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 1) The origin of company law: 2) Classification of business organizations .4 I Corporate body .4 a) In the UK: Companies Act 2006 - Difference between public and private companies - Company limited by guarantee .5 - Unlimited liability company .5 b) In China c) Compared with Vietnam II Unincorperated body: i Private companies: a) Sole trader and sole proprietorship: b) Advantages of Sole Proprietorship c) Disvantages of Sole Proprietorship d) Creation of a Sole Proprietorship .7 e) Personal liability of Sole Proprietor ii Partnership Partnership in some common law countries Partnership in Vietnam 3) Nature of the company: The “salomon” doctrine Case .8 The nature of incorporated enity principle The concept of “lifting the company veil” 10 How does common law deal with this: 10 Corporate liaiblity for torts and crimes 10 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 Formation of a company in China .13 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 Directors as managers and “alter ego” 21 Appointment and retirement of directors .21 Proceedings at directors’ meetings .22 Remuneration (not salary) of director 22 III Duties and responsibilities of directors 22 Introduction 22 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 Relief for directors .27 Other legal constraint on directors’ power 27 i Statutory controls affecting the directors .27 ii Monitoring of directors 28 IV Compared with Vietnam 28 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 registration 2) Classification of business organizations Corporate bodies: company or corporation (incoporated body) Unincoporated bodies: sole proprietorship-sole trader Main difference is the legal enity between the two (not the business liability) I Corporate body 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 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 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 or don’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 the business 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 to the 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 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 taxed subject of enterprise income tax ii Partnership In many common law countries (e.g UK and US) unincorporated body In Vietnam: an incorporated body having legal entity statue-company 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 general partners who are liablie Corporate income tax obligations 3) Nature of the company: 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 share each 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; 10 company and he has rights against the company, as a creditor, rather than rights in it Debenture is defined in s 738 of the Companies Act 2006 as including debenture stocj, bonds and any other seccurities of a company, whether or not constituing a charge on the assets of the company 3) Raising and maintance of capital Discount A discount occurs where a share of, say $1 nominal value is issued in return for, say , 80 pence The discount is 20 pence It was firmly settled at the end of the 19th century in Ooregum Gold Mining Co v Roper [1892] AC 125, 11L that the issue of shares at a discount is illegal, S 580 of the Companies Act 2006 provides that on first issued the shares can’t be sold at less than their face value, unless the slae is to underwriter (when a discount of up to 10% is permissible) Premium Shares are issued at a premium if, a share of 1$ nominal value is issued in return for 1.30$ The 30 pence is the premium Piror to 1948, the premium was free of the legal restriction which normally apply to share capital Companies Act 2006 (s610): if a company issue shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premium must be transferred to a separate account and may be used for 23 The maintance of capital The meaning of the doctrine Company’s purchase of own shares The meaning of the doctrine The courts esttablished the doctrine of maintenance of capital under which the share capital of a company must be maintained as a fund of last resort for creditors of the company to lock to Company’s Purchase of its shares (buyback) General rule: a company cannpt acquire its own shares Exception: section 690 allow if: o The MOA does not impose restrictions, and o Provisions laid down in Part 18, Chapter of the Companies Act are complied with Chapter 4: Corporate governance I Shareholder’s meetings 1) The genral meeting as the residual authority of the company: General meeting means a meeting of ordinary shareholders with shareholders who are entiled to attend Differ from the Companies Act 1985, the new Act simply refers to a general meeting, regardless of the resolution being passed It is required by legislation that (section 336) a public company must, every year, hold a general meeting as its AGM 24 In some circumstance power of the board will revert to shareholders By special resolutions, shareholder can give directions to directors Permission of the shareholders must be obtained before on the term can be carried out E.g Decision on the term of a director (section 188) or whether the company name can be used to commence litigation against one of the directors for breach of duty Shareholders may be passive most of the time, they have the right to remove the directors by ordinary resolution (section 168 Companies Act 2006) 2) Resolution at meetings There are two main types of resolutions: o Ordinary resolution is passed by simply majority (>50%) presenting and voting either in person pr by proxy (section 282) o Special resolution is passed by majority of no less than ¾ of such memebers voting in person orwhere proxies are allowed, by proxy This resolution must be used where the legislation or the constitution 3) The shareholders’s general meeting Directors have powers to convene general meeting, Members, officers and outsiders may have this right in some cases Notice of meetings 25 4) Convening of meetings and notice 5) Shareholder independence- meetings and resolutions Shareholder act indepedently of the board in relation to the convening of meetings abd passing resolutions Shareholder holding at least on tenth if the paid-up voting capital have the right to require the directors to convene the meeting within 21 days If the directors don’t duly convene the meeting within 21 days, the requester(s), or any of them representing more than one half of the total voting right of all of them, may themsleves convene a meeting Resolutions will almost always be proposed and backed by the board of directors and will be given to shareholder before the meeting convene 6) Procedure at meetings Unless the articles otherwise provide or in case a company has only one member, two members “personally present” will constitue a qourum It is normal for a meeting to take place under the direction of a chairman Voting at meeting usually takes place on a “show of hands” of the members present => it is done without counting up the votes held by each member In Vietnam Law on Enterprise, the main differences are the validating of AGM based on the percentage of shares (not people attending) Where there is serious challenge, a poll may be required A poll is a count of the votes held by each member The demand for a poll nulifies the result by the show of hands 26 A member of the company who is entitled to attend and vote at a meeting is entitled to appoint another person as his proxy to attend and vote on his behalf 4) Problems with the meeting concept Does the shareholders’ general meeting really have an input to the governance of a company, expecially in the case of listed plc? The role of the GM is pointing out the business strategy of company, make macro-plans, not the corporate governance 5) Meetings in small close-ly held companies The number of shareholders is small, the law gives them more room to make the decisions At a meeting By written resolutions: resolutions is given to the shareholders by mail, letters, fax,… II Board of directors 1.Directors as managers and “alter ego” A public company must have at least two directors and a private company must have at least one director The articles of the company may require a minimum number greater than the statutory required number The state of mind of the directors is regarded as the state of mind of the company => to be the “alter ego” of the company 2.Appointment and retirement of directors The articles regulate the appointment and retirement of directors 27 Legislation contain a few provisions which will override the articles in some circumstances Shareholder in general meeting may elect a director by ordinary resolutions The directors may appoint one or more of the numbers to be managing director(s) Directors are to retire from office each year The may be reappointed Section 157 requires minimum age of 16 to be appointed as a company director Section 160 requires the appointment of directors of plc shall be voted on individually 3.Proceedings at directors’ meetings Article 88 on the Table A (The Companies Regulations) provides: “Subject to the provisions of the articles (unless the AoA provided otherwise) the directors may regulate their proceedings as they think fit A director shall, call a meeting of the directors… Questions arising out of a meeting shall be decided by a majority of votes In the case of an equality of votes, the chairman shall have a second or casting vote…” Point d, clause 9, section 153 Vietnam Law on Enterprise, “…in the event of equal votes, the Chairperson of the Board of Directors shall have the casting vote” The 2006 draft model articles provide for 4.Remuneration (not salary) of director The law on remuneration of directors has recently been subjected to a thorough examination by the House of Lord in Guinness v Saunders and another A prima facie (principal) rule is they they are not entitle to any remuneration at all It is normal for the articles 28 to provide for the award or remuneration If there has been no such resolution, the directors won’t be entitled to any remuneration A director is entitled to be paid only if s/he has a contractual right to payment (directors' employment contract signed with the company) Subject to the company's articles, the board has power (as part of its general powers of management) to award service contracts to directors and others Remuneration is based on the profit of the company in order to motivate the director to use his/her ability of mangement to make the profit for the company III Duties and responsibilities of directors Introduction Two distinct categories: common law and statutory restatement The Companies Act 2006 codified the common law regarding duties of directors Duties of directors under Part 10 of the Companies Act i The duty to act within powers The common law required that the directors owe a duty of “good faith” to the company” (good faith= act for the benefit of the company within the power given by the shareholders and AoA) Section 171 of the Companies Act 2006 restate the above duty Duty to act within powers 29 A director of a company must— (a) act in accordance with the company's constitution, and (b) only exercise powers for the purposes for which they are conferred ii Duty to promote the success of the company In Re Smith v Fawcett, directors should exercise their power bona fide in what they consider- not for any collateral purpose In Dorchester Finance v Stebbing, “A director must exercise any power vested in him such as such, honestly, in good faith and in the interests of the company…” The above os now codified by section 172(1) of the Companies Act 2006 Duty to promote the success of the company (1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a) the likely consequences of any decision in the long term, (b) the interests of the company's employees, (c) the need to foster the company's business relationships with suppliers, customers and others, (d) the impact of the company's operations on the community and the environment, 30 (e) the desirability of the company maintaining a reputation for high standards of business conduct, and (f) the need to act fairly as between members of the company iii Duty of exercise independent judgement Section 173 requires that directors must exercise an “unfettered discretion” Duty to exercise independent judgment (1) A director of a company must exercise independent judgment (2) This duty is not infringed by his acting— (a) in accordance with an agreement duly entered into by the company that restricts the future exercise of discretion by its directors, or (b) in a way authorised by the company's constitution iv Duty to exercise reasonable care, skill and diligence (careful and persistent work or effort) In Dorchester Finance Co ltd v Stebbing: “A director is required to exhibit in the performance of his duty such degree of skill as many reasonably be required from a person with his knoledge and experience” Section 214(4) of the Insolvency Act 1986 requires directors to behave as “a reasonably diligent person having both: o The general knowledge, skill and experience that may reasonably be expected of a person carried by that director in relation to the company, and o The general knowledge, skill and experience that the director has 31 Section 174 (1) and (2) of the Companies Act 2006 is closely modeled on the above provision Section 174: Duty to exercise reasonable care, skill and diligence (1) A director of a company must exercise reasonable care, skill and diligence (2) This means the care, skill and diligence that would be exercised by a reasonably diligent person with— (a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and (b) the general knowledge, skill and experience that the director has v vi Duty to avoid confilict of interest (section 175) Business opportunities: a Director has to put the Company’s benefit over his/her own benefit, whenever there is a opportunity in business Competing directors: Director of a company can’t hold the same position in the rival companies simutaneously Nominee directors: the nominee director owes specific legal duties to the corporation that are founded upon good faith, candor, confidentiality and the best interests of the corporation (company’s benefit > shareholder’s benefit) Duty not to accept benefits from third parties Section176: Duty not to accept benefits from third parties 32 (1) A director of a company must not accept a benefit from a third party conferred by reason of— (a) his being a director, or (b) his doing (or not doing) anything as director (2) A “third party” means a person other than the company, an associated body corporate or a person acting on behalf of the company or an associated body corporate (3) Benefits received by a director from a person by whom his services (as a director or otherwise) are provided to the company are not regarded as conferred by a third party (4) This duty is not infringed if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest (5) Any reference in this section to a conflict of interest includes a conflict of interest and duty and a conflict of duties vii Duty to decleare interest in a proposed or existing transaction or arrangement Section 177: Duty to declare interest in proposed transaction or arrangement (1) If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, he must declare the nature and extent of that interest to the other directors (2) The declaration may (but need not) be made— (a) at a meeting of the directors, or (b) by notice to the directors in accordance with— 33 (i) section 184 (notice in writing), or (ii) section 185 (general notice) (3) If a declaration of interest under this section proves to be, or becomes, inaccurate or incomplete, a further declaration must be made (4) Any declaration required by this section must be made before the company enters into the transaction or arrangement (5) This section does not require a declaration of an interest of which the director is not aware or where the director is not aware of the transaction or arrangement in question.For this purpose a director is treated as being aware of matters of which he ought reasonably to be aware (6) A director need not declare an interest— (a) if it cannot reasonably be regarded as likely to give rise to a conflict of interest; (b) if, or to the extent that, the other directors are already aware of it (and for this purpose the other directors are treated as aware of anything of which they ought reasonably to be aware); or (c) if, or to the extent that, it concerns terms of his service contract that have been or are to be considered — (i) by a meeting of the directors, or (ii) by a committee of the directors appointed for the purpose under the company's constitution 34 viii ix Ratification of acts giving rise to liability Under common law, a director could avoid liability by disclosing the breach to, and obtaining the consent, by ordinary resolution of the company in general meeting The Companies Act 2006 maintains this rule,a lbiet subject to major change, see section 239 Duty not ot commit an unfair prejudice A member can petition under section 994 of the 2006 Act “on the ground that the company’s affair… have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or some parts of its members…” Liability of directors is wider and more subtle than will be suggested solely by an examination of those traditional duty Relief for directors Section 1157 of the 2006 Act allows directors to seek relief, on the basic that although the was negligent… the nevertheless have acted honestly and reasonably and “ought fairly to be excused” Any provision which purports to exampt a director from liability attaching to him is void However, the company may purchase and maintain insurance against such liability Director can be exampted from the liabilities if: o The shareholders ratified his acts despite it’s negligence o The director have acted honestly and reasonably and believe it’s can be excuted 35 Other legal constraint on directors’ power i Statutory controls affecting the directors Part X (chapters and 5) regulate specific conflict transactions: o Long term service contracts; o Substantial property transactions (follow arm-legth transaction rule) o Loans, quasi loands and credit transactions; o Payment for loss office Control over issue of shares: avoid Pre-emptive Rights of the Director(s), who may also is a shareholder, to purchase shares of the company before they are sold to the public Statutory provisions in terrorem (threat or intimidation) o Removal of directors o Wrongful trading o Disqualification o Other insolvency provisions ii Monitoring of directors The policy of disclosure of the finacial affairs of the company Account and reports: require the company to keep the records of every meetings, transaction, payment… Publicity The role of auditors: independant auditor Company secretary: isn’t the assistant of the director, responsible for the efficient administration of a company Govenrment and other agencies: internal investigate to ensure that the director(s)’s duties, activities are supervised 36 IV Compared with Vietnam Corporate governance in Vietnam Limited liability company o One member LLC: two models o Multi member LLC: Member’s council, Director (GD), Controlling board Joint stock company o Two tier: SGM and BOM o Director (GD) o Controlling The concept of legal representatives of a company 37 ... 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. .. doctrine of maintenance of capital under which the share capital of a company must be maintained as a fund of last resort for creditors of the company to lock to Company’s Purchase of its shares... required number The state of mind of the directors is regarded as the state of mind of the company => to be the “alter ego” of the company 2.Appointment and retirement of directors The articles