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ACCA Paper F4
Corporate and Business Law
For exams in 2010

theexpgroup.com

2. both public and private (knowledge level). 7. The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases. Given the nature of information presented in these materials. you may be required to: 1.com . Describe the statutory books. Page |10. be it printed.1 © 2010 This material is the copyright of the ExP Group. and given that legislation may change at any time. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means. Analyse the effect of a company‟s constitutional documents (application level). Individuals may reproduce this material if it is for their own private use. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Explain how articles of association can be changed (application level). Explain the role and duties of company promoters (application level). 5. Explain the content and effect of the memorandum of association (application level). Explain the controls over the names that companies may or may not use (application level). 6. on electronic devices or any other means of reproduction. photocopied. Describe the content and effect of Table A articles of association (knowledge level). 8. theexpgroup. 3. records and returns that companies must keep or make (knowledge level).ACCA F4 Corporate and Business Law ExPedite Notes Chapter 10 Company Formation and Constitution The examiner has stated that in the exam. Describe the procedure for registering companies. 4.

uk). such as the reference to Table A articles (which are now given by a statutory instrument referred to in s. One or more persons writes a “memorandum of association” stating that they wish to form a company under the Companies Act 2006. Some are now outdated. This is then sent with the registration documents (which are available for free download at www. The procedure is given below. 4. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. and if so whether it is to be limited by shares or by guarantee Whether the company is to be a private or a public company. formation of a company is very simple. in Scotland or in Northern Ireland Whether the liability of the members of the company is to be limited. 2. Individuals may reproduce this material if it is for their own private use. but CA 2006 has greatly reduced its importance to only have relevance for new companies as part of the company registration process. Application for Registration The application for registration must state: 1. The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases. The memorandum of association was formerly an important document in company law. Company Formation Under the Companies Act 2006. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means. A statement of capital and initial shareholdings (or a statement of guarantee in the case of a company limited by guarantee).com .20 CA 2006). be it printed. These people are called the “subscribers”. on electronic devices or any other means of reproduction.companieshouse. Given the nature of information presented in these materials. 1.2 © 2010 This material is the copyright of the ExP Group. theexpgroup.ACCA F4 Corporate and Business Law ExPedite Notes Note that these requirements were written before the enactment of the Companies Act 2006.gov. and given that legislation may change at any time. which is currently £20 or £80 for same day registration. Page |10. 3. photocopied. The company‟s proposed name Whether the company‟s registered office is to be situated in England and Wales (or in Wales). a statement of compliance with the necessary rules and the registration fee.

ACCA F4 Corporate and Business Law ExPedite Notes 2. The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases. Implies national or international pre-eminence. photocopied. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means. 7. Uses a name of another company or LLP Is likely to cause offence. 6. Company Names The Company Registrar will not register a company if it: 1. but this is not necessary. Given the nature of information presented in these materials. together with their consent to act as officer. eg “The British Training Co” Implies being a public body Implies being a charity Implies being a charity If the name conflicts with a registered patent or trademark. Page |10. all the above requirements are satisfied by filling in the standard forms (Form 10 and Form 12). A statement of the intended address of the company‟s registered office A copy of any proposed articles of association (to the extent that these are not supplied by the default application of model articles in section 20 of the Companies Act 2006). and given that legislation may change at any time. eg includes rude words.com . Individuals may reproduce this material if it is for their own private use. In reality. 5. be it printed. 4.3 © 2010 This material is the copyright of the ExP Group. The process is often done with the assistance of a lawyer. A statement of the company‟s proposed officers (directors and secretary). theexpgroup. 3. 4. Statement of Compliance The statement of compliance required to be delivered to the registrar is a statement that the requirements of this Act as to registration have been complied with. Nor is it necessary to be a UK citizen. 3. on electronic devices or any other means of reproduction. 2.

761. Given the nature of information presented in these materials. It must also obtain a trading certificate under s.4 © 2010 This material is the copyright of the ExP Group. or whatever mechanism is included in its articles. with the exception that a plc must have a company secretary. Registering a company name does not give any sort of right to exclusive use of those words as a trading name or trade mark. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means. be it printed. the company number and the date of its registration. including the company name. details of payments to promoters and a statement of compliance. on electronic devices or any other means of reproduction. The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases. and given that legislation may change at any time. Incorporation Certificate Upon registration of the company. it will be possible to obtain registration despite the name being sensitive if good cause can be proven. Page |10. the company exists and is able to enter into contracts in its own name.ACCA F4 Corporate and Business Law ExPedite Notes In some cases. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. The registrar must be informed of the name change and a revised incorporation certificate is then issued. Any contracts purported to be made before the date of the incorporation certificate are not valid. Public Limited Companies The process of registration is the same for a public company as for a private company. This is issued upon giving the Company Registrar details of share capital.com . A company may change its name at any time by passing a special resolution. theexpgroup. From the date of the incorporation. initial formation expenses. the company registrar will issue a certificate of incorporation. is subject to minimum share capital requirements. photocopied. Individuals may reproduce this material if it is for their own private use.

Promoters and Pre-incorporation Contracts Promoters There is no general statutory definition of a promoter in company law. 2. The courts have not given a comprehensive judicial definition. . as the company already exists. .com . In reality. No risk of any personal liability as a promoter existing. Although relatively cheap. theexpgroup. members. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. It is necessary to do a stock transfer form to record the sale of shares from the company selling the off-the-shelf company to you. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means. it‟s still not as cheap as registering a company yourself. on electronic devices or any other means of reproduction. The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases. In Twycross v Grant (1877) the judge defined a promoter as „. In Whaley Bridge Calico Printing Co v Green (1880) the judge described the term promoter as Page |10. and who takes the necessary steps to accomplish that purpose‟. Given the nature of information presented in these materials. Buying an offthe-shelf company is now rather cheap and has a number of advantages. Individuals may reproduce this material if it is for their own private use. 2.ACCA F4 Corporate and Business Law ExPedite Notes Off-the-Shelf Companies Businesses exist which incorporate companies and hold them in inventory until somebody wants to buy a ready-made company. photocopied. The principal advantage is probably avoidance of potential liability as a promoter (see below). one who undertakes to form a company with reference to a given project and to see it going. There are a number of disadvantages however. directors and probably Articles.uk. including: 1. 3.5 © 2010 This material is the copyright of the ExP Group. An example is www. including: 1.ukincorp. be it printed. and given that legislation may change at any time. Reduced workload – all the work has already been done. It will be necessary to change the company‟s name.co. the workload associated with buying an off-the-shelf company is similar to the work required to register one in the first place.

by which a company is generally brought into existence‟. nevertheless the Company Directors Disqualification Act 1986 also provides for the disqualification of anyone who has been convicted of an indictable offence in relation to the promotion or formation of a company. photocopied. Individuals may reproduce this material if it is for their own private use. The following are typical acts which promoters perform – taking the procedural steps necessary to form a company. so promoters are said to be in fiduciary relationship with the company they are establishing. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. This is a position akin to that of a trustee and promoter‟s duties are very similar to the duties of an agent. claim damages or hold the promoter liable to account for any profit made (Erlanger v New Sombrero Phosphate Co (1878). and given that legislation may change at any time. Page |10. The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means. Thus solicitors and accountants employed purely in their professional capacity in order to establish a company will not be considered to be promoters. Given the nature of information presented in these materials. usefully summing up in a single word a number of business operations. or to the existing and prospective shareholders in the company. Although problems in relation to the promotion of companies have been greatly diminished by the introduction of rigorous rules relating to the provision of information in company prospectuses. even though a promoter is the agent for a principal that does not yet exist! The most important consequence that flows from it is that the promoter is not entitled to make a profit from establishing the company. familiar to the commercial world. inviting other persons to become directors and issuing a prospectus. without full disclosure of that profit to either an independent board of directors. Such a situation usually arises in situations where the promoters sell assets to the company they are in the process of forming. Re Leeds & Hanley Theatres of Varieties (1902)). theexpgroup. Failure to make such a disclosure will enable the company to: rescind the contract. The consequence of the above two statements is that the answer to the question of whether a person is a promoter or not is a question of fact and the determining factor is whether the individual in question will be a person who exercises some control over the affairs of the company both before and after it is formed up until the process of formation is completed. Duties of Promoters As with directors.com .ACCA F4 Corporate and Business Law ExPedite Notes „a term not of law but of business. on electronic devices or any other means of reproduction. A person is not to be treated as a promoter of a company simply on the basis that they act in a professional capacity with respect to the establishment of a company. be it printed.6 © 2010 This material is the copyright of the ExP Group. Gluckstein v Barnes (1900).

and given that legislation may change at any time. Although goods were supplied to the company under the contract. and it is not bound by any contract made on its behalf prior to incorporation. but before it was actually registered. FM Ltd was never actually incorporated.com . subject to any agreement to the contrary. The Court of Appeal Page |10. photocopied. L made a contract with Phonogram Ltd „for and on behalf of FM Ltd‟. The parties who had purported to act as its agents were liable on the contract but the company itself could not be held responsible. and he is personally liable for the contract accordingly‟. is not bound by the contract even if it has taken some benefit under the contract. be it printed. It can be seen from the wording of s.51(1) of Companies Act 2006 provides that „a contract which purports to be made by or on behalf of a company. The legal difficulty. One of the main consequences of the principles outlined above is that someone who contracts on behalf of a company in respect of a pre-incorporation contract is treated as if he had contracted on his own behalf. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice.51(1) that liability of the agent is contractual. but that position has been bolstered by statutory authority. is that the company cannot enter into a binding contract until it has become incorporated. The legal consequences of the above propositions are that the company. prior to the date of the certificate of incorporation and hence prior to its existence as a separate legal person. The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases. Thus in Phonogram Ltd v Lane (1982) it was proposed to form a company. has effect. naming the company as a party.ACCA F4 Corporate and Business Law ExPedite Notes Pre-Incorporation Contracts A pre-incorporation contract is a contact which promoters enter into. Such was the consequence of ordinary agency law as stated in Kelner v Baxter above. theexpgroup. it was held that it could not be held liable under the contract. as it had not been in existence at the time the contract had been entered into. at a time when the company has not been formed. Given the nature of information presented in these materials. Promoters’ Liability Similarly the company cannot ratify the agreement even after it has become incorporated. of course. Consequently the court held that Lane was personally liable for the money advanced to FM Ltd by Phonogram Ltd.7 © 2010 This material is the copyright of the ExP Group. Thus s. on electronic devices or any other means of reproduction. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means. but it should be noted that this liability arises whether the promoter contracts as agent or not. as one made with the person purporting to act for the company or as agent for it. Individuals may reproduce this material if it is for their own private use. FM Ltd to run a pop group. However. In Kelner v Baxter (1866) a contract was entered into supposedly on behalf of a company. when formed.

be it printed. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice.com .51(1) of the Companies Act 2006. Under section 31 CA 2006. Third parties are not required to inspect the company‟s constitution in order to ascertain whether a proposed contract is within the company‟s powers. Finally the promoters can expressly provide that they will bear no responsibility for any pre-incorporation contracts as permitted under s. theexpgroup.39 CA 2006). Alternatively. To give effect to the words „subject to any agreement to the contrary‟ the words used would need to amount to an express exclusion of liability. The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases. Content and Effect of Company Constitution Objects Prior to the Companies Act 2006. and given that legislation may change at any time. if it can be proven that they Page |10. the importance of the objects clause has been further diluted. This means that third parties have no reason to assume that the directors have any restrictions on the contracts that they can bind the company to (s. Unless the company‟s constitution specifically says that the objects are restricted.ACCA F4 Corporate and Business Law ExPedite Notes held that the fact that Lane had signed „for and on behalf of FM‟ made no difference to his personal liability. As the promoters are usually the first directors of the company. the company‟s objects are unrestricted. photocopied. they can assure that the company does in fact enter into the pre-arranged contract. However. the objects (ie purpose) of the company had great legal importance. Individuals may reproduce this material if it is for their own private use.8 © 2010 This material is the copyright of the ExP Group. the safest way to avoid promoter‟s liability under a pre-incorporation contract is to establish the company first (or buy an off-the-shelf company) before conducting any discussions with any third parties. Remember. the promoter may enter into an agreement „subject to contract‟ with the effect that there is no binding agreement until the company itself enters into one. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means. Given the nature of information presented in these materials. on electronic devices or any other means of reproduction. For example it is possible to avoid entering into the contract until the company has actually been incorporated. Promoters can avoid liability for pre-incorporation contracts in a number of ways.

photocopied. 7. and given that legislation may change at any time. since all commercial law presumes that all parties must act in good faith in order to be bound in contract. Page |10. 4. 6. 2. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means. Purpose of the Articles The articles are a “series of mutual covenants” between the company and each member.com .40 CA 2006). 5. If a director binds the company to a contract that is outside the object of the company in its articles (ie “ultra vires” the company). 9. 8. Given the nature of information presented in these materials. If the third party somehow knew the contract was outside the power of the company in its Articles. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. The Articles will generally cover matters like: 1.ACCA F4 Corporate and Business Law ExPedite Notes knew of the restriction but went ahead anyway. as well as members to each other.9 © 2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. that contract is still valid. but the shareholders can sue the director for breach of duty and any losses suffered. 3. theexpgroup. The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases. eg is the Internet an allowable means of giving notice of meetings Transfer of shares between members Quorum at general meetings and board meetings. 10. be it printed. Procedures for appointment and dismissal of directors Method for determining directors‟ remuneration and expense repayment Powers of directors Conduct at board meetings Taking votes at general meetings Deciding dividends Procedures for issue of shares Communication with members. they are contracting in bad faith and the contract will not be enforceable by the third party (s. on electronic devices or any other means of reproduction. he/ she has acted in bad faith and the company is therefore not bound by this contract.

Given the nature of information presented in these materials.com . theexpgroup. and given that legislation may change at any time. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means.26 CA 2006. A company‟s articles may contain terms that are designed to be difficult or impossible to change (eg a provision to prohibit expelling any shareholder from the company). Changing a Company’s Constitution A company can change its articles at any time by passing a special resolution. though some (eg register of members) may be maintained by third parties on behalf of the company: Section 114 Section 162 Section 228 Section 237 Register of members Register of directors Directors‟ service contracts Directors‟ indemnities Page |10. The modified articles must then be sent to the company registrar. or by unanimous consent of every member. photocopied.ACCA F4 Corporate and Business Law ExPedite Notes Section 20 Companies Act 2006 assumes that the current model Articles apply to companies unless the company chooses to amend or substitute them. most of which must be maintained at the company‟s registered office. Entrenched articles can only be introduced into the first articles of the company on registration. An article that is intended to be entrenched can still be changed at any time if there is a unanimous resolution of all shareholders. The current model Articles were passed by statutory instrument the Companies (Model Articles) Regulations 2008. on electronic devices or any other means of reproduction. The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases. Individuals may reproduce this material if it is for their own private use. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. be it printed.10 © 2010 This material is the copyright of the ExP Group. s. Statutory Books and Records Section 113 CA 2006 requires that a company keep the following registers. A copy is available for free download on the Internet.

be it printed.doc An example of how to purchase an off-the-shelf company can be seen at this company‟s website: www.uk Page |10. Individuals may reproduce this material if it is for their own private use.gov. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means. theexpgroup. on electronic devices or any other means of reproduction.uk The UK Company Registrar has all the forms needed to incorporate a company in England and Wales.gov. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. photocopied.uk/acts/acts2006/pdf/ukpga_20060046_en.companieshouse.pdf A full copy of the current model Articles of Association is available for free download at www.co.uk/files/file45533.com .gov. together with a good amount of guidance in plain English: www.berr.opsi.11 © 2010 This material is the copyright of the ExP Group. Given the nature of information presented in these materials.ACCA F4 Corporate and Business Law ExPedite Notes Section 275 Section 358 Section 702 Section 720 Section 743 Section 805 Section 809 Section 877 Register of secretaries Records of resolutions etc Contracts relating to purchase of own shares Documents relating to redemption or purchase of own shares out of capital by private company Register of debenture holders Report to members of outcome of investigation by public company into interests in its shares Register of interests in shares disclosed to public company Instruments creating charges and register of charges: England and Wales) Want to Know More? You can download a free full copy of the Companies Act 2006 at www.ukincorp. and given that legislation may change at any time. The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

theexpgroup. Given the nature of information presented in these materials. Individuals may reproduce this material if it is for their own private use. and given that legislation may change at any time.com . The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means. be it printed. on electronic devices or any other means of reproduction.12 © 2010 This material is the copyright of the ExP Group. photocopied.ACCA F4 Corporate and Business Law ExPedite Notes Past exam questions   Done Revised Incorporation/ promoters: Q4 December 2004 Q10 June 2005     Registration1: Q10b December 2003   Constitutions: Q7 June 2004 Q3 June 2005 Q4 December 2007 Q9 December 2008         Page |10.

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