Questions & Answers

Company Law- MGMT3046

Topic 1- Types and Nature of Companies

1) Ques: When a person decides to go into business, what factors should he take into
consideration when deciding the best legal structure which suits his/her needs?
Ans: The factors are:
 one’s personality
 the purpose of the enterprise
 its size
 the tax implications
 management and statutory requirements for the several types of commercial
enterprises that can exist.

2) Ques: What are the three main types of legal structures for businesses?
Ans: Sole Trader, Partnership, Registered Company.

3) Ques: What are the main characteristics of the business legal structure of a ‘Sole
Proprietor/Trader’?
Ans: The main characteristics are:
 A sole proprietorship is the easiest and least expensive business
organisation to create.
 The proprietor obtains whatever business license is required to begin
operations.
 No formal documentation is usually required.
 A person who is operating under a name other than his/her surname is
required to register the business name under the Business Names Act.
There are penalties if this is not done.
 The proprietor is the sole person running the business and he/she alone
enjoys the profits.
 The sole proprietor may employ persons however, he/ she is
responsible for all debts incurred by the business even if he/she has
registered a name under The Business Names Act
 A sole proprietor is taxed as an individual, that is, a tax rate of 25% on
income.

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  The continuity of the business is tied directly to the proprietor.
 The proprietor can terminate or change the business at any time.
 Ownership of the business cannot be transferred.

4) Ques: What are the main characteristics of the business legal structure of a
‘Partnership’?
Ans: The main characteristics are:
 Two or more persons can enter into a partnership to carry out business.
 A partnership is established by way of an agreement (Partnership Deed)
between the parties.
 The key to a partnership’s existence is – it must consist of two or more
persons, they must share a common interest, and they must share the profits
and losses.

5) Ques: What are the two (2) major features of Companies formed under the
‘Companies Act, 2004’?
Ans: The two (2) main features are:
 That they are artificial persons.
 That they (private limited companies) enjoy limited liability.

6) Ques: What are the main characteristics of the business legal structure of a
‘Registered Company’?
Ans: They are as follows:
 It is a Legal entity separate from its members.
 It enjoys limited liability.
 It has perpetual succession (i.e. change in members does not affect its
existence).
 It is managed by natural persons called Directors.
 It has a written constitution- (The Articles of Incorporation).
 It must be registered with the Registrar of Companies (c/o Companies Office
of Jamaica).
 Its assets and liabilities are its own and not the members.

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 7) Ques: What are the main differences between a Registered Company and a
Partnership?
Ans: They are as follows:
 A Partner is not a separate legal entity.
 Partnership does not have perpetual succession.
 Partnership does not have to register with the Registrar (c/o Companies Office of
Jamaica).
 Partnership’s property is usually jointly owned by the partners.
 Partners are liable jointly for contractual liabilities and obligations.
 Partners are agents of each other and the firm.
 Partnership formation is simpler than forming a company.
 Partnership can be dissolved by a partner giving notice BUT a Company must “wind
up” in accordance with the Companies Act.

8) Ques: A ‘Private Company’ is one which is governed in its articles of incorporation,

by the ‘private company clause’ which speaks to restrictions and prohibitions as
contained in Section 25 (1) of the Companies Act, 2004. What are these restrictions
and/or prohibitions?
Ans: Section 25 (1) - (private company clause)
(a) restricts the right to transfer its shares
(b) limits the number of its members to twenty, not including persons who are in the
employment of the company and persons who, having been formerly in the
employment of the company were, while in that employment, and have continued
after the determination of that employment to be, members of the company.
[ the number of members is limited to twenty excluding persons who are employed by the
company and ex – employees who were members /shareholders when they worked with the
company and continued to be members/shareholders of the company after they left]
(c) prohibits any invitation to the public to subscribe for any shares or debentures of the
company.
(d) prohibits any invitation to the public to deposit money for fixed periods or payable on
call whether bearing or not bearing interest.
(e) prohibits any person other than the holder from having any interest in any of the
company’s shares (subject to the exceptions provided for in the Twelfth Schedule).

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OR
A private company means that its Articles:
– Restricts the right to transfer its shares.
– Limits the number of its members to twenty.
– Prohibits any invitation to the public to subscribe for shares or debentures.

9) Ques: S. 25 (6) of the Companies Act, 2004, states that ‘For the purposes of this Act
a public company is a company that is not a private company’. What are the main
characteristics of a ‘Public Company’?
Ans: The main characteristics of a ‘Public Company’ are as follows:
 It must file a Prospectus or statement in lieu of prospectus with the Registrar of
Companies (the Registrar) for incorporation.
 It must file with the Registrar, the List of persons who have consented to be directors
of the company.
 It must file with the Registrar, consent in writing from the persons to act as Directors.
 It must file with the Registrar, an undertaking by the directors to take and pay for
qualifying shares.
 Apart from a Certificate of Incorporation, a public company must also obtain a
Certificate of Minimum Share Capital ($500,000) from the Registrar before it can
commence operations or borrow money.
 A public company must have at least three Directors, at least two of whom are not
employees of the company or any of its affiliates.

10) Ques: When a company is described as a ‘limited liability company’ according to the
Companies Act, 2004, what does it means?
Ans: a) It means that the liability of the members/shareholders is limited to the
amount of money, if any, that is unpaid on their shares (the amount of money that is
owed on their shares) in the event of the company being wound up i.e. they’re liable
for their investment only (company limited by shares).
b) It means that the liability of members is limited to the amount that they have agreed
to pay to the company in the event of the winding up of the company (company
limited by guarantee).

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11) Ques: The case of Salomon v Salomon established a principle that is at the heart of
company law. What is the principle?
Ans: This is the principle of ‘Separate Legal Personality of a Company’- which
means that a company is a separate legal person (artificial person) from its
members/shareholders and thus once the company is legally incorporated, it must be
treated like any other independent person with rights and liabilities of its own.

12) Ques: What are the consequences of a company having a ‘separate legal personality’
from its members?
Ans: These are as follows:
 A company can sue and be sued (this is not the case with unincorporated
associations).
 A company may own assets – a member of a company has no proprietary
interest in the assets of the company.
 A company may enter into contracts with its shareholders.
 A member of the company may be guilty of larceny of the company’s assets.
 Judgments against a company are not usually enforceable against its members.
 Directors are not generally liable for wrong done by the company.
Also
See Section 4 of the Companies Act, 2004 which gives a company:
 The same legal capacity as individuals i.e. the rights, powers and
privileges of an individual.
 The capacity to carry on its business, conduct its affairs and exercise
its powers in any jurisdiction outside Jamaica to the extent that the
laws of Jamaica and of that jurisdiction permit.

13) Ques: State the circumstances in which the Courts or Legislature often ‘lift or pierce’
the corporate veil or the separate legal/corporate personality’ principle.
Ans: The circumstances are as follows:
 Where the company is being used for an improper purpose or for fraud: For
instance, where the corporate form [of the company] was deliberately being
used to avoid a contractual responsibility.
 Group enterprises: Reliance on the single economic unit theory.
In order to ascertain whether the relationship between the parent company
and a subsidiary company should be examined, the court has to lift the
corporate veil. One of the arguments usually advanced for lifting the veil in

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 corporate groups is the ‘single economic unit’ argument. The argument
posits that all the companies in a corporate group should be regarded as a
façade as, in economic reality they are one and should be regarded in law as
such.
 By the Legislature
Examples of statutory rending or piercing of the veil in the Companies Act,
2004:
a) Section 44: Company directors, promoters and persons who have authorised the issue
of a company prospectus may be liable to pay compensation in respect of loss
suffered by subscribers for shares which is attributable to untrue statements in the
prospectus.

b) Sections 109, 110, 118: Officers of company may be liable where the company has
not fulfilled certain requirements in respect of keeping its Register of Members under
S. 109; Index of Members under S. 110; and Register of Members in branches of the
company outside of Jamaica under S.118 (i.e., a Branch Register).
c) Sections 152 and 153: Requirements relating to balance sheets and the right to receive
copies of balance sheets and auditor’s report.
d) Section 321: Officers of company may be criminally liable where a company has not
kept proper accounts within the two-year period before the start of its winding up.
e) Section 322: Liability of persons who have been knowingly involved in fraudulent
trading by company.

Prepared by: Aldith Hylton

Date : January 27, 2021