CHAPTER 14 COMPANY FORMATION

INTRODUCTION

In Chapter 13 of this Study Text you were introduced to the idea of the separate

legal personality of a company.

Sections 1 to 3 of this chapter concentrate on the procedural aspects of

company formation. Important topics in these sections include the formalities

that a company must observe in order to be formed, and the liability of

promoters for pre-incorporation contracts.

Sections 4 and 5 of this chapter consider the concept of the public

accountability of limited companies. Later on in your coverage of the syllabus

you will meet references to a company's obligation to publicise certain

decisions, so it is important to understand at this stage how and why this

should be done.

Study guide

Intellectual level

D The formation and constitution of business organisations

4 Company formations

(a) Explain the role and duties of company promoters 2

(b) Describe the procedure for registering companies, both public and private 2

keep or make

Exam guide

These topics can easily be examined in a knowledge question, but this does not preclude them from

forming part of a scenario question. Questions could be set that require you to explain the procedures that

need to be followed in order to set up a private or public limited company. You may need to advise a

promoter on a potential liability they could encounter.

1 Promoters and pre-incorporation contracts

A promoter forms a company. They must act with reasonable skill and care, and if shares are to be

allotted they are the agent of the company, with an agent's fiduciary duties.

A company cannot form itself. The person who forms it is called a 'promoter'. A promoter is an example

of an agent.

A promoter is one who undertakes to form a company with reference to a given project and to set it going

and who takes the necessary steps to accomplish that purpose: Twycross v Grant 1877.

In addition to the person who takes the procedural steps to get a company incorporated, the term

'promoter' includes anyone who makes business preparations for the company. However a person who

acts merely in a professional capacity in company formation, such as a solicitor or an accountant, is not

on that account a promoter.

1.1 Duties of promoters

Promoters have a general duty to exercise reasonable skill and care.

If the promoter is to be the owner of the company there is no conflict of interest and it does not matter if

the promoter obtains some advantage from this position, for example, by selling their existing business to

the company for 100% of its shares.

If, however, some or all the shares of the company when formed are to be allotted to other people, the

promoter is an agent of the company. This means they have the customary duties of an agent and the

following fiduciary duties.

(a) A promoter must account for any benefits obtained through acting as a promoter.

(b) Promoters must not put themselves in a position where their own interests conflict with those of

the company.

from them. The promoter must therefore make proper disclosure of any personal advantage to

existing and prospective company members or to an independent board of directors.

promoter may make a profit as a result of their position.

(a) A legitimate profit is made by a promoter who acquires interest in property before promoting a

company and then makes a profit when they sell the property to the promoted company, provided

they disclose it.

(b) A wrongful profit is made by a promoter who enters into and makes a profit personally in a

contract as a promoter. They are in breach of fiduciary duty.

A promoter of a public company makes their disclosure of legitimate profit through listing particulars or

a prospectus. If they make proper disclosure of a legitimate profit, they may retain it.

1.1.1 Remedy for breach of promoter's fiduciary duty

If the promoter does not make a proper disclosure of legitimate profits or if they make wrongful profits the

primary remedy of the company is to rescind the contract and recover its money: Erlanger v New

Sombrero Phosphate Co 1878.

However sometimes it is too late to rescind because the property can no longer be returned or the

company prefers to keep it. In such a case the company can only recover from the promoter their

wrongful profit, unless some special circumstances dictate otherwise.

Where shares are sold under a prospectus offer, promoters have a statutory liability to compensate any

person who acquires securities to which the prospectus relates and suffered loss as a result of any untrue

or misleading statement, or omission.

Statutory and listing regulations together with rigorous investigation by merchant banks have greatly

lessened the problem of the dishonest promoter.

2 Pre-incorporation expenses and contracts

A promoter has no automatic right to be reimbursed pre-incorporation expenses by the company,

though this can be expressly agreed.

2.1 Pre-incorporation expenses

A promoter usually incurs expenses in preparations, such as drafting legal documents, made before the

company is formed. They have no automatic right to recover these 'pre-incorporation expenses' from

the company. However they can generally arrange that the first directors, of whom they may be one, agree

that the company shall pay the bills or refund to them their expenditure. They could also include a special

article in the company's constitution containing an indemnity for the promoter.

2.2 Pre-incorporation contracts

Pre-incorporation contracts cannot be ratified by the company. A new contract on the same terms must be

expressly created.

A pre-incorporation contract is a contract purported to be made by a company or its agent at a time

before the company has been formed.

In agency law a principal may ratify a contract made by an agent retrospectively. However, a company can

never ratify a contract made on its behalf before it was incorporated. This is because it did not exist

when the pre-incorporation contract was made so one of the conditions for ratification fails.

A company may enter into a new contract on similar terms after it has been incorporated (novation).

However there must be sufficient evidence that the company has made a new contract. Mere recognition

of the pre-incorporation contract by performing it or accepting benefits under it is not the same as making

a new contract.

2.3 Liability of promoters for pre-incorporation contracts

The company's agent is liable on a contract to which they are deemed to be a party. The agent may also

be entitled to enforce the contract against the other party and so they could transfer the right to enforce

the contract to the company. Liability is determined by s 51(1) of the Companies Act 2006.

'A contract that purports to be made by or on behalf of a company at a time when the company has

not been formed has effect, subject to any agreement to the contrary, as one made with the person

purporting to act for the company or as agent for it, and he is personally liable on the contract

accordingly.'

2.4 Other ways of avoiding liability as a promoter for pre-incorporation

contracts

There are various other ways for promoters to avoid liability for a pre-incorporation contract.

(a) The contract remains as a draft (so not binding) until the company is formed. The promoters are

the directors, and the company has the power to enter the contract. Once the company is formed,

the directors take office and the company enters into the contract.

(b) If the contract has to be finalised before incorporation it should contain a clause that the personal

liability of promoters is to cease if the company, when formed, enters a new contract on identical

terms. This is known as novation.

'off the shelf'. Even if a person contracts on behalf of the new company before it is bought the

company should be able to ratify the contract since it existed 'on the shelf' at the time the contract

was made.

A favourite question in law exams is the status of a pre-incorporation contract.

QUESTION Promoter

Fiona is the promoter of Enterprise Ltd. Before the company is incorporated, she enters into a contract

purportedly on its behalf. After the certificate of incorporation is issued, the contract is breached. Who is

liable?

ANSWER

Fiona is liable as promoters are liable for pre-incorporation contracts: s 51(1).

3 Registration procedures 6/10

A company is formed and registered under the Companies Act 2006 when it is issued with a certificate of

incorporation by the Registrar, after submission to the Registrar of a number of documents and a fee.

Most companies are registered under the Companies Act 2006.

A company is formed under the Companies Act 2006 by one or more persons subscribing to a

memorandum of association who comply with the requirements regarding registration. A company may

not be formed for an unlawful purpose.

3.1 Documents to be delivered to the Registrar

To obtain registration of a company limited by shares, an application for registration, various

documents and a fee must be sent to the Registrar (usually electronically). We shall look at two of them

(the articles and the memorandum of association) in detail, later in this Study Text.

3.1.1 Application for registration

S 9 requires an application for registration to be made and submitted to the Registrar.

The application must contain:

• The company’s proposed name

• The location of its registered office (England and Wales, Wales, Scotland or Northern Ireland)

• That the liability of members is to be limited by shares or guarantee

• Whether the company is to be private or public.

• A statement of the intended address of the registered office.

Documents to be delivered Description

Memorandum of association This is a prescribed form signed by the subscribers. The

memorandum states that the subscribers wish to form a company and

they agree to become members of it. If the company has share capital

each subscriber agrees to subscribe for at least one share.

Articles of association

(only required if the company

does not adopt model articles)

Articles are signed by the same subscriber(s), dated and witnessed.

Model articles are provided by statute and can be adopted by a new

company if:

• No other articles are registered, or

• If the articles supplied do not exclude or modify the model articles.

Statement of proposed officers The statement gives the particulars of the proposed director(s) and

company secretary if applicable. The persons named as directors must

consent to act in this capacity. When the company is incorporated they

are deemed to be appointed.

Statement of compliance

The statement that the requirements of the Companies Act in respect

of registration have been complied with.

Statement of capital and initial

shareholdings

(only required for companies

limited by shares)

A statement of capital and initial shareholdings must be delivered by

all companies with share capital. Alternatively, a statement of

guarantee is required by companies limited by guarantee.

Registration fee A registration fee is also payable on registration.

Questions on incorporation could require you to identify the documents which should be sent to the

Registrar and on the procedures to be followed as in June 2010.

3.2 Certificate of incorporation

The Registrar considers whether the documents are formally in order. If satisfied, the company is given a

'registered number'. A certificate of incorporation is issued and notice of it is publicised.

A company is registered by the inclusion of the company in the register, and the issue of a certificate of

incorporation by the Registrar.

The certificate:

• Identifies the company by its name and registered number

• States that it is limited (if appropriate) and whether it is a private or public company

• States whether the registered office is in England and Wales, Wales, Scotland or Northern Ireland

• States the date of incorporation

• Is signed by the Registrar, or authenticated by the Registrar's official seal.

A certificate of incorporation is a certificate issued by the Registrar which denotes the date of

incorporation, 'the subscribers, together with any persons who from time to time become members,

become a body corporate capable of exercising all the functions of an incorporated company'.

The certificate of incorporation is conclusive evidence that:

• All the requirements of the Companies Act have been followed.

• The company is a company authorised to be registered and has been duly registered.

• If the certificate states that the company is a public company it is conclusive.

If irregularities in formation procedure or an error in the certificate itself are later discovered, the certificate

is nonetheless valid and conclusive: Jubilee Cotton Mills Ltd v Lewes 1924.

Upon incorporation persons named as directors and secretary in the statement of proposed officers

automatically become such officers.

3.3 Companies 'off the shelf'

Buying a company 'off the shelf' avoids the administrative burden of registering a company.

Because the registration of a new company can be a lengthy business, it is often easiest for people

wishing to operate as a company to purchase an 'off the shelf' company.

This is possible by contacting enterprises specialising in registering a stock of companies, ready for sale

when a person comes along who needs the advantages of incorporation.

Normally the persons associated with the company formation enterprise are registered as the company's

subscribers, and its first secretary and director. When the company is purchased, the shares are

transferred to the buyer, and the Registrar is notified of the director's and the secretary's resignation.

The principal advantages for the purchaser of purchasing an off the shelf company are as follows.

(a) The following documents will not need to be filed with the Registrar by the purchaser:

(i) Memorandum and articles (unless the articles are not model articles)

(ii) Application for registration

(iii) Statement of proposed officers

(iv) Statement of compliance

(v) Statement of capital and initial shareholdings

(vi) Fee

This is because the specialist has already registered the company. It will therefore be a quicker, and

very possibly cheaper, way of incorporating a business.

(b) There will be no risk of potential liability arising from pre-incorporation contracts. The company

can trade without needing to worry about waiting for the Registrar's certificate of incorporation.

The disadvantages relate to the changes that will be required to the off-the-shelf company to make it

compatible with the members' needs.

(a) The off-the-shelf company is likely to have model articles. The directors may wish to amend these.

(b) The directors may want to change the name of the company.

members. Stamp duty will be payable.

QUESTIONS Documents required on formation of a company

What are the documents which must be delivered to the Registrar for registration of a company?

Answer

ANSWER

The memorandum of association (and articles if not in model form), application for registration, a

statement of proposed officers, a statement of compliance, a statement of capital and initial shareholdings,

and a fee.

3.4 Re-registration procedures

A private company with share capital may be able to re-register as a public company if the share capital

requirement is met. A public company may re-register as a private one.

Note. For a private company to re-register as a public company it must fulfil the share capital requirement

of a public company: Its allotted share capital must be at least £50,000 of which a quarter must be paid

up, plus the whole of any premium.

Re-registering as a public company Re-registering as a private company

Resolution

Re-registering as a public company

The shareholders must agree to the

company going public

• Convene a general meeting

• Pass a special resolution (75%

majority) – Alters the constitution

Re-registering as a private company

The shareholders must agree to the

company going private

• Convene a general meeting

• Pass a special resolution (75%

majority of those present and voting) –

Alters the constitution

Application

Re-registering as a public company

The company must then apply to

the Registrar to go public

• Send application to the Registrar

• Send additional information to the

Registrar, comprising

– Copy of the special resolution

– Copy of proposed new public

company articles

– Statement of the company’s

proposed name on re-registration

– Statement of proposed company

secretary

– Balance sheet and related auditors'

statement which states that at the

balance sheet date the company’s

net assets are not less than its

called-up share capital and

undistributable reserves.

– Statement of compliance

– Valuation report regarding

allotment of shares for non-cash

consideration since the balance

sheet date

Re-registering as a private company

The company must then apply to the

Registrar to go private

• Send the application to the Registrar

• Send additional information to the

Registrar, comprising

– Copy of the special resolution

– Copy of altered new private

company articles

– Statement of Compliance

– Statement of the company’s

proposed name on re-registration

Approval

Re-registering as a public company

The Registrar must accept the statement

of compliance as sufficient evidence that

the company is entitled to be re-registered

as public.

A certificate of incorporation on reregistration

is issued.

Re-registering as a private company

The Registrar issues a certificate of

incorporation on re-registration.

Compulsory

re-registration

Re-registering as a public company

If the share capital of a public company

falls below £50,000, it must re-register

as a private company.

Re-registering as a private company

There is no such compulsion for a private

company.

3.5 Commencement of business rules

To trade or borrow, a public company needs a trading certificate. Private companies may commence

business on registration.

3.5.1 Public companies

A public company incorporated as such may not do business or exercise any borrowing powers unless it

has obtained a trading certificate from the Registrar: s 761. This is obtained by sending an application to

the Registrar. A private company which is re-registered as a public company is not subject to this rule.

The application:

• States the nominal value of the allotted share capital is not less than £50,000, or prescribed Euro

equivalent (s 763)

• States the particulars of preliminary expenses and payments or benefits to promoters

• Must be accompanied by a statement of compliance.

If a public company does business or borrows before obtaining a certificate the other party is protected

since the transaction is valid. However the company and any officer in default have committed an offence

punishable by a fine. They may also have to indemnify the third party.

Under s 122 of the Insolvency Act 1986 a court may wind-up a public company which does not obtain a

trading certificate within one year of incorporation.

3.5.2 Private company

A private company may do business and exercise its borrowing powers from the date of its incorporation.

After registration the following procedures are important.

(a) A first meeting of the directors should be held at which the chairman, secretary and sometimes the

auditors are appointed, shares are allotted to raise capital, authority is given to open a bank

account and other commercial arrangements are made.

(b) A return of allotments should be made to the Registrar.

annual accounts will be made up. If no such notice is given within the prescribed period,

companies are deemed to have an accounting reference date of the last day of the month in which

the anniversary of incorporation falls.

4 Statutory books and records

4.1 The requirement for public accountability

The price of limited liability is greater public accountability via the Companies Registry, registers, the

London Gazette and company letterheads.

Under company law the privileges of trading through a separate corporate body are matched by the duty

to provide information which is available to the public about the company.

BASIC SOURCES OF INFORMATION ON UK COMPANIES

The Registrar keeps a file at Companies House which holds all documents delivered by the company for

filing. Any member of the public, for example someone who intends to do business with the company,

may inspect the file (usually electronically).

The registers and other documents which the company is required to hold at its registered office (or

another registered address).

The London Gazette, a specialist publication, in which the company itself or the Registrar is required to

publish certain notices or publicise the receipt of certain documents.

The company's letterheads and other forms which must give particulars of the company's place of registration,

its identifying number and the address of its office.

4.2 The Registrar of Companies

The Registrar of Companies (the Registrar) and the Registrar’s department within the Government is usually

called Companies House (in full it is 'the Companies Registration Office').

For English and Welsh companies the Registrar is located at the Companies House in Cardiff; for Scottish

companies the Registrar is in Edinburgh.

The company is identified by its name and serial number which must be stated on every document sent

to Companies House for filing.

On incorporation the company's file includes a copy of its certificate of incorporation and the original

documents presented to secure its incorporation.

Once a company has been in existence for some time the file is likely to include the following.

• Certificate of incorporation

• Public company trading certificate

• Each year's annual accounts and return

• Copies of special and some ordinary resolutions

• A copy of the altered articles of association if relevant

• Notices of various events such as a change of directors or secretary

• If a company issues a prospectus, a signed copy with all annexed documents

4.3 Statutory books

A company must keep registers of certain aspects of its constitution, including the registers of members,

charges and directors.

Various people are entitled to have access to registers and copies of records that the company must keep.

To enable the documents to be found easily the company must keep them at its registered office or a

single alternative inspection location (SAIL) which is registered with Companies House. All documents

may be kept at either location or combination of the two. Companies are not permitted to have more than

one single alternative inspection location.

Records of directors’ service contracts and indemnities s 228 and s 237

Records of resolutions and meetings of the company s 355

We will learn more about the registered office later in your studies. Some of the registers below contain

details of shares, charges, directors and debentures and we will learn more about them later on as well.

For now you must just learn the content of each register.

4.4 Register of members

Every company must keep a register of members. It must contain:

(a) The name and address of each member

(b) The shareholder class (if more than one) to which they belong unless this is indicated in the

particulars of their shareholding

(i) If the shares have distinguishing numbers, the member's shares must be identified in the

(ii) If the company has more than one class of share the member's shares must be distinguished

by their class, such as preference, ordinary, or non-voting shares

(d) The date on which each member became and eventually the date on which they ceased to be a

member

Any member of the company can inspect the register of members of a company without charge. A

member of the public must pay but has the right of inspection.

A company with more than 50 members must keep a separate index of those members, unless the

4.5 Register of charges

The register of charges must contain:

• Details of fixed or floating charges affecting the company property or undertaking

• Brief descriptions of property charged

• The amount of the charge

• The name of the person entitled to the charge

A company must also keep copies of every instrument creating a charge. Any person may inspect the

instruments and the charges register; members and creditors may inspect free of charge.

4.6 Register of directors

The register of directors must contain the following details for all directors who are natural persons.

• Present and former forenames and surnames

• A service address (may be the company's registered address rather than their home address)

• Residency and nationality

• Business occupation (if any)

• Date of birth

The register does not include shadow directors and it must be open to inspection by a member (free of

charge), or by any other person (for a fee).

Note the company must keep a separate register of directors' residential addresses but this is not

available to members or the general public.

4.6.1 Corporate directors

Where a legal person (such as a company) is a director, the register of directors must contain:

• The corporate or firm name

• Its registered or principal office

4.7 Records of directors' service contracts

The company should keep copies or written memoranda of all service contracts for its directors,

including contracts for services which are not performed in the capacity of director. Members are entitled

to view these copies for free, or request a copy on payment of a set fee.

Under s 227 a director’s service contract, means a contract under which:

(a) A director of the company undertakes personally to perform services (as director or otherwise) for

a company, or for a subsidiary of the company, or

(b) Services (as director or otherwise) that a director of the company undertakes personally to perform are

made available by a third party to the company, or to a subsidiary of the company.

4.8 Register of debentureholders

Companies with debentures issued nearly always keep a register of debentureholders, but there is no

statutory compulsion to do so.

4.9 Accounting records

Companies must keep sufficient accounting records to explain the company's transactions and its

financial position, in other words so a profit and loss account and balance sheet can be prepared.

A company is required to keep accounting records sufficient to show and explain the company's

transactions. At any time, it should be possible:

• To disclose with reasonable accuracy the company's financial position at intervals of not more

than six months

• For the directors to ensure that any accounts required to be prepared comply with the Act and

International Accounting Standards

Certain specific records are required by the Act.

(a) Daily entries of sums paid and received, with details of the source and nature of the transactions

(b) A record of assets and liabilities

(d) Statements of stocktaking to back up the records in (c)

(e) Statements of goods bought and sold (except retail sales), together with details of buyers and

sellers sufficient to identify them

The requirements (c) to (e) above apply only to businesses involved in dealing in goods.

Accounting records must be kept for three years (in the case of a private company), and six years in that

of a public one.

Accounting records should be kept at the company's registered office or at some other place thought fit

by the directors. Accounting records should be open to inspection by the company's officers.

Shareholders have no statutory rights to inspect the records, although they may be granted the right by

the articles.

Failure in respect of these duties is an offence by the officers in default.

4.10 Annual accounts

A registered company must prepare annual accounts showing a true and fair view, lay them and various

reports before members, and file them with the Registrar following directors' approval.

For each accounting reference period (usually 12 months) of the company the directors must prepare

accounts. Where they are prepared in Companies Act format they must include a balance sheet and profit

and loss account which give a true and fair view of the individual company’s and the group's

• Assets

• Liabilities

• Financial position

• Profit or loss

The accounts can either be in Companies Act format or prepared in accordance with International

Accounting Standards. Where international accounting standards are followed a note to this effect must be

included in the notes to the accounts.

Most private companies are permitted to file abbreviated accounts.

The company's board of directors must approve the annual accounts and they must be signed by a director

on behalf of the board. When directors approve annual accounts that do not comply with the Act or IAS

they are guilty of an offence.

A public company is required to lay its accounts, and the directors' report, before members in general

meeting. A quoted company must also lay the directors’ remuneration report before the general meeting.

A company must file its annual accounts and its report with the Registrar within a maximum period

reckoned from the date to which the accounts are made up. The standard permitted interval between the

end of the accounting period and the filing of accounts is six months for a public and nine months for a

private company.

The accounts must be audited. The auditors' report must be attached to the copies issued to members,

filed with the Registrar or published. Exemptions apply to small and dormant companies, though

members may require an audit. The accounts must also be accompanied by a directors' report giving

information on a number of prescribed matters. These include (where an audit was necessary) a statement

that there is no relevant information of which the auditors are unaware, and another statement from the

directors that they exercised due skill and care in the period. Quoted companies must submit the

directors' remuneration report.

Each member and debentureholder is entitled to be sent a copy of the annual accounts, together with the

directors' and auditor's reports. In the case of public companies, they should be sent at least 21 days

before the meeting at which they shall be laid. In the case of private companies they should be sent at the

same time as the documents are filed, if not earlier.

Anyone else entitled to receive notice of a general meeting, including the company's auditor, should also

receive a copy. At any other time any member or debentureholder is entitled to a copy free of charge

within seven days of requesting it.

All companies may prepare summary financial statements to be circulated to members instead of the full

accounts, subject to various requirements as to form and content being met. However, members have the

right to receive full accounts should they wish to.

Quoted companies must make their annual accounts and reports available on a website which identifies

the company and is maintained on the company’s behalf. The documents must be made available as soon

as reasonably practicable and access should not be conditional on the payment of a fee or subject to other

restrictions.

Where the company or its directors fail to comply with the Act, they may be subject to a fine.

PER 10 requires you to recognise and apply the external legal and professional framework and regulations

to financial reporting. This section will help you understand some legal requirements relating to when the

financial reports should be published and their contents.

5 Statutory returns

Every company must make an annual return to the Registrar.

Every company must make an annual return each year to the Registrar which is made up to a 'return

date'. This date is either the anniversary of incorporation or the anniversary of the date of the previous

return (if this differs).

The form of the annual return prescribed for a company which has share capital is:

• The address of the registered office of the company

• The address (if different) at which the register of members or debentureholders is kept

• The type of company and its principal business activities

• The total number of issued shares, their aggregate nominal value and the amounts paid and

unpaid on each share

• For each class of share, the rights of those shares, the total number of shares in that class and

their total nominal value

• Particulars of members of the company

• Particulars of those who have ceased to be members since the last return

• The number of shares of each class held by members at the return date, and transferred by

members since incorporation or the last return date

• The particulars of directors, and secretary (if applicable)

QUESTION Records and returns

Which of the following must be filed with the Registrar each year?

A Accounts

B Register of members

C Copies of directors' service contracts

D The annual return

ANSWER

Only the accounts and annual return would be filed. The register of members and copies of directors'

service contracts are held by the company and are not required by the Registrar.

CHAPTER ROUNDUP

• A promoter forms a company. They must act with reasonable skill and care, and if shares are to be

allotted they are the agent of the company, with an agent's fiduciary duties.

• A promoter has no automatic right to be reimbursed pre-incorporation expenses by the company,

though this can be expressly agreed.

• Pre-incorporation contracts cannot be ratified by the company. A new contract on the same terms must be

expressly created.

• A company is formed and registered under the Companies Act 2006 when it is issued with a certificate of

incorporation by the Registrar, after submission to the Registrar of a number of documents and a fee.

• Buying a company 'off the shelf' avoids the administrative burden of registering a company.

• A private company with share capital may be able to re-register as a public company if the share capital

requirement is met. A public company may re-register as a private one.

• To trade or borrow, a public company needs a trading certificate. Private companies may commence

business on registration.

• The price of limited liability is greater public accountability via the Companies Registry, registers, the

London Gazette and company letterheads.

• A company must keep registers of certain aspects of its constitution, including the registers of members,

charges and directors.

• Companies must keep sufficient accounting records to explain the company's transactions and its

financial position, in other words so a profit and loss account and balance sheet can be prepared.

• A registered company must prepare annual accounts showing a true and fair view, lay them and various

reports before members, and file them with the Registrar following directors' approval.

• Every company must make an annual return to the Registrar.

QUICK QUIZ

1 A company can confirm a pre-incorporation contract by performing it or obtaining benefits from it.

True

False

2 If a public company does business or borrows before obtaining a trading certificate from the Registrar, the

transaction is:

A Invalid, and the third party cannot recover any loss

B Invalid, but the third party may recover any loss from the directors

C Valid, and the directors are punishable by a fine

D Valid, but the third party can sue the directors for further damages

3 A company must keep a register of directors. What details must be revealed?

Select all that apply.

A Full name

B Service address

C Nationality

D Date of birth

E Business occupation

4 An accountant or solicitor acting in their professional capacity during the registration of a company may

be deemed a promoter.

True

False

5 If a certificate of incorporation is dated 6 March, but is not signed and issued until 8 March, when is the

company deemed to have come into existence?

ANSWERS TO QUICK QUIZ

1 False. The company must make a new contract on similar terms.

2 C. The directors are punished for allowing the company to trade before it is allowed to.

3 All of them.

4 False. A person acting in a professional capacity will not be deemed a promoter.

5 6 March. The date on the certificate is conclusive.

CORPORATE AND BUSINESS LAW

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CHAPTER 14 COMPANY FORMATION

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