CHAPTER 13

CHAPTER 13 ORGANIZATIONS AND LEGAL PERSONALITY

INTRODUCTION

Partnerships are a common form of business organisation and are commonly

used for small businesses and some professional businesses, for example

accountants.

Partnerships are a group of individuals who have an agency relationship with

each other. We shall look at how partnerships are formed and later terminated,

then at how relationships with other partners and with third parties work. We

shall also consider the issues that arise when deciding whether to trade as a

company or a partnership.

We will then introduce companies as business vehicles that are distinct from

sole traders and partnerships. The key difference between them is the concept

of separate legal personality. This chapter outlines this doctrine, and also

discusses its implications (primarily limited liability for members) and the

exceptions to it (lifting the veil of incorporation).

In Section 6 we shall look at the different types of company that can be used to

carry out business.

Exam guide

Partnership can form a question on its own and as it is the form of organisation used by accountants in

practice, it will always be highly examinable.

You must be able to compare and contrast companies and partnerships, and to advise parties starting up

in business which would be the best form of business organisation for them.

Statutory references in Chapters 13 to 20 are to the Companies Act 2006 unless

otherwise stated.

The examiner wrote an important article on the Companies Act 2006, published in the February and March

2008 edition of Student Accountant.

1 Sole traders

In a sole tradership, there is no legal distinction between the individual and the business.

1.1 Introduction

A sole trader owns and runs a business. They contribute capital to start the enterprise, run it with or

without employees, and earn the profits or stand the losses of the venture.

Sole traders are found mainly in the retail trades (local newsagents), small scale service industries

(plumbers), and small manufacturing and craft industries. An accountant may operate as a sole trader.

1.2 Legal status of the sole trader

Whilst the business is a separate accounting entity the business is not legally distinct from the person

who owns it. In law, the person and the business are viewed as the same entity.

The advantages of being a sole trader are as follows.

(a) No formal procedures are required to set up in business. However, for certain classes of business

a licence may be required (eg retailing wines and spirits), and VAT registration is often necessary.

(b) Independence and self-accountability. A sole trader need consult nobody about business

decisions and is not required to reveal the state of the business to anyone (other than the tax

authorities each year).

(c) Personal supervision of the business by the sole trader should ensure its effective operation.

Personal contact with customers may enhance commercial flexibility.

(d) All the profits of the business accrue to the sole trader. This can be a powerful motivator, and

satisfying to the individual whose ability/energy results in reward.

The disadvantages of being a sole trader include the following.

(a) If the business gets into debt, a sole trader's personal wealth (for example, private house) might

be lost if the debts are called in, as they are the same legal entity.

(b) Expansion of the business is usually only possible by ploughing back the profits of the business as

further capital, although loans or overdraft finance may be available.

(c) The business has a high dependence on the individual which can mean long working hours and

difficulties during sickness or holidays.

(d) The death of the proprietor may make it necessary to sell the business in order to pay the

resulting tax liabilities, or family members may not wish to continue the business anyway.

(e) The individual may only have one skill. A sole trader may be, say, a good technical engineer or

craftsman but may lack the skills to market effectively or to maintain accounting records to control

the business effectively.

(f) Other disadvantages include lack of diversification, absence of economies of scale and problems

of raising finance.

2 Partnerships

Partnership is defined as 'the relation which subsists between persons carrying on a business in common

with a view of profit'. A partnership is not a separate legal person distinct from its members, it is merely a

'relation' between persons. Each partner (there must be at least two) is personally liable for all the debts

of the firm.

Partnership is a common form of business association. It is flexible, because it can either be a formal or

informal arrangement, so can be used for large organisations or a small husband and wife operation.

Partnership is normal practice in the professions as most professions prohibit their members from

carrying on practice through limited companies, though some professions permit their members to trade

as limited liability partnerships which have many of the characteristics of companies. Business people are

not so restricted and generally prefer to trade through a limited company for the advantages this can

bring.

Your syllabus requires you to demonstrate knowledge of the legislation governing both limited and

unlimited liability partnerships. You should therefore make careful note of the rules regarding the

Partnership Act 1890, the Limited Partnership Act 1907 and the Limited Liability Partnership Act 2000.

2.1 Definition of partnership

'Partnership is the relation which subsists between persons carrying on a business in common with a

view of profit.' S1 Partnership Act 1890.

We shall look at some points raised by this definition now.

2.1.1 The relation which subsists between persons

'Person' includes a corporation such as a registered company as well as an individual living person.

There must be at least two partners. If, therefore, two people are in partnership, one dies and the survivor

carries on the business, that person is a sole trader. There is no longer a partnership.

2.1.2 Carrying on a business

Business can include every trade, occupation or profession. But three points should be noted.

(a) A business is a form of activity. If two or more persons are merely the passive joint owners of

revenue-producing property, such as rented houses, that fact does not make them partners.

(b) A business can consist of a single transaction. These situations are often described as 'joint

ventures'.

(c) Carrying on a business must have a beginning and an end. A partnership begins when the

partners agree to conduct their business activity together. This can be before the business actually

begins to trade, such as when premises are leased and a bank account opened: Khan v Miah 2001.

2.1.3 In common

Broadly this phrase means that the partners must be associated in the business as joint proprietors. The

evidence that this is so is found in their taking a share of the profits, especially net profit.

2.1.4 A view of profit

If persons enter into a partnership with a view of making profits but they actually suffer losses, it is still a

partnership. The test to be applied is one of intention. If the intention of trading together is just to gain

experience, for example, there is no partnership: Davies v Newman 2000.

2.2 Consequences of the definition

In most cases there is no doubt about the existence of a partnership. The partners declare their intention

by such steps as signing a written partnership agreement and adopting a firm name. These outward and

visible signs of the existence of a partnership are not essential however – a partnership can exist without

them.

2.2.1 Terminology

The word 'firm' is correctly used to denote a partnership. It is not correct to apply it to a registered

company (though the newspapers often do so).

The word 'company' may form part of the name of a partnership, for example, 'Smith and Company'. But

'limited company' or 'registered company' is only applied to a properly registered company.

2.3 Liability of the partners 6/08, 12/08, 6/10

We shall see later that every partner is liable without limit for the debts of the partnership. It is possible to

register a limited partnership in which one or more individual partners have limited liability, but the limited

partners may not take part in the management of the business: Limited Partnerships Act 1907.

The limited partnership is useful where one partner wishes to invest in the activities of the partnership

without being involved in its day-to-day operation. Such partners are entitled to inspect the accounts of

the partnership.

Under the Limited Liability Partnership Act 2000 it is possible to register a partnership with limited

liability (an LLP).

2.4 Forming a partnership

Partnerships can be formed very informally, but there may be complex formalities to ensure clarity.

A partnership can be a very informal arrangement. This is reflected in the procedure to form a

partnership.

A partnership is formed when two or more people agree to run a business together. Partnerships can be

formed in any trade or occupation or profession.

In order to be a partnership, the business must be 'carried on in common', meaning that all parties must

have responsibility for the business. In other words, there is more than one proprietor.

A husband and wife who run a shop together are partners, but a shop owner and their employee are not.

In law then, the formation of a partnership is essentially straightforward. People make an agreement

together to run a business, and carry that agreement out.

QUESTION Formation of partnership

Imagine that two large firms of accountants wanted to merge. The partners agreed on 1 June 20X7 that

they would merge and become a new partnership, known as the Biggest Accountancy Partnership. In law,

this is straightforward.

What problems do you think they might encounter?

ANSWER

In law, when the partners of the two firms agree to merge, then they have a new partnership.

In practice, however, if two massive businesses such as two large firms decided to merge, the details of

the formation of the new partnership would be far more complex than that. Here is a list of just some of

the things that they would have to consider.

• Profit share • Recruitment policy

• Employees • Future partners' policy

• Partnership property • Standard partners' authority to act in the new firm's name

• Partner hierarchy • Fair trading and monopoly issues

In practice, the formation of such a new partnership would be an enormous operation.

2.4.1 Common formation formalities

In practice, the formalities of setting up a partnership may be more complex than simple agreement. Many

professional people use partnerships. These business associations can be vast organisations with

substantial revenue and expenditure, such as the larger accountancy firms and many law firms.

Such organisations have so many partners that the relationships between them has to be regulated. Thus

forming some partnerships can involve creating detailed partnership agreements which lay out terms

and conditions of partnership.

2.4.2 The partnership agreement

A written partnership agreement is not legally required. In practice there are advantages in setting down

in writing the terms of their association.

(a) It fills in the details which the law would not imply – the nature of the firm's business, its name,

and the bank at which the firm will maintain its account for instance.

(b) A written agreement serves to override terms otherwise implied by the Partnership Act 1890 which

are inappropriate to the partnership. The Act for example implies that partners share profits

equally.

(c) Additional clauses can be developed. Expulsion clauses are an example and they provide a

mechanism to expel a partner where there would be no ability to do so otherwise.

2.5 Termination of partnership

Partnerships may be terminated by passing of time, termination of the underlying venture, death or

bankruptcy of a partner, illegality, notice, agreement or by order of the court.

Termination is when the partnership comes to an end. In this context, 'partnership' means the existing

partners.

ILLUSTRATION

Alison, Ben, Caroline and David are in partnership as accountants. Caroline decides to change career and

become an interior designer. In her place, Alison, Ben and David invite Emily to join the partnership.

As far as third parties are concerned, a partnership offering accountancy services still exists. In fact,

however, the old partnership (ABCD) has been dissolved, and a new partnership (ABDE) has replaced it.

2.5.1 Events causing termination

The Partnership Act 1890 states that partnership is terminated in the following instances.

• Passing of time, if the partnership was entered into for a fixed term

• Termination of the venture, if entered into for a single venture

• The death or bankruptcy of a partner (partnership agreement may vary this)

• Subsequent illegality

• Notice given by a partner if it is a partnership of indefinite duration

• Order of the court granted to a partner

• Agreement between the partners

In the event of the termination of a partnership, the partnership's assets are realised and the proceeds

applied in this order.

• Paying off external debts

• Repaying to the partners any loans or advances

• Repaying the partners' capital contribution

• Anything left over is then repaid to the partners in the profit sharing ratio.

The partnership agreement can exclude some of these provisions and can avoid dissolution in the

following circumstances.

• Death of a partner

• Bankruptcy of a partner

It is wise to make such provisions to give stability to the partnership.

2.6 Authority of partners 6/08, 12/08, 6/10

The authority of partners to bind each other in contract is based on the principles of agency.

In simple terms, a partner is the agent of the partnership and their co-partners. This means that some of

their acts bind the other partners, either because they have, or because they appear to have, authority. The

Partnership Act 1890 defines the authority of a partner to make contracts as follows.

Authority of a partner

Every partner is an agent of the firm and his other partners for the purpose of the business of the

partnership, and the acts of every partner who does any act for carrying on the usual way of business if

the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner

so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he

is dealing either knows that he has no authority, or does not know or believe him to be a partner.

Where a partner pledges the credit of the firm for a purpose apparently not connected with the firm's

ordinary course of business, the firm is not bound, unless he is in fact specially authorised by the other

partners: but this section does not affect any personal liability incurred by an individual.

If it has been agreed between the partners that any restriction shall be placed on the power of any one or

more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with

respect to persons having notice of the agreement.

The key point to note about authority of partners is that, other than when the partner has actual authority,

the authority often depends on the perception of the third party. If the third party genuinely believes that

the partner has authority, the partner is likely to bind the firm.

Partners are also jointly liable for crimes and torts committed by one of their number in the course of

business.

2.7 Liability of partners in an unlimited liability partnership

6/08, 12/08, 6/10

Partners are jointly liable for all partnership debts that result from contracts that the partners have made

which bind the firm.

Partners are jointly liable for all partnership debts that result from contracts made by other partners

which bind the firm. The Civil Liability Act 1978 provides that judgement against one partner does not

prevent subsequent actions against other partners. The link between authority and liability can be seen in

the following diagram.

Partner Partner liability

New partners A new partner admitted to an existing firm is liable for debts incurred only after

they become a partner. They are not liable for debts incurred before they were a

partner unless they agree to become liable.

Retiring

partners

A partner who retires is still liable for any outstanding debts incurred while they

were a partner, unless the creditor has agreed to release them from liability. They

are also liable for debts of the firm incurred after their retirement if the creditor

knew them to be a partner (before retirement) and has not had notice of their

retirement.

Therefore, it is vital on retirement that a partner gives notice to all the creditors of

the firm. The retiring partner may have an indemnity from the remaining partners

with respect to this issue.

2.8 Supervision and regulation

There is no formal statutory supervision or regulation of partnerships. Their accounts need not be in

prescribed form nor is an audit necessary. The public has no means or legal right of inspection of the

firm's accounts or other information such as companies must provide.

If, however, the partners carry on business under a firm name which is not the surnames of them all, say,

'Smith, Jones & Co', they are required to disclose the names of the partners on their letterheads and at

their places of business. They are required to make a return of their profits for income tax and usually to

register for VAT.

2.9 Property

Partnerships can grant a mortgage or fixed charge over property, but cannot grant floating changes.

QUESTION  Partnership

Partners in a traditional partnership have an agency relationship with each other. What is the effect of this

arrangement?

ANSWER

Each partner acts as an agent of the partnership and all partners are jointly liable for a partner's actions.

3 Limited liability partnerships

A limited liability partnership formed under the 2000 Act combines the features of a traditional

partnership with the limited liability and creation of legal personality more usually associated with limited

companies.

3.1 Definition of limited liability partnership

Another form of partnership commonly used in England, particularly for professional partnerships, is the

limited liability partnership (LLP). This type of business association was created by the Limited Liability

Partnership Act 2000.

LLPs are similar to limited companies in that they have separate legal identity and unlimited liability for

debts, but the liability of the individual partners (or members) is limited to the amount of their capital

contribution.

LLPs have similar requirements for governance and accountability as limited companies. They are

generally set up by firms of professionals such as accountants and lawyers, who are required by the rules

of their professions to operate as partnerships but who seek to have the protection of limited liability.

A limited liability partnership (LLP) is a corporate body which has separate legal personality from its

members and therefore some of the advantages and disadvantages of a company.

The main advantage of an LLP over a traditional partnership is that the LLP will be liable for its own debts

rather than the partners. All contracts with third parties will be with the LLP.

3.2 Formation

A limited liability partnership may be formed by persons associating to carry on lawful business with a

view to profit, but it must be incorporated to be recognised. LLPs can have an unlimited number of

partners. To be incorporated, the subscribers must send an incorporation document and a statement of

compliance to the Registrar of Companies.

The document must be signed and state the following:

• The name of the LLP

• The location of its registered office (England and Wales/Wales/Scotland)

• The address of the registered office

• The name and address of all the members of the LLP

• Which of the members are to be designated members

A registration fee is also payable to Companies House.

3.3 Internal regulation

LLPs are more flexible than companies as they provide similar protection for the owners, but with less

statutory rules on areas such as meetings and management. No board of directors is needed. As can be

seen in the incorporation procedures, LLPs come under the supervision of the Registrar of Companies

(the Registrar).

The members of the LLP are those who subscribe to the original incorporation document, and those

admitted afterwards in accordance with the terms of the partnership agreement.

The rights and duties of the partners will usually be set out in a partnership agreement. In the absence of

a partnership agreement, the rights and duties are set out in regulations under the Act.

LLPs must have two designated members, who take responsibility for the publicity requirements of the

LLP.

With regard to publicity, the LLP's designated members must:

• File certain notices with the Registrar, such as when a member leaves

• Sign and file accounts

• Appoint auditors if appropriate

The Registrar will maintain a file containing the publicised documents of the LLP at Companies House.

3.4 External relationships

Every member is an agent of the LLP. As such, where the member has authority, the LLP will be bound by

the acts of the member.

The LLP will not be bound by the acts of the member where:

• They have no authority and the third party is aware of that fact

• They have ceased to be a member, and the third party is aware of that fact

3.5 Dissolution

An LLP does not dissolve when a member leaves in the same way that a traditional partnership does.

Where a member has died or (for a corporate member) been wound up, that member ceases to be a

member, but the LLP continues in existence.

An LLP must therefore be wound up when the time has come for it to be dissolved. This is achieved

under provisions similar to company winding up provisions.

3.6 Limited partnership

The other form of partnership that is seen, rarely, in the UK is the limited partnership. Under the Limited

Partnership Act 1907, a partnership may be formed in which at least one partner (the general partner)

must have full, unlimited liability. The other partners have limited liability for the debts of the

partnership beyond the extent of the capital they have contributed. The rules are as follows:

• Limited partners may not withdraw their capital

• Limited partners may not take part in the management of the partnership

• Limited partners cannot bind the partnership in a contract with a third party without losing the

benefit of limited liability

• The partnership must be registered with Companies House

QUESTION  LLPs

Explain the publicity requirements that LLPs must meet.

ANSWER

The designated members must:

• File certain notices with the Registrar

• Sign and file accounts

• Appoint auditors if appropriate

Partnership questions in scenarios are a regular occurrence and often revolve around a partner's authority

to enter into contracts and the liability of all the partners when debts are incurred - as in June 2010.

4 A company's legal identity 6/08

A company has a legal personality separate from its owners (known as members). It is a formal

arrangement, surrounded by formality and publicity, but its chief advantage is that members' liability for

the company's debts is typically limited.

A company is the most popular form of business association and by its nature, it is more formal than a

partnership or a sole trader. There is often substantially more legislation on the formation and procedures

of companies than any other business association.

The key reason why the company is a popular form of business association is that the liability of its

members to contribute to the debts of the entity is significantly limited. For many people, this benefit

outweighs the disadvantage of the formality surrounding companies, and encourages them not to trade as

sole traders or (unlimited) partnerships.

4.1 Definition of a company

For the purposes of this Study Text, a company is an entity registered as such under the Companies Act

2006.

The key feature of a company is that it has a legal personality (existence) distinct from its members and

directors.

4.2 Legal personality

A person possesses legal rights and is subject to legal obligations. In law, the term 'person' is used to

denote two categories of legal person.

• An individual human being is a natural person. A sole trader is a natural person, and there is

legally no distinction between the individual and the business entity in sole tradership

• The law also recognises artificial persons in the form of companies and limited partnerships.

Unlimited partnerships are not artificial persons.

Corporate personality is a common law principle that grants a company a legal identity, separate from the

members who comprise it. It follows that the property of a company belongs to that company, debts of

the company must be satisfied from the assets of that company, and the company has perpetual

succession until wound up.

A corporation is a legal entity separate from the natural persons connected with it, for example as

members or directors. We shall come back to this later.

5 Limited liability of members 12/09

The fact that a company's members – not the company itself – have limited liability for its debts protects

the members from the company's creditors and ultimately from the full risk of business failure.

A key consequence of the fact that the company is distinct from its members is that its members have

limited liability.

Limited liability is a protection offered to members of certain types of company. In the event of business

failure, the members will only be asked to contribute identifiable amounts to the assets of the business.

5.1 Protection for members against creditors

The company itself is liable without limit for its own debts. If the company buys plastic from another

company, for example, it owes the other company money.

Limited liability is a benefit to members. They own the business, so might be the people whom the

creditors logically ask to pay the debts of the company if the company is unable to pay them itself.

Limited liability prevents this by stipulating the creditors of a limited company cannot demand payment of

the company's debts from members of the company.

5.2 Protection from business failure

As the company is liable for all its own debts, limited liability only becomes an issue in the event of a

business failure when the company is unable to pay its own debts.

This will result in the winding up of the company and enables the creditors to be paid from the proceeds

of any assets remaining in the company. It is at winding up that limited liability becomes most relevant.

5.3 Members asked to contribute identifiable amounts

Although the creditors of the company cannot ask the members of the company to pay the debts of the

company, there are some amounts that members are required to pay in the event of a winding up.

TYPE OF COMPANY – AMOUNT OWED BY MEMBER AT WINDING UP

Company limited by shares -- Any outstanding amount from when they originally purchased their

shares from the company.

If the member's shares are fully paid, they do not have to contribute

anything in the event of a winding up.

Company limited by guarantee -- The amount they guaranteed to pay in the event of a winding up

QUESTION  Limitations of liability

Hattie and two friends wish to set up a small business. Hattie is concerned that, following her initial

investment, she will have no access to additional funds, and is worried what might happen if anything

goes wrong. Advise her on the relative merits of a company and an unlimited partnership.

ANSWER

The question of liability appears to be important to Hattie. As a member of a limited company, her liability

would be limited – as a member at least – to any outstanding amount payable for her shares. If the three

friends decide to form an unlimited partnership, they should be advised that they will have unlimited

liability for the debts of the partnership. (An unlimited partnership does not have a legal personality

distinct from the partners.)

5.4 Liability of the company for tort and crime

As a company has a separate legal identity, it may also have liabilities in tort and crime. Criminal liability

of companies in particular is a topical area but, is outside the scope of your syllabus.

6 Types of company

Most companies are those incorporated under the Companies Act. However there are other types of

company such as corporations sole, chartered corporations, statutory corporations and community

interest companies.

Corporations are classified in one of the following categories.

Corporations sole A corporation sole is an official position which is filled by one person

who is replaced from time to time. The Public Trustee and the

Treasury Solicitor are corporations sole.

Chartered corporations These are usually charities or bodies such as the Association of

Chartered Certified Accountants, formed by Royal Charter.

Statutory corporations Statutory corporations are formed by special Acts of Parliament. This

method is little used now, as it is slow and expensive. It was used in

the nineteenth century to form railway and canal companies.

Registered companies Registration under the Companies Act is the normal method of

incorporating a commercial concern. Any body of this type is properly

called a company.

Community Interest Companies

(CICs)

A special form of company for use by 'social' enterprises pursuing

purposes that are beneficial to the community, rather than the

maximisation of profit for the benefit of owners, created by the

Companies (Audit, Investigation and Community Enterprise) Act 2004.

6.1 Limited companies 12/09

The meaning of limited liability has already been explained. It is the member, not the company, whose

liability for the company's debts may be limited.

6.1.1 Liability limited by shares

Liability is usually limited by shares. This is the position when a company which has share capital states

in its constitution that 'the liability of members is limited'.

6.1.2 Liability limited by guarantee

Alternatively a company may be limited by guarantee. Its constitution states the amount which each

member undertakes to contribute in a winding up (also known as a liquidation). A creditor has no direct

claim against a member under his guarantee, nor can the company require a member to pay up under his

guarantee until the company goes into liquidation.

Companies limited by guarantee are appropriate to non-commercial activities, such as a charity or a trade

association which is non-profit making but wishes to have a form of reserve capital if it becomes

insolvent. They do not have share capital.

6.2 Unlimited liability companies 12/09

An unlimited liability company is a company in which members do not have limited liability. In the event

of business failure, the liquidator can require members to contribute as much as may be required to pay

the company's debts in full.

An unlimited company can only be a private company, by definition a public company is always limited.

An unlimited company need not file a copy of its annual accounts and reports with the Registrar, unless

during the relevant accounting reference period:

(a) It is (to its knowledge) a subsidiary of a limited company.

(b) Two or more limited companies have exercised rights over the company, which (had they been

exercised by only one of them) would have made the company a subsidiary of that one company.

(c) It is the parent company of a limited liability company.

The unlimited company certainly has its uses. It provides a corporate body (a separate legal entity) which

can conveniently hold assets to which liabilities do not attach.

QUESTION  Limited liability

Explain the liability of members of companies limited by guarantee.

ANSWER

Members of companies limited by guarantee are required to pay the amount they guaranteed if required

when the company is wound up.

6.3 Public and private companies

A company may be private or public. Only the latter may offer its share to the public.

A public company is a company whose constitution states that it is public and that it has complied with

the registration procedures for such a company.

A private company is a company which has not been registered as a public company under the

Companies Act. The major practical distinction between a private and public company is that the former

may not offer its securities to the public.

A public company is a company registered as such under the Companies Act with the Registrar. Any

company not registered as public is a private company.

A public company may be one which was originally incorporated as a public company or one which

re-registered as a public company having been previously a private company.

6.4 Conditions for being a public company 12/08, 6/10

To trade, a public company must hold a Registrar's trading certificate having met the requirements,

including minimum capital of £50,000.

6.4.1 Registrar's trading certificate

Before it can trade a company originally incorporated as a public company must have a trading certificate

issued by the Registrar. The conditions for this are:

• The name of the company identifies it as a public company by ending with the words 'public

limited company' or 'plc' or their Welsh equivalents, 'ccc', for a Welsh company.

• The constitution of the company states that 'the company is a public company' or words to that

effect.

• The allotted share capital of the company is not less than the authorised minimum which is

currently £50,000.

• It is a company limited by shares.

With regard to the minimum share capital of £50,000.

• A company originally incorporated as a public company will not be permitted to trade until its

allotted share capital is at least £50,000.

• A private company which re-registers as a public company will not be permitted to trade until it has

allotted share capital of at least £50,000; this needs only be paid up to one quarter of its nominal

value (plus the whole of any premium).

• A private company which has share capital of £50,000 or more may of course continue as a private

company; it is always optional to become a public company.

A company limited by guarantee which has no share capital, and an unlimited company, cannot be

public companies.

6.4.2 Minimum membership and directors

A public company must have a minimum of one member. This is the same as a private company.

However, unlike a private company it must have at least two directors. A private company must have just

one. Directors do not usually have liability for the company's debts.

6.5 Private companies

A private company is the residual category and so does not need to satisfy any special conditions.

Private companies are generally small enterprises in which some if not all shareholders are also directors

and vice versa. Ownership and management are combined in the same individuals. Therefore, it is

unnecessary to impose on the directors complicated restrictions to safeguard the interests of members

and so the number of rules that apply to public companies are reduced for private companies.

6.6 Differences between private and public companies

The main differences between public and private companies relate to: capital, dealings in shares,

accounts, commencement of business, general meetings, names, identification, and disclosure

requirements.

The more important differences between public and private companies imposed by law relate to the

following factors.

6.6.1 Capital

The main differences are:

(a) There is a minimum amount of £50,000 for a public company, but no minimum for a private

company.

(b) A public company may raise capital by offering its shares or debentures to the public; a private

company is prohibited from doing so.

(c) Both public and private companies must generally offer to existing members first any ordinary

shares to be allotted for cash. However a private company may permanently disapply this rule.

6.6.2 Dealings in shares

Only a public company can obtain a listing for its shares on the Stock Exchange or other investment

exchange. To obtain the advantages of listing the company must agree to elaborate conditions contained

in particulars in a listing agreement with The Stock Exchange. However, not all public companies are

listed.

6.6.3 Accounts

(a) A public company has six months from the end of its accounting reference period in which to

produce its statutory audited accounts. The period for a private company is nine months.

(b) A private company, if qualified by its size, may have partial exemption from various accounting

provisions (discussed later in this text). These exemptions are not available to a public company or

to its subsidiaries (even if they are private companies).

(c) A listed public company must publish its full accounts and reports on its website.

(d) Public companies must lay their accounts and reports before a general meeting annually. Private

companies have no such requirement.

6.6.4 Commencement of business

A private company can commence business as soon as it is incorporated. A public company if

incorporated as such must first obtain a trading certificate from the Registrar.

6.6.5 General meetings

Private companies are not required to hold annual general meetings, (AGMs). Public companies must

hold one within six months of their financial year end.

6.6.6 Names and Identification

The rules on identification as public or private are as follows.

• The word 'limited' or 'Ltd' in the name denotes a private company; 'public limited company' or

'plc' must appear at the end of the name of a public company.

• The constitution of a public company must state that it is a public company. A private company

should be identified as private.

6.6.7 Disclosure requirements

There are special disclosure and publicity requirements for public companies.

The main advantage of carrying on business through a public rather than a private company is that a

public company, by the issue of listing particulars, may obtain a listing on The Stock Exchange and so

mobilise capital from the investing public generally.

There is an important distinction between public companies and listed public companies. Listed (or

quoted) companies are those which trade their shares (and other securities) on stock exchanges. Not all

public companies sell their shares on stock exchanges (although, in law, they are entitled to sell their

shares to the public). Private companies are not entitled to sell shares to the public in this way.

In practice, only public companies meeting certain criteria would be allowed to obtain such a listing by the

Stock Exchange.

Private companies may be broadly classified into two groups: independent (also called free-standing)

private companies and subsidiaries of other companies.

7 Additional classifications

There are a number of other ways in which companies can be classified.

7.1 Parent (holding) and subsidiary companies

The Companies Act draws a distinction between an 'accounting' definition, and a 'legal' definition in, s 1162.

A company will be the parent (or holding) company of another company, its subsidiary company,

according to the following rules.

Parent company

(a) It holds a majority of the voting rights in the subsidiary.

(b) It is a member of the subsidiary and has the right to appoint or remove a majority of its board of

directors.

(c) It has the right to exercise a dominant influence over the subsidiary:

(i) By virtue of provisions contained in the subsidiary's articles.

(ii) By virtue of a control contract.

(d) It is a member of the subsidiary and controls alone, under an agreement with other members, a

majority of the voting rights in the company.

(e) A company is also a parent if:

(i) It has the power to exercise, or actually exercises, a dominant influence or control over the

subsidiary

(ii) It and the subsidiary are managed on a unified basis

(f) A company is also treated as the parent of the subsidiaries of its subsidiaries.

A company (A Ltd) is a wholly owned subsidiary of another company (B Ltd) if it has no other members

except B Ltd and its wholly owned subsidiaries, or persons acting on B Ltd's or its subsidiaries' behalf.

diagram illustrates a simple group. In practice, such groups might be much larger and much more

complex.

The importance of the parent and subsidiary company relationship is recognised in company law in a

number of rules.

(a) A parent company must generally prepare group accounts in which the financial situation of parent

and subsidiary companies is consolidated as if they were one person.

(b) A subsidiary may not ordinarily be a member of its parent company.

(c) Since directors of a parent company can control its subsidiary, some rules designed to regulate

the dealings of companies with directors also apply to its subsidiaries, particularly loans to

directors.

PER 10 requires you to prepare financial statements for single and combined entities. This section will

help you identify where a group (or combined entity) exists.

7.2 Quoted companies

As we have seen public companies may seek a listing on a public exchange. This option is not open to

private companies, who are not allowed to offer their shares for sale to the public. Listed companies are

sometimes referred to as quoted companies (because their shares are quoted publicly).

7.3 Small companies regime

Small companies benefit from the small companies regime's reduced legal requirements in terms of

filing accounts with the Registrar and obtaining an audit. The definitions of a small company for the

purposes of accounting and auditing are almost identical.

In accounting terms, a company is small if it meets two of the following applicable criteria:

(a) Balance sheet total of not more than £3.26 million

(b) Turnover of not more than £6.5 million

(c) 50 employees or fewer on average

For audit purposes, a company is classed as small if it qualifies on the above criteria, but must meet both

of conditions (a) and (b).

7.4 Multinational companies

The vast majority of companies will simply operate in one country. However, some of the larger

companies in the world will operate in more than one country. Such companies are multinational.

A multinational company is a company that produces and markets its products in more than one country.

7.4.1 Examples: multinational companies

Some examples of well known multinational companies include:

• Wal-mart Stores

• Royal Dutch Shell

• Exxon Mobil

• Toyota

QUESTION  Small companies

State the criteria that a company must meet to be classified as small.

ANSWER

A small company must meet two of the following criteria:

• Its balance sheet total must not exceed £3.26 million.

• Turnover must be no more than £6.5 million.

• It must employ fewer than 50 employees on average.

8 Effect of legal personality 6/08

The case of Salomon v Salomon & Co Ltd 1897 clearly demonstrates the separate legal personality of

companies and is of great significance to any study of company law.

Salomon v Salomon & Co Ltd 1897

The facts: The claimant, S, had carried on business for 30 years. He decided to form a limited company to

purchase the business so he and six members of his family each subscribed for one share.

The company then purchased the business from S for £38,782, the purchase price being payable to the

claimant by way of the issue of 20,000 £1 shares, the issue of debentures, £10,000 of debentures and

£8,782 in cash.

The company did not prosper and was wound up a year later, at which point its liabilities exceeded its

assets. The liquidator, representing unsecured trade creditors of the company, claimed that the company's

business was in effect still the claimant's (he owned 20,001 of 20,007 shares). Therefore he should bear

liability for its debts and that payment of the debenture debt to him should be postponed until the

company's trade creditors were paid.

Decision: The House of Lords held that the business was owned by, and its debts were liabilities of, the

company. The claimant was under no liability to the company or its creditors, his debentures were validly

issued and the security created by them over the company's assets was effective. This was because the

company was a legal entity separate and distinct from S.

The principle of separate legal personality was confirmed in the following case.

Lee v Lee’s Air Farming Ltd 1960

The facts: Mr Lee, who owned the majority of the shares of an aerial crop-spraying business, and was the

sole working director of the company, was killed while piloting the aircraft.

Decision: Although he was the majority shareholder and sole working director of the company, he and the

company were separate legal persons. Therefore he could also be an employee with rights against it when

killed in an accident in the course of his employment.

8.1 Veil of incorporation

Incorporation 'veils' members from outsiders' view but this veil may be lifted in some circumstances, so

creditors and others can seek redress directly from members. The veil may be lifted: by statute to enforce

the law; to prevent the evasion of obligations; and in certain situations where companies trade as a group.

Because a company has separate legal personality from the people who own or run it (the members/

shareholders/directors), people can look at a company and not know who or what owns or runs it.

The fact that members are 'hidden' in this way is sometimes referred to as the 'veil of incorporation'.

Literally, the members are 'veiled' from view.

9 Ignoring separate personality 6/08

It is sometimes necessary by law to look at who the owners of a company are. This is referred to as

'lifting the veil'.

Separate personality can be ignored to:

• Identify the company with its members and/or directors.

• Treat a group of companies as a single commercial entity (if a company is owned by another

company).

The more important of these two reasons is the first one, although the second reason can sometimes be

more complex. The main instances for lifting the veil are to enforce the law, prevent evasion of

obligations and in some group situations. However, with the establishment of the concept of corporate

manslaughter it is likely that directors will increasingly face prosecution and custodial sentences where

they are found personally accountable for a death where the death can be connected with how they ran

their business. The veil of incorporation will no longer protect them: R v OLL Ltd 1994.

9.1 Lifting the veil by statute to enforce the law

Lifting of the veil is permitted under a number of statutes to enforce the law.

9.1.1 Liability for trading without trading certificate

A public company must obtain a trading certificate from the Registrar before it may commence to trade.

Failure to do so leads to personal liability of the directors for any loss or damage suffered by a third party

resulting from a transaction made in contravention of the trading certificate requirement. They are also

liable for a fine.

9.1.2 Fraudulent and wrongful trading

When a company is wound up, it may appear that its business has been carried on with intent to defraud

creditors or others. In this case the court may decide that the persons (usually the directors) who were

knowingly parties to the fraudulent trading shall be personally responsible under civil law for debts and

other liabilities of the company: s 213 Insolvency Act 1986.

Fraudulent trading is also a criminal offence; under s 993 of the Companies Act 2006 any person guilty of

the offence, even if the company has not been or is not being wound up, is liable for a fine or

imprisonment for up to 10 years.

If a company in insolvency proceedings is found to have traded when there is no reasonable prospect of

avoiding insolvent liquidation, its directors may be liable under civil law for wrongful trading. Again a

court may order such directors to make a contribution to the company’s assets: s 214 Insolvency Act

1986.

9.1.3 Disqualified directors

Directors who participate in the management of a company in contravention of an order under the

Company Directors Disqualification Act 1986 will be jointly or severally liable along with the company for

the company's debts.

9.1.4 Abuse of company names

In the past there were a number of instances where directors of companies which went into insolvent

liquidation formed another company with an identical or similar name. This new company bought the

original company's business and assets from its liquidator.

The Insolvency Act 1986 (s 217) makes it a criminal offence and the directors personally liable where; they

are a director of a company that goes into insolvent liquidation and; they become involved with the

directing, managing or promoting of a business which has an identical name to the original company, or

a name similar enough to suggest a connection.

Questions in this area often require an explanation of separate personality and the circumstances where

the veil of incorporation will be lifted – as in June 2008.

9.2 Lifting the veil to prevent evasion of obligations

A company may be identified with those who control it, for instance to determine its residence for tax

purposes. The courts may also ignore the distinction between a company and its members and managers if

the latter use that distinction to evade their existing legal obligations.

Gilford Motor Co Ltd v Home 1933

The facts: The defendant had been employed by the claimant company under a contract which forbade him

to solicit its customers after leaving its service. After the termination of his employment he formed a

company of which his wife and an employee were the sole directors and shareholders. However he

managed the company and through it evaded the covenant that prevented him from soliciting customers

of his former employer.

Decision: An injunction requiring observance of the covenant would be made both against the defendant

and the company which he had formed as a 'a mere cloak or sham'.

9.2.1 Public interest

In time of war a company is not permitted to trade with 'enemy aliens'. The courts may draw aside the

veil if, despite a company being registered in the UK, it is suspected that it is controlled by aliens: Daimler

Co Ltd v Continental Tyre and Rubber Co (GB) Ltd 1917. The question of nationality may also arise in

peacetime, where it is convenient for a foreign entity to have a British facade on its operations.

Re F G Films Ltd 1953

The facts: An English company was formed by an American company to 'make' a film which would obtain

certain marketing and other advantages from being called a British film. Staff and finance were American

and there were neither premises nor employees in England. The film was produced in India.

Decision: The British company was the American company's agent and so the film did not qualify as

British. Effectively, the corporate entity of the British company was swept away and it was exposed as a

'sham' company.

9.2.2 Evasion of liabilities

The veil of may also be lifted where directors ignore the separate legal personality of two companies and

transfer assets from one to the other in disregard of their duties in order to avoid an existing liability.

Re H and Others 1996

The facts: The court was asked to rule that various companies within a group, together with the minority

shareholders, should be treated as one entity in order to restrain assets prior to trial.

Decision: The order was granted. The court thought there was evidence that the companies had been used

for the fraudulent evasion of excise duty.

9.2.3 Evasion of taxation

Courts may lift the veil of incorporation where it is being used to conceal the nationality of the company.

Unit Construction Co Ltd v Bullock 1960

The facts: Three companies, wholly owned by a UK company, were registered in Kenya. Although the

companies' constitutions required board meetings to be held in Kenya, all three were in fact managed

entirely by the holding company.

Decision: The companies were resident in the UK and liable to UK tax. The Kenyan connection was a sham,

the question being not where they ought to have been managed, but where they were actually managed.

9.2.4 Quasi-partnership

An application to wind up a company on the 'just and equitable' ground under the Insolvency Act 1986

may involve the court lifting the veil to reveal the company as a quasi-partnership. This may happen

where the company only has a few members, all of whom are actively involved in its affairs. Typically the

individuals have operated contentedly as a company for years but then fall out, and one or more of them

seeks to remove the others.

The courts are willing in such cases to treat the central relationship between the directors as being that of

partners, and rule that it would be unfair therefore to allow the company to continue with only some of its

original members. This is illustrated by the case of Ebrahimi v Westbourne Galleries Ltd 1973.

QUESTION Quasi-partnership

Sandy and Pat have carried on business together for twenty years, most recently through a limited

company in which each holds 500 shares. They share the profits equally in the form of directors'

remuneration. Pat's son Craig joins the business, buying 100 shares from each of Sandy and Pat.

Disputes arise and Pat and Craig use their voting majority to remove Sandy from the board. Advise Sandy.

ANSWER

Sandy cannot prevent her removal from her directorship. However, a court may find that, on the basis of

the past relationship, it is unjust and inequitable to determine the case solely on legal rights. It could, on

equitable principles, order liquidation of the company. The veil of the company may be lifted to reveal a

quasi-partnership.

9.3 Lifting the veil in group situations

The principle of the veil of incorporation extends to the holding (parent) company/subsidiary relationship.

Although holding companies and subsidiaries are part of a group under company law, they retain their

separate legal personalities. There is also some precedent for treating separate companies as a group

(DHN Food Distributors v Tower Hamlets LBC 1976) although doubt has since been cast on this by

subsequent cases.

In Adams v Cape Industries plc 1990, three reasons were put forward for identifying the companies as

one, and lifting the veil of incorporation. They are:

• The subsidiary is acting as agent for the holding company.

• The group is to be treated as a single economic entity because of statutory provision

• The corporate structure is being used as a facade (or sham) to conceal the truth.

Adams v Cape Industries plc 1990

The facts: Cape, an English company, headed a group which included many wholly-owned subsidiaries.

Some of these mined asbestos in South Africa, and others marketed the asbestos in various countries

including the USA.

Several hundred claimants had been awarded damages by a Texas court for personal injuries suffered as a

result of exposure to asbestos dust. The defendants in Texas included one of Cape's subsidiaries, NAAC.

The courts also considered the position of AMC, another subsidiary, and CPC, a company linked to Cape

Industries.

Decision: The judgement would not be enforced against the English holding company, either on the basis

that Cape had been 'present' in the US through its local subsidiaries or because it had carried on business

in the US through the agency of NAAC. Slade LJ commented in giving the judgement that English law 'for

better or worse recognises the creation of subsidiary companies ... which would fall to be treated as

separate legal entities, with all the rights and liabilities which would normally be attached to separate legal

entities'.

Whether desirable or not, English law allowed a group structure to be used so that legal liability fell on an

individual member of a group rather than the group as a whole.

Lifting the veil in group situations is easily forgotten. Ensure you know the Cape Industries case and the

three reasons for lifting the veil in groups which it sets out.

9.4 Summary of situations in which the veil can be lifted

The instances in which the veil will be lifted are as follows.

Lifting the veil by statute to

enforce the law

• Liability for trading without a trading certificate

• Fraudulent and wrongful trading

• Disqualified directors

• Abuse of company names

Evasion of obligations • Evasion of legal obligations

• Public interest

• Evasion of liabilities

• Evasion of taxation

• Quasi-partnership

Group situations • Subsidiary acting as agent for the holding company

• The group is to be treated as a single economic entity

• The corporate structure is being used as a sham

9.5 Lifting the veil and limited liability

The above examples of lifting the veil include examples of where, if they have broken the law, directors

can be made personally liable for a company's debts. This is very rare. If those directors are also

members, then limited liability does not apply. This is the only time that limited liability is overridden and

that the member becomes personally liable for the company's debts due to their actions as a director.

10 Comparison of companies and partnerships

Because it is a separate legal entity, a company has a number of features which are different from a

partnership. The most important difference between a company and a traditional partnership is that a

company has a separate legal personality from its members, while a traditional partnership does not.

10.1 The differences

The separate legal personality of a company gives rise to a number of characteristics which mark it out

from a traditional partnership. Revise this table when you have studied the rest of the book and know

more of the details concerning the distinctive factors of companies.

FACTOR – COMPANY – TRADITIONAL PARTNERSHIP

Entity Is a legal entity separate from its

members.

Has no existence outside of its members.

Liability Members' liability can be limited Partners' liability is usually unlimited

Size May have any number of members (at

least one)

Some partnerships are limited to twenty

members (professional partnerships

excluded)

Succession Perpetual succession – change in

ownership does not affect existence

Partnerships are dissolved when any of the

partners leaves it

Owners'

interests

Members own transferable shares Partners cannot assign their interests in a

partnership

Assets Company owns the assets Partners own assets jointly

Management Company must have at least one

director (two for a public company)

All partners can participate in management

Constitution Company must have a written

constitution

A partnership may have a written partnership

agreement, but also may not

Accounts A company must usually deliver

accounts to the Registrar

Partners do not have to send their accounts

to the Registrar

Security A company may offer a floating charge

over its assets

A partnership may not usually give a floating

charge on assets

Withdrawal of

capital

Strict rules concerning repayment of

subscribed capital

More straightforward for a partner to

withdraw capital

Taxation Company pays tax on its profit

Directors are taxed through PAYE

system

Shareholders receive dividends which

are taxed 10 months after the tax year

Partners extract 'drawings' weekly or

monthly.

No tax is deducted as income tax is payable

on final profit for the year.

Management Members elect directors to manage the

company

All partners have a right to be involved in

management

CHAPTER ROUNDUP

• In a sole tradership, there is no legal distinction between the individual and the business.

• Partnership is defined as 'the relation which subsists between persons carrying on a business in common

with a view of profit'. A partnership is not a separate legal person distinct from its members, it is merely a

'relation' between persons. Each partner (there must be at least two) is personally liable for all the debts

of the firm.

• Partnerships can be formed very informally, but there may be complex formalities to ensure clarity.

• Partnerships may be terminated by passing of time, termination of the underlying venture, death or

bankruptcy of a partner, illegality, notice, agreement or by order of the court.

• The authority of partners to bind each other in contract is based on the principles of agency.

• Partners are jointly liable for all partnership debts that result from contracts that the partners have made

which bind the firm.

• A limited liability partnership formed under the 2000 Act combines the features of a traditional

partnership with the limited liability and creation of a legal personality more usually associated with limited

companies.

• A company has a legal personality separate from its owners (known as members). It is a formal

arrangement, surrounded by formality and publicity, but its chief advantage is that members' liability for

the company's debts is typically limited.

• The fact that a company's members – not the company itself – have limited liability for its debts protects

the members from the company's creditors and ultimately from the full risk of business failure.

• Most companies are those incorporated under the Companies Act. However there are other types of

company such as corporations sole, chartered corporations, statutory corporations and community

interest companies.

• A company may be private or public. Only the latter may offer its shares to the public.

• To trade a public company must hold a Registrar's trading certificate having met the requirements,

including minimum capital of £50,000.

• The main differences between public and private companies relate to: capital; dealings in shares,

accounts; commencement of business; general meetings; names; identification; and disclosure

requirements.

• There are a number of other ways in which companies can be classified.

• The case of Salomon v Salomon & Co Ltd 1897 clearly demonstrates the separate legal personality of

companies and is of great significance to any study of company law.

• Incorporation 'veils' members from outsiders' view but this veil may be lifted in some circumstances, so

creditors and others can seek redress directly from members. The veil may be lifted: by statute to enforce

the law; to prevent the evasion of obligations; and in certain situations where companies trade as a group.

• It is sometimes necessary by law to look at who the owners of a company are. This is referred to as

'lifting the veil'.

• Because it is a separate legal entity, a company has a number of features which are different from a

partnership. The most important difference between a company and a traditional partnership is that a

company has a separate legal personality from its members, while a traditional partnership does not.

QUICK QUIZ

1 Which of the following types of company can be incorporated under the Companies Act 2006?

Select all that apply.

A A private limited company

B A public limited company

C A company limited by guarantee with a share capital

D A company limited by guarantee with no share capital

E A private unlimited company

F A public unlimited company

2 Which one of the following statements about traditional (unlimited) partnerships is incorrect?

A In England a partnership has no existence distinct from the partners.

B A partnership must have a written partnership agreement.

C A partnership is subject to the Partnership Act.

D Each partner is an agent of the firm.

3 An LLP dissolves when a member leaves.

True

False

4 Which two of the following statements is true? A private company

A Is defined as any company that is not a public company

B Sells its shares on the junior stock market known as the Alternative Investment Market and on the

Stock Exchange

C Must have at least one director with unlimited liability

D Is a significant form of business organisation in areas of the economy that do not require large

amounts of capital

5 Under which circumstance would a member of a limited company have to contribute funds on winding

up?

A Where there is not enough cash to pay the creditors

B Where they have an outstanding amount from when they originally purchased their shares

C To allow the company to repurchase debentures it issued

D Where the company is a community interest company and the funds are required to complete a

community project

6 The minimum share capital of a public limited company is

A £12,500

B £50,000

C £100,000

D £500,000

7 Fill in the blanks in the statement below using the figures in the box.

A small company formed under the Companies Act 2006 must meet two of the following criteria.

Its balance sheet total must be less than £ … million and its turnover must be less than £ … million. The

number of employees must be less than … people.

50   6.5

3.26 100

8 Which two of the following are correct? A public company or plc

A Is defined as any company which is not a private company

B Has a legal personality that is separate from its members or owners

C Must have at least one director with unlimited liability

D Can own property and make contracts in its own name

9 State the main advantage of forming an unlimited company.

10 What was the name of the case that originally demonstrated the principle of separate legal personality?

11 Businesses in the form of sole traders are legally distinct from their owners.

True

False

12 Put the examples given below in the correct category box.

WHEN THE VEIL OF INCORPORATION

To enforce law To enforce obligations To expose groups

• Wrong use of company name

• Legal obligations

• Quasi-partnership

• Disqualified directors

• Fraudulent and wrongful trading

• Single economic entity

• Corporate structure a sham

• Public interest

• Trading without a trading certificate

ANSWERS TO QUICK QUIZ

1 A, B, D and E are correct. It is not possible to incorporate a company limited by guarantee with a share

capital, so C is incorrect. A public limited company is by definition limited, so F is wrong.

2 B. A written agreement is not needed.

3 False. LLPs are only dissolved when they cease to trade.

4 A and D are correct. A private company cannot sell its shares to the public on any stock market, so B is

incorrect. Directors need not have unlimited liability, so C is incorrect.

5 B Members only have a liability for any outstanding amounts of share capital partly paid for.

6 B £50,000 is the minimum.

7 Balance sheet total £3.26 million

Turnover £6.5 million

Employees less than 50

8 B and D are correct. A public company has to be defined as such in its constitution so A is incorrect. No

directors need have unlimited liability, so C is incorrect.

9 An unlimited company need not usually file annual accounts.

10 Salomon v Salomon & Co Ltd 1897.

11 False. Sole trader businesses are not legally distinct from their owners.

12

WHEN THE VEIL OF INCORPORATION IS LIFTED

TO ENFORCE LAW

Wrong use of

company name

Disqualified directors

Fraudulent and}

Wrongful}

Trading}

Trading without a

trading certificate

TO ENFORCE OBLIGATIONS

Legal obligations

Quasi-partnership

Public interest

TO EXPOSE GROUPS

Single economic entity

Corporate structure a sham