Seminar 16

Business Structures & Organisation II:

Company Formation

1. Once a company has been formed and registered, a key feature is that it has its own
‘legal personality.’ What is meant by ‘legal personality’ and what case illustrates how
this concept works in practice?

Liability is with company.

Individuals are therefore protected
A business will acquire them if they go through legal procedures (documents,
registration etc) operation of law, obtain legal personality.
Company is the things that illustrates this best.

2. What is the ‘veil of incorporation’? What is meant by ‘lifting the veil of

incorporation’? Give some examples of when the veil of incorporation may be lifted.

Barrier of protection with the company out in front and the individuals hidden behind
meaning that we sue company, therefore go after company assets, rather than individual
directors/employees etc.
Lifting the veil, gives direct access to suing the individuals – extremely rare.
Examples, gross misconduct, genuine illegal practice – so system is being abused
Jones V Lipman 1962

3. Explain the following: ‘A company is generally bound by its transactions even if they
are ‘ultra vires’ (outside it’s powers) but the ultra vires rule still operates within the
company’.

Both the company and the directors will have perimeters of authority to act (limits to
powers). If director goes outside his authority) then he is ultra vires. If they go outside
of this authority it is possible for the company to ratify whatever agreement that director
has made (retrospective ratification).

4. Wanda is employed as managing director by Clipse Ltd whose main object is to retail
office equipment. Her contract of employment contains a clause that states that in the
event of her leaving the employment of Clipse Ltd she will not canvass their customers
for a period of two years. She resigns her employment and together with her husband
Jake forms a new company, Desks Ltd, whose main object is also retailing office
equipment. Glib is a salesman employed by Desks Ltd. He is given customer lists by
Wanda and immediately begins canvassing Clipse Ltd's customers.

Advise Clipse Ltd on any action they can take.

Against: Desks Ltd -sue directly, UBS Vs Vestra (conspirancy) , Wanda - employment
contract – no canvassing clause, 2 yrs, breach of agreement. Wanda – given that list of
customers, previous employer, confidential info ‘stolen it’ then also given out – must
act in good faith serious concern this is broken – UBS V Vestra Wealth 2008 ( good
faith) – Faccenda V Fowler 1986 (improper use of confidential info tantamount to trade
secret).
5. Gerald is the managing director of Go Ltd. He makes the decisions and informs the
other directors at board meetings. Originally the articles of association (constitution)
restricted Gerald’s ability to make contracts up to £20,000. They were recently changed
to a £5,000 limit. Gerald recently purchased goods for £17,000 on the company’s
behalf. The other directors are refusing to honour the contracts. Advise the supplier on
basis he i) knew of the restriction ii) knew of the original restriction but not the most
recent iii) knew nothing!

6. Egbert is a shareholder of XYZ Ltd and wants to call an EGM to propose a resolution to
dismiss Alex as a director. Both Alex and Carla oppose this. Can Egbert force an EGM
and ensure the resolution is put to the members (there are 5 including Alex and Carla),
and what support is necessary to activate Alex’s dismissal?

Majority
Special notice required to dismiss directors and that is 28 days.
Right to add a written statement to the resolution and circulate this to all members.

7. What are the advantages and disadvantages of the different types of company set-ups?

Type Advantages Disadvantages

Sole Trader Freedom Personal liability
Ordinary No formal structure to create Need agreement between partners
Partner – to do anything,
Governed by
PA 1890
Private Limited Retain a partnership structure
Partner – LLP, so access to profit shares
2000 – LE
Liaiblity is
limited to
partnership
assets.
Private Limited Veil of incorporation so barrier Difficult to find shareholders.
Company of protection between
individual and company.
Public Limited
Company