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What Is A Company?
A company is a type of business, which has a seperate legal existance from the people
who are its members, and own it. The main advantage of this is that people cannot be held liable
for the debts of the company, nor can they be personlly sued or prosecuted for the actions of the
company as a whole.
Companies were originally formed by means of a Royal Charter. An example of this is the Hudson Bay
Company. Later, in the industrial revolution, many companies were created for public services
such as railways, canals and gas, as well as factory owners and banks. These companies were created
by private acts of Parliament, but this meant that it was still almost impossible for people
to set up companies of their own. This was remedeed in the nineteenth century, by the passing of the
Companies Act, 1844. This act has since been added to, and the act currently in force is the Companies
Act, 1985.
The Companies Act allows companies to be formed by registration. This is a proccess, wherby the
companies purpose is set out in its documents, and these documents are registered with the
Registrar of Companies, in Cardiff.
Shareholding
To finance any business venture, capital is required. Companies acquire their
capital by selling shares. Shares are stakes in the ownership of a company, which entitle their
holders to a portion of any profits which the company makes. The portion of the profit paid to
the holder of each share is known as the dividend. Often, shares also give their
holders the right to vote on company issues, and the leadership of the company.
There are two types of shares available to buy; preference shares, and ordinary shares.
Preference Shares
These shares recieve a higher priority over the payment of dividends, which are often paid at
a fixed rate, regardless of the companies performance or stockmarket quote. However, these
shares have restricted rights when it comes to voting at general meetings of the company.
Ordinary Shares
The shares have the right to vote on any motion at a general meeting, but they come after preference
shares when dividends are paid. This means that if the money put aside for the payment of
dividends is sufficient only to cover the preference shares, owners of ordinary shares
recieve nothing.
The Company Leadership
Directors
Companies are managed by a board of Directors. It is neccessary for a private company to have
at least one dDirector, and a public company to have at least two. Directors must always act
lawfully, and within their powers. Because of their position as trustees of the company, they are
meant to act for the good of the company, and must declare any interest that they personally have
in a contract or action which they propose the company takes.
The way in which Directors are appointed is set out in a companies Memorandum of
Association, but the proccess must invlove election, which ensures that the Directors are
representative of the shareholders. Directors must serve a fixed term, and then retire, but after
a term is over, they may offer themselves up for re-election.
The Chairman
In this country, the leader of a Board of Directors is often called the Chairman, but may also
be known as the President. As his title sugests, he 'chairs' meetings of the board of directors,
and keeps order. His election and powers will be set out in the companies Memorandum of Association.
The Secretary
Every company must have a Secretary, who is appointed by the Directors. His duties and salary
will be set out in a written agreement, and usually in the Memorandum of Association as well.
The Secretary is responsible for the organisation of meetings, carrying out the decisions of
the board of Directors, and filing the companies accounts with the Registrar of Companies.
The General Meeting
When and for what reasons meetings are called is set out in the Memorandum of Association,
but every company must hold an Annual General Meeting once a year, when the directors must lay
the company accounts, company reports and auditors reports before the shareholders. At a General
Meeting, an ordinary resolution may be passed, by a simple majority in a vote. In this case,
shareholders will have one vote for every share that they hold.
Some proposals for the companies actions cannot by law be carried out at the Annual General Meeting,
and so another meeting must be called to deal with them. This is called an Extraordinary
General Meeting, and the resolutions which are voted on here are called Extraordinary Resolutions.
At these meetings, the voting principle is the same as at the annual meeting, but an extraordinary
resolution requires a majority of three - fourths to be passed.
The Memorandum of Association
A companies Memorandum of Association, is its charter, which defines it's powers and objectives.
Section 2 of the Companies Act, 1985 requires that the Memorandum for a public company contains
the following:
- The name of the company, with the postfix 'Public Limited Company
- That the company is to be a public company
- That the registered office of the company is to be situated in England or Wales
- The objects of the company
- That the liability of the companies members is limited
- The capital of the company, which must not be less that £50,000, and its division
into shares
The Registered Office
The registered office (headquarters) of the company determines the companies nationality.
The companies act requires that the Registrar of Companies be notified of the registered office
within 14 days of the companies incorporation (formation)so that documents can be served to the
proper address. A register of the companies Directors and members must be kept at the registered
office, along with the companies accounts.
The Objects of The Company
This caluse sets out the companies powers, and informs shareholders of the purpose of the
company, and what ventures their money may be spent on. A company cannot undertake any
venture which is not outlined in this clause.
For example, a company which has in its objects the making of television sets, cannot begin
to make computers. It is possible to change or add to the objects of the company by a vote of the
shareholders at an extraordinary general meeting.
The Capital of The Company
This clause deals with how capital is to be provided, how many shares are to be released, and their
value. It can be changed at a later date, to provide for more or less capital.
© Luke Culverwell 2001, All Rights Reserved |
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