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UK Company Law

by Marcis Liors Skadmanis, Lawyer

Contents:

1. Introduction

2. Company formation & trading structure

3. The Sole trader (Self-Employed)

4. Partnership (Self-Employed)

5. Partnership Agreement

6. Limited liability partnerships (LLPs)

7. Private limited company

8. Single member companies

9. Type of share

10. Shareholders’ agreement

11. Private company limited by guarantee

12. Private unlimited company

13. Public limited company (plc)

14. Community Interest Companies (CICS)

15. Listed companies

Source

1. Introduction-

The United Kingdom has enjoyed a system of company registration since 1844. In these days, company registration matters are dealt with in law, by the Companies Act 1985 and the updating legislation contained in the Companies Act 1989. Companies? Acts have been around for the last 150 years, and are designed to set the framework in which companies with limited liability must work. The Companies Act 2006 received Royal Assent on 8th November 2006 and effectively replaced existing company legislation by re-writing, updating and modernizing company law.

Business today is often a multi-national activity. British companies may carry on activities in other states and companies from other jurisdictions may carry on business in the United Kingdom.

English law provides two main types of organization for those who wish to associate in order to carry on business for gain: partnerships and companies.

Public companies are permitted to invite the general public to subscribe for the shares, whereas private companies are not. The shares of a public company may be officially listed for trading on a recognized investment exchange for example, the London Stock Exchange. The shares of a private company may not.

The term ?Company? implies an association of a number of people for some common object or objects.

2. Company formation & trading structure-

When starting a business, it important to select the most appropriate trading structure. There are four main trading structures available:

Sole trader (Self-Employed)

Partnership (Self-Employed)

Limited liability partnerships (LLPs)

Private limited company (Ltd)

Public limited company (plc) (including ?listed companies?).

3. The Sole trader (Self-Employed)-

The sole trader is the amoeba of the business organization world. As the name suggests, the sole trader operates alone and, as such, is the simplest form of trading structure. The liability of the sole trader is total. This means all financial risks are taken by that person and all that person’s assets are included in that risk. Legally there is no distinction between the sole trader?s personal and business assets and so if the business goes badly the creditors can go after his/her home, car or other assets in satisfaction of business debt. The risk to the sole trader of doing business is large but there is no need for a formal organizational structure. Without insurance you could lose everything.

Accountability and regulation ? there is very little regulation and official accountability associated with sole trader status. Because they are not registered with Companies House, sole traders are not required to file annual accounts or reports (other than for the payment of income tax).

4. Partnership (Self-Employed) –

Partnership is the relation which between person carrying on a business in common with a view of profit? (s. 1(1) of the Partnership Act 1890 (PA 1890)), there must be at least two persons, and ?business? includes any ?trade, profession or occupation?: PA 1890,s.45. The partnership is not a separate legal person, and partners have unlimited joint liability for the firm?s debts and obligations (PA 1890,s.9); and joint and several liability for torts (PA 1890,s.12). There is no distinction between the assets of the partnership and the assets of the individual partners. The partners can be pursed personally for the debts of the partnership.

A partnership is a very risky type of business to get involved in, just because of all the potential for conflict, and the financial effect conflict between partners would be likely to have on the business. However, now the Limited Liability Partnerships Act has received Royal Approval and will become Law by the end of the year.

Law firms in particular have very complex partnership agreements governing their operation. This means that the management structure, profit sharing and the life of the partnership can be made to fit any situation. The obligations are the same as for a Sole Trader.

Accountability and regulation- As with the sole trader, there is relatively little accountability or regulation attached to a partnership and no requirement to file reports and accounts with any official regulator.