lý thuyết corporation law

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<b>CORPORATION LAW</b>

<b>Chapter 1: Foundation and theory of corporation law1.The origin of corporation law:</b>

- “corporate”: to furnish (sth) with a body or to infuse with substance.

- Corporation: artificial construct infused by the law with the ability to have legal rights and incur legal liabilities.

Legal person:

(it is not sth we can actually see => thực thể nhân tạo => it is not real => we can see under eye’s law => legal person => just like us. Age of person do business)

- Legal persons can be: o Natural persons

o Artificial or juristic person

- A legal person has the capacity both to: o Acquire enforceable legal rights or property

o Be or become subject to enforceable obligations and liabilities.

- UK law: the word “corporation” has a wider concept than “company”, including “corporation sole” and “corporation aggregate”

- Corporation sole:

Are limited by law to one member. It provided for a separate legal personality for an individual position (the corporation sale is distinct in law from the individual who occupies the post). Eg: bishop, majors… (as when the bishop died => other person will be in liability)

- Corporation aggregate (pháp nhân thương mại) o May have one or more member

o Types of statutory corporations, chartered corporations,

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registered companies, building societies, co-operative and community benefit societies, credit unions, and limited liability partnerships.

(Company and corporation before were existed by an act of parliament, charter from crown => basic or the rule of this charter) A company is one type of corporation aggregate (incorporated entities only) brought into being by the registration procedures laid down by CA 2006

Not including a partnership or any other unincorporated entities

- US law: “corporation” corresponds to “company”

Incorporated entities are created under and regulated by the corporation Act (code)

- The US supreme court described the term “corporation” as: o “An artificial being, invisible, intangible, and existing only in contemplation of law. Being a mere creature of law, it passes only those properties which the charter of its creation confers upon it, either expressly, or as incidental to its very existence”

2. Categorization of business organizations Llp => công ty

<b>2.1. Legal structures of unincorporated businessorganisations</b>

- Not corporate entities or legal persons

- Come into existence either by agreement or by legislation, old not own the benefits of separate legal status.

<b>2.1.1.A sole trader: (doanh nghiệp tư nhân)</b>

o Is an individual who is in business on his account

o Is a party to contracts, owns all the property he/ she uses in the course of trade, and receives all the income and profits from the business

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- The business itself is not a separate legal entity

- Setting up in business as a sole trader/ proprietorship

o No business organisation law to the formation, operation, or management of a sole trader

o In the UK, a sole trader needs to register as self–employed with the authorised agency and may need to comply with any law applicable to the particular type of his/her business

(Need to consider what standard of what he/she business => no law for a corporation)

- Advantages of sole proprietorships:

o The proprietor owns an entire business and can make all management decisions

o The business can be easily transferred or sold (A sell B his sole trader => object? => assets/ property that he/ she had invested in business => since its belongs to the owner, ex: real estate, cars, …)

o Ease and low cost of formation

- Disadvantages of sole proprietorships: (cơng ty thì khơng thể đầu tư nhưng người chủ thì có thể đầu tư vào công ty khác)

o Sources of capital are limited to personal funds plus any loans the owner can obtain.

(Can not allow issuing securities)

o The owner is legally responsible for business contracts and torts committed in the course of employment.

<b>2.1.2.Partnership (hội hợp danh)</b>

- Definition: partnership is the relation which subsists between persons causing business in common with a view of profit.

- How to decide whether or not a partnership exists (In Uk, there is not a registration process as in VN) - Features of partnerships:

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o Formation o No separate

o Minimum of two partner

o Unlimited liability of partners

o Each partner is agent of the partnership and of other partners (hội hợp danh chịu trách nhiệm vô hạn)

- Because of the power of the general partner, if 1 member signs a contract that affects many on the other => prevent them from abusing their powers

o Partnerships have no public disclosure obligation

o Partnerships are automatically dissolved every time. There is a change of partners

- In the UK: two types (unincorporated entities)

o Ordinary partnerships: has no legal existence distinct from the partners themselves. Every member has unlimited liability for the debts and obligations of the firm (partnership act)

o Limited partnerships (LPs): limited Partnership Act the active partners (general partners) have unlimited liability but the sleeping partners’ liability is limited to the amount that they have agreed to contribute

- Limited liability partnerships are incorporated entity provided for by the limited liability partnership Act

2.2. Legal structures of Incorporated business organisations

- The word “incorporated” shows that the underlying purpose of registering certain types of business is to confer corporate personality on the organisation

- Legal personality - Registered companies - Limited

<b>2.2.1.Registered companies</b>

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- Limited companies:

o Companies limited by shares: (can be a public company) Public companies (plc)

Private companies (Ltd)

o Companies limited by guarantee - Unlimited companies (private) (Charter = articles of association)

(Only public companies have listed stock exchange or securities exchange)

<b>2.2.1.1.Limited companies:</b>

- A company is a limited company if the liability of its member is limited by shares or by a guarantee

- Companies limited by shares:

o Shareholders (who own shares in the company)

o If a member (shareholders liability is limited to the amount, if any, unpaid on the shares held by them, the company is “limited by shares” (s3.2)

(I A buys 10 shares of company X 1 share = 1p

Only pay 5 shares = 5p for the company

He has to pay 10p, however, he just gave 5p => company has a debt he has to contribute 5p to the company

Limited liability is calculated based on the number of shares he/she agrees to pay >< in VN, it is based on the number of shares he/ she buys => real money)

o Companies limited by shares may be public companies or private companies

o The name of a public limited company must end with “plc” or “public limited company” and the name of a private limited

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company with “Ltd” or “limited”

- A Ltd can not offer shares to the public - Pay corporation tax on all profits

- Must file annual accounts (ss kế toán) a confirmation statement information on their earnings, losses, loans, and any other factors relevant to their tax liability in a year

- Shareholder’s rights, responsibilities, and liabilities cree determined by the number, class, and value of their shares

- Internal structure and management rules are set out in CA 2006, articles of association, and shareholders’ agreement

- Companies limited by guarantees

o If a member/ shareholder’s liability is limited to such amount as the members undertake to contribute to the assets of the company in the event of its being wound up, the company is “limited by guarantee”

o (i) Companies limited by guarantee must be formed without share capital (s5), thus, there are no shareholders, but the company must have one are more members

This corporation type is widely used mainly for non–profit organizations a charities community projects, clubs, societies, and other similar bodies

(Money from sponsorship from states other organization members do not (góp vốn), but they must pay joining fees) (ii) Members are only liable to make a contribution to the assets of the company in the event of its being wound up, and the amount of contribution is fixed at the outset by the company’s constitution (dựa vào lời cam kết)

(iii) Profit í not distributed among the members but put back into the company or used to further the company’s public purposes

<b>2.2.1.2.Unlimited companies:</b>

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- If there is no limit on the liability of its members, the company is an “unlimited company”

- Incorporated at a governmental agency - Separate legal personality

- In a winding up or formal liquidation, all the shareholders bear joint, several and unlimited liabilities for the company’s debts and financial obligations

- Must be a private company (can not offer their share on public/ stock exchange)

- Less common than limited companies - No financial statements are required

An unlimited company is ideal for people who want to keep their financial affairs not available for public view

- In the normal course of trade, unlimited companies function just like private limited companies the unlimited liability of the member is only activated in the event of winding - up (sự khác biệt với private chỉ khi phá sản)

<b>2.2.2.Limited liability partnerships (LLPs)</b>

- LLPs are incorporated organizations governed by the limited liability partnership Act 2009 (and extensive regulations made under both that act and the companies Act 2006)

- LLPs are separate legal entities from their members

- Annual accounts and confirmation statements must be delivered to companies house each year

- The limit of each member’s liability is agreed upon between the members and usually stated in a partnership agreement

- Flexible annual structure that can be changed at any time, as often as required

- LLPs do not share to sell and, therefore, can not receive capital investment from non-LLPs – members in exchange for a portion of ownership of the business

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(has the approval of one member to become LLPs -người) (quite similar to công ty TNHH – follow strick internal structure)

2.2.3. Charted and statutory corporations

- These corporations are formed by obtaining a chair (chiếu lệnh) of incorporation from the crown or securing a private act of parliament

- This style of formation is unlikely to happen today

- Many of these corporations are not–for–profit organizations Ex: the law society (1845) the statute charter accountants (1880), the national citizen service trust (2017)

(ra đời từ chưa có company act, ra đời từ chiếu lệnh của hoàng gia) (The number of some companies is small and do not have many conflicts of profit, it is a public company => internal structures are quite simple, while companies limited by shares have huge shareholders, conflict of interest => is much more complicated than the others => the main discussion)

<b>The nature of companies </b>

- According to s15 (1) of the CA2006: companies become incorporated and separate persons on registration

- Separated legal personality of a company and limited liability of its members are two consequences of incorporation

<b>3.1. Corporate entity (separate legal personality)</b>

- Separate legal personality a company is a legal person in its own right, separate and distinct from its members

- The nature of the corporate entity principle

o The company will not die when its members die (perpetual lifetime)

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o The share capital, once subscribed must be maintained by the company, it is no longer to the members and can’t be returned except in some exceptional cases (buy back your shares)

o In general, the liability of members (shareholders is limited to the value of the shares they a grade by the total

- The concept of limited liability

o The doctrine of limited liability was introduced in 1885 (limited liability act 1885) in the UK

The company as a separate juridical person must satisfy dains and judgments against it, to the extent of its assets

o The shareholders who purchase shares in corporations will lose part of or, at maximum, all of their investment if the corporation is ultimately held liable

- What are the advantages and disadvantages of limited liability o Advantages of limited liability

Limited liability encourages capital formation

Limited liability shields shareholders from the debt obligations of the company

- Criticisms on limited liability

o With the shield of limited liability, the shareholders and managers may have incentives to engage in high–risk business activities

(Let the company exist do high – risk, while the owners lose little ascent increase of bankruptcy

Since activities are dance under the name of the company o The legal personality of a company in some cases is abused by the shareholders for meaningful or unjustifiable purposes

Have to come up with some way to solve

<b>3.2. Limit the implications of separate legal personality</b>

- Lighting the company veil (piercing the corporate veil, veil–

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o Lighting the company veil refers to the possibility of looking behind the company’s separate personality to make the shareholders liable for their company’s debts (an exception to the rule that they’re normally led by the corporate shell)

o Consequence: in this way, the company and its shareholders are treated as one, and all the rights activities and obligations of the companies are also the rights, activities, and obligations of the shareholders

- Ground for lifting the corporate veil

o The company is deemed to be nothing more than an “alter ego” of the owns: a shareholder (or shareholders) dominates a company and misuses it for proper purposes

(i) The company was formed or used to facilitate the evasion of legal obligation (sometimes tort obligation)

(ii) The company is used as a means to perpetuate a found

(iii) Separateness has not been maintained between the company and its shareholders

(Prove this before being the case to the count => less likely to happen since it is hard to get enough elements and evidence)

o In the context of a group of companies the veil of incorporation may be lifted to allow companies in a group to be treated as one

Courts sometimes lift the veil of incorporation to treat a group of companies as one

- Plaintiff found that these 3 subsidiary companies have the same account => no separate legal person => trict as one.

<b>Chapter 2: COMPANY FOUNDATION1. Registering a company </b>

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<i>- Basic steps:</i>

+ Prepare registration documents; + Prepare company with registered;

+ Post – registering steps: open accounts, obtain corporate steal (if required) pay in capital.

- Registration authority<small>1</small>: Registrar of companies (s160 CA2006) - Method of forming company: A company is formed by one or more persons subscribing their names to memorandum of association and complying with the registration requirements (s7 CA2006)

- If the registration requirements are complied, the registrar of companies must register the documents and issue a certificate of incorporation (s14,15 CA2006)

- Documents required for registration: hand out

- Company number when a company is registered, it is given a registered number (the company number, s1066 CA2006), which appears on the certificate of incorporation. (this can not be changed in case we change the name of its function.)

- Company name & Companies are free to choose their name.

+ The name of a public limited company must end with the words “public limited company” or “plc” and the name of private limited company must end with “limited” or “ltd” (s58,59)

* Note: A company name will not be registered if it has a prohibited name.

+ Suggest connection with the the government or public authority os has sensitive words or expression (s54,55,56) + Contains prohibited characters (s57)

+Is the same as another name appearing in the registrar’s index of company name (s66)

- Business name

<small>1 Registration authority: thẩm quyền đăng ký</small>

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+ A company’s business name can be different from its company name.

Ex: A company with the company name: Gas. Appliance limited trades under the business name. Flame For You

+ Business name or not registered with any government department provisions must be adhered to

The law governing company names is contained in Part 5 of the CA 2006, and rules governing business names are contained in Part 41 of the CA2006.

- Certificate of incorporation

+ (s15 CA2006) The certificate of incorporation is conclusive evidence that the requirements of the CA2006 as registration have been complied with and that the company is duty registered under this Act.

+ The certificate must be signed by the registrar or authenticated by the registrar's official seal.

- The certificate will state:

+ The name and registered number of the company + The date of it corporation

+ Whether it is a limited or unlimited company, and if it is limited whether it is limited by shares or limited by guarantee + Whether it is a private or a public company

+ Whether the company’s registered officer is situated. - Commencement of business:

+ A public limited company can’t conduct business unless it has obtained a trading certificate from the company's house confirming that há the minimum allowed share capital. It is an offence to trade without a trading certificate and the directors are liable, on conviction, to a fine.

🡪 The trading certificate is issued if the company has a minimum authorised share capital of $50,000 of which at least one quarter of

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the nominal value and all share premium must be paired up (s761 – 763)

<b>2. Promoters and pre – incorporation contract</b>

- The term “promoter” is a term of business and not of law

“A promoter may be an individual, a firm, an association of persons or even a company who decides to form a company and take all or some of the necessary steps to form. (does not have to be the owner)

(it can be the law firm who helps you to establish...) - Main function performed by promoters: hand – out

- Promoters will be allowed to make any secret profits. It is found that in any particular transaction of the company. He has obtained a secret profit for himself. He will be bound to refund the same to the company.

<b>2.2. Pre – incorporation contracts</b>

- These were made by the promoters before the company was formed.

(s51/1) “A contract with purpose to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement.

* Note:

+ When the company is registered, it is not bound by the pre – incorporation contract.

Ex: Mr.Lane was attempting to form. A company that was going to run a pop artist group. A contract signed by Mr.Lane on behalf of

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+ The person who is made liable under s51 can avoid personal liability by a clear agreement on exclusion of personal liability with the other party to the contract.

(clear provision on the contract for exclusion)

+ A company may become a party to a pre – incorporation contract by ratification

+ A company may become a party to a pre- corporation contract by novation.

- Novation is a tripartite transaction in which the parties to the original agreement, together with the company, enter into a new agreement.

<b>3. The articles of association</b><small>2</small>

- It is not the only form of constitution - Constitutional documents of a company

+ Articles of Association + Special resolutions

+ Resolutions/agreements of all members/ shareholders (normal ordinary but with 100% agree can recognize as bangr hieens phasp)

+ Current statement of capital (statement should be updated with CQ ddanwg kis kinh doanh)

- All constitutional documents must be registered with the registrar of companies and are available for public scrutiny (s30) and must

<small>2 Điều khoản khi hợp tác cùng nhau</small>

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be sent to a member on request (s32)

- Shareholder’ agreements fall within s29 must be registered

- The most important constitutional document of a company. It is an articles association.

<i>- The shareholder or owner of the company can sign theconstitution for the company.</i>

It is just the agreement among people in the company 🡪 free for

sign it for there company, sign for right, liability. 🡪 Can create the articles for its company.

<i>- Articles of association (AOA)</i>

+ Definition: The regulations governing a company’s internal management including the rights of shareholders, the product of meetings on the appointment, removal and powers of directors (it’s the function)

<i>- Model Articles</i>

There are different sets of model articles for different types of companies, those operate as the articles of a company to the extent that the have not been executed or modified (s19,20) (It is should not use in large company)

<i>- The content of the Articles of association</i>

It is a matter to be agreed upon by the original shareholders (first) of the company and may be changed from time to time as the company develops.

<i>- Articles which are inconsistent<small>3</small> with the law are avoided andunenforceable.</i>

Ex: Articles purporting to overside certain statutory rights or powers may be held to be voidable and unenforceable.

<i>- Effect the Associations</i>

S33.1 CA2006: “The provisions of a company’s constitution bind the company and its members to the same extent as if these were

<small>3 Phù hợp</small>

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covenants on the part of the company and of each member to reverse those provisions.

🡪 The company is the party to statutory contract. This is a contract between each member and each other member.

<i>- Characteristics that distinguish<small>4</small> the AOA as a statutory contractfrom other typical contracts.</i>

+ Amendment of a contract usually requires the agreement of all parties >< The Articles can be amended by a special resolution which means resolution passed by a majority of not less than 75% (s21(1), s233(1))

+ A contract only blinds those parties who agree to it >< All members at any time are bound by the articles, so that a new member who has played no part in the drafting of the articles, upon being registered as a member, is bound by the articles.

+ The articles can not be challenged based on the doctrine of misrepresentation, mistake or undue influence.

+ The court may not ratify the articles even if they do not represent the intentions of the members on incorporation.

<i>- Amending the articles of association.</i>

A company may amend its articles by special resolution (s21)

🡪 The relevant special resolution and a copy of the new articles must be sent to the registrar of companies (s26, 30)

Exceptions: matters that doesn't require a special resolution to be amended

(i) s551.8 (ii) s685.1,2 - Notes:

+ Entrenched provisions of the articles (s22)

A company’s articles may contain provision.”provision for entrenchment” to the effect that specified provision of the articles

<small>4 Phân biệt</small>

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may be amended or replaced only if conditions are met, or procedures are complied with, that are more restrictive than those applicable in the case of a special resolution.

<b>Chapter 3 Financing a company</b>

1. Shares and Shares capital of a company - Types of operating financing

+ Two ways : through borrowing (which creates debts/ debt financing) and thought the investment of funds by owners (which creates equity capital – equity financing)

i) Debt financing

- Lending creates a debtor – creditor relationship. (do not create membership)

- Creditors have priority over equity and must be paid interest on the money borrowed before dividends are paid to shareholders. - In a dissolution of the corporation, creators receive their principal before holders receive anything.

ii) Equity financing

- It occurs where a company issues shares to one or moves investors who became shareholders of the company. In return for the share, the shareholders pay the issue price of the shares to the company. The company receives finding.

- Shareholders in a public traded company may sell their shares in the stock market but the price depends on the success of the business.

- Compared to creditors, the shareholders have greater risk (lower priority than creditors) but also the potential for greater return (increased profits benefit the shareholder).

2.1 The nature of shares and membership

- “share” in a company means share in the company’s share capital. A share is a piece of personal property (s541)

- a share is the interest of the shareholder in the company

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measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered intro by all the shareholders.

- Nature of shares

- A share is a fraction of capital, denoting the holder’s proportionate financial stake in the company and defiming his or her liability to its equity funding.

- A measure of the holder’s interest and rights in the company.

- Nature of the relationship between a shareholder and the company.

+ The relationship between a company and its shareholder is governed by a standard form contract

- The articles of association

+ Shareholders are part-owners of the company, have the role as part of the decision making, manifest in voting rights attached to their shares.

+ The low usually requires that a shareholder is given a chare certificate in respect of his shares (s769, s776, CA2006)

. Certificate shares-paper

. Uncertificated shares (ole materialise shares) 2.2 Classes of shares

- Shares that provide the owners with the same rights and liabilities are called a class of share.

=> various types of shares deliver financing flexibility to companies (tạo sự hấp dẫn về vốn cho các nhà đầu tư)

Ordinary shares

- One ordinary carries are vote

- Ordinary share carry the basis rights of shareholders (right to share in the profits of the company; right to share the resident wealth of the company when the company is wound up right to vote

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