商法答案1

Case Study 1Question 1The main business organisations recognised by Scots Law are:.sole trader.partnerships.limited partnerships.limited liability partnerships.private companies.public companiesQuestion 2Given the fact that Lisa is running a very small business, it will almost be certainly run as a sole trader enterprise. There is the very remote possibility — and it is very remote — that a small business could be run as a single member private company in terms of the Companies (Single Member Private Limited Companies) Regulations 1992. Such a private company is limited by shares or by guarantee and need only have one member. Nowhere, however, does it mention that the business is limited by shares or by guarantee and we would, therefore, assume that it has the character of a sole trader.Question 3The advantages of a sole trader business are:1It is the simplest form of business organisation recognised by Scots Law.2A sole trader is to all intents and purposes to be regarded as a self-employed person. Inother words, no difference is made between the sole trader and his or her business; theyare legally indistinguishable.3 Very basic legal requirements to comply with ie submission of income tax returns to the Inland Revenue and the disclosure requirements of the Business Names Act 1985.4 Total control over his or her business and does not have to take into account the opinionsof any shareholders, members or partners.The disadvantages of a sole trader business are:1 If the business fails, the sole trader is said to have unlimited liability for any debts or obligations owed to third parties.2 A sole trader may find it difficult to fund an expansion of the business because she/he cannot offer shares to other parties in order to raise funds.3In any case, a business expansion requiring a major injection of capital might entail a lossof control over the business because new partners, shareholders or members who are a source of new finance will almost certainly demand a say in the running of the business.4The inclusion of new partners, members or shareholders would force a change in thenature of the business operation by converting it into a partnership or some other form of corporate body (public/private companies or a limited liability partnership).Case Study 2【】Question 1There are many differences between a traditional partnership and a limited liability partnership(LLP), but candidates should be able to pinpoint the following characteristics of both types of business organisation from the table below:Partnership Limited liability partnershipUnincorporated business Corporate bodyNo need to be registered with Registrar ofCompanies and no need to supply formaldocumentsMust be registered with the Registrar ofCompanies and certain documents must besuppliedRegulated by Partnership Act 1890 (unless thepartners agree otherwise)Regulated by the Limited LiabilityPartnerships Act 2000Partners have unlimited liability in respect ofpartnership debts/liabilities ie they are jointlyand severally liable and can be pursued to theirlast pennyMembers enjoy limited liability in respect ofLLP debts/liabilities ie they will only beliable to the extent of their stake in thebusinessPractice NoteIt would be highly advisable to concentrate on the differences between a traditional partnership and an LLP when introducing candidates to this area of the course.Question 2Currently, many traditional partnerships have sought LLP status because of the perceived benefits of limited liability for the members of an LLP — even if this does represent a loss of privacy and greater external regulation for the members ie registration with the Registrar of Companies and tougher auditing requirements.Question 3The legal relationship between partners in a firm is classified as a fiduciary relationship ie a relationship of trust. Partners are agents of their fellow partners and also of the firm itself.Candidates should cite the following case which exemplifies the nature of the fiduciary relationship between partners:.Pillans Brothers v Pillans [1908]The legal relationship between a member and a limited liability partnership will also be classified as a fiduciary relationship. Section 6 of the Limited Liability Partnerships Act 2000 states that the members of an LLP are to be regarded as the agents of the business and it is a general rule of the law of agency that an agent (the member) must always act in the best interests of his principal (the LLP). It is important to bear in mind that a member is not an agent of his fellow members.Case Study 3Question 1A company’s objects clause is found in its Memorandum of Association. The objects clause sets out the purpose of the company usually in the form of a list (sometimes a very long list) of the various commercial and business activities that it is likely to undertake. Before the reforms introduced by the Companies Act 1989, companies could not enter into certain contracts with third parties unless such a commercial transaction was listed in the objects clause. Such an unauthorised contract was void by reason of the company’s lack of capacity to enter such an agreement in the first place and ignorance of the contents of the objects clause on the part of the third party was no defence. Nowadays, many companies will have straightforward objects clauses which allow them to enter into any type of business or commercial transaction whatsoever.Question 2No is the simple answer. MacGregor does not have legal justification for its withdrawal from the contract with Constructit. MacGregor is attempting to rely on the old ultra vires rule. As a result of reforms introduced by the Companies Act 1989, Section 35 of the Companies Act 1985 now states that every contract is enforceable against the company. No act done by a company may be questioned by the fact that it was beyond its legal capacity as stated in its objects clause in the Memorandum of Association. Section 35B of the 1985 Act goes on to say that there is no necessity for a third party to check that a proposed contract is within the powers of the company as per the Memorandum of Association. Furthermore, Section 3A of the Companies Act 1985 now permits a company to have a simplified objects clause which means a company can enter into practically any contract whatsoever with third parties.In situations where third parties dealing with the company have failed to act in good faith and where the Directors have exceeded their authority, Section 35A: Companies Act 1985 raises the possibility that such an ultra vires contract may be declared voidable by the company. In other words, the ultra vires rule comes back to haunt third parties dealing with the company when they act in bad faith — but not in this case study.Candidates should cite the following case which emphasises the harshness of the old ultra vires rule:.Ashbury Railway Carriage & Iron Co v Riche [1875]Question 3Candidates must reference their answer to Section 14 of the Companies Act 1985 ie the binding contractual nature of the Memorandum of Association and the Articles of Association. The shareholders will have to establish whether they are entitled to receive bonuses in terms of the company’s Articles of Association. If so, they can raise an action against the company in terms of Section 14 to force payment of dividends. If the payment of bonuses is purely discretionary, the company may well have the right to suspend payment this year.Candidates should be able to cite at least one of the following examples from case law in support of their answer which demonstrate that the relationship between a company and its members and between the members themselves is contractual in nature as per Section 14 of the Companies Act 1985:.Eley v Positive Life Assurance Co Ltd [1876].Hickman v Kent or Romney Marsh Sheep Breeders’ Association [1915].Rayfield v Hands [1960].Wood v Odessa Waterworks Co [1889]Case Study 4Question 1There are numerous differences between private and public companies. It is often useful to give candidates a list of the different characteristics of both organisations whereby they are able to compare and contrast. Candidates are only being asked to list three differences between a private company and a public company from the two lists set out below and there is plenty to choose from.The main characteristics of a private limited company are:1Company name must end in “limited” or “ltd”.2The Articles of Association of a private limited company may provide for a right of preemption so that when a member wishes to sell or to transfer ownership of his shares hemust first offer them to existing members.3 There is no minimum capital requirement.4 The shares in a private limited company cannot be traded or listed on the stock exchange.5 Only one director is required.6 In terms of the Companies (Single Member Private Limited Companies) Regulations1992, a private company limited by shares or by guarantee need only have one member.7 There is no upper age limit for directors.8 Audited accounts must be produced within 10 months of the end of the financial year.9 Trading can start as soon as a Certificate of Incorporation is obtained.The main characteristics of a public limited company are:1 The company name must end in “public limited company” or “plc”.2 Members must be free to transfer their shares as they please.3 A public company must have minimum issued share capital of at least ￡50,000.4 Shares can be listed on the stock exchange and can be traded.5 There must be at least 2 directors.6 There must be at least two members.7 Directors must retire when they reach the age of 70.8 Audited accounts must be produced within 7 months of the year end.9 After incorporation, trading cannot begin until a “trading certificate” is issued by theRegistrar of Companies upon satisfaction of the nominal value of share capital. Thistrading certificate is referred to as a Section 117 certificate after the relevant section ofthe Companies Act 1985 which makes possession of such a document compulsory forpublic limited companies. Public companies cannot begin trading without having beenissued with a Section 117 certificate.Question 2Candidates must be able to show that they understand that, in terms of the Companies Act 1985, a new company must be registered with the Registrar of Companies. Among the two most important documents submitted to the Registrar will be the Memorandum of Association and the Articles of Association which provides important information about the nature of the company and how it will be run. Until the new business has been registered, it is not regarded as a person recognised by law and, therefore, it cannot enter into contracts with third parties. So, you cannot simply decide to set up a company and begin trading immediately. Any new company must have Certificate of Incorporation issued by the Registrar of Companies — a birthcertificate if you want to make the comparison. Additionally, public limited companies, must have a Section 117 certificate (so named after the relevant provision in the Companies Act 1985) issued before they can begin to trade.Question 3When a company is created it is said to enjoy separate corporate personality. Fundamentally, the doctrine of separate corporate personality means that a company is to be regarded as an artificial legal person completely separate from its members. It is a person in its own right whose existence is recognised by the courts.Candidates must be able to cite the leading case of Salomon v Salomon & Co Ltd [1897] in support of their answer.Question 4The most common type of liability that company members will be subject to is that of limited liability. The term “limited” relates to the fact that the members of the company enjoy “limited liability” status. This means that a member’s individual liability is confined solely to the amount unpaid, if any, on their shareholding in the company. In companies limited by guarantee, the members agree to be liable to the company’s creditors for an agreed sum should the business fail. Companies limited by guarantee are run as private companies.NB It is important that candidates are able to give a short summary of the facts of anycase law cited AND the decision of the court in order to support their answers. It isnot sufficient merely to name a case or cases.Making an assessment decisionCandidates answering eight or more questions correctly will be deemed to have passed the Assessment. Those candidates who answer six or seven questions correctly should resit those questions that they have answered incorrectly. Clarification of candidate responses during the resit opportunity could be by oral questioning. Candidates who have correctly answered fivequestions or less would have to resit the entire Assessment.NBThe number of questions based on each case study will be dependent on the case study content. Assessors should take this into account with making an assessment decision。