lý thuyết corporation law

corporation law corporation law corporation law corporation law corporation law corporation law corporation law

CORPORATION LAW

Chapter 1: Foundation and theory of corporation law

1 The origin of corporation law:

- “corporate”: to furnish (sth) with a body or to infuse withsubstance

- Corporation: artificial construct infused by the law with theability to have legal rights and incur legal liabilities

Legal person:

(it is not sth we can actually see => thực thể nhân tạo

=> it is not real => we can see under eye’s law => legalperson => just like us Age of person do business)

- Legal persons can be:

o Natural persons

o Artificial or juristic person

- A legal person has the capacity both to:

o Acquire enforceable legal rights or property

o Be or become subject to enforceable obligations andliabilities

- UK law: the word “corporation” has a wider concept than

“company”, including “corporation sole” and “corporationaggregate”

- Corporation sole:

Are limited by law to one member It provided for a separatelegal personality for an individual position (the corporation sale isdistinct in law from the individual who occupies the post) Eg:bishop, majors… (as when the bishop died => other person will be

in liability)

- Corporation aggregate (pháp nhân thương mại)

o May have one or more member

o Types of statutory corporations, chartered corporations,

registered companies, building societies, co-operative andcommunity benefit societies, credit unions, and limited liabilitypartnerships.

(Company and corporation before were existed by an act ofparliament, charter from crown => basic or the rule of this charter)

A company is one type of corporation aggregate (incorporatedentities only) brought into being by the registration procedures laiddown by CA 2006

Not including a partnership or any other unincorporatedentities

- US law: “corporation” corresponds to “company”

Incorporated entities are created under and regulated by thecorporation Act (code)

- The US supreme court described the term “corporation” as:

o “An artificial being, invisible, intangible, and existing only incontemplation of law Being a mere creature of law, it passes onlythose properties which the charter of its creation confers upon it,either expressly, or as incidental to its very existence”

2 Categorization of business organizations

Llp => công ty

2.1 Legal structures of unincorporated business organisations

- Not corporate entities or legal persons

- Come into existence either by agreement or by legislation, oldnot own the benefits of separate legal status

2.1.1 A sole trader: (doanh nghiệp tư nhân)

o Is an individual who is in business on his account

o Is a party to contracts, owns all the property he/ she uses inthe course of trade, and receives all the income and profits from thebusiness

- The business itself is not a separate legal entity

- Setting up in business as a sole trader/ proprietorship

o No business organisation law to the formation, operation, ormanagement of a sole trader

o In the UK, a sole trader needs to register as self–employedwith the authorised agency and may need to comply with any lawapplicable to the particular type of his/her business

(Need to consider what standard of what he/she business => nolaw for a corporation)

- Advantages of sole proprietorships:

o The proprietor owns an entire business and can make allmanagement decisions

o The business can be easily transferred or sold (A sell B hissole trader => object? => assets/ property that he/ she hadinvested in business => since its belongs to the owner, ex: realestate, cars, …)

o Ease and low cost of formation

- Disadvantages of sole proprietorships: (công ty thì không thểđầu tư nhưng người chủ thì có thể đầu tư vào công ty khác)

o Sources of capital are limited to personal funds plus any loansthe owner can obtain

(Can not allow issuing securities)

o The owner is legally responsible for business contracts andtorts committed in the course of employment

2.1.2 Partnership (hội hợp danh)

- Definition: partnership is the relation which subsists betweenpersons causing business in common with a view of profit

- How to decide whether or not a partnership exists

(In Uk, there is not a registration process as in VN)

- Features of partnerships:

o Formation

o No separate

o Minimum of two partner

o Unlimited liability of partners

o Each partner is agent of the partnership and of otherpartners (hội hợp danh chịu trách nhiệm vô hạn)

- Because of the power of the general partner, if 1 membersigns a contract that affects many on the other => prevent themfrom abusing their powers

o Partnerships have no public disclosure obligation

o Partnerships are automatically dissolved every time There is

a change of partners

- In the UK: two types (unincorporated entities)

o Ordinary partnerships: has no legal existence distinct fromthe partners themselves Every member has unlimited liability forthe debts and obligations of the firm (partnership act)

o Limited partnerships (LPs): limited Partnership Act the activepartners (general partners) have unlimited liability but the sleepingpartners’ liability is limited to the amount that they have agreed tocontribute

- Limited liability partnerships are incorporated entity providedfor by the limited liability partnership Act

2.2 Legal structures of Incorporated business organisations

- The word “incorporated” shows that the underlying purpose

of registering certain types of business is to confer corporatepersonality on the organisation

- Legal personality

- Registered companies

- Limited

2.2.1 Registered companies

- Limited companies:

o Companies limited by shares: (can be a public company)

Public companies (plc)

Private companies (Ltd)

o Companies limited by guarantee

- Unlimited companies (private)

(Charter = articles of association)

(Only public companies have listed stock exchange or securitiesexchange)

2.2.1.1 Limited companies:

- A company is a limited company if the liability of its member

is limited by shares or by a guarantee

- Companies limited by shares:

o Shareholders (who own shares in the company)

o If a member (shareholders liability is limited to the amount, ifany, unpaid on the shares held by them, the company is “limited byshares” (s3.2)

(I A buys 10 shares of company X

1 share = 1p

Only pay 5 shares = 5p for the company

He has to pay 10p, however, he just gave 5p => company has

a debt he has to contribute 5p to the company

Limited liability is calculated based on the number of shareshe/she agrees to pay >< in VN, it is based on the number of shareshe/ she buys => real money)

o Companies limited by shares may be public companies orprivate companies

o The name of a public limited company must end with “plc” or

“public limited company” and the name of a private limited

company with “Ltd” or “limited”

- A Ltd can not offer shares to the public

- Pay corporation tax on all profits

- Must file annual accounts (ss kế toán) a confirmationstatement information on their earnings, losses, loans,and any other factors relevant to their tax liability in

a year

- Shareholder’s rights, responsibilities, and liabilities creedetermined by the number, class, and value of their shares

- Internal structure and management rules are set out in CA

2006, articles of association, and shareholders’ agreement

- Companies limited by guarantees

o If a member/ shareholder’s liability is limited to such amount

as the members undertake to contribute to the assets of thecompany in the event of its being wound up, the company is

“limited by guarantee”

o (i) Companies limited by guarantee must be formed withoutshare capital (s5), thus, there are no shareholders, but the companymust have one are more members

This corporation type is widely used mainly for non–profitorganizations a charities community projects, clubs, societies, andother similar bodies

(Money from sponsorship from states other organizationmembers do not (góp vốn), but they must pay joining fees)(ii) Members are only liable to make a contribution tothe assets of the company in the event of its being wound

up, and the amount of contribution is fixed at the outset

by the company’s constitution (dựa vào lời cam kết)

(iii) Profit í not distributed among the members but put back intothe company or used to further the company’s public purposes

2.2.1.2 Unlimited companies:

- If there is no limit on the liability of its members, the company

is an “unlimited company”

- Incorporated at a governmental agency

- Separate legal personality

- In a winding up or formal liquidation, all the shareholdersbear joint, several and unlimited liabilities for the company’s debtsand financial obligations

- Must be a private company (can not offer their share onpublic/ stock exchange)

- Less common than limited companies

- No financial statements are required

An unlimited company is ideal for people who want to keeptheir financial affairs not available for public view

- In the normal course of trade, unlimited companiesfunction just like private limited companies theunlimited liability of the member is only activated inthe event of winding - up (sự khác biệt với private chỉkhi phá sản)

2.2.2 Limited liability partnerships (LLPs)

- LLPs are incorporated organizations governed by the limitedliability partnership Act 2009 (and extensive regulations madeunder both that act and the companies Act 2006)

- LLPs are separate legal entities from their members

- Annual accounts and confirmation statements must bedelivered to companies house each year

- The limit of each member’s liability is agreed upon betweenthe members and usually stated in a partnership agreement

- Flexible annual structure that can be changed at any time, asoften as required

- LLPs do not share to sell and, therefore, can not receive capital investmentfrom non-LLPs – members in exchange for a portion of ownership of the business

(has the approval of one member to become LLPs -người) (quite similar to công tyTNHH – follow strick internal structure)

2.2.3 Charted and statutory corporations

- These corporations are formed by obtaining a chair(chiếu lệnh) of incorporation from the crown or securing

a private act of parliament

- This style of formation is unlikely to happen today

- Many of these corporations are not–for–profit organizationsEx: the law society (1845) the statute charter accountants (1880),the national citizen service trust (2017)

(ra đời từ chưa có company act, ra đời từ chiếu lệnh của hoàng gia)(The number of some companies is small and do not have manyconflicts of profit, it is a public company => internal structures arequite simple, while companies limited by shares have hugeshareholders, conflict of interest => is much more complicatedthan the others => the main discussion)

The nature of companies

- According to s15 (1) of the CA2006: companies becomeincorporated and separate persons on registration

- Separated legal personality of a company and limited liability

of its members are two consequences of incorporation

3.1 Corporate entity (separate legal personality)

- Separate legal personality a company is a legal person in itsown right, separate and distinct from its members

- The nature of the corporate entity principle

o The company will not die when its members die (perpetuallifetime)

o The share capital, once subscribed must be maintained by thecompany, it is no longer to the members and can’t be returnedexcept in some exceptional cases (buy back your shares)

o In general, the liability of members (shareholders is limited tothe value of the shares they a grade by the total

- The concept of limited liability

o The doctrine of limited liability was introduced in 1885(limited liability act 1885) in the UK

The company as a separate juridical person must satisfy dainsand judgments against it, to the extent of its assets

o The shareholders who purchase shares in corporations willlose part of or, at maximum, all of their investment if thecorporation is ultimately held liable

- What are the advantages and disadvantages of limited liability

o Advantages of limited liability

Limited liability encourages capital formation

Limited liability shields shareholders from the debtobligations of the company

- Criticisms on limited liability

o With the shield of limited liability, the shareholders andmanagers may have incentives to engage in high–risk businessactivities

(Let the company exist do high – risk, while the owners lose littleascent increase of bankruptcy

Since activities are dance under the name of the company

o The legal personality of a company in some cases is abused bythe shareholders for meaningful or unjustifiable purposes

Have to come up with some way to solve

3.2 Limit the implications of separate legal personality

- Lighting the company veil (piercing the corporate veil, veil–

o Lighting the company veil refers to the possibility of lookingbehind the company’s separate personality to make theshareholders liable for their company’s debts (an exception to therule that they’re normally led by the corporate shell)

o Consequence: in this way, the company and its shareholdersare treated as one, and all the rights activities and obligations ofthe companies are also the rights, activities, and obligations of theshareholders

- Ground for lifting the corporate veil

o The company is deemed to be nothing more than an “alterego” of the owns: a shareholder (or shareholders) dominates acompany and misuses it for proper purposes

(i) The company was formed or used to facilitate the evasion oflegal obligation (sometimes tort obligation)

(ii) The company is used as a means to perpetuate a found

(iii) Separateness has not been maintained between the companyand its shareholders

(Prove this before being the case to the count => less likely tohappen since it is hard to get enough elements and evidence)

o In the context of a group of companies the veil ofincorporation may be lifted to allow companies in a group to betreated as one

Courts sometimes lift the veil of incorporation to treat a group

- Basic steps:

+ Prepare registration documents;

+ Prepare company with registered;

+ Post – registering steps: open accounts, obtain corporatesteal (if required) pay in capital

- Registration authority1: Registrar of companies (s160 CA2006)

- Method of forming company: A company is formed by one or morepersons subscribing their names to memorandum of associationand complying with the registration requirements (s7 CA2006)

- If the registration requirements are complied, the registrar ofcompanies must register the documents and issue a certificate ofincorporation (s14,15 CA2006)

- Documents required for registration: hand out

- Company number when a company is registered, it is given aregistered number (the company number, s1066 CA2006), whichappears on the certificate of incorporation (this can not bechanged in case we change the name of its function.)

- Company name & Companies are free to choose their name

+ The name of a public limited company must end with the words

“public limited company” or “plc” and the name of private limitedcompany must end with “limited” or “ltd” (s58,59)

* Note: A company name will not be registered if it has a prohibitedname

+ Suggest connection with the the government or publicauthority os has sensitive words or expression (s54,55,56)+ Contains prohibited characters (s57)

+Is the same as another name appearing in the registrar’sindex of company name (s66)

- Business name

1 Registration authority: thẩm quyền đăng ký

+ A company’s business name can be different from itscompany name.

Ex: A company with the company name: Gas Appliancelimited trades under the business name Flame For You

+ Business name or not registered with any governmentdepartment provisions must be adhered to

The law governing company names is contained in Part 5 ofthe CA 2006, and rules governing business names arecontained in Part 41 of the CA2006

- Certificate of incorporation

+ (s15 CA2006) The certificate of incorporation is conclusiveevidence that the requirements of the CA2006 as registrationhave been complied with and that the company is dutyregistered under this Act

+ The certificate must be signed by the registrar orauthenticated by the registrar's official seal

- The certificate will state:

+ The name and registered number of the company

+ The date of it corporation

+ Whether it is a limited or unlimited company, and if it islimited whether it is limited by shares or limited by guarantee+ Whether it is a private or a public company

+ Whether the company’s registered officer is situated

- Commencement of business:

+ A public limited company can’t conduct business unless ithas obtained a trading certificate from the company's houseconfirming that há the minimum allowed share capital It is anoffence to trade without a trading certificate and the directorsare liable, on conviction, to a fine

🡪 The trading certificate is issued if the company has a minimumauthorised share capital of $50,000 of which at least one quarter of

the nominal value and all share premium must be paired up (s761 –763)

2 Promoters and pre – incorporation contract

- The term “promoter” is a term of business and not of law

“A promoter may be an individual, a firm, an association of persons

or even a company who decides to form a company and take all orsome of the necessary steps to form (does not have to be theowner)

(it can be the law firm who helps you to establish )

- Main function performed by promoters: hand – out

- Promoters will be allowed to make any secret profits It is foundthat in any particular transaction of the company He has obtained

a secret profit for himself He will be bound to refund the same tothe company

2.2 Pre – incorporation contracts

- These were made by the promoters before the company wasformed

(s51/1) “A contract with purpose to be made by or on behalf of acompany at a time when the company has not been formed haseffect, subject to any agreement

Phonogram Ltd – a recording company, was never incorporatedFinancial assistance

🡪 The court held that Mr.Lane was personally liable for the pre –incorporated contract

+ The person who is made liable under s51 can avoid personalliability by a clear agreement on exclusion of personal liabilitywith the other party to the contract.

(clear provision on the contract for exclusion)

+ A company may become a party to a pre – incorporationcontract by ratification

+ A company may become a party to a pre- corporationcontract by novation

- Novation is a tripartite transaction in which the parties to theoriginal agreement, together with the company, enter into a newagreement

3 The articles of association2

- It is not the only form of constitution

- Constitutional documents of a company

+ Articles of Association

+ Special resolutions

+ Resolutions/agreements of all members/ shareholders(normal ordinary but with 100% agree can recognize as bangrhieens phasp)

+ Current statement of capital (statement should be updatedwith CQ ddanwg kis kinh doanh)

- All constitutional documents must be registered with the registrar

of companies and are available for public scrutiny (s30) and must

2 Điều khoản khi hợp tác cùng nhau

be sent to a member on request (s32)

- Shareholder’ agreements fall within s29 must be registered

- The most important constitutional document of a company It is anarticles association

- The shareholder or owner of the company can sign the constitution for the company.

It is just the agreement among people in the company 🡪 free for

sign it for there company, sign for right, liability

🡪 Can create the articles for its company

- Articles of association (AOA)

+ Definition: The regulations governing a company’s internalmanagement including the rights of shareholders, the product

of meetings on the appointment, removal and powers ofdirectors (it’s the function)

- Model Articles

There are different sets of model articles for different types ofcompanies, those operate as the articles of a company to the extentthat the have not been executed or modified (s19,20) (It is shouldnot use in large company)

- The content of the Articles of association

It is a matter to be agreed upon by the original shareholders (first)

of the company and may be changed from time to time as thecompany develops

- Articles which are inconsistent 3 with the law are avoided and unenforceable.

Ex: Articles purporting to overside certain statutory rights orpowers may be held to be voidable and unenforceable

- Effect the Associations

S33.1 CA2006: “The provisions of a company’s constitution bindthe company and its members to the same extent as if these were

3 Phù hợp

covenants on the part of the company and of each member toreverse those provisions.

🡪 The company is the party to statutory contract This is a contractbetween each member and each other member

- Characteristics that distinguish 4 the AOA as a statutory contract from other typical contracts.

+ Amendment of a contract usually requires the agreement of allparties >< The Articles can be amended by a special resolutionwhich means resolution passed by a majority of not less than 75%(s21(1), s233(1))

+ A contract only blinds those parties who agree to it >< Allmembers at any time are bound by the articles, so that a newmember who has played no part in the drafting of the articles, uponbeing registered as a member, is bound by the articles

+ The articles can not be challenged based on the doctrine ofmisrepresentation, mistake or undue influence

+ The court may not ratify the articles even if they do not representthe intentions of the members on incorporation

- Amending the articles of association.

A company may amend its articles by special resolution (s21)

🡪 The relevant special resolution and a copy of the new articlesmust be sent to the registrar of companies (s26, 30)

Exceptions: matters that doesn't require a special resolution to beamended

(i) s551.8

(ii) s685.1,2

- Notes:

+ Entrenched provisions of the articles (s22)

A company’s articles may contain provision.”provision forentrenchment” to the effect that specified provision of the articles

4 Phân biệt

may be amended or replaced only if conditions are met, orprocedures are complied with, that are more restrictive than thoseapplicable in the case of a special resolution.

Chapter 3 Financing a company

1 Shares and Shares capital of a company

- Types of operating financing

+ Two ways : through borrowing (which creates debts/ debtfinancing) and thought the investment of funds by owners (whichcreates equity capital – equity financing)

i) Debt financing

- Lending creates a debtor – creditor relationship (do notcreate membership)

- Creditors have priority over equity and must be paid interest

on the money borrowed before dividends are paid to shareholders

- In a dissolution of the corporation, creators receive theirprincipal before holders receive anything

ii) Equity financing

- It occurs where a company issues shares to one or movesinvestors who became shareholders of the company In return forthe share, the shareholders pay the issue price of the shares to thecompany The company receives finding

- Shareholders in a public traded company may sell theirshares in the stock market but the price depends on the success ofthe business

- Compared to creditors, the shareholders have greater risk(lower priority than creditors) but also the potential for greaterreturn (increased profits benefit the shareholder)

2.1 The nature of shares and membership

- “share” in a company means share in the company’s share capital

A share is a piece of personal property (s541)

- a share is the interest of the shareholder in the company

measured by a sum of money, for the purpose of liability in the firstplace, and of interest in the second, but also consisting of a series

of mutual covenants entered intro by all the shareholders

- Nature of shares

- A share is a fraction of capital, denoting the holder’sproportionate financial stake in the company and defiming his orher liability to its equity funding

- A measure of the holder’s interest and rights in the company

- Nature of the relationship between a shareholder and thecompany

+ The relationship between a company and its shareholder isgoverned by a standard form contract

- The articles of association

+ Shareholders are part-owners of the company, have the role aspart of the decision making, manifest in voting rights attached totheir shares

+ The low usually requires that a shareholder is given a charecertificate in respect of his shares (s769, s776, CA2006)

- One ordinary carries are vote

- Ordinary share carry the basis rights of shareholders (right

to share in the profits of the company; right to share the residentwealth of the company when the company is wound up right to vote