Company Law and Secretarial Practice - Essay Example

Company law and secretarial practice al affiliation Partnership and companies are not strange forms of business units. Whenever business entities realize that they share corporate objectives or that operation as separate entities result in unhealthy competition, they may come together to control the market. However, in the case where many businesses merge, a monopoly emerges which disadvantages the buyers. On the other hand, business takeover occurs when the ownership and control of a company are ultimately transferred to a new business entity (Spadaccini, 2007). Takeover arises when the overtaken business becomes insolvent. Business insolvency can occur when a company makes persistent losses as compared to profits. After a corporation takes over the other, it acquires the legal obligations assigned to any business entity. For instance, a company can sue and be sued, conduct transactions with other organizations and make profits. In essence, in case the company legally takes over the other, it acquires the necessary legal obligations. This paper discusses the rights and duties of Houz Proud Pte Ltd. The rights and obligations of business owners vary depending on the type of business organization. For instance, a business can be operated as a sole proprietorship, a limited liability company, or a partnership. Each business structure has some unique legal obligations although they share some fundamental organizational and operational attributes. Sole trader or sole proprietorship is the simplest form of business that confers the absolute ownership by the company owner (Bartschi, 2001). However, this type of business has inherent disadvantages. The owner of a sole proprietorship is not separate from the enterprise. Since the company is inseparable from the owner, he or she is personally liable for the debts, contractual obligations and any claims against it. Other demerits for a sole proprietorship are that it cannot obtain bank loans in its name or raise equity finance by issuing shares. Unincorporated business associations are companies that come together for specific purposes. They have a constitution that is legally binding but are managed by a management committee. All members of the committee are personally liable for the business unless indemnified by the constitution (Bartschi, 2001). On the other hand, a partnership is a comparatively simple way in which two or more individuals unite to operate a business To generate profits. The partners share the legal responsibilities of the business and are regulated by binding agreement concerning capital contribution, and the way they share profits and losses of the enterprise. Since partnerships are not incorporated, their borrowing is limited and due to the lack of equity, the business cannot issue shares. A limited company is the standard legal form of incorporated business. Incorporation of firms confers on them the aspect of the separate legal entity. The separate legal personality of integrated companies implies that they can enter into contracts in their name. Members of a limited liability company are not personally liable for the losses or claims laid on the business by parties such as lenders or customers. In limited liability companies, each member holds at least one corporate share and they are only bound to lose their company investment in case the business is liquidated due to insolvency or some other reasons (Bartschi, 2001). A company can borrow bank loans to supplement returns on share capital and the returns on investments. In securing bank loans, the companies use the assets that it owns as a collateral security. Therefore, due to the aspect of limited liability, bank lenders have to make it a requirement that businesses incorporate before they can secure bank loans. Accountability in limited liability companies is bestowed upon the company shareholders. Limited liability companies protect its members from financial or any form of responsibility but it is disadvantageous when lenders fail to loan until the members sign away their limited liability. Signing off a limited liability by company members makes them personally responsible for the business debts. The name of a corporation differs from its legal obligations. A legally constituted business must end with the legal elements such as Limited, Incorporated or Corporation (Bartschi, 2001). In a corporation, a business may decide to undertake transactions under a name that is different from the company name. In this case, the proprietor handles the debts owed by the enterprise. Taking into account the above-mentioned legal obligations and rights of business structures; Houze Proud Pte Ltd is not a non-exempt company. First, the company bears a legal assertion, "Limited" meaning that the company is a corporation that handles its debts. This provision differs from Anthea Ang business that was evidently run by Anthea as a sole proprietorship prior to its takeover by House Proud Pte Ltd. The fact that Anthea held the greatest shares of the incorporated company may connote the largest legal responsibility, which in actual sense is illusionary (Miller & Jentz, 2011). Anthea is legally bound to lose the only the share capital she owns in Houz Proud Pte Ltd when the business becomes insolvent. OMore Bank Limited had the legal obligation to assess the assets belonging to the borrower preceding their granting of the requested loan since limited liability companies offer an inherent protection of the property of its owners. The only sure way to ensure loan security was through the business assets of Houz Proud Pte Ltd. The loan claims by OMore Bank Limited had been allocated to an entirely different business name that had separate personality entity. A company limited by shares is exempt in case no corporate body other than another exempt company holds its shares. The significant legal requirement for private exempt companies include, nobody corporate is a director of the said company or that none of the directors is party to policy arrangements that leave the decisions of the company in the hands of people other than the directors, debenture holder or its members. Secondly, the debenture or shareholders should not exceed fifty persons. Under the Companies Act of 2006,all limited companies such as Houze Proud Pte Ltd is obligated to have a statement of capital and shareholdings or a statement of guarantee as a security for loans and other forms of credit. Companies under the Companies Act have the discretion to get corporate finance either from equity investment or through debt finance. Equity investment involves issuance of company shares to the public to obtain capital (Miller & Jentz, 2011). On the other hand, can get finance from debt finance, which involves loans from banks at a fixed interest rates subject to the provided collateral security. It is a legal requirement that the lender bank contracts for a security interest over a companys security interest to cover for the risks of default. In cases, where a company is unable to fully meets its debts when it is due, the United Kingdom insolvency law provides that an administrator save the company from collapsing but if this is impossible then the company assets are to be liquidated, shared among the creditors and the defaulter and insolvent business is deregistered. The common-law duty of a lender to a borrower is bound by the primary documents that supported the award of the defaulted loan. The loan negotiation documents give contractual provisions that delimit the activities of the borrower and the lender (Martin, 2011). Despite the protections that limited liability companies offers to its owners, the courts can lift the veil to make the shareholders and the company directors directly liable for the debts owed by the business to its creditors. Although breaking the cover is considered under limited cases in the United Kingdom, its application is borrowed from the jurisprudence, Solomon v Salmon and Co. Ltd. In this jurisprudence, the cobbler had incorporated his business, according to the provisions of the Companies Act of 1862.Mr. Solomon brought to the company six family members to purchase a share each to meet the requirements of the Companies Act that required at least seven corporate members. Mr. Solomon subsequently issued a debenture to cover the money he had lent the company in case of insolvency. The company became insolvent, and the liquidator attempted to sue Mr. Solomon on behalf of the company creditors. The liquidator sought for a personal prosecution of Mr. Solomon but not the company (Leach & Melicher, 2012). The court of appeal consented to the fact that the registration of the dummy shareholders by the company implied the indebtedness of Mr. Solomon to indemnify the business in case of insolvency. However, the requirement for enterprises indemnity had to be consistent with the demands of the House of Lords. The House of Lords asserted that as long as the requirements for the formal company registration were met, Mr. Solomons property was protected from indemnity. The case involving OMore Bank Ltd, Houz Proud Pte Ltd, and Anthea Ang business, ownership of Houz Proud Pte Ltd is by shareholding. Furthermore, the terms safeguarding the loan are not provided but by virtue of shareholding, Anthea, and her two colleagues are the owners of Houz Proud Pte Ltd. It is a legal requirement that before OMore Bank Ltd offered the company any loans, it would have valued its capital to assess its ability to repay the loan (Martin, 2011). Anthea holding many shares of the company gives the impression that she stands absolute liability for the debts. However, Houz Proud Pte Ltd is a legal entity that has a liability of its own that is separate from its owners. The responsibility of the three partners is limited to their share capital in the company. The sole proprietorship that Anthea runs after the collapse of Houz Proud Pte Ltd is considerably a personal property that is separate from the debtor company. Using the assets of the operational Anthea business to offset the loan owed to OMore Bank by Houz Proud Pte Ltd is a possible contravention of the property protection veil. Furthermore, OMore Bank bears a self-blame for not having secured their loan by the assets owned by the borrower. Therefore, Anthea cannot be solely liable for the debts owed by Houz Proud Pte Ltd except for her shareholdings in the company. References Bartschi, M. (2001). Foundations of business organizations for paralegals. Albany, NY: West/Thomson Learning. References Leach, J. C., & Melicher, R. W. (2012). Entrepreneurial finance. Australia: South-Western Cengage Learning. Martin, A. R. (2011). Limited liability company & partnership answer book. Austin [Tex.: Wolters Kluwer Law & Business. Miller, R. L. R., & Jentz, G. A. (2011). Business law today: The essentials: text & summarized cases : e-commerce, legal, ethical, and international environment. Mason, OH: South- Western Cengage Learning. Spadaccini, M. (2007). Incorporate your business: In any state. Irvine, CA: Entrepreneur Press. Read More