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Session 9

European institutions and comparative international systems - 1

European inst. and comp. inter. Systems – Legal capacity

Concepts
Sole Trader
Advantages Disadvantages
No obligation to register with public Must provide all the capital
registry (other than HMRC)
Sole control/decision-making power Unlimited personal liability
There is financial and business Death/Abandonment ends the
privacy business
Very little opportunity to minimise
his/her tax liability

Partnership (Partnership Act 1890)


 A partnership is the relationship which subsists between persons
carrying on a business in common with a view of profit.
 Partnership formed by acting as partners (agency relationship).
 Rules governing partnerships found in Partnership Act 1890 or
circumvent some rules by drafting partnership agreement
 Unlimited liability
o Joint and serverable liability
Limited Partnership (Limited partnership Act 1907)
 Partners with liability limited to the amount of their contribution to the
partnership.
 Cannot participate in management of the business or bind the
partnership as against outsiders.
 Requires a general partner with unlimited liability.
 No public disclosure (financial statement)
Limited Liability Partnership (LLP) (Limited Partnership Act 2000)
 A body corporate with legal personality separate from that of its
members
 Limited liability for general trading debts
 No limitation of personal liability for negligent acts
 A hybrid between a corporation and a partnership
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European institutions and comparative international systems - 2

 Traditionally used by professional partnerships like accountants or


lawyers
 Combines organizational flexibility + tax status of partnership with
limited liability for members
o Only Tax once  more money
The Company

Company Limited by Guarantee


 Liability of its members is limited to the amount specified in the articles
that the members undertake to contribute to the assets of the company
in the event of the company being wound up.
 Resignation of a member from company limited by guarantee, simply-
matter of agreement.
 Limitations on financing.
 Widely used in charitable organization-schools, museums, management
companies.
o Examples: Apple, Coca Cola, Sony, Google, Amazon
Unlimited Companies
 ‘If there is no limit on the liability of its members, the company is an
‘unlimited company
 Requirements for publication of accounts not necessary for purposes of
publicity since creditors rely on credit of shareholders.
 Privacy and flexibility of structure.
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European institutions and comparative international systems - 3

Companies Limited by Shares (Companies Act 2006)


 Shareholder own shares in the company
 May be public or private companies
Private Companies
 Often overlap directors, officers and members hats
 Law permits for less formality/requirements
 No minimum capital required
 Ltd or Limited in name
 Most of UK businesses
 Often restrict membership in articles of association
 Often a right of first refusal tied to shares of private companies
 Usually smaller than private companies.
Public Companies
 Minimum capital requirement of £50,000 (s. 763)
 Can, but not required, to sell shares to public at large (FSMA 2000)
 Usually freely transferable shares
 Known as a public limited company (plc)
 Onerous accounting and audit requirements
 Must have at least two directors; requires a company secretary
 Must hold an annual general meeting
 Quoted companies required to fulfil disclosure requirements and other
requirements of the Exchange
Incorporations and the Fundamental Attribute of Corporate Personality
 Once a company is incorporated it is a separate legal entity distinct from
its shareholders.
 Members enjoy limited liability and are not required to participate in the
management of the company which is a matter for the directors.
Advantages Disadvantages
Limited liability Burdensome in regulatory
requirements
Easier to raise capital Costly – professional advice needed
Allows for a large number of people Shareholders may need to provide
to become investors guarantees for bank loans for a new
business
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European institutions and comparative international systems - 4

Enables directors to take more risks


and manage
Impervious to death
Ltd signals greater legitimacy and
credibility of venture

 Attributes of Companies
o Legal Personality
o Limited Liability
o Transferable Shares
o Delegated management with a board structure
o Investor owndership
Lecture
 Legal entity (legal structure)
 Legal capacity (ability to negotiate a contract on behalf of firm)
 Legal personality (represent firm, e.g. in law suit)
 UK salary >100,000 = 53% tax