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ACCA F4

Corporate and Business Law (CL)

公司法与商法

ACCA Lecturer: Eli Qiu

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Chapter 12 The formation and constitution of a company

Part D

Chapter 12 The formation and constitution

of a company


Chapter guide

• Explain the role and duties of company promoters, and the

breach of those duties and remedies available to the

company

• Explain the meaning of, and the rules relating to, pre-

incorporation contracts.

• Describe the procedure for registering companies both

public and private.

• Describe the statutory books, records and returns that

companies must keep or make

• Analyze the effect of a company’s constitutional documents

• Describe the contents of model articles of association

• Explain how articles of association can be changed

• Explain the controls over the names that companies may or

may not use


1 Explain the role and duties of company promoters, and the

breach of those duties and remedies available to the company

1.1 A promoter is anyone who has involvement in the facilitation

of the formation of a company.

1.2 In order to control promoters there are a number of duties

they fall under:

a) General duty to exercise reasonable skill and care

b) Fiduciary duties as an agent

• Duty to account

• Avoid a conflict of interest

• Duty to disclose

• Not to make a secret profit



Any breach of duty allows the company to rescind any contracts

and recover any monies lost from the promoter

- Erlanger v New sombrero Phosphate

2. Explain the meaning of and the rules relating to pre-

incorporation contracts

a) Pre-incorporation expenses- a promoter has no automatic right

to be reimbursed the costs associated with formation. These

have to be expressly agreed with the subsequent directors of

the company



b) Pre-incorporation contracts- any contracts signed by or on

behalf of the company, before the date on the certificate of

incorporation fall upon the promoter could:

• attempt to novate the contract

• Form such contracts in draft

• Purchase a company off the shelf

3 Describe the procedure fore registering companies, both public

and private

3.1 In order to form a company in the UK the following

documents must be lodged the Registrar of companies House in

either Cardiff or Edinburgh, this may be via an online submission

or hard copy.



Document Description

Memorandum Historic record of initial subscribers

Application for registration Name, address, members’liability type

Section 9 Share capital and initial shareholdings

Statement of compliance Statutory declaration of compliance

£20 Registration fee



Section 9 documents

Where a company is formed to be limited by share the following

information must be provided:

a) The total number of shares(minimum of one) taken by the

subscribers

b) The aggregate nominal value of those shares

c) For each separate class of share their rights and aggregate

values

d) The amounts paid up on each class of share

Additionally all companies must provide residential and service

addressed for each natural director and secretary as well as the

company's postal address

Should a company wish to draft its own articles then these will also

need to be submitted too.



3 Describe the procedure for registering companies, both public

and private

Public companies

In order to form a plc there is an additional requirement to apply

for a trading certificate which requires submission of the following

evidence:

a) Allotted share capital is at least £50，000

b) At least one quarter of the nominal value of the allotted share

capital has been paid up

c) Details of promoters expenses

d) A statement of compliance in respect of payment of nominal

values and share premium



3.1 Analyze the effect of a company’s constitutional documents

• The consequences of a plc. trading without the necessary

documentation are that any transactions are valid: However

the company and its directors are punishable by a fine.

• After 12 months the company may be compulsory wound-up

and the veil of incorporation lifted

• Once all of the documentation has been lodged the registrar

will issue a certificate of incorporation , which is final and

conclusive proof of the effective birth date of the company,

before which is may not trade- Jubilee Cotton Mills v Lewis

• Additionally the registrar will advertise the formation in the

Gazette.



4 Describe the statutory books, records and returns that

companies must keep or make

4.1 Statutory books

The following registers must be kept by the company ,though per

CA 2006 allows for many of them to be stored electronically as

long as soft copies can be generated:

Register of members

Register of charges

Records of directors

Records of directors’ service contracts and indemnities

Records of resolutions and meetings of the company

Records of debentures holders

Register of disclosed interests in shares (plc only)



4.2 Accounting records

A company is required to keep accounting records sufficient to

show and explain the company’s transactions. At any time, it

should be possible:

• To disclose with reasonable accuracy the company’s financial

position at interval of not more than six months

• For the directors to ensure that any accounts required to be

prepared comply with the Act and International Accounting

Standards

• Certain specific records are required by the Act



a) Daily entries of sums paid and received; with details of the

source and nature of the transactions

b) A record of assets and liabilities

c) Statements of stock held by the company at the end of each

financial year

d) Statements of stocktaking to backup the records

e) Statements of goods bought and sold, together with details of

buyers and sellers sufficient to identify them



• Accounting records should be kept at the company’s registered

office or at some other place thought fit by the directors.

Accounting records should be open to inspection by the

company’s officers. Shareholders have no statutory rights to

inspect the records. Although they may be granted the right by

the articles



4.3 Statutory returns

A company must submit the following annually to the registrar;

a) Accounts with 6 or 9 months of year end for plc’s and Ltd

companies respectively

b) An annual return within 28 days of the return date- either the

anniversary of incorporation or the date of the last return.



5 Describe the contents of model articles of association

5.1 The memorandum of association is a largely historic

document that once submitted to the registrar is unalterable. Per

chapter 14 it records the initial shareholders upon formation of the

company



5.2 The articles of association are the working part of the

constitution that has now absorbed much of the content that used

to be the preserve of the MoA

The AoA provide the rules by which a company is run and

primarily govern the following areas:

a) Directors’ powers and responsibilities

b) Decision making by directors

c) Appointment of directors

d) Organization and conduct of general meetings

e) Issue and transference of shares

f) Payment of dividends

g) Exercise of member’s rights



5.3 The AoA have the following binding power

1. Members to the company

The company is able to compel the members to obey AoA-

Hickman v Kent or Romney Marsh Sheep Breeders Association

2. Company to the members

The members are able to compel the company to obey the AoA –

Pender v Lushington

3. Members to the members

The members are able to compel each other to obey the AoA=

Rayfield v Hands



In summary only the following parties are bound by the AOA

Member Company

It was established in the case of Eley v Positive Life Co that third

parties cannot enforce the AoA



The government has published model AoA for the various types

of company forms(private limited by share/guarantee, public )that

can be adopted upon incorporation. However, these models can be

altered by

a) Passing a special resolution and

b) Providing the alteration has been made ‘bona fide in the

interest of the company as a whole ’ per Greenhalgh v Arderne

Cinemas



6 Explain how articles of association can be changed

Entrenchment

• It is not possible to declare part or the whole of the AoA

unalterable (entrenchment);however partial entrenchment is

possible upon incorporation by notifying the registrar

• Conditional entrenchment may require that certain section of

the AoA require a majority in excess of a special resolution in

order to be changed repeated. However it is not possible to

prevent alteration where there is unanimous agreement in favor

of change



6. Explain the controls over the names that companies may or

may not use

The name of the company must end in the words ’limited’ or

‘public’ limited company’ and be approved by the Registrar, who

may refuse to register any name on the following grounds:

a) The name is already in existence

b) Its use would constitute a criminal offence

c) It would be offensive

d) It requires the permission of the Secretary of State



The full name of the company must be disclosed outside all

places of business and on all business documents. Failure to

comply with this renders the company secretary personally liable

for default and constitute a criminal offence.

The company may be forced to change its name by order of the

secretary of state if misleading information has been supplied or if

the name adopted is deemed to be too similar to an existing

company



The companies name adjudicator will hear appeals from

individuals and companies over similar names. His findings will be

published within 90 days and he has the power to order the

change of name. In such cases the adjudicator will presume the

name has been legitimately registered.Alternatively an action may

be brought under the common law per the tort of passing of .


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