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Introduction to Company Law
 Companies are the dominant form of business association in the UK. They are not,
however, the only form of business association. Sole traders and partnerships also
exist as specific legal forms of business
 Companies are used as a business vehicle from the smallest, one-person business
to the largest, multi-national undertaking.
Types of Business Organization:

Sole Proprietor:
 It is an amoeba of business in the sense that this form of organization can
completely change its form or nature of doing business in a split second. It is a
one-person operation; no legal requirements are needed for it to have a set-up or
being established; raise capital either by their savings or through loan; enter into
any legally binding contract in their own name or either by the name of the
proprietorship it operates but it makes no difference as this form of set-up has
unlimited liability meaning in the sense that if the business goes sour, the creditors
can redeem their interests through selling of personal assets of the sole proprietor
in order to ascertain their debt. Legally speaking, there is no separation as towards
identity between a sole proprietor business and its owner.
Partnership:
 Partnership is an engagement of two or more persons to pursue common business.
One could also say one or more sole proprietors coming together to do business
under one roof as partners. Section 1 of the Partnership Act 1890 defines
Partnership as,
“Partnership is the relation which subsists between persons carrying
on a business in common with a view of profit.”
 Partnership can commence on oral assertion; by conduct (Khan v. Miah [2000] 1

WLR 21631) or either by a formally written instrument.
 Minimum membership is 2 and maximum by unlimited as per 2002.
 Each partner acts as an agent to each other and are vested with a fiduciary duty to
act within and for the best interest of the partnership establishment.
 Assets of the partnership firm are owned directly by the partners.
 Under the Act, each partner is entitled to participate in the management; own an
equal share on profit; face the financial loss equally and not to be expelled by any
partner. A partnership would come upon an end after the death of any partner.
 All partners have unlimited liability meaning in the sense each partner is jointly
and severally liable for the debts and obligations of the partnership incurred while
he or she is a partner.
 Exceptions to unlimited liability within the domain of partnership-Limited
Partnership Act 1907 & Limited Liability Partnership Act 2000. The first one
allows one partner to incur to the full responsibility to the liability if any and
introduced the concept of sleeping partners as they take no active role in the
management and running of the partnership. The second one allows partners to
limit their liability to a certain point but it does not operate upon a partner who has
acted in negligence for which they are solely responsible.
1
https://lawcasesummaries.com/knowledge-base/miah-v-khan-2000/
Company:
A company is formed by applying to the registrar of companies, providing a constitution
(essentially a set of rules or internal rules called Articles of Association and any object
clause limiting the power of the company), Memorandum of Association stating that the
subscribers intend to form a company and be its members, an application for registration
of the company with its name, its share capital, the address of the company registered
office (whether the company being a Pvt or PLC), that liability of its members is limited,
the names of the first directors and members plus a small fee. This formation process is
called incorporation. The registered company has become the dominant legal business
form in the UK. The reasons for this are not as obvious as one might assume, as we will
explore in this section. Setting up a company is governed by the Companies Act 2006, ss.
7-15 and is relatively simple.
Company law is mainly concerned with the company limited by shares (that is a company
where the liability of the shareholders for the debts of the company is limited to the
amount unpaid on their shares). There are also companies limited by guarantee. These
companies were designed for charitable or public interest ventures where no profit is
envisaged. As a result the people behind the venture guarantee to pay a certain amount
towards the debts of the company should it fail. Companies limited by shares are also
subdivided into public and private companies limited by shares.
Differences between public and private companies limited by shares

 Before 1992 you needed two shareholders to form a private company limited by
shares. The Twelfth EC Company Law Directive (89/667) changed this
requirement. Similarly, until the Companies Act 2006 (CA 2006) was enacted, you
still needed two shareholders to form a public limited company. Now, under the
CA 2006, both private and public companies can be formed with a single
shareholder (although of course many have lots of shareholders).
 In private companies investment comes either from the founding members in the
form of personal savings or from a bank loan. Private companies are prohibited
from raising capital from the general public.
 Public companies, on the other hand, are formed specifically to raise large
amounts of money from the general public.
 Private companies can restrict their membership to those the directors approve of
or insist that those who wish to leave the company first offer their shares to the
other members. Public companies could also do this but, as their aim is to raise
money from the general public, a restriction on the sale of shares would not
encourage the general public to invest.
 Public companies have a minimum capital requirement of £50,000 (s.763 CA
2006). That capital requirement does not have to be fully paid – it just needs one
quarter of the £50,000 to be paid and an ability to call on the members for the
remaining amount. Private companies have no real minimum capital requirements.
For example a private company can have an authorised share capital of £1
subdivided into shares of 1p each. Because public companies raise capital from the
general public there is a raft of extra regulations that affects their activities.
 Public companies are generally subject to a lot more regulation than private
companies. For example, public companies must have at least two directors;
private companies need have only one. Public companies must have a ‘company
secretary’. Private companies can choose whether or not to have one.
 Private companies can also adopt a more streamlined procedure for passing
shareholder resolutions. Instead of having to pass resolutions at a meeting at which
shareholders are physically present, Part 13 of the CA 2006 allows most
resolutions, in private companies, to be passed ‘in writing’.
Limited liability
One of the most obvious differences between the company and other forms of business
organisation is that the members of both private and public companies have limited
liability. This means that the members of the company are only liable for the amount
unpaid on their shares and not for the debts of the company. We will explore how this
operates in some detail in the next chapter. In order to warn those who might deal with a
company that the members have limited liability the word ‘limited’ or ‘Ltd’ must appear
after a private company’s name or ‘plc’ after a public company (ss.58 and 59 CA 2006).

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Introduction to Company Law

Types of Business Organization:

 Partnership can commence on oral assertion; by conduct (Khan v. Miah [2000] 1

Differences between public and private companies limited by shares

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