Company law 1

Partnerships

A partnership is a business arrangement in which several people work together, and share the risks and profits. In Britain and the US, partnerships do not have limited liability for debts, so the partners are fully liable or responsible for any debts the business has. Furthermore, partnerships are not legal entities, so in case of a legal action, it is the individual partners and not the partnership that is taken to court. In most continental European countries there are various kinds of partnership which are legal entities.

A sole trader business - an enterprise owned and operated by a single person - also has unlimited liability for debts.

Limited liability

A company is a business that is a legal entity. In other words, it has a separate legal existence from its owners, the shareholders. It can enter into contracts, and can be sued or taken to court if it breaks a contract. A company can (in theory) continue for ever, even if all the staff and owners change. Most companies have limited liability, which means that the owners are not fully liable for - or responsible for - the businesses debts. These companies are known as limited companies. Their liability is limited to the value of their share capital: the amount of cash that the shareholders have contributed to the company. This limitation of liability encourages investors to risk their money to become part owners of companies, while leaving the management of these companies to qualified managers and senior managers, known as directors.

These managers and full-time executive directors run the company for its owners. There are standard procedures of corporate governance - the way a company is run by the management for the shareholders, and how the managers are accountable to the shareholders. These include separating the job of chairman from that of managing director, and having several non-executive directors on the board of directors who do not work full-time for the company but can offer it expert advice. Non-executive directors are often more objective: less influenced by their opinions and beliefs. There is also an audit committee, containing several non-executive directors, to which the auditors report.

BrE: chairman; AmE: president

BrE: managing director; AmE: chief executive officer (CEO)

Founding companies

When people found or start companies, they draw up or prepare Articles of Association and a Memorandum of Association. The Articles of Association state:

■ the rights and duties of the shareholders and directors

■ the relationships among different classes of shareholder (See Unit 29)

■ the relationships between shareholders and the company and its directors. The Memorandum of Association states:

■ the company's name

■ the location of the company's registered office - where to send official documents

■ the company's purpose - its aims or objectives

■ the authorized share capital - the maximum share capital it can have. BrE: Articles of Association; AmE: Bylaws

BrE: Memorandum of Association; AmE: Certificate of Incorporation

5.1 Are the following statements true or false? Find reasons for your answers in A and B opposite.

1 In case of a legal dispute, people can take a company's shareholders to court.

2 The owners of limited companies have to pay all the company's debts.

3 Many companies are not owned by their managers.

4 External directors can usually give more objective advice than full-time directors.

5 Partners in British and American businesses are not liable for the partnership's debts.

6 In case of a dispute, people can take British companies and partnerships to court.

5.2 Make word combinations using a word from each box. Then match the word combinations to the definitions below. Look at A opposite to help you.

corporate

audit

limited

non-executive share

committee

directors

governance

capital

liability

1 .......................................... : a group of directors to whom the external auditors present

their report

2 .......................................... : members of a board of directors who are not full-time managers

of the company

3 : owners' money invested in a company

4 : responsibility for debts up to the value of the company's

share capital

5 .......................................... : the way a company is managed for its owners

5.3 Complete the document. Look at C opposite to help you.

(a)

f

2. The (b)

3. The (c)

i

g

of Association

1. The name of the Company is Language Services Pty Limited.

of the Company will be in Australia.

for which the Company is established is to provide

translation and interpreting services to international companies.

4. The (d)

i

of the company is made up of ordinary shares

divided into five thousand (5,000) shares of A$ 1.00 par value each with one vote for each share.

Over +o ipu

Do partnerships have limited liability in your country? If not, who would you trust enough to start a partnership with?

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Company law 2

Private and public companies

Private companies usually have 'Limited' or 'Ltd' at the end of their name. They are not allowed to sell their stocks or shares on an open market. Most companies are private; there are about one million private companies in Britain, compared to around 2,000 public limited companies (PLCs). These companies have 'pic' at the end of their name, and their shares are publicly traded on the London Stock Exchange. A stock exchange is a market where anyone can buy stocks and shares. The LJS equivalent of a PLC is a company or corporation registered with the Securities and Exchange Commission (SEC).

SEC-registered companies, also known as listed companies, have to make quarterly reports (i.e. every three months). They report on:

■ sales revenue or turnover - the money received by the company in that period from selling goods or services

■ gross profit - turnover less cost of sales

■ net profit - gross profit less administrative expenses and tax.

Companies on the London Stock Exchange, known as quoted companies, have to produce a half-yearly interim report which informs shareholders about the company's progress. These reports are not audited.

All companies with shareholders or stockholders have to send them an Annual Report each financial year. This contains a review of the year's activity, and an examination and explanation of the company's financial position and results. There are also financial statements and notes (see Units 11-14), and the auditors' report on the financial statements.

BARCLAYS PLC Interim Report 2004

Group performance was very strong:

- profit before tax up 23% to £2,411 m

- earnings per share up 25% at 26.7p

- dividend per share up 1 7% to 8.25p

- return on equity of 20.4%

All businesses had higher profits, demonstrating good progress across the whole portfolio. Income growth was particularly strong, up 14%, with good broad based contributions by business and by income type.

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AGMs

Public companies have to hold an Annual General Meeting (AGM), and most private ones do too. At this meeting the shareholders can question directors about the content of the Annual Report and the financial statements, vote to accept or reject the dividend recommended by the directors, and vote on replacements for retiring members of the board. The meeting can also carry out any other business stated in the company's Memorandum of Association or Certificate of Incorporation, and Articles of Association or Bylaws.

If there is a crisis, the directors or the shareholders can request to hold an Extraordinary General Meeting (EGM) to discuss the situation. For example, if there are claims of misconduct by the directors, where they have behaved illegally, there could be an EGM.

BrE: Annual General Meeting (AGM); AmE: Annual Meeting of Stockholders BrE: Extraordinary General Meeting (EGM); AmE: Special Meeting

6.1 Complete the table. Look at A and B opposite to help you.

(i)

Public companies

companies

g

can't sell shares on the (2) •

in the UK

are called public

(3)....................... companies

or (4).......................

companies.

in the US

are called 5EC- registered companies

or (6)........................

companies.

produce (5) reports.

produce (7) reports.

Have you ever been to an AGM? Was there any disagreement between the shareholders and the directors? Who do you think is usually more powerful - the shareholders or the directors?

Over +o ipu

publish an (8)............................................................................ and hold an (9)

Date: 2015-02-28; view: 10477