Formation of a Company and Company floatations.ppt
- 1. LECTURE 5 – FORMATION OF A COMPANY & COMPANY FLOATATIONS…
- 2. A company does not come into existence on its own. Planned action and conscious efforts are required for its formation. It involves several legal formalities. FORMATION OF A COMPANY
- 3. FORMATION OF A COMPANY Formation of company involves the following stages. 1) Promotion 2) Incorporation 3) Floatation or capital subscription 4) Commencement of business
- 4. Promoters?
- 5. Meaning of promotion The term promotion refers to the sum total of activities by which a business enterprise is brought into existence. A Promoter is a person who initiates the process of formation of company. He undertakes to form a company with reference to a given project and takes the necessary steps to accomplish the purpose. The term “Promotion” refers to the process of by which a company is ‘incorporated’ or brought into existence.
- 6. Definition • According to C.W Gerstenberg, “ Promotion is the discovery of business opportunities and the subsequent organization of funds, property and management ability into business concern for the purpose of making profit there from”
- 7. A Joint stock company may be promoted in any of the following two ways: 1) By converting an existing partnership or proprietorship firm into a joint stock company 2) By setting up a new company altogether to take up a new line of business.
- 8. STAGES IN PROMOTION 1) Discovery of business idea. 2) Detailed Investigation. 3) Assembly 4) Financing of Preposition.
- 9. The Company Name • Public Company names must end with “PLC” • Law prohibits certain names: - Limited, unlimited or public limited company can be used only at the end of a name. - Cannot register an already existent name. - Cannot be offensive or a criminal offence. - Certain words are prohibited without permission:- English, Insurance, National, Prince, Queen, Royal, Windsor, Trust, Trade Union,
- 10. Management & Control of Companies… • Appointment and Removal of Directors. Company articles provide method of appointment; the norm is an ordinary resolution of the members. Articles of Company may specify other methods of appointment. • The articles of association also set out how the directors can be removed.
- 11. The powers of Directors. • Contained in articles of association. Directors’ General Authority Subject to the articles, the directors are responsible for the management of the company’s business, for which purposes they may exercise all the powers of the company.
- 12. Directors’ Duties. • Section 171-177 Companies Act 2006 sets out seven general duties: • Section 171 – the duty to act within powers • Section 172 – the duty to promote the success of the company • Section 173 – the duty to exercise independent judgement • Section 174 – the duty to exercise reasonable care, skill and diligence. • Section 175 – the duty to avoid conflicts of interest • Section 176 – the duty not to accepts benefits from third parties. • Section 177 – the duty to declare an interest in a proposed transaction or arrangement.
- 13. Section 171 – the duty to act within powers • Section 171 specifies that Directors must act in accordance with the company’s constitution and only exercise powers for the purposes for which they are conferred.
- 14. Section 172 – the duty to promote the success of the company. • A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— • (a)the likely consequences of any decision in the long term, • (b)the interests of the company's employees, • (c)the need to foster the company's business relationships with suppliers, customers and others, • (d)the impact of the company's operations on the community and the environment, • (e)the desirability of the company maintaining a reputation for high standards of business conduct, and • (f)the need to act fairly as between members of the company.
- 15. Section 173 – the duty to exercise independent judgement • Duty to exercise independent judgment. • This section has no associated Explanatory Notes • (1)A director of a company must exercise independent judgment. • (2)This duty is not infringed by his acting— • (a)in accordance with an agreement duly entered into by the company that restricts the future exercise of discretion by its directors, or • (b)in a way authorised by the company's constitution.
- 16. Section 174 – the duty to exercise reasonable care, skill and diligence. • Duty to exercise reasonable care, skill and diligence. • (1)A director of a company must exercise reasonable care, skill and diligence. • (2)This means the care, skill and diligence that would be exercised by a reasonably diligent person with— • (a)the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and • (b)the general knowledge, skill and experience that the director has.
- 17. Section 175 – the duty to avoid conflicts of interest • (1) A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. • (2)This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity). • (4)This duty is not infringed— • (a)if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; or • (b)if the matter has been authorised by the directors.
- 18. Section 176 – the duty not to accepts benefits from third parties. • A director of a company must not accept a benefit from a third party conferred by reason of— • (a)his being a director, or • (b)his doing (or not doing) anything as director. • (of interest and duty and a conflict of duties.
- 19. Section 177 – the duty to declare an interest in a proposed transaction or arrangement. • If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, he must declare the nature and extent of that interest to the other directors.
- 20. Remedies for Breach of Directors’ Duties? • - Remedy for breach of S174(Duty relating to skill, care and diligence) = damages. • - The other duties, remedies include = damages, avoiding the contract, restitution of property, injunction etc. • Directors’ duties will generally only be enforceable by the company (either by board of directors or by members)
- 21. Disqualification of Directors. • In certain situations a person will be disqualified from directing or managing a company. • A person who has been disqualified will not take part in the management of a company or promote a company. • Company Directors Disqualification Act 1986.
- 22. Reasons for Disqualification? • - conviction of serious offences in connection with a company. • - consistent failure to send documents to be filed with Registrar of Companies. • - fraud or breach of duty committed while an officer of a company which has become insolvent. • - Conduct in relation to an insolvent company which renders them unfit to manage current company. • Trade Secretary deems him unfit to be concerned with management of company. • If the person has been held by court to be responsible to contribute assets of a liquidated company on the grounds of fraudulent or wrongful trading.
- 23. Control of the Company... • Directors have the power to manage the company while they hold office. • However, the long-term control rests with the company’s members. • Types of Shares Ordinary Shares. Preference Shares.
- 24. Company Meetings.. • Company resolutions usually passed at company meetings. • Public companies must have an AGM. • This gives the members a chance to question how the company is being run. • Directors would set the agenda for the meeting. • Voting = By hand or by poll?
- 25. Company Secretary... • Every public company must have a company secretary who is suitably qualified. • Duties = look after the administration of the company.
- 26. Auditors... • Companies generally must employ accountant to prepare the accounts for members and Companies House. • Accountant appointed by Directors. • An auditor is not the company accountant, but a different accountant who keeps an eye on the company’s accounts and accounting procedures. • An auditor is appointed by the members of the company and reports to the members. • Auditor’s duties = 1. audit the accounts & 2. to prepare a report.
- 27. Loans to a Company.. • Debenture – document acknowledging the debt. • A company charge will secure the debts owed to creditors. • Fixed or Floating charge? • Floating = a shifting fund of assets. • Crystallisation