Nội dung bài học môn Corporation law

Nội dung bài giảng môn UK Corporation Law của đại học Luật TP.HCM. Giảng viên: phó giáo sư, tiến sĩ Hà Thị Thanh Bình, trưởng khoa Thương Mại.Chép từ tài liệu học tập, bao gồm các slides của phó giáo sư Bình

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

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

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

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

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

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)

 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 ordon’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 thebusiness affairs

o Most common form of business organization

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 tothe 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

 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 taxedsubject of enterprise income tax

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

 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 shareeach 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;

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 Salomonthus 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

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

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

 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)

 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

 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

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

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

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 billionshares, 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?

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