Company Law: Characteristics, Functions, and Regulatory Frameworks

This document provides an overview of company law, including the characteristics of different types of business organizations, the functions of EU companies, the regulatory frameworks for incorporating UK and EU companies, and the policy issues related to company regulation in the UK and Europe. It also discusses the rights of shareholders, the legal nature and roles of shareholders and directors, the consequences of breaching directors' duties, and the responsibilities of directors to creditors in financial distress.

Company Law

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1.1 Analyse the characteristic of different kinds of business organisations...............................1
1.2 Evaluate different functions of EU companies.....................................................................2
1.3 Evaluate regulatory frameworks of incorporation of UK and EU companies......................2
1.4 Assess the policy issues that arise regarding the regulation of companies in UK and
Europe.........................................................................................................................................3
TASK 2............................................................................................................................................3
2.1 Describe the rights of shareholder in public and private limited companies........................3
2.2 Identify the legal nature, roles and powers and liabilities of shareholders and directors
towards a company......................................................................................................................4
2.3 Assess the consequences to the breach directors' duties in the company law.......................4
2.4 Assess the directors' responsibilities to creditors of the company in the financial distress. .5
TASK 3............................................................................................................................................6
3.1 Evaluate the role of auditor...................................................................................................6
3.2 Outline winding up processes and dissolution including powers and duties of liquidator...6
3.3 Assess the priority of creditors in a winding up process.......................................................7
3.4 Describe the role of licensed insolvency practitioners for advice on corporate insolvency. 8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Company law is that part of legal system in a country that contains provisions for
regulating the corporates. In UK, Companies Act, 2006 has been enacted for governing the
matters of entities (Cremers, 2017). This law includes the laws applicable from inception till the
winding up of the business. This file highlights the application of legal provisions by analysing
features of various type of business organisations, evaluation of different functions of EU
companies and regulatory frameworks of incorporation of UK and EU entities. Along with this,
assessment of policies, rights of shareholders in different types of companies, identification of
legal nature, roles etc. of directors, consequences of breach of director's duties, role of auditor,
winding up processes, assessment of priority of creditors and role of licensed insolvency
practitioners.
MAIN BODY
1.1 Analyse the characteristic of different kinds of business organisations
Sole trader- This business is owned and managed by a single individual who is called
proprietor. Law does not have any provision for registration as it does not allot any legal identity
to this form of business. Decision-making is done by the owner however, there can be additional
people for helping in the management of business. Further, it is determine that in sole
proprietorship there is less laws and regulations is formulated that occur less cost to the business
person. The sole trader take risk with an aim to earn profits. Moreover, occurrence of high loss in
sole proprietor company may leads to winding up of company. It is analysed that there is no
requirement to open a separate bank account for trading of transactions associated with business.
Partnership- It is an association of people having the same interest and directed towards
making profit. For this business type, there is no need to get it registered under any law. In other
words, it is optional so if the partners want they can register it in order to reduce conflicts in
future. The decisions taken by the partners. In addition to this, all the profits earned by business
company is divided in the partners equally or as per the written ration in partnership deed.
Public company- This type of company is the one in which the ownership is held by the
general public by subscribing to the shares of stock on exchanges or over the counter. It is
mandatory to get register under Companies Act, 2006. Furthermore, a private company can be

converted into a public company after meeting all the legal requirements as provided by the act
(Davies, 2020).
Private company- It is a corporation in which ownership is held by shareholders who
have subscribed to the MOA. There is no contribution of general public in the shareholding
therefore, nothing in the ownership is held by public. Also, it has a separate legal identity in the
eyes of law which means that only law can incorporate and dissolve it. Directors are appointed
by the company to act on behalf of it.
1.2 Evaluate different functions of EU companies
EU companies refer to the public limited liability company which can conduct their
businesses in all the countries by just following the uniform set of rules mentioned by European
Commission. An evaluation of different functions of EU companies has been conducted below:
Abiding by the law- This function is related with the compliance with laws which are
provided by the EU commission. No transactions can be carried without following the directives.
Therefore, such companies can not avoid these laws as occurrence of any such event can affect
the membership of it (Hannigan, 2018).
Registration- It is the function which provides that every EU company is required to get
itself registered under the specific law corporate law of that European country in which it has
registered office. A company cannot commence it business without the registration.
Limited liability- This is the characteristics in which the liability of public is limited to
the extent of the unpaid nominal amount on the shares held by them. Usually, a public company
does not have limited liability but an EU entity has.
Disclosure- This functions states that such corporations are under obligation to disclose
the decisions taken by the management as public is involved in these entities. It is important for
EU public limited liability companies to show the financial statements and any changes which
can influence the decisions of investors.
Members and creditors' approval- If EU company is considering the proposal of
winding up the business, it should get the required approval from the members as well as
creditors. They are significant for the company therefore, there involvement is necessary.
1.3 Evaluate regulatory frameworks of incorporation of UK and EU companies
Regulatory framework of incorporation of UK company- It is compulsory for UK
companies to get registered under Companies Act, 2006. There are laws which provide that

companies should file Form no IN01 as the application for the availability of name. This is first
document which should be filed by the companies for registering it (Papadopoulos, 2018).
Regulatory framework of incorporation of EU company- The companies of EU
should be registered under the directives provided by the EU commission. There should be
complete adherence to these rules and laws. Also, there is no requirement to get individual
registration in which the entity is situated.
1.4 Assess the policy issues that arise regarding the regulation of companies in UK and Europe
UK is not out of the EU which means that the companies in the country are not required
to follow any of the rules and regulations as provided by EU commission. The policy of UK
states that entities should get itself registered under Companies Act, 2006. On the other hand,
there is no such requirement for EU companies since they are the members of EU. They can
freely trade in any of the European countries without any registration (Lai, 2017).
TASK 2
2.1 Describe the rights of shareholder in public and private limited companies
A public company has general public as its owners who have their shares in the entity.
On the other hand, private company is the one in which there is no involvement of general
public and there are limited number of members. The rights of shareholders which are common
in both the companies are as follows:
Voting power- This right empowers shareholders to vote on issues or changes which are
substantial in the nature. Every member is required to attend general meeting for this purpose.
Also, the right to appoint proxy is there.
Right to transfer ownership- Shareholders have the right to transfer their shares to other
individual on stock exchanges. This is the way through which a new person can become the
member of the company. In the context to private company, the shares cannot be transferred to
general public and only to the other members in the same company.
Entitlement to dividends- Dividend is the amount which is earned by the investors on the
shares held by them. Companies pay the amount of dividend from the profit earned by it and
after paying all the expenses and taxes. Every person invests in the company to get a good return
in the form of dividend (McLaughlin, 2018).

Opportunity to inspect corporate books and records- This right gives a chance to the
members to look into the books of accounts and other records. A public company which is traded
on the stock exchange is under the duty to comply with the reporting standards. However, private
company acts as per the article of association.
2.2 Identify the legal nature, roles and powers and liabilities of shareholders and directors
towards a company
Legal nature- A private as well as public company hold separate legal identity in the
eyes of law. However, there number of shareholders can be different. For example, private entity
must have at least one shareholder. Also, both of these companies are treated different from its
members. In other words, even if the shareholders die, a company can not be dissolved. In the
context of directors, the legal nature is that they have to make decisions and contracts on behalf
of the company.
Roles- Shareholders are in the role of contributing in the decision making of the
company. Also, they provide the funds for the projects undertaken by the entities. They can also
suggest ways for improving the current working. For directors, the roles of directors are
formulating and implementing the policies and decision making. Preparation and filing of
statutory documents with the Companies Officer. Some other roles include conducting meeting,
maintaining records and many more (Papadopoulos, 2019).
Powers- There are six powers of shareholders such as power to appoint or remove
directors, to approve substantial property transactions, to correct directors' breaches of duty, to
authorise the board to allot shares, to give the permission to company to re-purchase its shares
and many more. In case of directors, the powers are to make calls, issue debentures, borrow
money, invest the funds of the the company, to make loans etc.
Liabilities- The liabilities of the shareholders in a private company is up to the extent of
amount unpaid on the shares held by them provided it is an entity limited by shares. If it is
limited by guarantee, the liability is restricted up to the amount to be contributed as guarantee. In
case of unlimited company, there is no limitation to the liability of shareholders. On the other
hand, directors are liable for any loss, damages and costs sustained by the company.
2.3 Assess the consequences to the breach directors' duties in the company law
Directors have statutory duties as per Companies Act, 2006 which should be exercised by
the directors. This act provides consequences of not performing the duty or reaching such duties.

As per section 178 of Companies Act, 2006, a director breaching the duties as provided in
section, 171, 172, 173, 175, 176 and 177, which are in the nature of fiduciary relationship
(Pistor, 2019). Furthermore, in respect to section 174, which is the duty to exercise reasonable
care, skill and diligence, then damages is available as the only remedy. In such as case, the
director is held personally where directors have neglected the duties. Furthermore, director in
default is disqualified for a certain period which may be extend by the court, if required. Along
with this, restoration of company property, stopping or setting aside the transactions, issuance of
interim injunction, and damages or compensation in case of serious offences can be provided as
the result of consequences. Apart from this, if there is any criminal offences done by the
directors, then fines and penalties provided under criminal law can be imposed in addition to the
the above-mentioned consequences.
2.4 Assess the directors' responsibilities to creditors of the company in the financial distress
Financial distress refers to the situation where an entity or individual fails to earn revenue
or income as it is unable to fulfil the financial obligations (Puchniak, and Tan, 2016). This may
be for number of reasons such as high fixed costs, lack of liquid assets or revenues, etc. The
directors of a company should have the following the responsibilities to bring the entity out of
this situation:
To comply with the obligations- At the time of financial distress, there arise number of
financial obligations such as payment to shareholders, debenture holders, and other expenses as
well which should be met in the right sequence. This responsibility build the trust of investors
that they will get their payment from the realised amount of the assets.
Hold meeting- This responsibility provides that directors must hold meetings with the
members and creditors to take their approval in the financial matters. Also, it is on the board to
monitor the whole activities on the basis of which reports are prepared and submitted to the
shareholders.
Appointment of liquidator- This stage arrives when the company propose to dissolve
itself when it is not possible to pay off the obligations. However, it is decided by the members ad
creditors in the meetings held by the directors.
Assessment of current financial position- The directors should take into consideration
and keep close eyes on the financial position in order to reduce the situation of financial distress.
This is done with the help of various individuals who are on the board (Teichmann, 2019).

TASK 3
3.1 Evaluate the role of auditor
Auditor is the individual who inspects the books of account of an entity to provide the
true picture. It is important to have the the accurate information about the financial position of
the company on the basis of which the investors can make decisions. Some of the evaluation role
of auditor role are as follows-
Regulatory Monitoring- Auditors in organisation ensure that business is running
smoothly and in efficient manner. So, they monitor and regulate activities of corporation to
enhance firm productivity. Without monitoring, firm cannot produce reliable outputs. This role is
helpful in reducing the variance in financial outcomes. This can be helpful in making the
company to a higher position (Wade, 2018).
Internal control- Policies, rules and regulations, involvement of government which can
affects the business continuity are checked as well as taken into considered by the auditor.
Effective remedies are chosen to reduce the conflicts and terminates them. It is evaluated that
internal control is useful in tracking the activities of internal auditors and that management is
using the accounting standards as mentioned in the internal documents.
Accounting and control system- Auditors in this, play very crucial role in organisation.
Because they are assets of the firm and controls all the activities related to accounts and report of
business. Any omission of information, details, all are managed and controlled by auditor. It is
evaluated that, the auditor should ensure that company is abiding by the accounting principles
and standards for recording the transactions.
3.2 Outline winding up processes and dissolution including powers and duties of liquidator
Liquidator is the authority appointed by the company to liquidate the assets available in
the company in order to realise the money to pay off the obligations. A liquidator has the power
to act on behalf of the company and it is a legal power. The winding up process in a UK
company is as follows:
 A winding up petition is filed by the creditor or HMRC showing the debt amount to be
recovered. It should be filed if the money remains unpaid within 21 days and the amount
of £750.

 The company against which the petition has been filed has a time limited of 7 days to act.
The acts may include full settlement by paying the debt in full, negotiate to reach an
alternative solution or hold a meeting with the creditor.
 If the petition is granted by the court then legal actions can be taken against the company
and proceedings of the whole process of insolvency proceeding is initiated. This is
followed by appointing a liquidator for taking over the activities of the company.
 After the payment of all the debts, the company is dissolved ad the name of the company
is stroked off the register.
Powers and duties of Liquidator
 To check the claims made by the creditors and integrate them with a view to consolidate.
 To overtake the control of all the assets, property, actionable claims etc. of a corporate
debtor.
 To undertake evaluation of assets and properties of corporate debtors in order to prepare a
report.
 To implement the measures of protect and preserve the assets and properties of the
corporate debtor.
 To sell immovable and movable property and actionable claims of corporate debtor in
auction conducted publicly or privately.
 To take professional help for discharging the duties and obligations.
 To settle claims of the creditors and other claimants according to the law.
Apart from this, there are many roles and duties which are exercised by the liquidator for
carrying the liquidation process smoothly.
3.3 Assess the priority of creditors in a winding up process
There is a particular sequence which should be followed while making the payment to the
creditors. It is as follows:
Secured creditors- This category of creditors should be given the priority. There is legal
right for these creditors to get the payment at the first preference. It is because they have floating
or fixed charge which are charged on the assets.
Fixed charge creditors- This division of creditors have direct charge over a particular
and during that period the creditors are protected against selling of any assets.

Floating charge creditors- This charge is that which fluctuates with the business. The
creditors are not that secured as any other creditors therefore, they have been placed at this
sequence.
Unsecured creditors- These are the last in the whole category as there is no security for
the amount invested in the company. The people who are associated with the company but have
some unpaid amount such as salary, wages etc. should be paid at the last after all the payment to
the above-mentioned categories have been paid.
3.4 Describe the role of licensed insolvency practitioners for advice on corporate insolvency
The roles of licensed insolvency practitioners in corporate insolvency are as follows:
 Providing professional advice for preventing insolvency.
 Negotiation with different parties such as creditors of the company.
 Realising the assets for obtaining the money in order to pay off the obligations.
 Complying with the statutory duties as mentioned in the laws.
 Preparation of reports on regular basis for tracing the progress of the insolvency
proceedings.
 Conducting investigation in the affairs of the company to assess any issue or problem.
CONCLUSION
From the above report, it can be concluded that company law is important for the
business as it governs the matters of the entities. There should abidance with the laws that are
there for entities. Also, it gives a separate legal identity and other privileges by which a company
can enjoy numerous rights. Moreover, following winding up process assist in closing business in
a systematic and proper manner by following all the laws. However, there should be no
contravention or breach in directors' duties and roles, shareholders' rights etc. Furthermore, it
provides the consequences of breaches and similar incidents to protect the interest of the
companies.

REFERENCES
Books & Journals:
Cremers, J., 2017. Company law as another beggar-my-neighbour policy: Blog. TASC
Discussion: Shareholders or Stakeholders?.
Davies, P., 2020. Introduction to company law. Oxford University Press.
Hannigan, B., 2018. Company law. Oxford University Press, USA.
Lai, K., 2017. New company law a boon for Myanmar economy. International Financial Law
Review.
McLaughlin, S., 2018. Unlocking company law. Routledge.
Papadopoulos, T., 2018. Achmea, Protection of Intra-EU Investments and European Company
Law. European Company Law, 15(5), pp.146-147.
Papadopoulos, T., 2019. The Importance of European Company Law for Intra-EU Investments
After Achmea. Business Law Review, 40(1), pp.7-9.
Pistor, K., 2019. Company law and corporate governance in Russia. In The rule of law and
economic reform in Russia (pp. 165-187). Routledge.
Puchniak, D.W. and Tan, C.H., 2016. Company Law (2015). Singapore Academy of Law
Annual Review of Cases, 2015, p.255.
Teichmann, C., 2019. The Company Law Package–Content and State of Play. European
Company and Financial Law Review, 16(1-2), pp.3-14.
Wade, G., 2018. Directors: When Company Law and Data Protection Law Collide. Int'l J. Data
Protection Officer, Privacy Officer & Privacy Couns., 2, p.19.

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