people for helping in the management of business. Further, it is determine that in sole proprietorship there is less laws and regulations is formulated that occur less cost to the business person. The sole trader take risk with an aim to earn profits. Moreover, occurrence of high loss in sole proprietor company may leads to winding up of company. It is analysed that there is no requirement to open a separate bank account for trading of transactions associated with business.

Partnership

It is an association of people having the same interest and directed towards making profit. For this business type, there is no need to get it registered under any law. In other words, it is optional so if the partners want they can register it in order to reduce conflicts in future. The decisions taken by the partners. In addition to this, all the profits earned by business company is divided in the partners equally or as per the written ration in partnership deed.

Public company

This type of company is the one in which the ownership is held by the general public by subscribing to the shares of stock on exchanges or over the counter. It is mandatory to get register under Companies Act, 2006. Furthermore, a private company can be converted into a public company after meeting all the legal requirements as provided by the act (Davies, 2020).

Private company

It is a corporation in which ownership is held by shareholders who have subscribed to the MOA. There is no contribution of general public in the shareholding therefore, nothing in the ownership is held by public. Also, it has a separate legal identity in the eyes of law which means that only law can incorporate and dissolve it. Directors are appointed by the company to act on behalf of it. Take Examples of Assignments Now!

1.2 Evaluate different functions of EU companies

EU companies refer to the public limited liability company which can conduct their businesses in all the countries by just following the uniform set of rules mentioned by European Commission. An evaluation of different functions of EU companies has been conducted below:

Abiding by the law

This function is related with the compliance with laws which are provided by the EU commission. No transactions can be carried without following the directives. Therefore, such companies can not avoid these laws as occurrence of any such event can affect the membership of it (Hannigan, 2018).

Registration

It is the function which provides that every EU company is required to get itself registered under the specific law corporate law of that European country in which it has registered office. A company cannot commence it business without the registration.

Limited liability

This is the characteristics in which the liability of public is limited to the extent of the unpaid nominal amount on the shares held by them. Usually, a public company does not have limited liability but an EU entity has.

Disclosure

This functions states that such corporations are under obligation to disclose the decisions taken by the management as public is involved in these entities. It is important for EU public limited liability companies to show the financial statements and any changes which can influence the decisions of investors.

Members and creditors' approval

If EU company is considering the proposal of winding up the business, it should get the required approval from the members as well as creditors. They are significant for the company therefore, there involvement is necessary.

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1.3 Evaluate regulatory frameworks of incorporation of UK and EU companies

Regulatory framework of incorporation of UK company

It is compulsory for UK companies to get registered under Companies Act, 2006. There are laws which provide that companies should file Form no IN01 as the application for the availability of name. This is first document which should be filed by the companies for registering it (Papadopoulos, 2018).

Regulatory framework of incorporation of EU company

The companies of EU should be registered under the directives provided by the EU commission. There should be complete adherence to these rules and laws. Also, there is no requirement to get individual registration in which the entity is situated.

1.4 Assess the policy issues that arise regarding the regulation of companies in UK and Europe

UK is not out of the EU which means that the companies in the country are not required to follow any of the rules and regulations as provided by EU commission. The policy of UK states that entities should get itself registered under Companies Act, 2006. On the other hand, there is no such requirement for EU companies since they are the members of EU. They can freely trade in any of the European countries without any registration (Lai, 2017).

2.1 Describe the rights of shareholder in public and private limited companies

A public company has general public as its owners who have their shares in the entity. On the other hand, private company is the one in which there is no involvement of general public and there are limited number of members. The rights of shareholders which are common in both the companies are as follows:

Voting power- This right empowers shareholders to vote on issues or changes which are substantial in the nature. Every member is required to attend general meeting for this purpose. Also, the right to appoint proxy is there.

Right to transfer ownership- Shareholders have the right to transfer their shares to other individual on stock exchanges. This is the way through which a new person can become the member of the company. In the context to private company, the shares cannot be transferred to general public and only to the other members in the same company.

Entitlement to dividends- Dividend is the amount which is earned by the investors on the shares held by them. Companies pay the amount of dividend from the profit earned by it and after paying all the expenses and taxes. Every person invests in the company to get a good return in the form of dividend (McLaughlin, 2018).

Opportunity to inspect corporate books and records- This right gives a chance to the members to look into the books of accounts and other records. A public company which is traded on the stock exchange is under the duty to comply with the reporting standards. However, private company acts as per the article of association.Want to get Assignment Writing Service ?Talk to our Experts.

2.2 Identify the legal nature, roles and powers and liabilities of shareholders and directors towards a company

Legal nature

A private as well as public company hold separate legal identity in the eyes of law. However, there number of shareholders can be different. For example, private entity must have at least one shareholder. Also, both of these companies are treated different from its members. In other words, even if the shareholders die, a company can not be dissolved. In the context of directors, the legal nature is that they have to make decisions and contracts on behalf of the company.

Roles

Shareholders are in the role of contributing in the decision making of the company. Also, they provide the funds for the projects undertaken by the entities. They can also suggest ways for improving the current working. For directors, the roles of directors are formulating and implementing the policies and decision making. Preparation and filing of statutory documents with the Companies Officer. Some other roles include conducting meeting, maintaining records and many more (Papadopoulos, 2019).

Powers

There are six powers of shareholders such as power to appoint or remove directors, to approve substantial property transactions, to correct directors' breaches of duty, to authorise the board to allot shares, to give the permission to company to re-purchase its shares and many more. In case of directors, the powers are to make calls, issue debentures, borrow money, invest the funds of the the company, to make loans etc.

Liabilities

The liabilities of the shareholders in a private company is up to the extent of amount unpaid on the shares held by them provided it is an entity limited by shares. If it is limited by guarantee, the liability is restricted up to the amount to be contributed as guarantee. In case of unlimited company, there is no limitation to the liability of shareholders. On the other hand, directors are liable for any loss, damages and costs sustained by the company.

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2.3 Assess the consequences to the breach directors' duties in the company law

Directors have statutory duties as per Companies Act, 2006 which should be exercised by the directors. This act provides consequences of not performing the duty or reaching such duties. As per section 178 of Companies Act, 2006, a director breaching the duties as provided in section, 171, 172, 173, 175, 176 and 177, which are in the nature of fiduciary relationship (Pistor, 2019). Furthermore, in respect to section 174, which is the duty to exercise reasonable care, skill and diligence, then damages is available as the only remedy. In such as case, the director is held personally where directors have neglected the duties. Furthermore, director in default is disqualified for a certain period which may be extend by the court, if required. Along with this, restoration of company property, stopping or setting aside the transactions, issuance of interim injunction, and damages or compensation in case of serious offences can be provided as the result of consequences. Apart from this, if there is any criminal offences done by the directors, then fines and penalties provided under criminal law can be imposed in addition to the the above-mentioned consequences.

2.4 Assess the directors' responsibilities to creditors of the company in the financial distress

Financial distress refers to the situation where an entity or individual fails to earn revenue or income as it is unable to fulfil the financial obligations (Puchniak, and Tan, 2016). This may be for number of reasons such as high fixed costs, lack of liquid assets or revenues, etc. The directors of a company should have the following the responsibilities to bring the entity out of this situation:

To comply with the obligations-

At the time of financial distress, there arise number of financial obligations such as payment to shareholders, debenture holders, and other expenses as well which should be met in the right sequence. This responsibility build the trust of investors that they will get their payment from the realised amount of the assets.

Hold meeting

This responsibility provides that directors must hold meetings with the members and creditors to take their approval in the financial matters. Also, it is on the board to monitor the whole activities on the basis of which reports are prepared and submitted to the shareholders.

Appointment of liquidator

This stage arrives when the company propose to dissolve itself when it is not possible to pay off the obligations. However, it is decided by the members ad creditors in the meetings held by the directors.

Assessment of current financial position

The directors should take into consideration and keep close eyes on the financial position in order to reduce the situation of financial distress. This is done with the help of various individuals who are on the board (Teichmann, 2019).

3.1 Evaluate the role of auditor

Auditor is the individual who inspects the books of account of an entity to provide the true picture. It is important to have the the accurate information about the financial position of the company on the basis of which the investors can make decisions. Some of the evaluation role of auditor role are as follows-

Regulatory Monitoring

Auditors in organisation ensure that business is running smoothly and in efficient manner. So, they monitor and regulate activities of corporation to enhance firm productivity. Without monitoring, firm cannot produce reliable outputs. This role is helpful in reducing the variance in financial outcomes. This can be helpful in making the company to a higher position (Wade, 2018).

Internal control

Policies, rules and regulations, involvement of government which can affects the business continuity are checked as well as taken into considered by the auditor. Effective remedies are chosen to reduce the conflicts and terminates them. It is evaluated that internal control is useful in tracking the activities of internal auditors and that management is using the accounting standards as mentioned in the internal documents.

Accounting and control system

Auditors in this, play very crucial role in organisation. Because they are assets of the firm and controls all the activities related to accounts and report of business. Any omission of information, details, all are managed and controlled by auditor. It is evaluated that, the auditor should ensure that company is abiding by the accounting principles and standards for recording the transactions.

3.2 Outline winding up processes and dissolution including powers and duties of liquidator

Liquidator is the authority appointed by the company to liquidate the assets available in the company in order to realise the money to pay off the obligations. A liquidator has the power to act on behalf of the company and it is a legal power. The winding up process in a UK company is as follows:

  • A winding up petition is filed by the creditor or HMRC showing the debt amount to be recovered. It should be filed if the money remains unpaid within 21 days and the amount of £750.
  • The company against which the petition has been filed has a time limited of 7 days to act. The acts may include full settlement by paying the debt in full, negotiate to reach an alternative solution or hold a meeting with the creditor.
  • If the petition is granted by the court then legal actions can be taken against the company and proceedings of the whole process of insolvency proceeding is initiated. This is followed by appointing a liquidator for taking over the activities of the company.
  • After the payment of all the debts, the company is dissolved ad the name of the company is stroked off the register.

Powers and duties of Liquidator

  • To check the claims made by the creditors and integrate them with a view to consolidate.
  • To overtake the control of all the assets, property, actionable claims etc. of a corporate debtor.
  • To undertake evaluation of assets and properties of corporate debtors in order to prepare a report.
  • To implement the measures of protect and preserve the assets and properties of the corporate debtor.
  • To sell immovable and movable property and actionable claims of corporate debtor in auction conducted publicly or privately.
  • To take professional help for discharging the duties and obligations.
  • To settle claims of the creditors and other claimants according to the law.

Apart from this, there are many roles and duties which are exercised by the liquidator for carrying the liquidation process smoothly.

3.3 Assess the priority of creditors in a winding up process

There is a particular sequence which should be followed while making the payment to the creditors. It is as follows:

Secured creditors

This category of creditors should be given the priority. There is legal right for these creditors to get the payment at the first preference. It is because they have floating or fixed charge which are charged on the assets.

Fixed charge creditors

This division of creditors have direct charge over a particular and during that period the creditors are protected against selling of any assets.

Floating charge creditors

This charge is that which fluctuates with the business. The creditors are not that secured as any other creditors therefore, they have been placed at this sequence.

Unsecured creditors

These are the last in the whole category as there is no security for the amount invested in the company. The people who are associated with the company but have some unpaid amount such as salary, wages etc. should be paid at the last after all the payment to the above-mentioned categories have been paid.

3.4 Describe the role of licensed insolvency practitioners for advice on corporate insolvency

The roles of licensed insolvency practitioners in corporate insolvency are as follows:

  • Providing professional advice for preventing insolvency.
  • Negotiation with different parties such as creditors of the company.
  • Realising the assets for obtaining the money in order to pay off the obligations.
  • Complying with the statutory duties as mentioned in the laws.
  • Preparation of reports on regular basis for tracing the progress of the insolvency proceedings.
  • Conducting investigation in the affairs of the company to assess any issue or problem.

CONCLUSION

From the above report, it can be concluded that company law is important for the business as it governs the matters of the entities. There should abidance with the laws that are there for entities. Also, it gives a separate legal identity and other privileges by which a company can enjoy numerous rights. Moreover, following winding up process assist in closing business in a systematic and proper manner by following all the laws. However, there should be no contravention or breach in directors' duties and roles, shareholders' rights etc. Furthermore, it provides the consequences of breaches and similar incidents to protect the interest of the companies.

For More - Legal Business Environment

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