Companies

INTRODUCTION

This topic is concerned with registered companies incorporated by registration under the Companies Act.

SEPARATE LEGAL ENTITY

Such a company is a legal entity in its own right. It can own property, have a bank account, trade and enter contracts and employ staff. It can also borrow money and have its own debts.

SHAREHOLDERS

Its members or shareholders own the company but they are distinct from it. If the Company goes into debt or is wound up then, normally, its shareholders cannot usually be made liable for its debts (A shareholder may have to pay any amount unpaid on his shares).

DIRECTORS

A company is managed and controlled by its directors, who are agents of the company authorised to transact business on its behalf.

HOW IS A COMPANY FORMED

Although promoters, in practice, form companies it is normal for anyone wanting a company to buy one, which has been pre-formed "off the shelf". Such a company will be a basic shell with no assets but will have the bare essentials in place for it to be used for the purposes of a business.

These companies are purchased from specialist formation companies and the purchaser is then able to sell the shares and appoint directors.

The constitution of the company are its articles of association. These determine how it is run and the type of business that it can engage in, although, it must always be remembered that companies are strictly regulated by the Companies Act and these may impose further obligations and restrictions on a company.

WHY FORM A COMPANY

A company is one of a number of methods of operating a business. Like any other method there are advantages and disadvantages. For a large business a company is a useful method of raising money (i.e. by a public placing). However, for a smaller operation or a new business, the main attraction may be the separate identity and the limited to liability. Although, for a new business the benefit of this may be significantly reduced where the shareholders or directors are required to provide personal guarantees of any borrowing or credit advanced to the company. They may also be asked to guarantee the lease of its premises.

WHAT HAPPENS IF THINGS GO WRONG?

If a company is unable to pay its debts then it may be wound up by the Court (see corporate insolvency). Normally the shareholders and directors have no personal liability although, in some circumstances, such as where it is alleged that the company has been trading when it was insolvent, the directors may be pursued.