Nội dung bài học môn Corporation law

Table of contents
Course Objectives................................................................4
1) The origin of company law:...........................................4
2) Classification of business organizations.......................4
I. Corporate body...............................................................4
a) In the UK: Companies Act 2006........................................4
-

Difference between public and private companies...........4

-

Company limited by guarantee.........................................5

-

Unlimited liability company...............................................5

b) In China.............................................................................5
c) Compared with Vietnam....................................................6
II. Unincorperated body:......................................................6
i. Private companies:..........................................................6
a) Sole trader and sole proprietorship:..................................6
b) Advantages of Sole Proprietorship....................................6
c) Disvantages of Sole Proprietorship...................................7
d) Creation of a Sole Proprietorship.......................................7
e) Personal liability of Sole Proprietor...................................7
ii. Partnership......................................................................8
Partnership in some common law countries..........................8
Partnership in Vietnam..........................................................8
3) Nature of the company:................................................8

1. The “salomon” doctrine.....................................................8
Case.......................................................................................8
The nature of incorporated enity principle............................9
The concept of “lifting the company veil”...........................10
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How does common law deal with this:..............................10
Corporate liaiblity for torts and crimes................................10
2. Limited liability................................................................10
1) Basic steps..................................................................11
2) Incorporation in UK:....................................................11
Registration:......................................................................11
Documents required for registration.................................11
Company name.................................................................11
Certificate of incorporation................................................12
Commencememnt of business..........................................12
Publicity and the continuing role of the Registrar.............12
Promoters..........................................................................12
Pre-incorporation contracts...............................................13
3. Formation of a company in China...............................13
4. Compared with Vietnam.............................................13
I. Financing a company under UK law:.............................14
I. Share capital...................................................................14
II. Increase and alteration of capital...................................14
Preferential subscription rights............................................15
Nature of shares and membership......................................15
Classes and types of shares................................................15
III. Transfer of and transactions in shares..........................17
2) Loan capital.....................................................................17

3) Raising and maintance of capital....................................18
Discount...............................................................................18
Premium...............................................................................18
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The maintance of capital.....................................................18
The meaning of the doctrine...............................................18
Company’s Purchase of its shares (buyback)......................19
I. Shareholder’s meetings..............................................19
1) The genral meeting as the residual authority of the
company:.............................................................................19
2) Resolution at meetings...................................................19
3) The shareholders’s general meeting...............................20
4) Convening of meetings and notice.................................20
5) Shareholder independence- meetings and resolutions...20
6) Procedure at meetings....................................................20
4) Problems with the meeting concept................................21
5) Meetings in small close-ly held companies.....................21
II. Board of directors.......................................................21
1. Directors as managers and “alter ego”...........................21
2. Appointment and retirement of directors.......................21
3. Proceedings at directors’ meetings.................................22
4. Remuneration (not salary) of director.............................22
III. Duties and responsibilities of directors....................22
1. Introduction...................................................................22
2. Duties of directors under Part 10 of the Companies Act
23
i. The duty to act within powers.........................................23
ii. Duty to promote the success of the company................23

iii. Duty of exercise independent judgement.....................24
iv. Duty to exercise reasonable care, skill and diligence
(careful and persistent work or effort)................................24
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v. Duty to avoid confilict of interest (section 175)..............25
vi. Duty not to accept benefits from third parties.............25
vii. Duty to decleare interest in a proposed or existing
transaction or arrangement.................................................25
viii. Ratification of acts giving rise to liability......................26
ix. Duty not ot commit an unfair prejudice........................27
3. Relief for directors.........................................................27
4. Other legal constraint on directors’ power...................27
i. Statutory controls affecting the directors.......................27
ii. Monitoring of directors....................................................28
IV. Compared with Vietnam...........................................28
1. Corporate governance in Vietnam................................28

Course Objectives
Understand of the law governing the operation of a
corporation including formation of a corporation,
corporate governance, dissolution of a corporation and
how it functions…

Chapter 1: Foundation and theory of
corporation/company law

1)

The origin of company law:

 Since the enactment of the Joint Stock Company
Act 1844
 Now companies are established mainly by
registration.
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2)
Classification of business
organizations
 Corporate bodies: company or corporation
(incoporated body)
 Unincoporated bodies: sole proprietorship-sole
trader
Main difference is the legal enity between the two (not
the business liability).

I. Corporate body
a) In the UK: Companies Act 2006
Company limited by shares (Art 3.2):
members/shareholders’s liability is limited to the
amount, if any, unpaid on the shares held by them.
Difference between public and private
companies:
o The ending name is different (plc/co and ltd)
o A public company may offer its share to the public;
o A public company: required to have a minmun
issued share capital of £50.000; (ensure that in the

event of insolvency or financial instability, the
corporation has a sufficient asset base to satisfy the
claims of creditors).
 Shared capital isn’t required to be pay back
 Shareholders wants company to issue more
borrowed capital, because more share capital means
that their rights in the company are reduce and the
dividend is fewer.
o A public company: required to have at least 2
directors – a private company need have only one;
 Directors in UK ≠ General director (CEO) in VN.
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o A public company: required to ensure that its
company secretary is properly qualified;
o A public company: required by the statutes to go
through more onerous procedures.
 Public companies are selling to the public, these
companies are subject to many regulations and
reporting requirements to protect investors
(especially the minority shareholders). Minority
shareholders may not desire to join the management of
the company so there needs to be more rules to protect
them.
 Private companies enjoy a measure of being
“private”. The board may be small and well-known to
each other. Each shareholder takes the management of
the company business.
Company limited by guarantee (Art 3.3)

o Company limited by guarantee: its
memebers/shareholders’s liability is limited to such
amount as the member undertake to contribute to the
asstes of the company in the event of its being wound
up.
Unlimited liability company (Art 3.4):
o Unlimited company: no limit on the liability of its
members
b) In China
Article 2 of the company law (2005, last revision in
2013)
o Limited liability company (including but not limited
to solely owned state company)
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 Legal personality
 Limited liability
o Company limited by shares/joint stock company
 Charter capital is divided into shares
 Legal personally, limited liability
 Unlimited number of shareholders (difference
between limited by shares and joint stock)
c) Compared with Vietnam
o Similarities:
 Variety of business forms
 Can be classified based on the legal entity (have or
don’t have legal entity, equal to limited and unlimited
liability)
o Difference

 Name
 VN doesn’t have company limited by guarantee
 Partnership in VN has a legal enity


II. Unincorperated body:
i. Private companies:
a) Sole trader and sole proprietorship:
o Owner is actually the business
o Business isn’t a separate legal enity
o The busisness is owned by an inidvidual person
o Owner being an individual solely responsible for
providing capital and for all risks involved
o There is no serperation between the owner and the
business affairs.
o Most common form of business organization.

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b) Advantages of Sole Proprietorship
o Ease and low cost of formation
o Proprietorship can make all mangements decisions
(hiring and firing employess, no other approval required)
o Proprietor own the entire business
o Has the right to receive all the profits
o Easily transferred or sold
o The law adjusment is less restrict than other form
of companies (because the sole owner and the owner
take all responsibility for the company business)

c) Disvantages of Sole Proprietorship
o Access to capital is limited to personal funds and to
the loans that owner can obtain.
o Proprietorship legally responsible for business’s
contracts
o Proprietorship responsible for torts committed in
course of employment.
d) Creation of a Sole Proprietorship
o No formalities
o No federal or state gorvenrment approval is
required
o Some local government require a license to do
business within the city
o Can operate under the name of the proprietor or
Trade name

e) Personal liability of Sole Proprietor
o Proprietorship bears the risk of loss of the business
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 Will lose entire capital contribution if the business
fails
o Proprietorship has unlimited personal liability
 Creditors may recover claims against the business
from proprietorship’s personal asset.
o In Vietnam
 Private enterprise
 Individual owner
 Unlimited liability

 Serperation between owner and enterprise: same
in UK, but Vietnam tax law states that the enterprise is
the one to be taxed, because it’s still considered a taxed
subject of enterprise income tax.

ii.

Partnership

 In many common law countries (e.g UK and US)
unincorporated body
 In Vietnam: an incorporated body having legal
entity statue-company
Partnership in some common law countries
 A relationship betweem persons who conduct a
common business together with the view of making
profits
 Usually governed by a separate piece of legislation
 Don’t have to make up individuals, it can be
formed by companies or organizations.
 Have no serperate existance from that of the
partners
 Partners are jointly and severally liable for the
partnership’s liability
 Partnership have unlimited liability for
partnership’s debts, each partner’s asset may be liable
for partnership’s debts.
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 Tax advantages: the partnership isn’t considered a
company so it doesn’t have to pay the income tax,
health insurance for employees,
Partnership in Vietnam
 An incorporated body
 Types of partnership: must have at least 2 general
partners who are liablie
 Corporate income tax obligations
3)

Nature of the company:

1. The “salomon” doctrine
 Incorporation by registration was introduced in
1844 and the doctrine of limited liability followed in
1855.
 Salomon v Salomon [1897] AC 22 inserted into
English law the twin concepts of corporate enity and
limited liability.

Case
 Mr Salomon is sole trader (shoe and boot
merchant). In 1892, he formed the company “A”. Mr.
Salomon, his wife, and five of his children held one share
each in the company. The members of the family held
the shares for Mr Salomon because the Companies Act
required at that time that there be seven shareholders.
Mr Salomon was also managing director of the company.
The newly incorporated company purchased the sole
trading leather business.

 The leather business was valued by Mr Salomon at
₤39,000. This was not an attempt at a fair valuation;
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rather, it represented Mr Salomon’s confidence in the
continued success of the business.
 This price was paid in ₤10,000 worth of debentures,
giving a chance over all the company’s assets. ₤20,000
shares of ₤1 each, the balance of ₤9,000 was paid to
Salomon in cash. Mr Salomon also at this point paid off
all the sole trading business creditors in full. Mr Salomon
thus held 20,001 shares in the company and his family
held the 6 remaining shares. He was also, because of
the debenture, a second creditor.

 Therefore, Mr Salomon’s personal liability for the
debt of the business had changed completely from
unlimited liability to limited liability. Not only was Mr
Salomon no longer liable personally for the debt of the
company, but he had also as managing director of the
company granted himself a secured charge over all the
company’s assets. Thus, if the company failed, not only
would Mr Salomon have no personal liability for the
debts of the company, but whatsoever assets were left,
would be claimed by him to pay off the company’s debt
to him.
 Things however did not go well for the leather
business, and within a year, Mr Salomon had to sell his
debenture to save the business. This did not have the

desired effect, and the company was placed in insolvent
liquidation. The liquidator on behalf of the unsecured
creditors alleged that the company was a mere “alias”
or agent for Mr Salomon, and that Mr Salomon was
therefore personally liable for the debt of the company.
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Held: page 82 of the book.
The nature of incorporated enity principle
 Incorporstion gives the company legal personality,
serperate from its member (artificial legal person).
 The company may own property. Sue or be sued in
its corporate name.
 The company won’t die when it members die.
 The share capital, once subcribes must be
maintained by the company, it no longer belongs to the
members and can’t be returned except some
exceptional cases.
The concept of “lifting the company veil”
 The situation in which the court is able to look
behind the corporate, formal identity of the organization
to the shareholders whick make it up.
 Both courts and parliament hace accepted that in
some situations it is right and proper to prevent the
members from escaping liability by hiding behind the
company.

How does common law deal with this:
Corporate liaiblity for torts and crimes

 How to determine “company mind”: In Bolton
Engineering v Graham [1957] 1 QB 159, Denning LJ held
that:
 Corporate liability for torts
o A comopany acts through its servants and agents
 Corporate liability for crimes
o Until 1944, companies has no general common
liability for crimes
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o In DPP v Kent and Sussex Contractor Ltd.[1944] KB
146, it was decided that the state of mind of senior
officers can be regarded as that of the company.
o In R v P & O European Ferries (1990), the
prosecution for corporate mansluaghter failed.
o Corporate Manslaughter and Corporate Homicide
Act 2007 (UK) creates a dedicated offence of corporate
manslaughter and a company convicted of the offence
will face an unlimited fine.
o Compare and constrast with Vietnamese laws.
2. Limited liability
 The meaning of limited liability: members of an
insolvent company don’t have to contribute their own
money to the assets in liquidation to meet the debts of
the company
 The desirability of limited liability
o For contract debts: acceptable
o For tort liability: may not be accepted because the
tort creditors are involuntary (arguable)

Chapter 2: Formation and types of
company/corporation in some selected countries
1) Basic steps
 Prepare registration documents (corporate
comnstituent document)
 Register the company with registrar
 Post-licensing steps: open account, obtain
corporate seal (if required), pay in capital…
2) Incorporation in UK:
 Formal requirements
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

Certificate of incorporation

Registration:
 Registration of the company is relatively simple
and the costs are very little.
 Layperson may choose to purchase from his
solicitor, othe commercial supplier, a company which
has been formed (off the-shelf)
 Documents to be delivered to the Registrar of
Companies depend on the type of the company

Documents required for registration
 Application for registration;
 Memorandum of association (general principles of
establishment of the company);

 Statement of capital and intial shareholdings;
 Statement of guarantee (the company limited by
guarantee);
 Statement of proposed officers;
 Articles of association (charter).

Company name
 Subject to some limitations, company can choose
the name it wished to adopt.
 The word limited for a private company or plc must
be inserted at the end of the public company name
(Ss58 and 59 of the Companies Act 2006).
 Can’t be the same name as one already held on
the index of the company names kept by the Registrar
 Can’t be used if it would, in the opinion of the
Secretary of State, constitute a criminal offence or be
offensive (Part 5 of the Companies act).

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Certificate of incorporation
 Once the Registrar of Companies is satisfied that
the legal formalities has been complied with, he
registers the documents and issue a certificate of
incorporation.
 The certificate of incorporation is conclusive
evidence satisfying the requirement of registration.
 The company becomes separate enity from its
owners from the issuance of the certificate of

incorporation.

Commencememnt of business
 A private company may start its business and use
its borrwoing oowers as soon as the certificate of
registration is issued.
 A public company can’t start a business and
borrow money until it has obtained an additional
certificate from the Registrar (trading certificate) (meet
the minimum allotted share capital).

Publicity and the continuing role of the
Registrar
 The Registrar of Companies will opne a file in the
company when receiving the incorporation documents.
 The file will be then opened to inspection.

Promoters
 Who set up the company = “founder(s)”
 Promoters frequently take over its management
(ie., directors) after Co. ir registered.
 Owe a fiduciary duty to Co. Promoter has
obligation to disclose fully to Co. all relevant matters
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associated with transactions made by promoter and Co.
such as any profits made.
 Number of alternative remedies (relief) available to
Co. if promoter being in breach his fiduciary duty. These

are: rescission, accounting for any undisclosed profit
(promoters have to pay the profit he gains to the
shareholders/members), damages.

Pre-incorporation contracts
 Pre-incorporation contracts are those made by the
promoters before the company was formed.
 Section 51(1) of the Company Act 2006 provides “A
contract with purports 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 to be
contrary, as one made with the person, purporting to act
for the comopany or as agent for it, and he is personally
liable on the contract accordingly”.
 A promoter can be personally liable where Co. in
question isn’t yet even in the process of being formed
and both sides are aware Co. is not yet in existance.
3. Formation of a company in China
 Registration authority.
 Application dossier: depend on the type of
company
 Note:
o Minimum registered capital required in accordance
with specific legislation (legal capital)
o Shares subcrised for by the promoters may not
(with some exceptions) be less than 35% of the toal
number of comopany shares (JSC) (Art 84)

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4. Compared with Vietnam
 Registration authority.
 Application dossier: depend on the type of
company
 Note: New legislation (LOI and LOE 2014)
 Prohibited lines of business
 Conditional; lines of buisness

Chapter 3: Financing a company
I.

Financing a company under UK law:

I.

Share capital
 Share capital is the capital of the comopany which
is stated in the MOA (Memorandum of Association) of
the company. E.g “the company share capital is X
devided into 50.000 shares of Y each”.
 The term “issued share capital” refers to the total
nominal value of the shares which have been allotted to
shareholders
 The company’s unissued shares capital is the
difference between its issued share capital and the
amount of capital is permitted to issue by the capital
clause in the MOA.
 Example: MoA allows the company to have 1 billion
shares, each one worths 1 Pound.

o
The company has sold 600K shares => Issued
shares
o
The rest: 400K shares => Unissued shares
Q: Why have unissued shares?
17


A: So you can issue more shares in the future. You
might want to use your shares for compensation, an
acquisition, or, most obviously, to sell to potential
investors.
II.

Increase and alteration of capital
The company may
 Increase its share capital;
 Consolidate and divide all or any of each share
capital into shares of larger amount;
 Subdivide its shares, or any of them, into shares of
smaller amount;
 Cancel shares which, at the date of passing if the
resolution to cancel them, have not been taken ir agreed
to be taken by any person and diminish the amount of
the company’s share capital by the amount of the
shares so cancelled.
 In Vietnam, issued shares can be cancelled if the
shareholder doesn’t pay for it.

Authority to issue share capital
 The power of the directors to issue shares can be
carried out when authorized by the company in
general meeting or by the articles (must be approved
by shareholders).
o Private placement of shares
o IPO
 Public offerings of public company shares are
subject to further provisions and so on when they want
to list its shares in stock exchange, in order to protect
the investors against the unstable nature of the stock
market.

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Preferential subscription rights
 Exsiting equity shareholders of the company have
preferential subscription rights in the event of an issue
of further shares.
 In some circumstances the preferential rights can’t be
applied.
 Private company may exclude the preferential in their
MOA.
Nature of shares and membership
 A share is the interest of the shareholder in the
company measured by a sum of money, for the
purpose of liability in the first place, and of interest, but
also consisting of a series of mutual convenants
entered into by all the shareholders.

 Membership is acquired in accordance with, first, an
agreement to become a member and, secondly, entry
of the name on the share register.
 The law usually requires that a shareholder is given a
share certificate in respct of his shares within two
months of allotment or lodgement with the company of
an instrument of transfer.
Classes and types of shares
1. Ordinary
 All owners have equal rights to
o Dividend
o Return of capital in a winding (dissolve or
bankrupt), and
o Voting
2. Preference
 Most preference shares carry preferential rights to
a fixed dividend promised to them when the shares
are located to them.
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 Preference shares are entiled to prior return of
capital on a winding up.
 Preference shares usually have no voting rights, or
to have voting rights which are restricted to certain
circumstances such as a right to vote whether or
not the company goes into liquidation.
3. Redeemable
 Issued on a short-term basis.
 The shareholder holds them for a specificd period

of time, after which the company buys them back.
 Whether there is a similar concept in VN law? Is it
exactly same or not?
4. Deferred
 Deferred shares have rights which are deferred to
the ordinary shares; they will only get dividends
after a specified minimum has been paid to the
ordinary shareholders, and as regards return of
capital on winding up.
 Deferred shares are sometimes known as
“founders” shares because promoters would agree
to take founders’s shares to demonstrate their
confidence in the company’s ability to pay
dividends.
5. Non-voting and multiple voting shares
 Non-voting shares are issued to enble the present
controlling group to retain their control and at the
same time raise more capital without resroting to
issung preferrence shares.
 Multiple voting shares are used by a controlling
group to have an enhanced voting strenght.
6. Share warrants
 The term “warrant” is used in two senses:
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o A form of call option which gives the holder a
right to call for a share at a fixed price at the
future day if he or she chooses.
o A form of negotiable instrument that, if

authorized by its articles, is issued by a
company with respect to full paid share a
warrant stating that the bearer of the warrant
is entitled to the shares specified in it.
7. Depositary
 Usually issued by a bank, are negotiable receipts
certifying that a stated number of securities of an
issuer have been deposited on behalf of the holder
in a finanacial institution.
 Are often used to enble the company in acountry
which has an understand economy to make its
shares atractive to voerseas investors, by
attaching, in effect, a different currency and
regulatory to the shares.
III.

Transfer of and transactions in shares
1)
Transfers on sale
 Difference between the ownership of a share and
a normal item:
o The share is measure unit, which is invisible,
expressing the ownership of the holder to a
part of the company.
o The value of a share is related to the
company business.
2)
Restriction on transfer
 Public or private company may contain provisions
in their constitutions restrcting the transferability of

the shares (except company listed on Stock
21


Exchange – because the “continous auction”, the
tranfer of shares on market is electronically)
 Many private companies have restricted on
transfer, usually with a view to keep control within
the family or other small group of individuals. Such
restrictions are commonly of two types: directors’s
discretion to refuse transfer, and first refusal
clause (the unissued shares will be bought by the
exisitng memebers of the company in the first
priority, before they can be sold to people outside
the company).
3)
Dividends and distributions
 As ruled in Re Exchange Banking Co., Flitcrofi’s
Case (1882), dividends could only be paid out of
profits.
 Public companies are subjected to further
conditions before a distribution can be made:
(1) Net assets aren’t less than the aggregate
of its called-up share capital (paid shares)
and undistributable reserves and
(2) That the distribution doesn’t then reduce
the net assets below that aggregate.
1. If distributions made in breach of legislation, the
member is liable to repay it if at the time of
distribution, the member knows, or has

reasonable grounds for believing that it is made
in breach of the provsion.
2)

Loan capital
 A debenture is a document which acknwledge a
debt. A debenture holder is not a member of the

22


company and he has rights against the company,
as a creditor, rather than rights in it.
 Debenture is defined in s. 738 of the Companies
Act 2006 as including debenture stocj, bonds and
any other seccurities of a company, whether or
not constituing a charge on the assets of the
company.
3)

Raising and maintance of capital

Discount
 A discount occurs where a share of, say $1 nominal
value is issued in return for, say , 80 pence. The
discount is 20 pence.
 It was firmly settled at the end of the 19th century in
Ooregum Gold Mining Co v Roper [1892] AC 125, 11L
that the issue of shares at a discount is illegal,
 S. 580 of the Companies Act 2006 provides that on first

issued the shares can’t be sold at less than their face
value, unless the slae is to underwriter (when a
discount of up to 10% is permissible).
Premium
 Shares are issued at a premium if, a share of 1$
nominal value is issued in return for 1.30$. The 30
pence is the premium.
 Piror to 1948, the premium was free of the legal
restriction which normally apply to share capital.
 Companies Act 2006 (s610): if a company issue shares
at a premium, whether for cash or otherwise, a sum
equal to the aggregate amount or value of the premium
must be transferred to a separate account and may be
used for
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The maintance of capital
 The meaning of the doctrine.
 Company’s purchase of own shares.
The meaning of the doctrine
 The courts esttablished the doctrine of maintenance of
capital under which the share capital of a company
must be maintained as a fund of last resort for creditors
of the company to lock to.
Company’s Purchase of its shares (buyback)
 General rule: a company cannpt acquire its own shares.
 Exception: section 690 allow if:
o The MOA does not impose restrictions, and
o Provisions laid down in Part 18, Chapter 4 of the

Companies Act are complied with.

Chapter 4: Corporate governance
I. Shareholder’s meetings
1)
The genral meeting as the residual authority
of the company:
 General meeting means a meeting of ordinary
shareholders with nay shareholders who are entiled to
attend.
 Differ from the Companies Act 1985, the new Act
simply refers to a general meeting, regardless of the
resolution being passed.
 It is required by legislation that (section 336) a public
company must, every year, hold a general meeting as
its AGM.
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 In some circumstance power of the board will revert to
shareholders. By special resolutions, shareholder can
give directions to directors.
 Permission of the shareholders must be obtained before
on the term can be carried out.
E.g. Decision on the term of a director (section 188) or
whether the company name can be used to commence
litigation against one of the directors for breach of duty.
 Shareholders may be passive most of the time, they
have the right to remove the directors by ordinary
resolution (section 168 Companies Act 2006).

2)
Resolution at meetings
 There are two main types of resolutions:
o Ordinary resolution is passed by simply majority
(>50%) presenting and voting either in person pr
by proxy (section 282)
o Special resolution is passed by majority of no less
than ¾ of such memebers voting in person
orwhere proxies are allowed, by proxy. This
resolution must be used where the legislation or
the constitution.
3)
The shareholders’s general meeting
 Directors have powers to convene general meeting,
Members, officers and outsiders may have this right in
some cases.
 Notice of meetings

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