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Litigation
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COMPANY
FORMATION AND FINANCE
When
each new business is formed a decision must be
made as to the structure within which to operate.
It could be:
(a)
Sole Trader;
An individual trading on his or her account using
his own or a business name. There is unlimited
liability in respect of losses made by such a
business. There is also considerable flexibility
and no requirement to publish accounts.
(b)
Partnership
A partnership is an association of more than one
individual running a business on terms which are
agreed and should be recorded in writing. Once
again there is the advantage of privacy but all
partners' assets, in the majority of cases, are
available to satisfy the debts of the firm. There
will be rights of indemnity and contribution between
partners but on the face of it there is unlimited
liability to the extent of the firm's debts.
(c)
Limited Liability Company
A separate legal entity is formed, a private company
limited by shares. The liability of members is
limited to the amount, if any, that may be left
unpaid in respect of the shares. This is a business
medium favoured by many businesses particularly
where the risks associated with the business are
high or not capable of being quantified.
A
private company may be limited by shares or by
guarantee not having any share capital. There
are requirements as to filing notification of
company officers, registered office and other
financial material including accounts at Companies
House. Limited liability companies enjoy a degree
of status and credibility which unincorporated
businesses do not.
The
separation of ownership and management in a Limited
Company can often mean that they are attractive
to outside investors who will subscribe for shares
and the companies will issue a share by way of
part ownership.
Limited
companies are able to create "floating charges"
over some or all of their assets in order to offer
banks and other lenders security.
Pension
planning is often more easy for a Limited Company
than for a Sole Trader or Partnership.
If
sale or re-organisation is envisaged then it is
possible for either the shares in the company
to be transferred to a purchaser or, alternatively,
for the company itself to transfer its assets
to a purchaser.
Incorporating
a company does not give exclusive right to use
any particular name but the name is a matter of
public record in a way that the names operated
by Sole Traders or partnerships are not.
A
Limited Company can have one or more members.
It can have one Director provided it has a separate
Secretary. Accounts have to be filed but with
companies where there is a small turnover the
requirements for accounts are less stringent than
with larger companies.
When
deciding what business structure to utilise it
is important to look at the proposed business,
nature of the concern, risks, contracts and all
other relevant considerations.
A
public company is one whose Memorandum contains
a statement that the company is to be public.
Once again, the liability of members of a public
company is limited to the amount, if any, unpaid
on the shares. A Public company can offer its
shares or Debentures to the public, which a private
company is prevented from doing.
When
companies are formed regard should be had for
the identity of company officers, Directors and
Secretary. A registered office must be chosen.
An accounting reference date must be selected.
Decisions must be made as to the number and class
of shares to be issued and a Memorandum and Articles
of Association must be drafted.
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'Company
Formation & Finance' factsheet
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COMPANY
SECRETARIAL SERVICES
For
the purposes of good company management it is
important that all company records are kept up
to date, Minutes of all meetings maintained and
all Resolutions properly recorded. Company Books
must be kept fully written up at all times.
FINANCE
The
Principal Legislation relating to Limited Liability
Companies is the Companies Act, 1985. Companies
may raise money by issuing shares in return for
cash or other assets. Alternatively loans may
be taken out where the company issues a Debenture
over its assets (if any) to secure the loan.
A
Limited Company is a separate entity in law from
the Directors who run it and the Share Holders
who own it although, in practice, those people
may often, in small concerns, be the same people.
As a Limited Company expands and develops it may
wish to raise more capital or re-organise and
sell all or part of its shares or its assets.
Regard should be had to control the company in
terms of different classes of shares which can
be issued which may or may not have voting rights
attached to them.
COMPANY
MANAGEMENT
Management
of a company is increasingly important and there
is a clear duty on Directors and officers to act
in a proper manner at all times. Certain people
are not allowed to be Directors of companies and
there is now legislation to enable persons who
have been Directors of companies which have failed
to be disqualified if it is felt by the Court
that they are unsuitable to continue to act as
company Directors. All Directors and officers
of the company should at all times be aware of
the rights and obligations attached to the position
they hold.
THE
FUTURE
A
properly drafted Memorandum and Articles of Association
will cater for future needs of the company and
its members. Pre-emption rights are often added
to the Articles of Association to protect ownership
and control from passing out of the hands of shareholders.
The
Courts always have the power to protect the interests
of minority share holding groups. Although control
of a company is exercised by the holders of 51%
(or in some cases 75%) of the issued share capital,
the rights of the smaller shareholder will be
protected.
For
all persons involved in the ownership and/or running
of a company, large or small, knowledge or and
compliance with the law in relation to corporate
matters is of particular importance and professional
advice from both Solicitor and Accountant should
be obtained and acted upon throughout the life
of the company.
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