Company Law: A Fast Track Summary | Shaveen Bandaranayake | Skillshare

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Lessons in This Class

24 Lessons (2h 40m)
    • 1. Welcome to Company Law!

      0:48
    • 2. Course Outline

      4:45
    • 3. Forms of Business Organization [Part I]

      6:45
    • 4. Forms of Business Organization [Part II]

      7:07
    • 5. Nature of Legal Personality

      7:17
    • 6. Lifting of the Veil [Part I]

      10:30
    • 7. Lifting of the Veil [Part II]

      7:59
    • 8. Lifting of the Veil [Part III]

      7:41
    • 9. Promoters and Pre-Incorporation Contracts

      13:17
    • 10. Raising Capital - Equity [Part I]

      6:51
    • 11. Raising Capital - Equity [Part II]

      7:00
    • 12. Raising Capital - Equity [Part III]

      6:18
    • 13. Raising Capital - Equity [Part IV]

      4:31
    • 14. Raising Capital - Debentures [Part I]

      5:41
    • 15. Raising Capital - Debentures [Part II]

      6:14
    • 16. Raising Capital - Debentures [Part III]

      7:30
    • 17. Share Capital [Part I]

      6:18
    • 18. Share Capital [Part II]

      4:37
    • 19. Share Capital [Part III]

      5:50
    • 20. Share Capital [Part IV]

      5:38
    • 21. Dealing with Insiders [Part I]

      8:57
    • 22. Dealing with Insiders [Part II]

      6:46
    • 23. Class Rights [Part I]

      5:00
    • 24. Class Rights [Part II]

      7:07
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About This Class

Company Law: A Comprehensive Summary!

Whether you are a new student or someone who is just about to sit for your Company Law examinations, "The Law Simplified" course on Company Law will give you a fast-track summery of the subject.

Many students who study the Law, find it difficult to connect all of the pieces together. Thus, this course will give you a "bird's eye" overview of the entire subject.

What's more, you will have access to 50+ pages of case summaries, specifically designed to help you understand all the legal principles.

This course has been adapted to suit the needs of LLB students worldwide!

Remember, this is not a substitute for thorough learning, but it will be a great resource for students who want to recap the entire syllabus and for those who want a better, clearer and more concise understanding of the principles - or simply anyone who's interested in learning Company Law!

Features:

- Digestible chunks of knowledge: everything you need to know on each topic, simplified

- Downloadable "spider graphs" that will give you the bigger picture of the subject

- 50+ pages of case-law, developed in a simplified and direct manner.

Meet Your Teacher

Teacher Profile Image

Shaveen Bandaranayake

LL.B Graduate, University of London

Teacher

Hi, I'm Shaveen Bandaranayake from Sri Lanka. I'm an M.A. Film graduate from the Raindance Film Insitute, UK, a LL.B (Hons) graduate from the University of London and a First Class Honours Computing (Multimedia) graduate from the Staffordshire University, UK.

I own an advertising agency in Sri Lanka and part of my career revolves around engaging with new and exciting concepts of communicating with different audiences. I studied for my LL.B almost a year ago and in order to effectively complete it, while having numerous work commitments, I developed a unique set of spider graphs to help me get an overview of my subjects. It became a great asset and thus, I thought I should share it with the world! :)

See full profile

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Transcripts

1. Welcome to Company Law!: way. Welcome to the last simplified course on company law. I'm your instructor shoving Bandaranaike. This course will take you through the fundamental principles off company law along with the specific nuances that are related and associate it with the subject. Now, mind you, this is no substitute for Tara learning, but it is a supplement. But students who are just coming into this subject or about to sit for the examinations. I hope you enjoy this course. So we thought much further. Ado, let's forget. 2. Course Outline: Welcome to the last simplified course on company law. I'm your instructor shoving Bandaranaike throughout your little be your study of flaw. You'll encounter models or subjects which have a new affinity to our day to day lives. For instance, in the first year we would have studied contract law, which is something that we encounter on a daily basis from buying a loaf of bread all the way to signing up for car insurance. Let's say similarly, company law is something that you encounter later on in your llB or your law decree, which essentially, if you're in the corporate sector or dealing with some person in the corporate sector that you might encounter and have to deal with as such company law. In the context of common law, English legal system is quite vast and at times complicated. The basis of company law that has been founded in the U. K. Has been seen all over the world, primarily in Commonwealth countries, as well as adopted in certain other senses in civil law jurisdictions as well. Now, specifically with the involvement of the you will see later on in this subject, there are provisions and regulations that have altered or changed the original precepts of company law as well. Having said that, considering the vastness of this subject and the fact that the Law simplified program or the course that you see here today is meant to summarize as well a simplify this subject, it has been necessary to break this subject into three formal areas, firstly, in relation to the formation off the company. Secondly, on how it's operated and finally the responsibilities of the duties of the parties involved , as well as how accompanying itself comes to an end. Having said that, well, first move on by identifying Part one, namely the various forms of business organization. How in itself can a company be formed? Secondly, looking at the nature off what is known as a legal personality, the fact that a company can in itself be sued as well, ASU others It is in itself an individual before the lot. The lifting off the whale of incorporation, the safeguards afforded to the individuals to the directors and the members of the company , how exactly a company's formed as well as the various contracts that those who are not directors of the company as yet enter into as pre Inc contracts the requirements off raising capital or assets off funds in order to start the company on an equitable premise as well as that off dimensions. Part one essentially then looks at the very formation or starting up off the company itself . Following this, we will move on to Part two, which fundamentally considers the operation off the company the share capital aspects dealing with the parties that are within the company or insiders, the various class rights that are applicable to individuals, the derivative claims of parties, as well as the safeguards afforded to minority shareholders, the statutory protection that are afforded to them. Finally, Part three will move on to much more granular and substantial aspects off dealing with third parties or outsiders as legal personalities on their own. The very management of the company itself, the responsibilities are Abramoff, Edie utmost good faith that individuals should have with the company, the fiduciary nature off it and finally, the unfortunate circumstances off liquidation when a company has to come to an end. Now, unlike many other courses that you would have seen in the law simplified program that we've gone through this in itself, is quite lost. It's quite technical and it's governed primarily by the Companies Act of 2006. When we go through these topics, when you go through the individual areas off company law off this model, you'll notice that the provision off the Companies Act of 2006 is what's fundamental for us to understand. While there are several case law and proceeding cases which are applicable for the most spot, it will revolve around the Companies Act of 2006. We will now begin this course without next lesson, which starts off with Part one Off Company Law, which is forms of business organization. 3. Forms of Business Organization [Part I]: In this lesson, we will begin part one off company law by having a look at the forms of business organization. Now. Essentially, this entire course will be centered primarily around companies both in it's private and it's public format. But having said that, there are a number of different ways that an individual or a group of individuals can get into business. Firstly, you have the sole proprietorship or the sole trader, but there's an individual that goes into business on his own account. You have partnerships where a group of individuals get together and you have the bulk of this subject, richest companies. But before we go into company law, let's have a look at the sole trader or the sole proprietorship. As I noted earlier, a sole trader is someone or an individual who goes into business on his own account. There are a number of advantages and disadvantages of doing business in this manner. When your outfit is quite small or limited, it is much better to be a sole trader or a sole proprietor, as opposed to let's say, a partnership or a company, primarily because there are no formal legal requirements. All for that matter any other requirements. The moment you start conducting your business is when you'll be considered a sole trader. Apart from that, all the profits and the benefits that are associated with your business will be solely enjoyed by yourself only. These are the primary advantages, but much like those benefits and profits accruing to only yourself so to as much as a disadvantage could be considered. There's the liability because it is quite personal, and you'll notice how this is distinguished from companies later on, where you have avail, so to speak between your personality and that of the company. But when it comes to a sore proprietorship, if you're a sole trader, chances are the liability will be imposed on you personally. Essentially are doing business on your own account in your name. Apart from that, your business, as I noted earlier, is quite limited as well, because the chances for raising capital are limited to your own soul itself. It's very difficult to ascertain capital from other investors as well as the public at large, much like in a company when you are conducting yourself as a sole proprietorship or a sole trader. This in turn means that there's a higher operative risk that's involved, since all the burdens as much as the benefits are accrued or are stipulated on you as an individual. Contrary to this, you have what are known as partnerships. Partnerships, unlike the sole trading businesses are the sole proprietorship, is actually governed by a statutory provisions, namely the partnerships Act off 1980 which specifies that a partnership is a relationship between two or more parties, carrying on a business in common with a view towards profit. Now, quite simply because a partnership arrangement involves more than one individual is why, ah, Parliament. Or is why legislation have decided to have the partnerships act in place now. The primary advantage of this, therefore, is the fact that since this is governed by statute, it has more security, more protections afforded to the partners, unlike in a sole proprietorship or sole trader, but similarly much like in a sole trading outfit, much like in a sole proprietorship. There's both joint and several liability. Whatever that happens, will be spread across equally among the partners or how they have essentially manifested themselves. Having said that, it is notable that there are certain other provisions or statutory provisions, which are in place that essentially several liability when it comes to partnership arrangements. One notable exception to this rule that I just mentioned is that of the Limited Liability Partnership Act off 2000. Essentially what the 2000 act specifies, liability is limited up to a certain point for general trading debts and is equally distributed among the parties. But other than that, any individual liability for negligence acts on their own account on an individual partners account must be born on Lee by the parties that are responsible for it. It cannot be spread across equally among all the partners. Now this in itself creates this tangent, so to speak, of partnerships, something that we wouldn't necessarily go into in depth here, since we're talking about company law. But in terms of protections afforded, what must be understood is that a partnership is always a step beyond that off a sole trader or a sole proprietorship. A few other aspects that are quite notable in partnerships is that if you have multiple partners, two or more partners and one such partner ceases or one such partner dies. This in itself is the end off the partnership itself. Now you might want to not essentially equipped. Rather compare this to, for example, principles in property law that we've looked at in terms of corner ship for joint tenancy, where when one off the joint tenants essentially ceases or dies, it essentially doesn't mean that the corner ship arrangement or the joint tenancy ceases to exist. It just means that it lapses or falls onto whoever is remaining. This is quite different from that now, apart from that being as it is, company law refers to primarily contract jewel arrangements, so to speak. These are matters between parties and matters between individuals, which courts off law are not quite happy or quite hesitant, for that matter, to get involved. As such, partnership agreements can opt out off this 1980 act as well the Partnerships Act of 1980. But many partnerships prefer to have it conferred upon their partnership arrangements because there are a number of advantages and statutory safeguards which are afforded to the partners. Now. Having said that, the fundamental aspect off doing business in the 21st century in modern days is that that off companies and this is going to make up the bulk off other syllabus. The bulk of our study off company law 4. Forms of Business Organization [Part II]: The Companies Act of 2006 could be considered as the primary piece of legislation in the formation management, as well as regulation off companies in the U. K. As well as for the most spot most of the common real jurisdictions that have some form of this act being enacted locally in their respective jurisdictions. The specialty off a company is that unlike a sole trader or a partnership, the liability off the shareholders is limited to the investment that they have made into the company and into the proportion off their respective shares. Moreover, once cos properly formed, it takes on a personality off its own, which in turn means that the company separate from the individuals involved in it can sue and be sued as well. This is something that we will extensively go into as we go along further in this course. The very first aspect that you must understand is that a company can exist either as private or public. Once this is understood, the very first aspect of forming a company is its registration. In order for a company to come into existence, there are number of requirements, things off retrieval once again going to much more detail as we go along into formation. Or the part one aspect of company lot, their articles of association that are memorandum of association, the application itself, a registration statement of the company directors, those who are involved in the company and whether, if at all this the compliance with the Companies Act has been adhered toe, each of these elements will be considered much more in turn later on. Having said that, let's first have a look at the distinct characteristics between a private and a public company. On the one hand, a private company can be formed with one single share hold. As per Section seven of the Companies Act of 2006 the position in the public company is the same. Similarly, in terms of a private company, the funds in terms off creation as well as operation can be sourced by personal savings of the directors of the shareholders, bank loans and so on. When it comes to a public company, the situation is somewhat more broader and more advantageous since you can source funds directly from the public, for example, through an initial public offering or an I P O membership in relation to a private company can be restricted. And this restriction can also amount to forcing off shares to be sold when a particular shareholder is leaving when someone is leaving the company. Now, these restrictions are not possible or, for the most part, difficult to impose when it comes to a public company, since funds as well as membership is being accrued from a number of individuals across the board. In general, when it comes to a private company, there is no minimum capital requirement. Essentially, you can start it off with zero. But when it comes to a public company, since it deals with the interests off the public at large. By world share of Section 763 of the Companies Act of 2006 there is a minimum capital requirement off £50,000. In the UK, the same figure changes from jurisdiction to jurisdiction in different countries. But for the more spotting the common law English legal system, it is out of £50,000 now. A private company, furthermore, requires one director at least, and it is optional to have a company secretary. This situation is somewhat converse when it comes to a public company, which requires a minimum of two directors, a company secretary and when there are resolutions being passed, the shareholders must be physically present in order to do so. Now, on a broad based level, you'll notice that in looking at this holistically, there are quite a number of similarities between the public and a private company. Apart from where it comes to sourcing off funds for the formation and the functioning of the company now in relation to the very constitution of the company itself, much like the formation, the Companies Act of 2006 plays a pivotal role and Section 17 outlines. In order for you to have this formation in a proper manner, there must be articles of association as well as resolutions and agreements affecting the company's constitution. There must be a method by which the companies to run. So when it comes to, for example, what is known as the articles of association, it governs of the rules of the company, how exactly the company structured or the organizational structure, what powers are vested with the board, how exactly general meetings happen and so on? Many companies actually opt to adopt a model articles of association If there are similar companies out there doing business, this off course changes based on business model to business model. But each company's free to create their own articles of association as well. Now remember, there is a pre existing requirement that there is compliance with the Companies Act of 2006 . However, when we consider alteration off this because there are situations in which companies, business models as well as their primary workplace changes are the requirements change in such a situation. Section 21 off the Companies Act of 2006 specifies that there must be a special resolution with at least a 75% majority would, while this dozen essentially, um, is not required, let's say, for the removal of director, for every other aspect off changing or altering articles of association or an area you need this to be fulfilled. Now there are a number of areas that have been outlined in this lesson loan, and if you feel that at this juncture there's a lot of technicalities coming to place. This is primarily due to the fact that a majority off company law, especially from its formation to the management aspects are governed heavily by the Companies Act of 2006. When we move on from this, we will start to understand, in part one the very nature of companies and how they operate within the sphere off the corporate sector. So in the next lesson, we will begin our discussion on the fundamental personality or the nature off the legal personality of a company. 5. Nature of Legal Personality: in this lesson, we will continue part one off company law by having a quick glance at what the nature off a legal personality is quite simply coming in from our previous lesson on the different forms off business organization, the law or the courts of law will recognize a properly established company as one which has its own legal personality, just like you'd be able to sue and be sued in relation to a normal individual. So, too, with the company. Now, if you are familiar with commercial law or the law agency for that matter, you'd understand the fact that there are agents that can work on your behalf, and as long as they work within the authority that they have been granted, their actions indemnified them from such actions. So, for example, if you have instructed someone to do something and that individual has done so based on your instructions, chances are that you are the one who is liable, and you have indemnified your agent off it. When we consider a company. Any individual working within the authority granted to him or her by the company is thereby exempted from his or her actions as long as it's within the instructions and within the authority. This is what we mean by the legal personality. The fact that when a company functions, although it cannot function on its own, rather it having to function throat through these individuals like directors like employees , for that matter, the ultimate legal personality or the ultimate legal relations that's created by the company is by the company itself, not those specific individuals. So quite simply, a company can sue as well as be sued in its own name because the law recognizes that company, a properly formed company, has its own legal personality. Now, while the governance off these aspects are not specified within the Companies Act of 2006 there are several proceedings and seminal cases that you should go through in order to understand how this concept of legal personality works. Make sure you have a look at the case summaries included with this lesson and with company law, the course itself at large, so that you can get a better grasp off how these preceding cases player rule in identifying and outlining the limitations, as well as the length and breath off our companies in relation to its legal personality. So, for example, you have seminal cases like Salomon and Salomon Company, which essentially outlined the fact that registration itself, the proper formalities itself, is sufficient in order to consider something as a company. In other words, the conduct off the parties are the purpose for which the company was made even though it might have been a shell corporation, for that matter, is irrelevant, according to the House of Lords. Now, mind you, these are all the cases as well. So there have been criticisms. It has been distinguished as well on many accounts, so make sure you understand this by word of going through the case summaries as well. Similarly, you have McCrory and Northern Assurance Company, which outlined the fact that one certain elements have bean transferred to the company by individual, irrespective off whether the individuals ownership off said assets are goods were transferred without consideration. For that matter, the company now becomes the officiate ER or the owner off such assets, and whatever in relation to those assets must be dealt in relation to the company itself. This, too, was a decision by the horse off lots, something that's outline further in the case summaries Lee and Lease Air Farming is another distinctive case, which essentially denoted the fact that regardless off the position and individual holes within the company, even in the format of a master servant relationship, the legal personalities themselves are capable of entering into legal relationships with each other. This is quite a controversial case on its own, and it has Bean distinguished as well, as if you look at the case summaries, you'll I understand how exactly the rationally plays out. You also have a borrowings, Pearcey and coppers and lie brint number four, a 2002 case, which outlines the fact that when considering, let's say, a multinational or larger conglomerate, the parent company as well as its subsidiary must be considered individually. They do not intersect with one another in terms of legal personality, since apparent company's actions and that of a subsidiary are considered as two different things in the eyes of the law. Now you'll notice that these cases are not the only cases that are out there in order to distinguish and define the extent off how the legal personality works in relation to a company. But having said that, it's important to distinguish and understand the difference between what we mean in terms of a company which has limited liability, as well as what we mean as a separate legal personality. Now, on the one hand, you'll hear throughout this course Israel as well as your study off company law, this term off limited liability and that being one of the primary advantages of having a company in the first place, essentially limited liability denotes the fact that a shareholder can only be held accountable or liable during the like liquidation for whatever he has put in to the company . The liability or your risk factor is limited to what you have the steak that you have within the company itself, and this is what we mean as a limitation of liability or limited liability company. On the other hand, however, when we talk about a company having a separate legal personality, what this denotes is the fact that just like we looked at ah, few moments ago, a company in the eyes of the law is given recognition and the ability to sue on its own behalf as well as be sued by others in its own name. Rather than specifically looking at the individuals within the company. Taking those actions let around in our lessons will go through a topic known as the veil of incorporation. In essence, the protections afforded to the agents are the officiate er's off the company, like directors and employees, and so on and so forth. This separate legal personality and separating those individuals from the company itself will become much more clearer in that context. 6. Lifting of the Veil [Part I]: in this lesson, we will have a look at the concept off lifting the whale of incorporation now. In the previous lessons, we had a look at the fundamental advantage, so to speak, off incorporating are creating a company, namely, the fact that it has its own legal personality and therefore a company on its own can either sue parties so other companies or individuals, or, conversely be sued on its own account rather than involving the parties involved in the company itself. Such a shareholders as well as directors. However, throughout history, what we have seen and what we have gathered through proceeding case law is that this fundamental advantage which is meant to be a shield us such has been used by many factors in order to hide behind this wheel hide behind this Inc to such an extent off escaping liability. So in this lesson, what we are looking at by considering the lifting off the Whale Off Inc are situations in which the law has opted to pierce or left this rail itself for the purposes off dispensing justice when the court in itself has determined that a director or shareholder has done something which is outside off the regulations or could be considered as illegal or unjust . Then it chooses to opt toe lift such whale or PS the whale itself. And not a love such director to hide behind the setting corporation, one of the fundamental cases which has prompted this requirement throughout the years. Subsequent years rather eyes a case that we looked at in a previous lesson, something you can look at from that particular lesson as well as by going through the case summaries, which are included in this particular course. Israel, which is Salomon and Salomon company. This particular proceed, in case, fundamentally allowed a slough off other cases that came after it, where many people actually began to shield themselves behind the incorporation behind the company having committed fraud. Having said that, there are several ways in which courts of law as well as legislative bodies have attempted to mitigate and start. If I the attempts by individuals to do so, the first way in which this has taken place is by word of legislation, which is a primary form of intervention. We've already looked at and considered one of the fundamental acts in place, which is in fact the Companies Act of 2006. And there are, among other provisions, three specific provisions that we have seen that can actually be considered as examples of how legislative enactments have tried to pierce or lift the wheel in order to dispense justice. For instance, Section 3 99 off the Companies Act of 2006 outlines that there is a duty to prepare group accounts where the parent companies must provide group accounts for their subsidiaries. This, in turn, showcases the fact that, when needed, companies are required to actually lift their own veil in order to make sure information is transparent and mentioned, or is stipulated to outside parties to third parties. Similarly, Section 409 states that any related information or any related undertakings must also be conferred in relation to subsidiary's. But what's most important and something that will outline a bit more so as we go along could be seen in Section 993 in which the acted serve The Companies Act of 2006 outlines the provision off what to do when there is an offense off fraudulent trading that takes place. This concept itself will come about later on which we will discuss. But what's quite important to understand here is the key word in this provision being fraudulent, and therefore there is a requirement. Or rather, there is a possibility off criminal liability being imposed on the individual as well. This is, quite simply when you have established that there is liability on any person within the company itself, irrespective of rank, to have committed a type of fraud in relation to any creditor off the company. This component of fraud itself takes the liability away from the civil composition the fact that it's contractual or commercial in nature and puts it in the realm off criminal liability, which in itself requires a high burden of proof beyond reasonable doubt, so to speak. But fundamentally, this is not the only statutory, provisional legislative enactment that looks at, ah, holding accountable the directors or parties within a company. You have, for example, the Employment Rights Act off 1986 which contains safeguards in itself for employees within the company. When they're being transferred from one subsidiary to another, you'll notice we're talking about companies with super structures structures which are far beyond just one company or one outfit and have gone into quite separate branches or subsidiaries. But one of the most important acts that we consider in terms of veil lifting, and you could consider it as being in the vanguard or the forefront off establishing liability upon directors who are trying to hide behind Inc is the insolvency act off 1986. This took. Essentially, this has taken the concept off the Companies Act, which is a far newer acting itself. But in the Insolvency Act, Section 213 has looked at fraudulent trading on a whole other level altogether. While the ISA limitation off this act specifically towards periods off liquidation, we are given a semblance of how legislative enactments have tried to pierce the whale itself. So basically, Section 213 outlines that at the time that the company's going into liquidation. If the liquidator himself becomes aware that either the directors or the shareholders knowingly dealt in fraud, they actually knew about it. They can be held personally liable to the creditors as the court names fit. Essentially, the company no longer provides a shield for these fraudsters, so to speak. But what's important to understand is, this particular provision has been taken quite predominantly in a very literal context and therefore the outcomes off this have become quite harsh and knowing that there is a criminality involved. As I mentioned earlier, the burden of proof is quite high and that is off reasonable doubt. Now, having said that, not every situation will fall under this mandate. Not every single transaction might be fraudulent. It might even be negligent, something that we will look at later on under this lesson as well. Now you'll notice ah, proceeding case as well. Ray, Patrick and Leon Limited back in 1933 where the House of Lords upheld the notion that you must prove actual dishonesty according to the current notions off a fair trading commercial man, in other words, a reasonable man in a commercial context. So this premise of actual dishonesty was required in order for someone to be held liable under the Section 230 enough The Insolvency Act of 1986. A lesson mandate that is required is that of 214 however, where we consider what is known as wrongful trading as opposed to fraudulent trading. This in itself, as I noted earlier, intense to deal with negligence rather than fraud, the threshold of which is quite less. There is no intention as such just simply that there was a duty of care, and that duty was not acted upon according to the reasonable standard expected, often individual who was relied upon by others. So you don't necessarily have to prove dishonesty, much like what the House of Lords held in re Patrick. Rather, negligence would be the threshold now not, however, that this liability extends far beyond just the specific individuals at that very time. While it is granted that the insolvency act is limited to some extent toe the period of insolvency, liability itself can extend beyond the current directors and onto even previous directors who had some understanding off what was taking place. But always remember that since its insolvency act, it's about the period of insolvency. So it it's only in relation to the faults of directors in relation to the insolvent itself , which means that there is a specific criteria or a tier structure of the requirements which are namely, the fact that the company has now gone into insolvent liquidation, either knew or ought to have no. So this ought to have known component is the negligence component that the company would go into liquidation, and the final fundamental requirement is that such a person was, in fact and director at the time someone who had the power to make decisions on make changes. Now, having said that, lifting of the veil is quite literally one of the larger areas off this particular subject as well. And it's something that gets often looked at, since this is by in large the gatekeeper, so to speak, between the company as an individual as well as the parties within the company, such as the directors and shareholders. In the next lesson, we will continue our discussion by looking at the evolution of case law and how preceded case law and common law has played a role in piercing or lifting the wheel. 7. Lifting of the Veil [Part II]: in this lesson, we will continue our discussion on the lifting of the whale of incorporation or piercing off it, so to speak, in order to dispense justice in relation toe either fraudulent or wrongful act done by one of the directors of the shareholders of a company. Now, in the previous lesson, we had a look at how legislative enactments and provision in acts such as the Companies Act on and the Insolvency Act have manifestly provided for certain safeguards and opportunities for courts off law to intervene so to speak and lift the wheel or PS Develop Inc in order to hold directors or shareholders accountable to creditors. Similarly, common law or case law has evolved over time to provide such opportunities as well, where certain judges, notably Lord Denning, as we will look at a bit later on, has intervened in order to provide justice for parties that have been aggrieved by fraudulent, negligent or wrongful acts committed by directors. Having said that, fundamentally, the best way to go about understanding, case, low understanding preceding common law decisions would be in this context to actually look at it based on how it started and then how it has evolved. So the very first set of cases that we're going to look at I will deal with what is known as the classical period, a period of time when preceding case law was for the most part trying to find footing based on the requirements off the time. Quite notably if you'd recall the controversial case of Salomon and Salomon Company, which we looked at in a previous lesson. Israel has Bean, for the most part, distinguished in cases that have come after it. So the very first case that we'll look at in terms of the classical period would be Daimler Company Limited and Continental Time Rubber Great Britain LTD. This in turn, related to a case which occurred during wartime. And as you might be aware from previous subjects that you've undertaken, there is a form of illegality which takes place in terms of contracts entered into between warring nations. It is illegal for a company offer an individual to do business with another party or individual who is a citizen of a country off which, um, your country's at war. So similarly, in this particular case, it was held that during wartime, although this particular subsidiary. This particular company, Daimler, had one branch which was incorporated in the UK Since the directors themselves were German , the court actually decided to lift the whale and not consider the company as its own individual because it'll amount to a facade, so to speak. And they considered that the directors were German and therefore enemies of the state and could not do business. So you'll notice that when we consider lifting off the wheel well, look at it as a characteristic in this context, rather than necessarily the reason why a decision was made. The lifting itself was necessary for that decision to be made. Unlike the statue to provision, which gives ah somewhat of a blanket literal objective for the courts of law here, the lifting of the whale was merely a justification or the requirement in order to determine where the contract could take place in the first place. Similarly, you have the case of Gilford Motor Company Limited and Horn, which essentially made it a direct distinction to Salomon and Salomon Company. Ah, case we looked at early on in this course where a company in this case was used as a facade in itself to break a personal covenant. The wheel was lifted and the claim itself was granted. This distinguished Salomon, essentially where in Salomon, What was mentioned was that irrespective of what the motive off the party was in that case , the fact that you had proper Inc that took place is sufficient, a case which is quite controversial and discussed even to this day. Similarly, you have Jones and Lippmann, which was decided on similar grounds to Guilford as well, but in relation to a sail off land. Right? So at this juncture, it is clear than that The evolution of case law, at least during the crap classical period, was merely looking at circumstances where lifting off the whale would be necessary and then applying it as a justification, a much more progressive. And I would consider invasive method that this was used could be seen in the interventionist years, quite notably distinguished by Lord Dennings judgments. For example, in Littlewoods mail order stores and I R. C, we see Lord Denning noting that a statute repre vision in place to indicate that courts would look at the circumstances of the matter rather than the form itself. So specifically where he distinguished himself from Salomon, where in Salomon the premise was that we must look at the formalities rather than the conduct of the parties or the context of the motive. Lord Denning essentially went 1 80 degrees on the other side and said, When you're looking at the circumstances, it is in fact, the circumstances on the conduct that matters. Similarly in D. H and Food distributor's and tower Hamlets, Hey noted that when you have apparent company and a number of subsidiaries in place, everyone should be considered as one entity. Ah, for both legality and liability and the justification of the Russian Ali that he had in thinking of this context was how exactly 1/3 party, someone from the outside would see it, whether it would matter, systemically, that you have a parent and a subsidiary to an individual that this company is dealing with . For that individual, this is the same as the one single company doesn't necessarily mean that there's an agent or otherwise. It's still one thing, however UBC in Ray Company, it did take it to a level. Or rather, Lord Denning took it to a level where there was somewhat of an arbitrary nature are so to speak in terms of determining, ah, the requirements off, lifting the wheel and holding someone accountable. Namely, the fact that he noted, among other things, that the law will motivate itself rather to pierce the Veil Off Inc if it deems it necessary to achieve legal justice irrespective of any other factor. Now this requirement or the premise that if it is necessary to achieve legal justice, becomes quite arbitrary and quite white and could be used in many different ways on git has been noted that the position in rare company created this somewhat of an uncertainty, so to speak. Eso you. We do see several extremes taking place, and specifically when you are presented with a theoretical or a theory based question, it is quite important to go through this evolutionary process as opposed to just simply the statutory provisions which are, by and large, straightforward and quite blanket in terms of the immunity provided. In the next lesson, we will continue and conclude ah lesson on lifting of the whale of incorporation by looking at the morning aspects or how this has further evolved in terms of case law as well as how taught plays a pivotal role as well in determining the requirements of lifting the wheel of incorporation 8. Lifting of the Veil [Part III]: In this lesson, we will conclude our discussion on lifting off the wheel by having a look at the contemporary view in relation to how they use interventionist methods off case law in order to pierce or lift the whale to provide just outcomes for parties. Now, in the previous lesson, we had a look at the seminal case Law by Lord Denning. In what we like to refer to as the interventionist years subsequent to 1989 however, we see somewhat off a settling down period in which we come back or back to basics, so to speak. And one of the seminal cases in this regard is that off Adams and Keep Industries LTD. Back in 1990. Now, it must be noted that this particular preceding case can be considered as the principal authority for lifting off the whale today. And what Adam's outlined or the Russian dissident D off Adam's basically suggests that the only circumstances in which a court will lift or PS the wheel is either win. There is a single economic unit principal at play or where it is quite clear, based on the facts of the matter, that the incorporation itself is a facade or thirdly, where there appears to be a tenable agency relationship between the parties now not, however, that irrespective off these three requirements being in play, there are certain subsequent elements that must be considered, for instance, in relation to the single economic unit. The determination off. This is based on the absence off anything that has been contrary mentioned in either statute or documentation, namely that of the organization itself. Now we must always keep in mind that all of this speed in the context of company law falls within the ambit off civil relationships or relationships between individuals. Court, therefore, is highly unlikely to intervene unless absolutely necessary. And this is why the determination off the single economic unit depends heavily on the absence off anything to the contrary. Similarly, the fact off facade, or rather, where Inc in itself amounts to a facade is also determined based on the motive off the parties as well. If it is not tenable to consider whether the parties themselves even wanted to do something which could be considered as being fraudulent or something un towards, then it's highly unlikely that 1/4 floor will intervene. Finally, the concept of agency relationship again, many fest Lee is determined or dependent upon what the parties have agreed upon and if there is something in writing or by conduct that suggests otherwise. Now, having said that, we need to move on to consider two fundamental cases that came one after the other one off , which was overruled off course. That outlines primarily how courts a flaw have looked at these relationships between parties now, firstly, increasing and breach. Would Motors LTD. Subsequently overruled. The principle outlined was the fact that context off the party's matters and how they operated, therefore also matters. So this relationship was what was paramount increasing, however. Subsequently, 1998 in code and Belhaven Pubs limited, it was noted, or it was held, that motive being the key element in this determinant, it must be also considered whether, firstly, there was a legitimate business transaction that was taking place. Oh, whether such business transaction was for the avoidance of liability. If it was a legitimate business transaction, 1/4 floor will not move to lift the veil off Inc or for that matter to pierce it. But if it is latter, if the motive in itself was the avoidance of liability. Chances are the parent company will be found liable by a court of floor. So what's clear here through all of these cases, from Adams to Creasy to code, is that there is an evolutionary settling down. As I noted earlier, there are certain provisions being put in place to make sure that there is a systematic way off requiring a company to lift or PS there will of incorporation. Now, a notable case that must be considered in this regard is that of trust O A. B and small Bone number two. Quite simply, trust her and small bone were in relation to a particular company as well as an employee or an individual, a director, so to speak, who was the managing director off the company, as well as on a separate company which dealt with the original company. Now, clearly, on the premise itself, there appears to be a conflict of interest. But what was held was the fact that small bone, who was the was also the owner off small boned managing director off Company A. In this case, Trust oh was directly involved in the transactions and therefore because he was part owner off one company that dealt with another. The relationship itself amounted to just a facade. It was a means to an end, a method by which his personal involvement could be removed and he could shield himself behind that of incorporation. Now we see throughout this period, throughout the mechanism, by which case, low or common law or proceeding matters have been brought about to pierce the wheel. There are certain other instances which fall completely outside off contractual arrangements altogether, namely where there are commercial thoughts in place. Now. For those a few who are familiar with cases such as Hedley, Byrne and Hella, which you encounter in tortious liability specifically in relation to economic loss and in relation to the duty of care would by one party to another, Williams and Natural Life Health Foods LTD. Would be essentially the similar principle. What was held by the House of Lords in Williams was that where one party has relied on another statement, which in effect becomes a negligence statement. Liability will ensue. That was a quick outline and a succinct overlook off the principles sustained on the lifting the wheel of incorporation now, from the very get go. We had a look at how statutory provisions are used in order to fundamentally achieve this purpose, followed by the evolution that case law and judges and courts off law have taken, particulary that of Lord Denning Israel in order to formulate a much more systemic method off achieving this before finally considering the notions off commercial taught in the next listen, we will begin our discussion on Pre Inc contracts. 9. Promoters and Pre-Incorporation Contracts: in this lesson, we will begin our discussion on Pre Inc contracts now prior to having a look at the position of these contracts that I entered on behalf of the company before the actual formation or the birth of the company itself. It's important to identify what legal ramifications and what legal rights are with the individuals that act on behalf of this company, namely those people that are instrumental in getting those contracts in place and forming the company itself. Quite broadly speaking, these individuals in law are considered as promoters. Now promoters could be considered as anyone who takes steps, various steps to form a company now in Twi Cross and grant a case which is available in your case summaries, and I urge you to have a look at to get a better understanding of how the law looks at a promoter specifies in Terata that a promoter is someone who undertakes to form a company with the reference to a given project and to get it going and do the necessary steps, or conduct the necessary steps in order to accomplish those said purposes. Now, what's important to identify here is that firstly, not every person can be categorized as a promoter, and secondly, not everything done can be considered as being on behalf of the company now, While this is not an exhaustive list as such, we could look at a few types off transactions or instances that fall within the ambit or the gamut off the purposes off incorporating a company. So, for instance, in relation to a public quoted company, the issue off prospectuses documents the information provided to potential investors in orderto understand the workings of the company before placing their money, trust and faith in the company. The actual registration process off the company entering into various Pre Inc contracts for things as complicated as mergers and acquisitions as well as, in some instances, even simple things like buying furniture for the company for start up, let's say, finding shareholders, appointing directors, giving those tasks at hand, making those small, salient contracts all of these things. If it's incidental to the formation of a company that would fall within the ambit off, a task which a promoter would undertake now, based on all of this and considering the fact that the company itself hasn't been formed, what's notable and when you look at these circumstances is that the promoter, in effect, acts as a fiduciary. Now, this terminology should be something that is familiar to you if you've gone through subjects such as the law of Tort, commercial Law and even the law of trusts, primarily, someone who has a fiduciary obligation is someone who has an obligation which goes beyond that of being contractual and it being somewhat personal in nature. In other words, a person who has a fiduciary obligation is bound by good fit that they're working on behalf off the benefit off another, so to speak. Having said that, a promoter and in this context being a fiduciary has been seen not to be an agent, primarily due to the fact that he cannot be an agent off, that which is not existed. Essentially, if he was an agent, the principle would be the company. But the company is still not there. Similarly, he is not a trustee, either. Once again, in order for a trustee relationship or a trust relationship to be in place, there needs to be ostensibly a settler or principal body. In this case, the company still not existing. We need to understand the very notion and the boundaries off the fiduciary rule off the promoter. Now, in order to have a look at this one of the seminal cases which is also available in your case summaries and I do urge you to have a look at for a broader understanding of the case fax itself is Erlanger and New Sombrero Phosphate Company now in Erlanger. What was ultimately identified as being the primary fiduciary role of the promoter was that a promoter must not, at any time in their actions and the duties that they're fulfilling work towards his own personal gain in the guise of operating for the company. In other words, everything that he does in the name of the company must be for the company or the company that is to be created. There must never be a semblance that one individual is actually gaining from this. The weary nation of the fiduciary relationships means that you need to divulge every single informational material fact that my showcase, a conflict of interest, is in place. There are a number of case law that go along with this as well, and even in an examination scenario, when the scenario is presented to you. It's very important for a student to have a look at how the circumstances have manifested in such a way that you see a personal again accruing to an individual. Now, having said that, there are certain exceptions, so to speak, to this rule. Firstly, in the seminal case of Salomon and Salomon, something that we've already looked at in a previous lesson as well, the whole concept of conflict of interest only is sustained within the context off breach of fiduciary obligation if no one else knows about it. However, if there is a disclosure Mead by this particular promoter to everybody else to everyone else involved off his conflict, so to speak and nobody has essentially a problem with it, then nobody's at fault. There is what is known as implicit permission, which is ranted to the promoter. Having said that, however, in Black Stein and Bonds, it was noted that while it's fine that everybody knows about it and therefore the conflict is out in the open and there's nothing secret about it, it would not apply. This exception, so to speak, would not apply if, on the one hand, even though all the parties knew about it. It was in the pursuit off, defrauding others. And if, for example, it's a public company than this, this particular exception won't apply whatsoever, being as it is, while these individuals are not part of the company, since there is no company at this at this point, it does not mean that there is no liability that will ensue, if at all. At any point, these individuals, these promoters, go against the normal go against the grind, so to speak and commit some sort of fraud as such. So having said that there are two primary remedies which are applicable against promoters. On the one hand, you have the opportunity for the later formed company to go after whatever that has been lost based on rescission. So the contract, whatever the contract it might be, becomes voidable at the company's option and within reasonable time. So within that period of time, a company that might have been aggrieved or another party that might have been agreed by worked you off any contract entered into by the promoter can be rescinded. On the other hand, there might be circumstances where a promoter has personally gained out off arrangements that he's he or she is arranging or he or she is setting up on behalf of a company that is to be found. This is where they some sort off affirmation of a contract or secret profit being granted to the promoter in place of getting something done, essentially a bribe, so to speak. Now, even in such a situation, there is a possibility to activate liability against the promoter who has taken a secret profit under equitable principles. And this is primarily due to unjust enrichment. Taking place and unjust enrichment is activated, therefore by the word shoes of constructive trust by courts of law. What's notable here, and what's quite interesting is that not only can accompany go after the actual promoter at that particular stage, but also in the event that the promoter himself has not been paid off by whoever the promise or was then the company can go off to him as well, so that liability extends beyond just the general promoter and to the person that has promised this bribe or secret profit. Now, having considered promoters as being one of the fundamental groups or classes of people that work towards incorporating a company are bringing about the incorporation of a company we must now consider and focus on the main aspect off this lesson, which is Pre Inc contracts themselves. No, in terms of Pre Inc contracts, the general norm. The basic principle is that a company will not be bound by any contract which is entered into in its own name on its behalf. Priety Inc. What this means is you cannot be retrospectively bound by something entered into before your own existence. Now remember that accompanies a legal entity, and in the eyes of the law, the company only exists Posts Inc So anything that happens in its name prior to that it need not essentially be liable. For now, remember, this is a general principle, and you might be thinking how exactly a promoter benefits out of this because of a promoter is, in fact entering into the contract on behalf of the company and later the company's able to resign from substantially justifying it are substantially accepting that contract. Ultimately, the loss is completely born, and the risk is completely born by the promoter. Now, while this is the general rule, as we considered a bit earlier. We need to also have a look at Section 51 off the Companies Act of 2006 because up until this point, we have not touched on the Companies Act of 2006 and you might not. Primarily the reason for this being of entire discussion up until this point has been pre Inc related from promoters. Do the contracts that which we are talking about now. So what Section 51 outlines are into Raya is that when a contract is made by or on behalf of a company before its formation in its Pre Inc state subject to any contrary intention promoters label? So essentially, the onus is on both the promoter as well as the individuals who are going to form as part of the company to agree upon what parts off the arrangements with the promoter go into the contract itself. So think of this as very similar in contract lot of representations made before entering into a contract. That's one of the easiest race to sort of tackle the position off both promoters and the contracts entered into now, ideally in commercial contracts in commercial endeavors such as forming companies the promoter is indemnified, so to speak. And most of the contract that I entered into as long as they are for the benefit of the company will be indemnified, and the promoter will not be liable whatsoever. Having said that, however, in Brain Miss Limited and Wise Finance Company LTD. What's quite clear is that their lordships have actually identified the unfortunate double edged nature off this provision and off the nature of the general rule itself, thereby considering the fact that the provision itself, namely Section 51 actually makes it so that the party who is personally liable for the contract is also able to enforce it as well. So, on the one hand, the company's ableto take what it wants and say, We accept this particular pre Inc contract going to go ahead with it. But this other thing, we're not because we're gonna go with the general rule now. This might seem unfair times, but the Russian Ali here and the and the reasoning behind it is that you must always remember that the law will only get activated once the incorporation takes place. That was a quick outline in a succinct overview. So to speak off both promoters and Pre Inc contracts. In the next lesson, we will begin an extensive discussion to conclude part one off this particular company law course by discussing raising off capital by worked you off equity. 10. Raising Capital - Equity [Part I]: in this lesson, we will begin our extensive discussion on the concept surrounding raising of capital now. At the very outset, we looked at the concepts surrounding the different forms and which people can go into business, namely from sore proprietorships to partnerships and finally, companies. As I noted at that stage, the buck off this course evidently as title itself, suggests deals with companies both in It's private and it's public forms in the discussion off raising capital. This being the fundamental requirement for the establishment as well as the running off a company, we need to look at it in the context of both private companies as well as public companies . Now, when it comes to public companies, we refer to this as equity in relation to raising of capital. The requirements and the regulations for this are quite much more onerous in itself than that of private companies. The fact that we will also consider a bit later on in this lesson as well as in the course at large, primarily due to the fact that when it comes to public companies, it deals both with the public interest as well as funds accumulated from the public at large. Having said that, we need firstly before we go into this topic, understand the premise and introduced the notion of public companies and the requirements to be considered as such. So, on the one hand, when it is a public company, it must be publicly stated as such. In other words, you must set yourself out as a public company at the very inception. There are instances, however, where you have companies which started off as private, limited companies that move one after an initial public offering to becoming public companies. Similarly, you must set yourself out by a pending to your existing name. The Prefix PLC or public limited company, also much like what we looked at in a previous lesson as well. There is a minimum share capital requirement, unlike in a private limited company where a public limited company must have a minimum share capital of £50,000 as outlining section 763 of the Companies Act of 2006. Finally, there must be provisions made to provide prospectus for investors to get a better understanding of the value of the company before investing or before putting their money into it. As you notice. Even at this stage, the regulations are far, much more strict, and this particular topic as well in terms of raising of capital we will be looking at the actual methods by rich capital is raise but more so towards the regulation in order to prevent the abuse off this system, contrary to popular belief. And this is something that fundamentally, everyone believes it to be. So a public limited company need not always be listed within a popular stock exchange. It need not be in a stock exchange whatsoever. It can exist outside off it. While this is not the norm, there are examples. There are exceptions to this rule where you see, for example, Sir Alan Sugar's famously incorporated Amstrad PLC is, in fact, something that exists outside off the stock exchange. The reason for this is the London Stock Exchange in this context or any other stock exchange, for that matter is in fact a private entity, and it, too, has to have its own private contractual arrangement between itself, which is the stock exchange and the company, the public limited company. So it is in fact, a choice. It provides better opportunities for the company to raise funds because it's it's in itself a listing body that provides that information to a greater audience. But it need not be a such now that we've had a basic gateway aura into this particular topic, so to speak. We'll have a look at the methods by which companies or public limited companies essentially raise capital before we proceed onto the regulation off. Such so on the one hand, one of the primary and fundamental ways by which public limited companies raise capital is by offering its shares for subscription. Another way in which commonly public limited companies do provide an opportunity for themselves to raise capital is to offer, said shares for sale. In this context, a public limited company will engage a knish, Ewing house or a merchant bank and provide said bank or the issuing house with the entirety of their shares to be sold to specific clients within that particular issuing house on the bank or the public at large. Many public limited companies essentially might opt for this because the advantage of this is that the risk off selling such shares is in fact born entirely by the issuing house and it indemnify eyes the company for the most spot. Similarly, when there is a new initial public offering over the private, limited company will turn into a public limited one. There is an opportunity off raising capital by offering new shares to existing ordinary shareholders in a proportion which is a sufficiently fair for, said ordinary shareholders. This provides an opportunity to raise more capital as well as to convert a shareholders as well. In one group. Similarly, you have placing or placement where, unlike the other methods that we just looked at, where you either offered to an entirety of the public a certain large mass off people who are clients or the existing shareholders. Capital is essentially raised by a very handful of investors, which are hand picked a supposed to the public. This, too, can be handled by a merchant bank. That was a quick outline off, raising capital on an introduction as such to raising of capital by public limited companies. Now, at this juncture, it should be clear that the requirements off raising capital for public limited companies is highly regulated, and it's much more onerous. These were just a few instances are few mechanisms by rich raising of capital occurs. But the majority of this topic will in fact deal with the regulator and the regulations in place to prevent fraud to prevent abuse, to prevent insider trading and so on. So from the next lesson onwards, we will focus and have a look at the regulations which are in place to prevent such fraud abuse off power. 11. Raising Capital - Equity [Part II]: in this lesson, we will continue our discussion on raising capital by worked you off equity in relation to public companies. Now, in the previous lesson, we began our discussion by understanding the requirements to be considered when we establish a public limited company, um, and the establishment of such as well as how exactly funds are raised or capital is raise, so to speak. In this lesson, we will continue that discussion by focusing primarily on the regulations and the safeguards that are in place to prevent fraud and to prevent undue interest from creeping in in relation to raising of capital. Now one of the fundamental authorities that will keep coming up not just in this lesson but also in company law at large is that off the financial conduct authority off the FC, which is you case primary on main financial services regulator, anything that deals with financial services with markets and so on would come under this one umbrella branch. Now it's notable that following the enactment of the Financial Services and Markets Act of 2000 or the FS and may, this particular entity, the F. C. A, in fact got statutory authority and it took over from a much more prominent and off course still existing entity, which is much more globally recognized and known, which is the London Stock Exchange back in 2000. Now, before we go into understanding the principles behind the London Stock Exchange is, well, it's important toe identify the rule of the tasks in fact, as well as what objectives, by and large, the FC is entrusted to do or to achieve. On the one hand, the primary tasks that the FCC has is to be, in fact, the competent authority in relation to listing off public limited companies to admit securities for listing as well as to make, as well as govern both the rules and policies in relation to such listings. Now, having said that, the primary objectives off the Financial Conduct Authority or the F C A, is somewhat more vast and overreaching. Firstly, it's idea or the very purpose of the FC A being established is first and foremost to increase the market confidence because most of these services by a large are speculative and the markets can have tectonic shifts based on information spreading out in a wrongful overtone. Similarly, it is also a mechanism to safeguard weaker parties or, in this case, for consumer protection, and obviously since it does have statutory authority in place and as we have looked at in a few previous lessons, as well as what we will look at in later lessons as well, since there is a criminal jurisdiction in place as well in relation to these financial services, the reduction off financial crimes as a whole is also one of the primary objectives off the FC. Having said that, one of the fundamental bodies that we recognize initially as well is the London Stock Exchange, which is the principal recognised investment exchange off the UK. Now you might be wondering, Does this mean that there are others as well? Absolutely. It's just at the LSE or the London Stock Exchange is the poster child, so to speak, off a recognised investment Exchanges are Are I eat now. Not every single entity that holds itself out to be a listing, much like the London Stock Exchange, can be considered as an r a. There is a strange and process in place specifically considering the notion that we are dealing with public limited companies with public funds and public interests. By and large, the FC it dictates a lot off conditions or terms that must be satisfied. Quite notably, there must be sufficient financial resource is in place. It must be considered as being fit and proper. In terms of a body, there must be an operation of an orderly market. There must be an ability, on the one hand, to secure protections for the investors as well as, on the other hand, a mechanism to monitor these listed companies. Now what you would notice is that by in large there is a bit of a subjective inference in this as well. So much so that the trust faith confidence aspect plays a pivotal role in establishing an R . I. P. So the FC A goes to great lengths to make sure that the London Stock Exchange and any other recognised investment exchange fulfills these criteria. Having said that, there are fundamental rules which govern the listing in relation to the FC as well. Now the financial services and markets active 2000 or the F SME section 80 off the Fs er, may outline certain listing particulars, things which must be submitted not just at the inception at the point off listing within the R III or within the London Stock Exchange in this case, but also things which have to continue subsequently as well. These include as its and liabilities of the company, its financial position. Ah, profit and loss is any prospectus which have been issued in terms of securities, any rights attaching to those securities and so on. The viability off this and the necessity off this has been considered quite stringent by the F c E Israel, primarily due to the fact that there is criminal liability and sanctions attached to failure. Off. Doing so now, you might be wondering. There's a lot of stringent processes in place. And this is why, If you are studying company law, you notice how extensive the companies act of 2006 in fact is it goes into thousands of sections and bylaws as well. It's quite a hefty read on its own as a statue tree. Ah, regime. The reason for this is it deals with much like what we've considered thus far. It is with public funds as well as the public interest at large. Now, from the next lesson onwards, we will continue our discussion on the regulations in place and what aspects off public companies must be looked after in terms of its raising off capital. 12. Raising Capital - Equity [Part III]: in this lesson, we will consider the regulations in place to control the ambit off takeovers when it comes to public limited companies. Now, by and large, the reason why this is important and such regulations are in place and authorities have been established. So to speak is for a primary reason, which we've already spoken about in previous lessons, as well as things which we would look at throughout this course as well, which is in the notion that when it comes to public limited companies, they deal primarily with the public interests and money. Now the benchmark or the threshold, is set high because a shift even in the case of a small group of individuals off tectonic proportions in terms off its financial interests within a public limited company will impact everybody every minority shareholder. So, in essence, the regulations and the regulators in place for such takeovers is there to safeguard weak parties in this case, minority shareholders and to prevent any sort off misconduct from happening. Having said that, there are several statutory regimes that have been put in place to prevent such misconduct and, in essence, to regulate such takeovers. The primary piece of Legislature, for this is off course, the companies act off 2006. However, apart from this, an interesting addition can actually be seen as the transparency directive, um, off the European Union. Now there is much debate as to the application off this following Brexit, for example. But for the purposes of company law at this juncture, it is imperative that we understand how the directives of the European Union affect companies within the UK Now, basically, the Transparency Directive outlines that if there is any sort of variance either positive or negative off at least 1% off a person who has 3% or more in terms of ownership of shares of a company, it must be declared now. While this might seem like a minimal or a nominal amount in terms of 3% you must understand that we're dealing with public limited companies which are massive, which have capitals worth off. Billions of dollars are billions of pounds in this case, and 3% or 1% variance of a person who has 3% of more is still a large chunk off ownership. And that's why it needs to be declared to prevent any sort of misconduct from taking place . Similarly, you have provisions within the companies act such as 979 which outlines the right itself off a buyer on offer, or to buy out any minor or to share hood that off 9 83 and 9 86 which provides powers to the minority shareholders in order, safeguard their interests by either preventing a takeover from taking place by applying to court to hear the redress or, conversely, on the other hand, to force a purchase itself. Now, having said that, what we can gather this juncture is how important the regulation of takeovers are when it comes to public limited companies. And because off this back in the day, there was in fact, a panel off takeovers and mergers, known succinctly as the panel that was in fact established with the task or the principles therefore off simplifying the takeover processes at play. Apart from this, the requirements off this panel were to maintain a fair market and to provide sufficient information for both the minority shareholder as well as anyone who is buying out such shares. To make an informed decision. There needed to be transparency and that was the primary reason why such a panel is established now. What's interesting is that at the time this was established, the panel itself had the blessing off the Bank of England because the regulator itself, the panel was in fact established by the financial services industry themselves made up off representatives from the financial services industry. Now, the important thing to understand the with the panel, the panel itself oversaw only the interests off the share hold. It didn't look into the actual merits off the takeover itself. By and large, it didn't care about the justification that the parties had to take over another entity, Rod, that all it wanted to do was to make sure that the processes and the procedures are in place to prevent any undue influence. Any fraud in India rest from taking place and the fact that the minority shareholder interests are secured. Therefore, this panel was in fact because it was created within the financial services industry, with the Bank of England being at play as well. This was in fact recognized by the FC on the LSE by the Financial Conduct Authority as well as the London Stock Exchange and that lead to the ability that if certain measures would be taken, there could be enforcement of sanctions. Now, however, with the Advent off the Companies Act of 2006 we see that in terms of section 942 on the series of sections applicable within 952 to 956 both the panel itself has bean now established by law by statute to provisioned itself. And sanctions have also Bean outlined on processes which could be implemented in case off certain undue process is taking place by parties when taking over companies. That was a succinct outline on regulation or regulating takeovers. In the next lesson, we will move on to consider our insider dealing and the processes that are ancillary to it . 13. Raising Capital - Equity [Part IV]: in this lesson, we will continue and conclude our discussion in relation to raising off capital by worked you of equity in relation to public limited companies. By considering the concept surrounding insider dealing. Now, this particular terminology is used within the UK jurisdiction. But you might have heard this in a similar context referred to as insider trading as well. By enlarge, the concept deals with the notion where a person who has information or who is privy to certain price sensitive information, who divulges it to another or gets another to divulge in, in essence, someone who is in a position where he can abuse his position or he abused his power in order to gain a financial advantage. This is not only frowned upon in the financial sector in the company law context, but it's also criminally prosecutable or criminally liable. This, in essence, means that if you look at Section 52 off the Criminal Justice Act off 1993 um, insider dealing deals essentially with a criminal liability as well as torture civil claims as well. Now, Section 52 off the act outlines several aspects off the offense itself. On the one hand, in defines what inside a dealing refers to. And on the other hand, it specifies the liability, which can be imposed on any third party with knowledge, where there is a distinct separation between any contract jewel obligation that a person might have, as well as the context off the transactions and the relationship itself. Not every scenario comes within the ambit, and Section 52 outlines what amounts to the offense itself, followed by off course, any defenses applicable in Section 53. Now the Criminal Justice Act eyes something that is outlined specifically in relation to insider dealing when it comes to company law, and I urge you to go through it and have a look at where Section 52 outlines the offense itself and what defenses are applicable now because off the fact that the threshold and the benchmark itself set out here is quite high concerning the fact that it's criminal liability, which means that the standard of proof of the burden of proof is that off beyond reasonable doubt, it's quite unlikely that parties will be successful in litigating on these grounds. Therefore, there is when you look at proceeding case law, there is a propensity for parties to actually go the civil route part as opposed to the criminal lawsuits. Now Section 118 off the Financial Services and Markets Act on the FS and ME, something we looked at in a previous lesson as well, outlines the ability to pursue on a civil suit any individual that could be considered as being inside, dealing or insider trading on the context off what is known as market abuse. Now Section 1 18 outlines not just the context off market abuse and what it considers as being within liability itself, but also the various types of behaviors which fall under the ambit or the context off inside dealing. Have a look at Section 1 18 off Fs and me as well. There is, quite, ah, quite an extensive and not an exhaustive but an extensive list off behaviours which fall within this purview outline from subsection one through eight. That was an overview, quite an extensive overview of that off how public companies may raise capital, how they are regulated and what sanctions and what liability I in place where individuals perform price sensitive actions which in fact fall within the and bit off insider dealing. In the next lesson, we will continue our broad discussion on raising of capital by having a look at the concept of D benches in relation to private companies. 14. Raising Capital - Debentures [Part I]: in this lesson, we will begin. Our discussion on raising off capital by way off the bench is now. In the previous lesson, we focused on raising of capital in the context of equity in relation to public companies. In this lesson, the focus shifts to that off private companies. Now, in the beginning of the previous lesson, you were recalled. I mentioned the fact that in terms of public companies, the requirements, as well as the regulations in place, are much more onerous than that of private companies. By and large. While this is true, you'll notice at the completion off this extensive lesson on the benches that the same could be said in a different context in relation to private companies. Having said that, let's jump right in to what we can consider as d benches, what the requirements are and how we classify them, followed by the ways and means in which parties are safeguarded in terms off any liquidation that might happen later on. Firstly, in Latin, debentures refers to money owed to me, and essentially that is the premise that we use in relation toe how a party safeguarded how a party creates a charge so to speak, on any investment that he makes on alone, essentially, that he makes to a particular company now. What's interesting is when we consider the benches. This is in relation to private companies. And while there is no definition as such, Section 738 of the Companies Act of 2006 in fact talks about it, and I urge you to have a look at how or rather, what context in which the companies act looks at it. But if we consider a preceding case in relation to Levi, an ABBA Chorus Slayton Slab company in 18 87 Justice Chitti had outlined, quite succinctly what he felt. Debentures are. In essence, he noted in Terata that a debenture is, in essence, a document which creates a debt on the one hand or acknowledges it and any document that fulfills either off. These conditions could be classified as a debenture, but quite simply in terms off regular day to day business, a debenture could be considered as simply a secured loan. Now, having said that, there are several features and classifications of debentures are characteristics. So to speak off the bench is that we will go through throughout this lesson, but to begin with, we can classify. Or we can fundamentally distinguish debentures as either being redeemable or irredeemable. On the one hand, a redeemable debentures one, as the name itself suggests, which is payable on demand or on a fixed date on. Once redeemed, this has the same contractual of liability as any other context, and it can be rescinded unless otherwise specified. What's interesting here is even in the context of a debenture, it really falls within the ambit of civil law in so far as the fact that the parties themselves have to decide on the terminology as well as the terms and regulation of such terms. On the other hand, an irredeemable debenture is one which is also a loved in the Companies Act of 2006 and the terms in itself, while being in writing is inconclusive because the conduct and the context of the parties and the matters at hand is what's applicable. What's important now. You notice that depending on the size and depending on the functions of the company, a debenture can be, for example, quite small in nature or much like in a debenture stock by worked you off several lenders getting involved and the bigger the number of lenders, the more onerous off course the requirements may be. But what's interesting here is that when we look at the way in which a debenture functions as well as the safeguards afforded to any secured creditor in this context, it is in fact giving rise to a trust deed which secures, said interests now as such much like in any other trust instrument in the case of a debenture, in this case, in relation to the trust deed that's created, it provides the obligations to pay the principles as well as provides a security on its own for the loan itself in case something were to happen. So by and large you could consider debentures as charges over a company. Now, this might seem similar or familiar to you. Rather, if you've already gone through subjects such as the Law of Trust and Property Law, that was an introduction to raising of capital by worship debentures in relation to private companies. Now, from the next lesson onwards, we will have a look at further classifications of debentures with primary emphasis on how it creates a charge over either fixed off floating assets and how parties are safeguarded during liquidation 15. Raising Capital - Debentures [Part II]: in this lesson, we will continue our discussion on raising of capital by word shoe of debentures by specifically having a look at what safeguards or redress that a lender or a creditor would have during a default. Now, most of the invocation off the Companies Act of 2006 or any other statue, tree or legal method that will be pronounced is primarily when something were to happen. Essentially, if there is no provision which are provided by the company themselves, and if there is a conflict that ensues, there must be a safeguard in place. There must be a charge in place to safeguard the necessary interests off the lender or the creditor primarily when we look at debentures in relation to raising of capital. For private, limited companies, there is an opportunity to create a charge either in the form of a fixed charge or a floating charge. And the fundamental distinction here is essentially the creation off what is quite similar to a trust instrument between the company, the lender and a particular asset. Now, on the one hand, there is the opportunity for the lender to have a fixed charge over a specific fixed asset off the company, which in essence, is outlined at the very outset. What this means, at least from the perspective of the company, is that there is a distinct limitation off the company utilizing that asset without the concurrence off the lender. So there is a charge that's created a trust, instruments, so to speak, that's created between the company, that particular fixed asset on the land. This is quite disadvantages, in a sense, for the company, but it provides a windfall in terms of security for the lender. In the event of default. There is a specific asset within the company that the lender can essentially take over in order to mitigate any particular loss in terms of capital that he has provided. On the other hand, you have what is known as a floating charge, and as the name itself suggests, ah, floating charge is where a particular fixed asset is not a fixed two alone at the very outset. In other words, the determination off what is owed to the lender based on the fixed assets which are available to the company is at the time of default. Now, as you would understand from this perspective, unlike a fixed charge, there is no determination of what that is, and evaluation must be done when send default takes place and therefore, unlike a fixed charge. If you're familiar with the concept of three certainties in trust instruments, for instance, in a floating charge, there cannot be, ah, trust instrument that that's created between the company, the lender and the actual asset, because the asset itself, which is the subject matter, is uncertain now, unlike a fixed charge, the primary advantage off having a floating charge, at least in the perspective off the company, is that it can go about its business without actually having to seek the permission off the charging in this case, the lender. So there is somewhat of a freedom in order to go about business without having and Salieri parties getting involved in the process is at play now, much like in contract law, where we looked at terms or obligations amounting to either warranties. Conditions are denominated terms, whereas in the in the context of terms or conditions, its outline at the very outset at the time the contract is stipulated and realizing denominator miss something Ah, that is determined by court at the time of breach. The same thing happens in relation to a floating charge because at the inception of floating charge means there is no asset. That's a fixed to the Charge e to the lender to that which he has provided in terms of capital. But when something does happen when a default best take place, that floating charge will convert or, in other words, crystallize to a fixed charge. Once there's a determination off, the value that the lender has provided is a fixed to a particular asset at the time of the default or the liquidation. This particular determination only takes place at the time of default, and it's somewhat off a risk in terms off the lend as well, because he's unaware off what he would get in return if something were to happen to the company Now. In that context, the very impact off liquidation is the notion that when you need to determine whether charges fixed or floating, the court doesn't necessarily just go into the nitty gritty off what's there on paper? Many proceeding cases have shown us not just in company law but in contract in property law that there are opportunities that companies might use to essentially get a windfall for themselves at the risk off the lender. And when it comes to the law, the law protects a consumer lender or 1/3 weaker party in this case now, that's what we seen Agnew and Commission Off Inland Revenue back in 2001 where the Lordships actually held, that the determination of whether charges fixed or floating is something based on the circumstances rather than the form itself. And in that judgement, there were two processes or two stages which was set up firstly in relation to determining the charge type of its fixed offloading based on the intentions of the parties and then only categorizing it with its fixed or floating rather than looking at the words themselves . Used to look at the party's official intention on a number of factors, and then a fixing it through a day. It's fixed or floating 16. Raising Capital - Debentures [Part III]: in this lesson, we will continue and conclude our lesson in relations raising off capital by virtue of debentures in relation to private limited companies. Now, up until this point, we looked at a number of ways by which a lender is able to secure his or her interest in relation toe moneys provided to the company. Here. We're gonna look at one final method by Rich. A lender is able to secure such interest, namely book debts. Now a book that relates to where a company is old money by some other third party and enduring liquidation. The lender who needs a particular security is granted that by word, your of a redirection off that debt. So, for instance, if a company is good £1000 by 1/3 party, this particular method will essentially provide that £1000 to go or be redirected to a lender upon liquidation. Now there are a number of factors to understand. Here are primarily by worked you off preceding case law, a number of which has been considered in the case summaries, which I urge you to have a look at. But two fundamental preceding cases which are important in this regard is that of CIB, Goldman and Barclays Bank, as well as chalk and can both. These quick cases essentially refer to facts, which are similar to one another, although the outcomes are somewhat different. On the one hand in Siebe Gorman, it related to a bank account in which receivables off a company was supposed to go in relation to someone who or 1/3 party that was any debt. This particular bank account was essentially controlled by the company, namely, the charge E was the bank. In essence, the lender, the original lender was the bank as well as the account was controlled by the bank as well , in this case, Barclays Bank. So as such, what the court held was that a book debt in this context is considered as a fixed charge and in order to determine it as such, the factor off who controls it and the degree of control matters, conversely, distinguished this from Shaq and Con, in which the facts were quite similar. However, the Charge E and the bank were two different entities, namely, the control factor was less so than Siebe Gorman, thereby making it a floating charge and not fixed now in the previous lesson. We looked at the distinction between a floating charge and a fixed charge and what gives priority over the other, namely in terms of a fixed charge. The control that the company themselves have all of it is quite limited in terms of the asset, whereas a floating charge, it's possible for the company to deal in business transactions quite freely, since the determination off what is owed to the lender is based upon during liquidation, as opposed to at the very outset. Now, having said that, the most important or the fundamental premise that we need to talk about in this context is priority. Who receives priority or another? Chances are, if you have a lender, it won't be singular. It'll be plural. You'll have a number off lenders providing you with capital and money in order for you to establish and run the company. Having said that, the security off the interest in terms off the money that has been provided also will not have the same standing as one another. Essentially the general principle, the general rule here is that they are prioritized based on the order of creation. Whoever creates such security interest First. Whoever are the first charges receive priority over others. However, much like many other aspects off the law, there are exceptions to this rule. On the one hand, if it is, for instance, a floating charge that a particular charge E or a lender has, then it doesn't receive any more proceedings than that off a fixed charge, namely a fixed charge will get priority or a floating charge. And the reason for this is quite straightforward, a fixed charges established at the inception itself. So you know exactly what type of asset this particular lender is to get during liquidation . On the other hand, this does not mean that a person with a mere floating charge does not have anything greater than what he has. There is a concept off the negative pledge clause. Essentially, this is a subcontract, so to speak, or a sub arrangement that a floating charge E will make with the company in which a floating charge E will have a greater proceedings than any other charge e primarily on the basis off this separate agreement. Now, this doesn't mean, however, that a fixed charge e loses his interest. On the contrary, if you look at proceed in cases such as Wilson and Callen, as well as re Bright Life Limited, you'll notice that there are strict guidelines in place to prevent the rights or the interest off a fixed charge e from ever being lost. On the one hand, the only reason or the only instance in which a floating charge with the negative pledge clause will get proceedings or supersede that offer fixed charge e is if such fixed charge E or any other charging for that matter is a well has actually notice of such a pledge only if the charges or the other charges have notice off this particular negative pledge close with some other charge. E. Would they be about Similarly, just because a floating charge E has a negative pledge clause that does not negate its floating nature? It doesn't make it fixed. This is all about proceedings and priority now, having said that, there are number off limitations and safeguards in place to avoid floating charges, actually getting proceedings or getting a leg up on any other secured creditor and the objectives off this which are namely to prevent any unsecured creditor getting a floating charge over that off. Anybody else can be seen in section 245 off the Insolvency Act of 1986 where the avoidance of certain floating charges have been considered. I urge you to have a look at and study specifically this particular piece of legislation because it's one in which there can be complications that occur specifically when you apply to really well scenarios. That was a comprehensive overlook off the concept surrounding raising off capital by virtue of the benches in relation to private companies. This not only brings to a conclusion this particular lesson or raising capital, but also that off part one off the company Law course, namely, that are fundamental principles. 17. Share Capital [Part I]: in this lesson, we will begin our discussion on part two off company law by having a look at the concept surrounding share capital now. First and foremost, in order for us to consider what amounts to share capital, we must first outline what in tears capital in itself. So the fundamental principle of capital is any funds which are accrued or raised in the incorporation process off a company, essentially money that's required to make the company now the very nature off a private or public company, as we have looked at in part one off this course as well is that the benefit that such a company has over that off a sole proprietorship or a sole trader? Ship and partnerships are that off the ability to raise funds or raise money from a multitude of sources in relation to public companies, from the public at large and when it comes to private companies from a smaller pool of individuals. Similarly, when we raise capital, what we consider as share capital is an instrument, so to speak, which is issued in the proportion off the capital, which is provided so essentially it's a one for one if £1000 are Allocator. You might get 1000 shares in place of that. Essentially, it is your steak as a person was provided capital in that company. And this is mind you an investment, so to speak. Now the specialty off share capital, based on this doctrine, is that it has elements of both accounting as well as legal principles in place. And we see this quite predominantly outline in the case of Guinness and Land Corporation of Ireland. Well, their lordships essentially outlined the fact that share capital is this unique aspect off corporate law company law, where it's governed up not only in relation to the legal side off things, but also that of the accounting aspects. Because the share capital, whatever is provided as funds for the company, is in essence to proliferate the objectives of the company that which is there in the objects clause off the articles of association Now, not that is one of the most fundamentally important concepts as well. Whatever share capital that is being issued, whatever capital is being raised, is in fact a fulfilled the objectives of the company, and that's very important, and we'll see later on in these lessons as well. The fact that anyone who is providing capital and who is therefore granted share capital, in essence has a contract with the company as well. And this contract, the binding terminologies off it are the terms off engagement in that context is based on the objectives off the company. A person is providing money in order to fulfill whatever the company has promised that it would do now. Having said that in order to receive returns because no one makes an investment without having a return at the end off it before such returns are possible to a shareholder, it must be noted that a company must show that whatever assets that the company has at that given moment of time, when dividend or any other type of return is provided that any assets that are with the company are in fact more than share capital now. This will make better sense later on in our lessons, but for now understand that there is a ah separate imbalance between assets within the company and that of the share capital, and it must be so that the former, in other words, the assets must be more than the share capital now, having said that, having looked at the primary doctrine and the fundamentals of share capital, we must now move on to consider the concept surrounding raising of capital because this is absolutely essential when it comes to forming, as well as maintaining and regulating a company. Now the general principle is that when you have share capital, whatever the share capital that has been raised must be substantiated in the form off money and cannot be discounted. So it's a one for one. As I noted earlier, there is no ability for a person to be granted shares for anything more or less than what another person has been granted off. So there is no concept off a person being provided with share capital in any other form than anyone else, for that matter, because you have several individuals who would be willing to bring in capital and therefore has to be afforded the share capital in a similar manner. Having said that, much like in contract law, when we look at consideration as being money or money equivalent, we have Ray Rag Limited back in 18 97 which actually considered the notion that shares themselves this the share capital may be afforded not just in terms of money but also issued in place of goods and services themselves. Now, having said that, this is regulated heavily when it comes to public limited companies. But predominantly when it comes to private companies, there is the freedom to be able to do this because it's a private matter within a smaller group or a smaller pool of individuals. But in terms of public companies, this is in fact subject to strict statutory provisions. Have a look at Section 593 off the company's active 2006 and you get a better understanding off the nuances and the regulations in place where there is evaluation that is required off non cash consideration, which is provided in relation to share. Now that we've had an introduction to the concept surrounding share capital from the next lesson onwards, we will have a look at how companies manifestly provide returns 18. Share Capital [Part II]: in this lesson, we will begin our discussion on the concept off returns in relation to share capital Now. In the previous lesson, we had a look at the doctrine and the concept surrounding raising off funds by worship of capital and the allotment of shares in place of such capital that was raised by different individuals or, in other words, shareholders. In this lesson, we will continue our discussion by assessing how funds are returned to shareholders for the amounts that has been provided to them, essentially the interest component that are provided to the shareholders. Now, distinctively, there are three fundamental ways in which we can outline and consider how returns are manifested, and we will do so individually. Firstly and quite predominantly, returns are provided by way off diffidence. Now, diffidence are, in essence, the interest component, so to speak, that a company will distribute based on the shareholders stake in the company. Now, what's most notable, and specifically in the context off share capital that we must consider is that dividends can only be paid from the distributable profits off the company. Now, if you recall in the previous lesson Israel, we looked at equalizing the net assets of the company with share capital in order to maintain a sort of equilibrium or in one context where the assets must be more than the actual share capital. Thus the diffidence essentially what with the interest component off the shares that an individual holes has to be paid off from the distributable profits without touching anything else. Now what's important here, while this is in fact outlined and regulated by the Companies Act of 2006 is that a breach off this principle is essentially something that will accrue liability personally on the director's themselves. In fact, the directors are to be held as fiduciaries and trustees of the company, according to Best Owes and Queens Moat Houses PLC now. Similarly, what we see here is that liability is not only a crude the directors, but also to any shareholder that knowingly accept such dividend, knowing full well that such dividend has been distributed outside of the ambit off the distributable profits of the company and essentially, what the law will prescribe is that there is a constructive trust or a trust instrument which is created by court in place of such shareholder. In essence, holding such shares off holding such diffident rather on behalf of the company. And whoever that has not received have a look at Section 847 off the Companies Act off 2006 which clearly outlines the consequences off such unlawful distribution. Now, apart from this, interestingly, you have diffident in the form off remuneration that has bean transferred or distributed among directors who are also shareholders. This can be considered as disguised gifts out of the capital itself. Um, have a look at Ray Hold Garage, a 1964 case which is available in your case summaries, along with most of the other cases that we discuss in this particular lesson as well as the course at large, as well as things which are not outlined in these specific lessons. But ancillary did the course in Ray Holt. What was identified was that where directors of a company, I in fact shareholders as well whatever remuneration that are provided to them can be viewed as what is known as disguise gifts out of the capital itself. Now, in the next lesson, we will continue our discussion on the concept of returns in relation to share capital by having a look at the concept off reduction, off share capital in the context, off the net assets and the share capital itself not being in equilibrium. 19. Share Capital [Part III]: in this lesson, we will continue our discussion in relation to share capital and the various regulations that are associated with it by understanding the nuances and the concepts off reduction, off share capital or reducing of share capital. Now, much like every other area off company law, we must consider this in the context of brute private companies as well as public companies by and large, as reconsidered earlier on in this course as well. When it comes to private companies, courts of flaw essentially take a back seat, since the parties themselves are quite succinct and smaller in number, and it amounts to a contract jewel arrangement between them. Whereas when it comes to public companies since the pool of capital being raised as well as the individuals involved the shareholders themselves being quite large in number and it considers both the public interest and public funds, they're much more onerous in terms of its implementation of statutory like regulations as well. Having said that, we will begin our discussion on the reduction of share capital by understanding the position when it comes to private companies. Now, later on in this lesson, we will consider why this is important in the first place. But at this juncture, what needs to be noted is the concept that the net assets and the share capital must be somewhat equalized, with one being greater than the other at best in this case, the net assets. Now, when it comes to private companies, the general premise the general rule is that a private company can in fact reduced their share capital of evaluation off their share capital by passing a special resolution supported by what is known as a solvency statement. Have a look at Section 641 off the Companies Act of 2006 which actually outlines the circumstances in which a company may reduce its share capital, something we will look at a bit later on as well. But it has been given Statue to rip our by Watcher of the Companies Act of 2006. Now converse to this and something we look at later, when it comes to a public company, you need the intervention or you need the leave off court in order for this to happen. So what exactly is a solvency statement? Quite simply, this is an assurance that is provided by the directors off the company. Those who are running the company to the creditors to those who have provided funds provided capital that the company itself is solvent. It's afloat. And this is an assurance which gives the creditors confidence that the reduction of share capital is not anything untoward now. What's important here as outlining section 643 of the companies act as well is that the solvency statement is a binding principle between the company, the directors and the creditors, the shareholders. So if the solvency statement that is provided by the directors has not been done so on reasonable grounds, essentially without much premise in order to sustain such a solvent statement, the directors significantly are criminally liable. So this is one of those instances where company law and the regulations surrounding it move of a so to speak from the civil aspects off it and moved towards a more criminal liability component off. It's something that we have touched on early in the course as well, but this is subjectively one of the instances where it's something that the court considers as being white. Now, having said that, as I noted, earlier on. In this lesson, we need to understand why, in fact, there is such a reduction needed, something that's outlined statutorily as well. But by and large, the primary reason one of the primary reasons why there is a reduction off cos up to reduce the evaluation in terms of the share capital is when, for instance, the particular financial years profits are lesser than anticipated, or due to certain bad decision making that our losses that are crude by the company. In this context, we looked at earlier as well, where you need to equalize, or you need to have an equilibrium between the net assets of the company as well as a share capital. But if there are losses or less of profits that are crude, chances are that the share capital will account for much more than the Net assets themselves. So in this context, this is one of the primary reasons why a company will want to equalize it and therefore reduce its share capital now. Not, however, that this solvency statement is doubly, more so important because of this, because you need to establish it and you need to provide it to the company register as well to make sure that all parties involved all the stakeholders, not just those in the company, but also any ancillary stakeholders such as the company registrar are aware that the company is still a flute. Now that we've begun our discussion in relation to reduction of share capital. In the next lesson, we're gonna move on to look at how this applies in relation to public companies, which is much more onerous than that off private companies which we looked at here. 20. Share Capital [Part IV]: in this lesson, we will continue our discussion on the reduction off share capital as it relates to public companies. Now. In the previous lesson, we had a look at the statutory position when it comes to reduction of share capital for private companies. Specifically that off the requirements outlined in Section 641 through 643 with emphasis on the concepts off the solvency statement on the criminal liability that accrues to it where there's some sort of failure or fraud, let's say from the perspective of the director as outlining that lesson as well. We looked at the fact that it's a matter for the parties for themselves to handle, whereas when it comes to public companies, considering the large class of people that I involved, plus the notion that it's public funds which are being accrued or raise the regulations are a bit more onerous in nature. So when it comes to public companies and the reduction of share capital there in this is governed from 645 onwards in terms of the companies act off 2006 and it's undertaken by essentially a court off law What we see in cases like Ray Chatterley, Whitfield Collieries LTD. Is that there is a possibility for a court off law to, in fact, invoke the best interests of the parties, irrespective of whatever takes prior to your pre Cedars. So, in essence, whatever the prospector saw, whatever the company and its creditors have agreed upon, the court has the freedom. And it has the luxury, so to speak, off, not considering any of that and looking at the context and the consequences that have taken place and deciding, Ah, best course of action. And this is quite a stark contrast to that off private companies now. What's notable here, though, is that we are talking about reducing share capital. We're talking about evaluation reduction, and it affects the company quite significantly now, interestingly, if this valuation, if the reduction of share capital essentially brings its value below that of £50,000 which is that off the minimum capital requirement? If you recall, for a public limited company for A PLC as really looked at in a previous lesson as well, then the company, according to the company's active two dozen six, must be registered as a private company because it ceases to be considered as a public company on account of the fact that it doesn't fulfill the emcee are or the minimum capital requirement. Now there might be instances that a public limited company would actually opt or prefer to actually avoid reduction of share capital altogether. Remember, one of the reasons why companies up to do this is to equalize between its net assets and the actual share capital. In essence, the former being net assets should be more than that of share capital. But why, in fact, when it comes to public companies, why its preferred to avoid this is a reduction of share, Capital essentially affects the valuation of a company. Now, mind you, you might have noticed that when you list a public company in a stock exchange or when it is a public quoted company, most if not all, the value of the company is dependent upon speculation about the muse that goes out. And essentially, when you have a company that's declaring the reduction of its share capital, that is an alarm bell s, so to speak, for not only its own creditors but also any potential parties that are willing to invest in the company, so this is not the best perception that is created outside of the company. So companies, specifically probably companies will prefer to reduce the reduction of shock up in law to avoid it altogether because it affects its valuation, and it's much more beneficial for them if it's possible toe a quiet by the company itself. Having said that, however, there is a general premises, a general rule that there is no Elevens provided to a company to acquire its own shares because, in fact it will create a risk factor for existing as well as potential creditors. Have a look at Trevor and Whitworth, a case which is available in your case summaries for a better understanding off this general rule and how it has been implemented on a really well context. Apart from this, apart from this case off Trevor, you have Section 658 of the Companies Act of 2006 which outlines this general rule that we just spoke about in terms off, limiting off a company acquiring its own shares. That was an overview off the concepts surrounding share capital. We had a look at the doctrines in terms off the concepts surrounding this in relation to private companies as well as public companies as well as the regulations in place and the limitations which are in place, prevent in the case off public companies as well as regulate reduction off share capital. 21. Dealing with Insiders [Part I]: in this lesson, we will begin our discussion on the concepts surrounding the Constitution of the company, namely, that off dealing with insiders. Now, up until this point, if you look at every single lesson that we've come across from the very INC process to the regulations that have been in place by and large we considered this on two different fronts on the one hand, by considering the company itself as its own legal personality. And on the other hand, by worked you off the parties that our attention to it in other words, the shareholders and the management in this case, the directors. Similarly, from this lesson onwards, we will dive deeper into the relationships that are built between the now incorporated company as well as its membership, those who are tangent or connected to the operations off it. By and large, we can separate these two into Constitution and membership. On the one hand, when we consider or what we considers Constitution is in fact, the actual rules governing the company and its very make up the nature of how it operates. This is governed primarily by word she of the articles of association, something we've touched on briefly in a previous lesson, but we will dive deeper into in this lesson and the next. On the other hand, you have membership, essentially the people that are involved in the operation off this particular company as well as anyone that stands to gain from the company, succeeding in other words, shareholders. Now, collectively, it must be understood that the Constitution, the very company and its membership, which is required for its operation, is considered as the company at large. Now, having said that, the very first aspect then that we must consider is the Constitution. What is the company itself? How does it operate? What it's makeup is like and so on. So, firstly, we have to consider the concepts surrounding the articles of association, essentially the rule book by which the company operates itself. On the one hand, you have the shareholders, the board, on the very makeup off the company as defined by the articles. Moreover, you have the notion that this particular document, this articles of association, is in effect, a constitution. It's the set of rules that governs everything, and because of that, and because these are entities which are formed between parties the parties themselves are essentially free to create their own articles of association. But having said that, more often than not, companies actually prefer to implement what are known as model articles of association. This is essentially, by and large, what Parliament has essentially enforced or past as being the type of articles which are essentially legal without many loopholes being in place. So these model articles can be incorporated or taken into as a template and then edited according to the specific requirements off this particular company based on the business that it's related to. Now. Where we see these model articles is not, in fact, in the Companies Act of 2006 but rather in the company's model articles Regulations of 2000 and eight. Essentially, this set off model articles or the the governing principles, so to speak, in fact, governs that of private and public companies and provides essentially the power's off the border directors and what exactly happens during a general meeting. On the one hand, what is known as the management organ and on the other that are the members organ, so we will look at each of these aspects in detail as we go along. But firstly, we must understand what, in essence, the model articles until basically the model articles outline how exactly the general meeting is supposed to happen, how shares and distributions of such shares are to take place, what decision making methods are to be adopted, the actual directors, powers and responsibilities and, most importantly, the management power off the board and how exactly appointments and removals are to take place. So let's take one. At a time when it comes to the management power off the board, we seen Howard Smith LTD. And Ample Petroleum LTD. That aboard is to be empowered to run the company, and the primary power wielding organ off the company is the said board, and we see this in the model articles Israel. The purpose conferred on the board of the directors is absolute. On the other hand, the model articles, quite interestingly, only provide for the removal of such directors off aboard in relation to some sort of incapacity which might have taken place all on the own volition. Off the director. In other words, by virtue of resignation, when you have to look at a direct removal process, you have to refer to section 168 off the Companies Act of 2006. Now, mind you, I cannot stress enough that these are mortal articles. Essentially, this is a template provided by statute in order to follow. There is no essential rationally besides the fact that this is a tried and tested method other than to use it. Companies are completely free to incorporate what of articles they want. It's just that these model articles is what has been found by law to be the easiest we in without having much issues in terms off the rights and responsibilities off the parties involved in the company. Now, having said that, the fundamental powers that a shareholder or a member has, as opposed to what the directors have in terms of running the company can be set out and activated during a general meeting. And this is quite important to understand, because the powers of the shareholder are only activated during a general meeting. We see this as outlined in section 336 off the public companies and created companies e g M provision within the Companies Act of 2006 essentially when it comes to a public limited company. Having an annual general meeting on GM is essentially, it's a must, but as a private company, it's not so necessary. Once again, it goes back to that original principle that when it comes to a PLC or a public limited company, you're dealing with the public at large and the public funds. And there are certain regulatory restrictions that you wouldn't find in private, limited companies, which are there in PLC's. But what's important to understand at this juncture is what powers are actually conferred on the shareholders when it comes to these general meetings. While each company will have its own distinct set of powers generally, it'll provide, um, opportunity for shareholders to ward on the appointment and removal of directors, the issuance of shares, altering off the articles in some instances with obviously a much more stringent regulations, such as three Ford's majority in the board as well as a special resolution. Having said that, what's important to understand here is that the process by which the shareholder operate is quite democratic. In other words, we will look at this later, Ron in our lessons as well in this course. But By and large, the principle that is adopted within this context is that majority shares rule. But at this juncture, just remember that when it comes to general meeting, it is only during the general meeting that a shareholder as an opportunity to firstly voice his or her opinion and secondly, be ableto ward on important matters pertaining to the company. That was a quick introduction on dealing with insiders, specifically considering the distinction between the Constitution as well as membership and how it forms the company at large. In the next lesson, we will look at the other component that be considered at the very inception off this lesson, which is membership. 22. Dealing with Insiders [Part II]: in this lesson, we will continue our discussion on the Constitution of the company of its specific emphasis on dealing with insiders. Now, in the previous lesson, we looked fundamentally at the very Constitution off the company. We looked at the articles of association what it entails, what the model articles essentially provide for and what processes or what procedures are in place in order to make any amendments or alter it as necessary, as well as the powers vested with shareholder during a general meeting. Now, in this lesson, we're gonna focus more on the very nature of the membership itself. In other words, the shareholder, the powers that he or she has, and how he or she may enforce such powers against the company. Now, quite notably, it needs to be understood that there is an effect off Constitution off the company. Essentially, the articles of association is a binding contract, so to speak, between the shareholder, the creditor as well as the company itself. So we see this outline in Section 33 off the Companies Act of 2006 which by and large stipulates that when you have the articles of association this in fact is the contract of membership for the share hold, It essentially said sell the notion that the shareholder, him or herself, has a contract with the company, and it is set out in the area or the articles off association now, mind you. Quite interestingly, the articles of association readily states that there is a contractor relationship between the company and the share hold. However, there is no such affinity or relationship, which it creates between the shareholders themselves. And the reason for this is quite simple, and you might have encountered it in your lessons in contract law, for instance, this is the lack off, pretty the fact that the shareholders themselves are not party to this contract among themselves. It is only a contract individually, that they have with the company. Now, having said that, a number of considerations must be made now. Firstly, the share hold cannot sue individually for a wrong done against the company because it doesn't have standing. Remember, the company in itself is a populace. It's It's an entire gamut off individuals as well less procedures in place, and one person cannot do so. However, if the articles themselves provide for such personal right to be accrued to the shareholder . In such a situation, a shareholder may be able to enforce against the company directly. Now my new The first consideration is that the shareholder can't set itself out to be acting on behalf of the company, whereas in the second component what we must consider. What we must understand here is that the articles, if it does so provide for it, creates a personal right between the shareholder in the company where the shareholders can go against the company knew that contractual relationship. So what, exactly then, would the powers rested with shareholder? Be what? What exactly can it enforce? While we don't have much case law or specific provisions within the statutory regime specifically within the Companies Act of 2006 which outlines this in great detail, we do have an article from 1957 where Lord Wedderburn essentially outlines the things that a shareholder can invoke during a general meeting or during any situation in which a court of law can be accessed by a shareholder. On the one hand in relation to his walking right, it's claimed toward in his share transfer rise that he may have the ability to enforce procedure if dividend is not declared, and it should have Bean so declared the right to obtain share certification, some sort of proof for the share capital that this particular shareholder may have now, having said that, considering the fact that the law is somewhat divided on this notion, we see later on in cases like McDougall and Ghani, as well as spend and Washington, where this premise has bean on the one hand, recognize and on the other not so recognised. But mind you, all of these discussions stem from the relationship that is created between the company itself and its shareholders. The outsider principle here does not apply. In other words, there are no such things as outsider rights, which are applicable in relation to the articles of association primarily once again, due to the lack off privet E that we looked at earlier, once again, the most important aspect here, and I cannot stress this enough is that we're looking at the relationships between a shareholder and the company and not those off between the shareholders or outsiders and the company. Once we understand this premise, once we understand this notion, the very next step, then, is to understand what shareholder agreements are so essentially. The premise here is the parties, the shareholders and the company can in fact stipulate any clause that they would like subject off course to any contrary provision within the Companies Act of 2006. In this regard, the Companies Act of 2006 has to be considered primarily as a safeguard to protect minority interests, to protect consumers, to protect individuals that might otherwise not have a say. But having said that, anything which doesn't overtly go contrary to it, the articles of association can up to be altered by the parties themselves. That was an overview off the Constitution off the company, specifically in dealing with insiders. We had a consideration by distinguishing the company or the Constitution off it with the membership and the relationships that are created there in in the next listen, we will dive deeper into these rights into the classifications off them by having a look at class rights 23. Class Rights [Part I]: in this lesson, we will begin our discussion on the concepts surrounding class rights. Now, up until this point, we had a look at the fundamental nuances and concepts around share capital. Essentially, what a shareholder, what a creditor would get in place off the funds or the capital that he or she provides in the incorporation and the sustainment off a private, limited company? Or that off a PLC, However, one of the fundamental aspects that we established in those lessons was the nuance. Or was the notion that each is essentially identical to one another? Whatever the share value might be for the company, that is what an individual pace for and then is issued in the proportion off such payment. But in this lesson, we will have a look at an interesting context off class rights, in essence, where the evaluation remains the same but the president's that certain shares gets over, others might shift and might very and therefore each classifications of shares will have its own unique rights. As such, this lesson overall, in other words, the lesson on class rights will fundamentally be broken down into three specific sections. Firstly, in this particular lesson, we will look at the fundamentals of shares themselves, will try to put it in context and understand what essentially shares are and how academics and how jurists have considered them to be. In the next lesson, we will follow this up by looking at the different classes or classifications of shares in essence class rights. And then finally, we will conclude this lesson on class rights by having a look at the different variations that can be made and that are made when we look at what shares. Ah, while you can look at it in a number of ways in which we will do so later on in this lesson , fundamentally it is, by and large a type of valuation that a person receives for his investment in the company. And essentially, this remains the same. Based on who, you Why doesn't necessarily change based on the individual at any given moment in time, that particular Sha has its value now in Borland's Trustee and Steal Brothers Company Limited, there was a semblance or a particular definition which was outlined, namely, that a share effectively is an interest off a shareholding in a company which is measured by a some off money for the purpose off liability and interest mutual to each shareholder. Now, what we must understand from this definition, essentially, is the fact that each individual shareholder is essentially in the same position as every other share hold, namely the fact that everything is mutually exclusive while being equal to each other. Now, having said that, there is quite a distinctively that Seeley and Worthington, two prominent academics in the area of company law, have defined or have looked at are considered shares. On the one hand, they feel that it is essentially a quantification offer shareholders financial status in a company. This is the very first definition that we looked at. But apart from that, they also believe that it is a measure off the shareholder's interest in the company itself , what interest he or she has in the company. And thirdly, they feel it is also, in essence, a species of property which can be bought, sold and or charged upon. Now this third limb may appear quite similar or quite familiar to you if you've gone through subjects such as trust law or even property law, for that matter. But having said that What we need to fundamentally understand in relation to shares is that it has an equalized ah position, irrespective off who the owner off such shares up. In essence, the opportunity or the interest that is provided to a shareholder by the company is similar or equal to every such other shareholder, the that has an interest in the company. That was a introduction and an overview off class rights by looking at the first component , essentially, the fundamentals off shares. In the next lesson, we will continue our discussion by having a look at the different classes of shares. 24. Class Rights [Part II]: in this lesson, we will continue our discussion on class rights by having a look at the second component, essentially the different classifications that shares will have in relation to a company. Now, as we have looked at in previous lessons as well and as much as we've touched on in the previous segment in Relation to Class, writes the general rule, which is in fact, a rebuttable presumption is that every shareholder is equal and all shares are equal to one another in relation to its watering rights, receiving of dividend and the right to participate in any surplus asset at liquidation. So these, in essence, are collectively known as class rights, according to Birch and Cropper. But having said that, as considered a bit earlier in relation this rebuttable presumption, this is the general rule, the general premise. But companies are absolutely free to issue shares with differing, writes Aziz, long as that has been set out and indicated as such within the articles of association. So this goes back to that original premise that the parties are free to dictate among themselves how the company itself runs and what essentially they provide for a creditor. And it's presumed that the creditor, the person who's coming into the company by investing in it, comes into it with eyes wide open in relation to the prospectors that has been provided and understanding what the articles of association up. Having said that, we have to now consider and have a look at the different types. Off class writes how the shares are classified as such. On the one hand, you have ordinary shares, which we will have a look at in a bit apart from that, you have preference shares redeemable and employees shares as well. So, firstly, ordinary shares is the names themselves suggests are the default types of shared, issued and more often than not, when you consider a company, you will Seymour off ordinary shares than that off others. But once again, this is dependent upon the type of company, the articles of association and so on. The proceedings, however, off ordinary shares is only second to that of preference shareholders, which we will look at in a bit the main advantage, often ordinary shareholders over that even a preference shareholder is the ability to control the general meeting being the majority populace in terms of shareholding Apart from that, an ordinary shareholder gets one word per share. Interestingly enough, unlike a preference shareholder who has no what whatsoever except for in very specific instances, which once again we will look at here onwards. Conversely, in terms of preference shares, as we just considered earlier, this type of shareholder share hold that has rights in relation preference shares takes precedence or priority over everyone else. In essence, the advantage that the preference shareholder has is that where, for instance, a company feels to issue diffident in a particular year in an ordinary shareholders perspective. In terms of an ordinary share, no one gets dividend for that year. Once they re start issuing diffident, they will receive it, but in relation to preference shares if you are a person, if you're a shareholder with preference shares, the diffident that was not issued in the previous years is, in fact, or to you. This is a concept known as fixed preferential, cumulative dividend, which effectively means that the preference shareholder is entitled to diffidence later on , when they are in fact paid out. Along with that which has been missed now, this is a fundamental advantage in the absence off not being able to work. For instance, however, what must be noted is that this, too, can be vitiated or negated by worked you off the articles of association. But when the articles of association themselves are silent, as seen in Web in early, the preference shares are presumed to be a cumulative. Now, having said that, you would note that as we looked at in terms of ordinary shares, there is a restriction placed on preference shares and preference shareholders there in where they are unable to walk. However, this is somewhat exempted if, for instance, dividends have not been paid in the absence of diffident being paid, there is voting rights allotted to preference shareholders. So in essence, you could in fact look at this as a circumstance where payment of dividend relinquishes or by word of accepting diffident a preference shareholder relinquishes his or her right toe ward. That's one way of considering it as well. Now, apart from these two fundamental methods in which shares are classified, we also see redeemable shares and employees shares. On the one hand, redeemable shares are those which are classified and outlined by word. Your Section 684 off the Companies Act off 2006. And as the name itself suggests, employees shares are provided to employees to have a fundamental stake in the company itself. This, on the one hand on the from the perspective of the company, provides certain tax incentives, since they are incorporating, or rather their providing their employees with an incentive on also value to the employment off the company. These off course, much like the type of shares that we looked at earlier, could be classified as either issuance off ordinary shares, all preference shares. That was an outline off the different classes of shares, or the classifications off class, right, so to speak. We had a look at the more popular method off issuance of shares in other words, ordinary shares preference shares, as well as to specific classifications in relation to redeemable and employees shares. In the next lesson, we will look at and conclude other complete overlook off class rights by having a look at the fundamental nuances surrounding the variation off these class rights