FE-1 Company Law flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Separate legal personality

The principle that a company is a legal person distinct from its shareholders, directors and promoters, so it owns property, contracts and sues in its own name, and members' liability is limited as the constitution provides.

Piercing the corporate veil

A court's exceptional disregard of separate personality, used where the company is a façade or device to evade legal obligations or conceal facts, or where a statute expressly fixes liability on members or directors.

Public company

A company whose constitution does not restrict share transfer, does not limit member numbers, and permits offers of its securities to the public; it must have a company secretary and the statutory minimum directors.

Private company

A company whose articles restrict share transfers, limit the number of members, and prohibit public offers of securities; it may dispense with a company secretary and use written resolutions for most decisions.

Promoter

A person who undertakes to form a company and take steps to set it up; a promoter owes fiduciary duties and must disclose any profit made from the promotion to the company.

Pre-incorporation contract

A contract purportedly made on behalf of a company before it exists; it binds the person who made it personally, and the company cannot ratify it, so a fresh novation contract is needed.

Ultra vires act

An act beyond the objects or powers conferred on the company; historically void, though a third party dealing in good faith may enforce it, while directors remain liable to the company for unauthorized acts.

Capital maintenance

The rule that a company may not return capital to members except through a lawful dividend, authorized capital reduction, redemption or purchase of own shares, or a sanctioned scheme, protecting creditors.

Distributable profits

Accumulated realized profits less accumulated realized losses not previously written off; dividends may be paid only from this amount, never from capital, and must comply with the articles.

Directors' duty to promote success

A duty to act in good faith in the way most likely to promote the success of the company for members as a whole, having regard to employees, suppliers, customers, community and environment.

Declaration of interest

A director's duty to disclose to the board the nature and extent of any interest, direct or indirect, in a proposed or existing transaction, before the company enters it.

Rule in Foss v Harbottle

The rule that, where a wrong is done to a company, the proper claimant is the company itself; exceptions include fraud on the minority, acts needing a special majority, and breaches of personal member rights.

Derivative action

A claim brought by a member on behalf of the company against a wrongdoer, permitted in limited circumstances such as fraud on the minority where the controllers will not sue.

Ordinary resolution

A decision passed by a simple majority of votes cast by members entitled to vote at a duly convened meeting, used for most routine matters such as appointing directors or approving accounts.

Special resolution

A decision requiring not less than 75 percent of votes cast; used for matters such as altering the articles, reducing capital, or changing the company's name with member approval.

Written resolution

A decision of a private company passed in writing without a meeting; most resolutions qualify, but removal of a director or auditor before term cannot be done this way.

Annual general meeting

A meeting of members held at statutory intervals with prescribed notice, at which accounts are laid, directors and auditors appointed, and other ordinary business is transacted.

Quorum

The minimum number of members whose presence is required for a meeting to transact business validly; fixed by the articles or statute, and business done without it is void.

Pre-emption rights

The right of existing members to be offered new equity securities in proportion to their holdings before allotment to outsiders, unless disapplied by special resolution or the articles.

Allotment of shares

The creation and issue of new shares by the company; directors need authority from the articles or an ordinary resolution, and pre-emption rights normally apply.

Share transfer restriction

A provision, usual in private companies, limiting how shares may be transferred, for example requiring board approval or offering shares first to existing members under pre-emption terms.

Register of members

The statutory record of shareholders, their holdings and payments made; it is prima facie evidence of membership and must be kept available for member inspection on statutory terms.

Certificate of incorporation

The document issued by the registrar on registration, conclusive evidence that the company exists and has been duly formed under the applicable companies legislation.

Memorandum of association

A founding document stating the company's name, jurisdiction, objects or business scope, liability of members and capital, which binds the company and its members to one another.

Articles of association

The company's internal rulebook governing share transfers, meetings, directors' powers and decision procedures; it operates as a contract between the company and its members.

Removal of director

Members may remove a director before term by ordinary resolution at a general meeting on special notice, despite any service agreement, without prejudice to the director's contractual claims.

Company secretary

An officer responsible for statutory records, filings and meeting administration; mandatory for public companies, optional for private companies, with authority limited to ministerial acts.

Wrongful trading

Trading continued when a director knew or should have concluded that insolvent liquidation was inevitable; the court may order the director to contribute to the company's assets.

Fraudulent trading

Carrying on business with intent to defraud creditors or for any fraudulent purpose; those involved may be ordered to contribute personally without limit and may face criminal liability.

Liquidation waterfall

The order of payment on winding up: secured creditors from their security, preferential debts such as employees' wages and prescribed taxes, unsecured creditors, then members.

Company limited by guarantee

A company without share capital in which members undertake to contribute a fixed sum if it is wound up; used for clubs, charities and non-profit associations.

Unlimited company

A company in which members have no limit on their liability for the company's debts, though the company still enjoys separate legal personality and contracts in its own name.