Legal Aspects of Business

Legal Aspects of Business

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Reference to relevant legislation in the area of company law................................................3
Reference to relevant case law .............................................................................................4
Analysis of the Process of Incorporation of Company under Companies Act 2006..............6
Explain Principles of Corporate Personality & Limited Liability..........................................8
Advantages and Disadvantages of Separate Legal Entity and Limited Liability...................8
Critical Analysis.....................................................................................................................9
CONCLUSION ..............................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Nowadays people are adopting to form the company as these companies are considered
as one of the stable form of a business organisation. Also due to its nature of perpetual
succession formation of companies are gaining importance. As the life of a company is not
dependent upon the life of its members. In UK a company can be created only by following the
provisions of Companies Act 2006 and can be dissolved also under that law only. In company
various people contributes money which is collectively known as the capital of the company to
carry on certain trade. The members contributing the capital will share either profit or loss in the
end of the financial year as per the proportion in which they contributed the capital. The major
advantage of formation of the company is that a company will be having a separate legal entity
from its owners and directors and will be considered as an artificial person. This separation of
the identity of the company from its directors and shareholders is known as corporate veil and in
rare cases only this corporate veil is lifted. In this research the legislation related to the
companies will be discussed and how these companies are incorporated. Also with the help of
relevant case law it will be discussed that how directors of the company take advantage of this
corporate veil and the separate legal identity.
MAIN BODY
Reference to relevant legislation in the area of company law
Companies Act 2006 this act has been formed in order to handle the companies law that
has been existing for the companies legal formation. Various important points that has been
marked out in the companies law is incorporation process that has been simplified. The process
of incorporation under the act specifies various kinds of documents that has to be submitted like
prosed name of the company, Country and address of the registered office, is members of
liability is being limited(Adekemi, 2018). It has to be specified that the company has to be
private or public. Also statement of company's share capital and initial shareholders has to be
explained. Also total number of shares that has been distributed among the directors. Aggregate
nominal value of share has to be presented. Number of shares in each class and rights given to
them has to be told, amount that has been paid or unpaid on each share. Statement of companies
proposed officer. An copy has to be presented of the proposed article. Also Statutory declaration
of the registrar has to be replaced by the statement of compliance that can be in hard copy. Also

memorandum of association and article of association are considered to be one of the most
important documents to be presented by the company. Only after submission of these documents
an company can be incorporated or made. Further another important part of Companies act 2006
is duties of directors which specifies about the various responsibility an director holds towards
corporate personal. These has been defined under Sectio170 of the act. Under this certain duties
of the directors are being laid down from section 171 to 177. Also some other changes has been
made that is principles of corporate personality and limited liability. Under this the company is
being treated as an separate identity that is going to make the organization separate from its
owner(Buil, Catalán and Martínez, 2016).
Various exceptions that are related to limited liability are given as follows:
 The company can own a property but shareholders have no rights over the property and
cannot use it for personal use.
 Claim of the company's creditors is only going to be towards the company and no
member is bound to pay for it.
 Company is limited by shares then liability of shareholders is limited to the value that is
of shares which is held by the shareholders. This can only be done when the money has
not been paid to the creditors. liquidator cannot generally seek assets of shareholders.
 Court is required to seek properly the application in order to mark out personality and
limited liability.
Reference to relevant case law
Salomon v A Salomon: Facts of the case are Salmon has transferred the business of boot
making that was initially run as a sole proprietorship to an company. Incorporation of the
members is done within the members of the company that consists of family and himself. The
price of the transfer has been paid to Salmon through shares. He was having floating charge on
the assets of the company. Later the company's business did not worked and the company went
into liquidation. Salmon's right of recovery against the debenture was able to cover the claim of
unsecured creditors but nothing was discovered from liquidation process. To avoid such alleged
unjust exclusion, the liquidator, on behalf of the unsecured creditors, alleged that the company
was sham, was essentially an agent of Salomon, and therefore, Salomon being the principal, was
personally liable for its debt. In this case the issue raised is of separate legal identity of a
company and shareholders could be held liable for debt over and above the capital contribution