2018 Examinations Watch free CIMA BA4 lectures 83
OpenTuition . com Free CIMA notes • Free CIMA lectures • Free CIMA tests • Free tutor support • StudyBuddies • CIMA forums 3.2 The articles of association Most companies adopt model articles (ie standard articles) but the articles can vary from company to company. The Articles are primarily to do with the internal matters of the company: rights and duties of shareholders and directors. T he contents of the model articles include the following matters: ๏ Directors’ powers, responsibilities, decision making (eg how many have to be present at a meeting to make decisions), appointment and removal. ๏ Shares: types of share, transfer of shares, rights to dividends, procedures for declaring dividends. ๏ Power to capitalise profits ๏ Decision making by shareholders: attendance, speaking and voting at general meetings; proxy votes. ๏ Administrative matters: means of communication to be used, director’s indemnity and insurance. 4 Public and private companies A private company cannot offer shares to the public. It has no minimum capital requirement and might have only one director. In the UK they are designated by having ‘Ltd’ (meaning limited liability) after their names. A public company can offer shares to the public. There are minimum capital requirements and there must be at least two directors and a company secretary (who can be a director). In the UK they are designated by having ‘Plc’ (Public Limited Company) after their names. If they meet the stock exchange listing requirements, public limited companies can be listed (quoted) on a stock exchange) Note that the term ‘public’ is often, wrongly used to mean ‘listed’. Listed companies have to be public companies, but public companies do not have to be listed. 5 The corporate veil It was explained above that limited companies have a separate legal existence and that their actions and liabilities are separate from those of the shareholders and directors. A company might be sued if it causes damage, but the shareholders won’t be because the company is the guilty party. The company might be pursued by creditors, but the creditors cannot chase the shareholders or directors for amounts owed by the company. Case: Salomon v Salomon (1897) Salomon formed a limited company to take over his business. He was the majority shareholder but also lent money to the company as a secured creditor. The company failed. Salomon’s debt was safe because it was secured on company assets but there was nothing left for the unsecured creditors who then attempted to claim their money from Salomon, asserting that Salomon and the company were one. Held: Salomon and his company were separate. The unsecured creditors could claim from the company but not from Salomon personally.
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