Legal Opinion for Formation of a Public Company - Coursework Example

? Legal opinion for formation of a public company The procedures to be followed to form a public company and to enable it to begin trading The procedures to be followed to form a public company and enable it to begin trading In the United Kingdom, it is not compulsory for a public limited company to offer shares to the public. This means that some public companies have private ownership. Forming a public company requires that there be a minimum of two directors. The company’s directors should meet the legal obligations and requirements as set by the law. Another requirement while starting a public company is that there should be a minimum share capital. Before the company starts its business, it must have allotted shares whose minimum value should be at least 50, 000 pounds. A quarter of the shares should be paid up; this amounts to ?12, 500. For each of the allotted shares, up to the last quarter of its nominal value has to be paid up as well as any premium (Companies House, 2012). The other procedure in the formation of a public company includes the choosing of directors of the company. Several requirements have to be followed when choosing the company directors. One of the requirements is that the person should not be disqualified by law from becoming a director or be bankrupt. The maximum age of directors that was previously seventy years has been removed. During the formation of the company, the minimum age required for company directors is sixteen years. The directors of the company should then select few names (four) that are suitable enough and indicate the company’s objective (Companies House, 2012). One of the four names selected will become the main name while the three others have to be mentioned in their order of preference. The directors should then make an application to the registrar of companies to ascertain whether the selected names are appropriate. Once the names go through, the next step includes the drafting of the memorandum of associations and articles of association. The authorized share capital of the proposed public company should then be declared and be in line with the minimum paid up capital required in forming a public company. The next step involves filing a declaration and attaching the statement in lieu of the prospectus. Once the company is through with these steps, it will obtain a certificate that will enable it to commence business. Shares will be floated through an initial public offering, which states the price per share and the minimum and maximum number of shares that can be held by shareholders (Companies House, 2012). How the courts distinguish between contracts of service and contracts for services and the importance of this distinction. The law distinguishes between a contract of service and a contract for services. A contract of service refers to an agreement, which may either be verbal or written, implied or expressed. In this contract, a person makes an agreement employ another person as an employee while the employed person makes an agreement to serve the employer. An example of a contract of service includes an apprenticeship agreement or contract. On the other hand, contracts for services refer to independent contractors and sub-contractors. In differentiating between a contract of service and contracts for services, courts apply such tests as integration and control (Barendrecht 2007, p. 151). The test of integration looks at the extent to which the work of the employee may be said to be integrated into business. The control test explores the question on whether the employer can tell the employee what they ought to do. Other tests applied by the courts in the distinction between contracts of services and contracts for services include mixed or multiple tests. These tests question whether the agreement or engagement has wages, holiday pay, and sick pay. The courts state that these tests ask whether PAYE and PRSI are deducted. According to the courts, these multiple and mixed tests should also look at whether workers have a share in losses and profits of the company. While distinguishing between these two terms, the interpretation of the court does not rely on what the court says in case of a contract. Courts look at whether a person performs work in their own account or as a business (Barendrecht 2007, p. 153). Courts argue that the unique characteristic of a contract of service sets it apart from a contract for services. This forms the basis of the differences between a contract of services and a contract for services. For courts, an individual who is an employee has several obligations different from a person under a contract for services. An employee acts on the direction of another person regarding where, when, and how work will be done. In a contract of service, the employee also supplies labour and receives wages, which may be hourly, weekly, or monthly. An employee under a contract of service cannot also sub-contract the work he or she does. In case work is sub-contracted, it would lead to the termination of the employer/employee agreement (Barendrecht 2007, p. 154). In a contract of service, the court also acknowledges that the employee does not have the responsibility of supplying the materials needed to do the job. Instead, the equipment is provided by the employer and the employee only provides the small tools needed to facilitate trade. While carrying out his or her work, the employee does not bear the financial or personal risk associated with the work he carries out. In a contract of service, an employee does not take any responsibility for management as well as investment in the business enterprise (Barendrecht 2007, p. 155). In addition, the employee lacks the opportunity to benefit from sound management that emanates from the scheduling of engagements or in performing tasks that may emanate from those engagements. Employees also work for one business, or they may be working for only one person. Moreover, there are hours in a day, week, or a month that the employee should work. Another characteristic of a contract of service is that an employee receives payments that may cover expenditure such as travel. An employee also claims extra payments for overtime. The courts also set the criteria used for determining a contract for services, which explains the characteristics of self employed persons. To courts, a person under a contract for service can be termed as one who owns his or her business. A self employed person has exposure to financial risk. He or she is supposed to carry the responsibility of work done in substandard ways, which may have been done under a contract. Another distinction with the contract of services is that a self employed person takes responsibility for the management as well as investment of the business enterprise (Stone 2009, p. 225). In a contract for services, the self employed person can benefit from sound management that entails the performance and scheduling of tasks and engagements. A self employed person also controls the work done, how the work will be done, where, and when the work will be done. Self employed persons can also hire other people on the terms of the self employed person; the people employed agree to do the work on conditions laid out by the employer. The court also terms a self employed person as one who can provide same services to more than one business or person at the same time (Stone 2009, p. 226). Courts also recognize a self employed person has to provide the materials needed to perform the job. They provide machinery and equipment needed for the job; this may exclude small trade tools that would indicate that a person does a job for themselves. A self employed person also determines the cost and makes an agreement for the price to be charged on a job. Moreover, self employed persons have fixed places from where they conduct their business; it is these fixed places that equipment and materials are stored. While fulfilling the obligations of the job, self employed person controls the working hours. They also cater for their own insurance cover, which may include public liability cover (Stone 2009, p. 228). The distinction between contract of services and contract for services by courts is of remarkable significance. This distinction can be termed as essential since protection of employment legislation does not encompass independent sub-contractors. This is the case with the exemption of safety and health legislation as well as equity legislation. The appointment, duties and powers of the company secretary. Discuss the extent of the implied authority of the company secretary. Appointment of a company secretary For one to be appointed as a company secretary of a public limited company, he or she should be a professional lawyer, company secretary, or accountant. Previous experience as a secretary of a public limited company can also be taken into consideration. To be appointed as a company secretary, one must not be disqualified as a company director either through a bankruptcy or a court order. Such disqualification may prevent a person to act as company secretary unless the court allows them to become a secretary. The appointment of the company secretary is carried out by the directors of the company (Sharma 2005, p. 48). Duties of a company secretary The duties of the company secretary are detailed in the employment contract and not in the companies act. A company secretary can be regarded as a company officer; therefore, he or she may be held criminally liable in case the company commits any defaults. For example, the secretary can be held liable for failing to file changes in the details of directors of the company as well as the annual returns of the company. Another duty of the company secretary encompasses making statements regarding the affairs of the company. This happens in cases where there is an appointment of a provisional liquidator or administrative receiver, or when an order for winding up is made (Sharma 2005, p. 51). Another duty of the company secretary includes maintaining the statutory registers belonging to the company. These encompass the register of members, the register of directors’ interests, the register of interests in shares in case of public companies, the register of members, and the register of charges. The company secretary should also ensure prompt filing of the company’s statutory forms. A company secretary has the duty to provide members of the company and auditors with notices of the meetings to be held. The secretary should give the relevant parties a written notice 21 days prior to the annual general meeting. For other meetings, not annual general meetings, especially meetings held with the purpose of passing resolutions, the secretary should give members a notice of 14 days (Sharma 2005, p. 54). The other duty of the company secretary is to send copies of agreements and resolutions to the registrar. Such resolutions and agreements include extraordinary and special resolutions within 15 days after passing them. The company secretary has the duty of supplying every company member with a copy of the accounts; other persons who should be given the copies include all persons entitled receive notice on general meetings and also every debenture holder. A company secretary should also arrange for the keeping or keep minutes of meetings held by directors and general meetings (Kumar & Sharma 1998, p. 2). A company secretary has the duty of ensuring that those entitled to inspect the records of the company can do so. For instance, the secretary should ensure that members of the public and company members have access to a copy of the register of the company’s members. In addition, the company secretary has the duty of keeping in custody the company seal as well as using it (Kumar & Sharma 1998, p. 5). Powers of the Company Secretary Ashton (2008, p. 4) observes that the companies act gives the company secretary powers to sign applications regarding re-registration. For instance, the company secretary has powers to sign the re-registration of a limited company to an unlimited company. The secretary also holds powers to sign most of the forms that the companies act prescribes. The other powers of the company secretary encompass delegating the work of company secretary to an expert from outside. This expert can either be a company secretarial service or an accountant of the secretary. Other powers of the company secretary include powers to make contracts within the sphere of competence of the secretary. The extent of the Implied Authority of the Company Secretary As the chief administrative officer in the company, a company secretary has implied authority to act as an agent of the company, although in a restricted sense. The secretary has ostensible authority, which allows him to enter into contracts while working on behalf of the company. This mainly applies in matters to do with the administration in the office such as hiring vehicles, ordering equipment to be used in the office, and the employment of staff to work in the office. While working as an agent of the company, the secretary ought to carry out business with diligence and reasonable care. A company secretary may also bind the company, especially when the action can be considered to under the authority of the secretary (Ashton 2008, p. 7). The rules relating to the funding of dividends and the procedure for paying dividends. Explain the consequences of breaching the dividend rules. Distinguish between public and private limited companies. Dividends refer to the profit that the company sets aside and declared as profit that will be shared by each of the members of the company. Almost all companies operate with the aim of making profits and sharing them with members who make up the company. The power to pay dividends can be termed as implied; therefore, it should not be mentioned in the Articles or Memorandum of Association. Prior to the declaration, and payment of dividends, public companies should fulfil several formalities for the process to be successful. Provisions regarding the declaration as well as payment of dividends are contained in the Companies Act. According to the Act, dividends may be paid from three sources; these include the profits made by the company, undistributed profits from previous financial years, or money provided by the State or Central Government (Baker 2009, p. 7). While paying out dividends, Section 205 (2) of the Act requires that the company provides for depreciation. Depreciation includes that of any arrears as well as depreciation of the current year. The depreciation should also be provided as required by section 350 of the Act. Based on this Section, depreciation has to be calculated at the rate that Schedule XIV of the Act specifies. In instances when the act does make a provision for an asset, the depreciation of the asset is calculated on the basis that the Central Government approves (Baker 2009, p. 9). Procedure for the payment of Dividends There are several procedures that should be followed when a company wants to pay dividends to members of the public who had invested in the company’s shares. The first step includes a recommendation from the Board of Directors who declare the rate of dividends to be declared and paid to shareholders. A board meeting is convened in order to determine the rate and amount of dividends to be paid. The next step includes approval by the company’s shareholders through a resolution that shareholders pass during the Annual General Meeting. During the approval of the rate of dividends, shareholders can declare a lower dividend rate than what the Board has recommended, but they cannot recommend a higher dividend rate (Baker 2009, p. 8). The third step is to include interim dividend in the amount to be paid as dividend; the Board of Directors have the authority to declare this interim dividend. The fourth step entails depositing dividend in a separate bank account, which is opened for the purpose of depositing dividends, inclusive of interim dividend. The next step includes deciding whether dividend will be paid in the form of a warrant or cheque; this applies to dividend payable in cash. The company then sets the time frame within which the dividends will be paid. This is mainly 30 days from the time of the declaration of the dividends. The seventh step in the payments of dividends encompasses transfer of unpaid dividends, which the shareholders have not claimed after the stated 30 days. The company then transfers the unpaid dividend to the Investor Education and Protection Fund. The final step in the payments of dividends includes coming up with a directors’ report that details the amount, which the Directors recommend paying as dividends (Baker 2009, p. 9). There are consequences that may be suffered in case of a breach of the dividend rules. When the company pays dividends in breach of the Companies Act, there can be severe consequences on both the shareholders and directors of the company. A far reaching consequence includes recovery of illegal dividends that can be sought from the shareholders and directors. Actions may be raised under the 1986 Insolvency Act, which would force both the shareholders and the company to repay the illegal dividends. In addition, if the director is found guilty of misapplying the funds of the company, he or she would be supposed to repay the funds (Slorach & Ellis 2007, p. 363). Differences between a Public Limited Company and a Private Limited Company One of the differences between a public limited company and a private limited company is a public company can raise capital by selling shares in the stock market, while a private company cannot sell shares in the market. The minimum members required for a public company is seven while a private company requires a minimum of two members. The maximum number of members required for a private company is not more than 50, while a public company does not have restrictions on the maximum number of members required. The Articles of Association restricts the transferability of shares in a Private Company while a Public company does not restrict the transferability of shares (Battle 2006, p. 82). The minimum number of directors required in managing the affairs of a private company is 2 while a public company requires 3 directors. Directors in a Private Company need not give the consent while Directors of a Public Company should file consent to act as Company Directors. Another difference is that directors in a Private Company should not sign an undertaking in order to acquire qualification shares, while Directors of a Public Company should sign an undertaking to enable them acquire qualification shares. A public company cannot commence business unless they have the certificate, while a private company can commence operations upon incorporation (Battle 2006, p. 84). A Private Company does not have the mandate to issue share warrants against the fully paid shares it has. On the other hand, a Public Company has the powers to issue Share Warrants against its shares that are fully paid up. A Public Company can further issue shares to the already existing shareholders while a Private Company cannot do so. A Public Company has the obligation to call a statutory meeting and file a report with the registrar of companies while a Private Company does not have an obligation to do so. In case of a Public Company, the quorum requires the presence of five members while a Private Company requires two (Schneeman 2009, p. 413). The personal liabilities that Mario, Eve, and Noelle could incur if the company were to fail and enter into insolvent liquidation If a company enters into insolvent liquidation, the directors of the company have some liabilities to bear in regard to the status of the company. When the directors of a company have breached certain duties that relate to the company, the court has the powers to make orders that will summon the directors and hold them personally accountable for their actions. The court can direct Mario, Eve, and Noelle to contribute a sum equivalent to the assets owned by the company when a creditor makes an application. The directors should also transfer or pay property or money together with interest at a rate that the court thinks is just to be offered to the creditor. The directors of the company may also be liable to pay the debts of the company, especially if the insolvency of the company results from fraudulent trading carried out with the knowledge of the directors (Anderson, 2008).     References List Anderson, H. (2008). Directors' Personal Liability for Corporate Fault: A Comparative Analysis, Netherlands, Kluwer Law International. pp. 1-60. Ashton, H. (2008). Company Secretary's Handbook 5edn, London, Kogan Page. pp. 4-12. Baker, K. H. (2009). Dividends and Dividend Policy, New York, John Wiley & Sons. pp. 6-15. Barendrecht, J. M. (2007). Service Contracts: (PEL SC), London, sellier. european law publ. pp. 151-155. Battle, C. W. (2006). Legal Forms for Everyone, New York, Skyhorse Publishing Inc. pp. 81-86. Companies House (2012). Directors-Other FAQS. (Online) Available at http://www.companieshouse.gov.uk/infoAndGuide/faq/directorsOther.shtml (Accessed 15 August 2012) Kumar, A. & Sharma, R. (1998). Secretarial Practice And Company Law, New Delhi, Atlantic Publishers & Dist. pp. 2-9. Slorach, S. & Ellis, G. J. (2007). Business Law 2007-2008, Oxford, Oxford University Press. pp. 362-380. Sharma, A. (2005). Company Law and Secretarial Practice, London, FK Publications. pp. 48-60. Schneeman, A. (2009). The Law of Corporations and Other Business Organizations, London, Cengage Learning. pp. 412-416. Stone, R. (2009). The Modern Law of Contract: Seventh Edition, New York, Taylor & Francis. pp. 224-231. Read More