Potential incorporation of the Helispares business
As we had the previous discussion regarding Mark Maskell being concerned about the potentials risks involved with incorporating a company, I shall herein clarify further details regarding the same and what could be the potential risks in changing the status of a company from partnership to a private company.
While many people hesitate taking the next step, it is always better to have an incorporated company than a partnership based business where the partners have to be liable for their own investments. Once a business starts to expand, the investment increases and so does the legal liability. According to the Partnership Act, 1890 of the United Kingdom, it has been clearly mentioned that each and every partner in a partnership shall be separately liable before the Court of Justice in case of any debt.
Having discussed about the limited nature of a partnership and the legal aspect of the same, we shall herein discuss about the advantage of a private company under the same circumstances.
1. As per the sections and clauses of the Companies Act, 2006, which has been fully functional since 2009 in the United Kingdom, it is extremely easy and quick to set up a private incorporated company.
- The Partnership Act, 1890, s. 9
- The Companies Act, 2006, Part. 2
- Payne, Jennifer. “Lifting the Corporate Veil: A Reassessment of the Fraud Exception.” The Cambridge Law Journal, vol. 56, no. 2, 1997, pp. 284–290.
- The Companies Act, 2006, s. 16(2)
- Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22
- Lee v Lee’s Air Farming Ltd [1960] UKPC 33
- Jones v Lipman [1962] 1 WLR 832
- Creasey v Breachwood Motors Ltd [1993] BCLC 480
- Tesco Supermarkets Ltd. v. Nattrass [1971] UKHL 1
- Peter Morley (2021); An introduction to Tax for UK Companies; < https://www.pinsentmasons.com/out-law/guides/an-introduction-to-tax > accessed on 27th July, 2021
- Private Limited Companies - Limited by shares (2020); Your Company Information < https://www.yourcompanyformations.co.uk/learning-centre/private-limited-company-ltd/ > accessed on 27th July, 2021
- Brav, Omer. “Access to Capital, Capital Structure, and the Funding of the Firm.” The Journal of Finance, vol. 64, no. 1, 2009, pp. 263–308
- The Companies Act, 2006, s. 9
- Lexisnexis (2016), “Guidance On Converting An LLP To A Limited Company”, < https://www.lexisnexis.co.uk/legal/guidance/can-you-provide-guidance-on-converting-an-llp-to-a-limited-company-would-a-business-transfer-agreement > accessed on 27th July, 2021
- Forming a limited company – overview of Form IN01” (2021), ByteStart < https://www.bytestart.co.uk/forming-a-limited-company-overview-of-form-in01 > accessed on 27th July, 2021
- Bolton v Graham & Sons Limited, [1956] 3 All ER 624
- Nicholas Campion, Company resolutions – the different types explained (2020), The QFC Blog < https://www.qualitycompanyformations.co.uk/blog/company-resolutions-different-types-explained/ > accessed on 27th July, 2021
- This Is Why a Written Resolution Is Important, Your company formation < https://www.yourcompanyformations.co.uk/blog/this-is-why-a-written-resolution-is-important/ > accessed on 27th July, 2021
2. The concept of ‘corporate veil’ shall be in action once a company is set up i.e. the directors or shareholders of a private company shall not be legally liable as individuals for any legal liability such as debt or any other legal charges herein. The landmark case of Solomon v. Solomon & Co. Ltd. pronounced the difference between corporate liability and individual liability and how an individual is not responsible for debts that a company owe in its own legal capacity and separate identity. In another landmark case of Lee v. Lee’s Air Farming Lt., the Privy Council expressly differentiated between individual liability and corporate liability and the relationship between corporate veil and separate legal identity herein. However such doctrine of separate identity shall not be applicable in case of fraudulent activities as it was decided in the case of Jones v. Lipman. Also, Creasey v Breachwood Motors Ltd. is another landmark case that explains the importance of corporate veil in case of a private limited company. Considering all these famous case laws, it can be ascertained that corporate veil acts a tough exterior of a private limited company and saves the directors and shareholders from having any direct impact on their personal assets.
3. With the identity of a company, the owner’s liability decreases and it keeps the owner under less threat in case the company goes bankrupt or it is charged with any loan defaults of whatsoever nature. In the case of Tesco Supermarket Ltd. v. Nattrass, the ‘directing mind’ theory was propounded by the appellate court where a critical approach was taken to understand the a company’s liability.
4. With the third party contract and potential use of third party shareholders, the investment capability of a company is huge and it cannot be compared to a partnership business in this case as a partnership business has its limits within the investment of the partner’s herein.
5. The tax related benefits of a private company is different than a partnership business. In case of partnership business, the partners are expected to pay a 20% of tax on the earning. But in case of private limited company, the director can pay the liability of the tax by paying himself/herself
a small salary and thus, the personal tax benefit is enormous in case of private limited companies.
6. In case of a private company, the ownership can change. Thus, any person can leave a company and the company still survives. Also, in case of death of any owner, the same rules shall be applicable to the company herein.
8. A private limited company builds creditability for the purpose of better business reputation herein. In order to get better clients and build better creditability in the market, a business is needed to be incorporated herein.
9. Last but not the least, with the help of your private company, one can venture into several capital scheme which will help you fund your company better. A private company shall have access to Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) and it helps in funding expansion of the business. If a business is still in the nature of a partnership firm, a business cannot avail the capital schemes as it has been mentioned herein.
Thus, if Mark Maskell is essentially thinking about expansion and further future of the company herein, it is extremely important to change the nature of the same to private company. Apart from the abovementioned benefits, the legal nature of partnership business is what makes it extremely dangerous for further investment. Also, as it has been mentioned by Mark Maskell that the partners of HeliSpares Ltd. Cannot put up with more personal investment for the expansion of the business, choosing to be transferred to a private company in order to attract investment from a third party is always the better option herein.
Ans. B
To: Rafael Ferrante
From: Trainee
Client: Mark Maskell
For the purpose of the proposed incorporation of the HeliSpares business, Mark Maskell and other business associates of the previous business ventures are needed to follow the crucial steps of privatization of a company as it has been processed under the Companies Act, 2006.
Registration of a Private Company
As per section 9 of the Companies Act, 2006, in order to incorporate a business, there must be at least one director who is over 16 years old. Also, one director of the private company must be a natural person. As per the shareholders division that has been mentioned herein, it is to be seen that both of the conditions have already been met with Mark being the company director.
The next step is to choose the business name as per section 9(2) of the Companies Act, 2006. Also, at the time of the registration, the application must state the below mentioned information as it has been stated under section 9 of the Companies Act, 2006.
i. The nature of the company i.e. whether public or private.
ii. The location where the company office shall be set up and a statement of address to that purpose.
iii. Whether the liability of the members of the company to be limited or not, if so, it shall be expressly mentioned under the application.
iv. As per section 9(4), the details of the capitals involved and the initial shareholders (which has been mentioned in the email already).
Also, as per section 9(1) of the Companies Act, 2006, a memorandum of association must to be submitted before the registrar herein along with the application as has been mentioned above.
The abovementioned information is extremely necessary and it should be provided to the registrar at the time of the registration of the company. The information is necessary for the purpose of income tax return and calculation of tax of the company on the basis of the salary paid to the employees and the dividends paid to the shareholders herein.
Conversion from a Partnership to a Private Limited Company
As it has been mentioned in the email that HeliSpares did not have a formal partnership agreement between them for the purpose of conducting the business, there might not be any formal process to transfer the asset from the former business to the private company herein. However, if Mark Maskell chooses to do so and register the former business under the general partnership agreement or under a Limited Liability Partnership or LLP, there must be some basic legal liabilities to convert the same into a private limited company herein:
Firstly, all the assets of the partnership firm would be the asset of the private limited company by default. Thus, the allotment of share is extremely necessary (which has already been mentioned in the email), and the partners shall only receive consideration in the form of share allotments and the share allotment would be in such a way that the partners shall have more than 50% of the total share allotment in the company when it is being registered. Also, the same manner of share allotment shall be maintained for 5 years from the date of such conversion herein.
Secondly, the partnership firm or the LLP must be dissolved first and the same must be handled by the general partners.
Thirdly, as per the terms of the Limited Partnership Act, 1907, if it is a LLP, the general partners shall notify the Companies House and file form no. Being LP5 and LP6.
Fourthly, for the purpose of asset transfer, there must be a transfer agreement to that effect which shall work as the conversion paper.
Fifth, a deed of novation is needed for each partner to be incorporated as shareholders under the new incorporated company. Fourthly, a service agreement shall be prepared if there is more than one director in the new incorporated business herein.
Lastly, the form of IN01 is to be filled with the details of the directors, shareholders, share capital and company secretariat, if any.
It has been reiterated in the case of Bolton v Graham & Sons Limited, a company resemblance a lot of the human body and for the purpose of incorporating a company, the procedures of such conversion shall be treated with due care.
Ans. C
Purchasing a property through a limited company needs to have some basic model of board resolution passed by the directors and shareholders and a board meeting is needed to be held in order to pass such resolution. A private limited company can have different types of resolution such as general member resolution, special resolution, member’s written resolution and board resolution.
The necessary information for purchasing a property
First of all, for the purpose of acquiring a property in name of a juristic person herein, the company needs to agree on appointing an authorised representative on behalf of the company through whom the property shall be bought by the company.
Secondly, there needs to be a board meeting between the directors of the company as to which way such authorised representatives to be chosen and the terms and the purchase price of the same shall needed to be discussed with the President of the company, if any or the Chief Financial Officer herein.
Thirdly, the President or the Chief Financial Officer, presiding over the board meeting herein, shall authorise one or more than one person to be authorised to buy the property herein and shall
pass such resolution in his/her name at the end of the board meetings. A virtual or written agreement to such effect shall be held by the President for the effect of such authorisation.
Fourthly, a resolution to that effect shall be passed and it shall ratify the authorised representative to acquire or purchase a property in the name of the private limited company herein.
The Board of Resolution
The board of resolution shall be in such a format that it has been consented by all the directors of the company and the Presiding officer of such board meeting herein.
It must also contain the name of the approved authorised representative for the purpose of buying a property and the board of resolution must have proper specifications regarding the name and the property they shall be purchasing on behalf of the company and in which region. Also, it must be stated that before purchasing a property, the pre approval of the directors are necessary and such proposal is to be ratified first.
Conclusion
A board of resolution is necessarily a legal document which confirms the authority of a person’s work on behalf of a company. Lots of critical decisions depends on the board of resolution and thus, it is always better to have hard copy of such document for the purpose of any future conflicts of whatsoever nature.
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REFERENCE LIST
Brav, Omer. “Access to Capital, Capital Structure, and the Funding of the Firm.” The Journal of Finance, vol. 64, no. 1, 2009, pp. 263–308
Creasey v Breachwood Motors Ltd [1993] BCLC 480
“Forming a limited company – overview of Form IN01” (2021), ByteStart < https://www.bytestart.co.uk/forming-a-limited-company-overview-of-form-in01 > accessed on 27th July, 2021
Lexisnexis (2016), “Guidance On Converting An LLP To A Limited Company”, < https://www.lexisnexis.co.uk/legal/guidance/can-you-provide-guidance-on-converting-an-llp-to-a-limited-company-would-a-business-transfer-agreement > accessed on 27th July, 2021
Nicholas Campion, Company resolutions – the different types explained (2020), The QFC Blog < https://www.qualitycompanyformations.co.uk/blog/company-resolutions-different-types-explained/ > accessed on 27th July, 2021
Payne, Jennifer. “Lifting the Corporate Veil: A Reassessment of the Fraud Exception.” The Cambridge Law Journal, vol. 56, no. 2, 1997, pp. 284–290
Peter Morley (2021); An introduction to Tax for UK Companies; < https://www.pinsentmasons.com/out-law/guides/an-introduction-to-tax > accessed on 27th July, 2021
Private Limited Companies - Limited by shares (2020); Your Company Information < https://www.yourcompanyformations.co.uk/learning-centre/private-limited-company-ltd/ > accessed on 27th July, 2021
Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22
This Is Why a Written Resolution Is Important, Your company formation < https://www.yourcompanyformations.co.uk/blog/this-is-why-a-written-resolution-is-important/ > accessed on 27th July, 2021
The Partnership Act, 1890
The Companies Act, 2006, Part. 2
The Companies Act, 2006, s. 16(2)
CASE LAWS
Bolton v Graham & Sons Limited, [1956] 3 All ER 624
Jones v Lipman [1962] 1 WLR 832
Lee v Lee’s Air Farming Ltd [1960] UKPC 33
Tesco Supermarkets Ltd. v. Nattrass [1971] UKHL 1
The Companies Act, 2006, s. 9
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