Company Law Report: London Car Repair Ltd. Expansion Plan

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Assignment 3
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Table of Contents
Introduction................................................................................................................................3
Company....................................................................................................................................4
The steps that were taken to form a company........................................................................4
The nature and essential content of a company’s articles and memorandum of association. 5
Contents of MOA and AOA..............................................................................................5
Shareholder involvement in the expansion and the extent to which a shareholder can be
liable for the debts of a company...........................................................................................7
Shareholders’ involvement in expansion...........................................................................7
Liability of the Shareholders..............................................................................................7
The nature of shares and the difference between ordinary and preference shares.................7
Shares.................................................................................................................................7
Difference between ordinary and preference shares..........................................................7
How company resolutions are passed, and the matters for which resolutions are required...9
The powers of the directors of the company........................................................................10
The duties, which directors owe to the company.................................................................10
Conclusion................................................................................................................................11
References................................................................................................................................12
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Introduction
London Car Repair Ltd. is a company limited by shares running successfully and planning for
its expansion. In order to clarify the client regarding the provisions of the Companies Act,
2006 following report has been made. The report shall discuss the steps that need to be taken
for the formation of the company. It shall educate the clauses that must be included in the
MOA and AOA. The report aims to wake the directors and shareholder of the company
regarding their duties, powers, and liabilities. Also, the report shall critically evaluate whether
or not the staff complies with the provisions of the Act.
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Company
A company is a person incorporated by law. A legal process is carried out for the formation
of the company. The existence of the company is perpetual, which means that it shall
continue to exist until dissolved by the legal procedures. The change in the directors or
employees has no impact on the company. the company shall not dissolve even if all of its
members die. The limitation of forming a company is that it is responsible for the
wrongdoings of its member perhaps the act was done in the virtue of their employment. The
company needs to be registered for addressing its existence (Nyoni and Hart, 2018). The
company can be a private company or a public company or a limited company; either limited
by shares or limited by guarantee.
The steps that were taken to form a company
Following are the steps were taken by LCR for the formation and registration of the
company:
Step 1: Appointing a promoter is essential for the formation of the company. At this step, the
idea of business is discussed.
Step 2: It is mandatory for a company to get registered under the Companies Act, 2006 with
the Companies House. The objective of registering a company is to keep the public record of
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Company Limited by
shares
Motive is to earn profits
Cpmpany is owned by the
shareholders
The liability is limited to
shares
The profit is distributed
among the shareholders.
Company Limited by
Guarantee
Motive is not to earn
profits
The company has
guarantors and a certain
amount guaranteed by
them.
The profit is invested
baack in the company

the business carried by it and to evaluate whether the company is feasibly viable for carrying
out the trading activities.
Step 3: Once the company is registered with the companies’ house, the companies house shall
issue the Certificate of Incorporation. It is proof that the company has legibly came into
existence.
Step 4: After receiving the certificate of incorporation the company, Certificate of
Commencement is issued. As its name suggests, the company can commence its business
after receiving the certificate of commencement.
The nature and essential content of a company’s articles and memorandum of
association
Every company has its own Articles of Association and Memorandum of Association. An
Article of Association consists the provisions which regulate the integral system of the
company and the rules which need to be followed in order to achieve the objectives stated in
the Memorandum of Association (Koh, et. al., 2017). The Memorandum of Association is a
document which consists of the objectives of the company and determines the limitations
under which the company must operate. In the course of registering the company, LCR has to
compulsorily register the MOA with other documents but it is not mandatory for them to
register their AOA.
Contents of MOA and AOA
 Articles of Association  Memorandum of Association
• Guidelines regarding the
appointment of directors
• Provisions stating the process of
Accounting and Auditing
• Division of Shares and rights of the
shareholders
• Lien of Shares when the company is
in debt
• Procedure for issuing Share
• Name Clause
• Domicile Clause
• Object Clause
• Liability Clause
• Capital Clause
• Association Clause
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Warrant
• procedure for converting shares into
stock
• Defines Voting rights
• Procedure for distribution of
reserves and dividends
• Process of liquidation
Shareholder involvement and Extent of Shareholders’ Liability
The motive of LCR is to earn profit which suggests that the company is limited by shares.
Hence, the shareholders of the company have limited liability for the debts of the company.
Shareholders' involvement in the expansion
The objective of the company is to give major returns on the investment by the shareholders.
LCR is planning for its expansion therefore, the company is in need of raising funds. The
company can fund its expansion either by issuing new shares and attract people to invest in
their business or it can call the unpaid amount on the shares (Kitching, et. al., 2015). The
expansion shall result in high returns which shall ultimately result in adding value to the
shares owned by the shareholders.
Liability of the Shareholders
When a company is limited by shares the liability of the shareholders is limited to the extent
of the unpaid amount on the shares. Shareholders cannot be held liable for the full amount as
the company is distinct from the owners.
Ordinary vs. Preference shares
Shares
Share Capital is the investment made in the business, it is divided into a number of intangible
unites which is known as shares. Shares are transferable movable property owned by the
shareholders of the company. The process of transferring shares is generally defined in the
Articles of Association of the company (Ferran, 2016). It gives certain rights and obligations
to the shareholders in spite of being incorporeal in nature. They are majorly divided into
Ordinary shares and preference shares.
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Difference between ordinary and preference shares
Basis Ordinary Shares Preference Shares
Voting Right The owner has the right to
vote. One share carries the
right of one vote.
Preferred shareholders do
not have the right to vote.
Dividend Dividends distributed to
ordinary shareholders is not
fixed.
Preference shareholders are
liable to receive fixed
dividends are given priority
while distributing dividends
Liquidation of Assets The shareholders of the
ordinary shares are not given
priority while distributing
the excess profits of the sale.
While distributing excess of
profits of sales of assets
preference shareholders are
given priority.
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Passing Company’s Resolution
Shareholders do not take part in the day to day operations of the company but they are part of
making major decisions of the company. The decisions of the company are made through
resolutions which are categorised as:
Special Resolution: As per section 283 of the Companies Act,2006 a special resolution
requires a majority of votes are 75%. Following are areas where there is need of passing a
special resolution:
 For changing the name of the company.
 To make changes in the contents of the AOA
 To reduce the share capital
 Voluntary liquidation of the company
 For changing the status of the company
 Disapplication of the pre-emption rights of the shareholders
 For changing the address of its registered office
Ordinary Resolution: According to section 282 of the Companies Act, 2006 an ordinary
resolution can be passed with a simple majority.
LCR is planning for its expansion and for expanding the company needs to pass a special
resolution.
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Resolutions
Members' Resolution
Ordinary Resolution u/s
282
Special Resolution u/s
283
Directors' Resolution (No
Statutory Provision)

The powers of the directors of the company
Directors represent the company and hence are empowered to act on certain matters such as:
 To amend AOA
 To issue the company's ordinance
 Make loans
 Issuing of Debentures
 Make Investments from the funds of the business in the name of the company
 To delegate powers
 To appoint managerial staff
The duties, which directors owe to the company
Following are the duties which the directors owe to the company:
 To act in good faith
 To act for the benefit of the company
 To not to accept benefits from the third person
 To not to take unfair advantage of his/her position
 To keep proper records
 To act with due diligence
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Conclusion
London Repair Car Ltd. is running its business successfully and planning for its expansion.
The above report shall help the company to understand the provisions of the Companies Act,
2006. The directors of the company should ensure that the staff complies with the contents of
the AOA. The report also discusses the powers of the directors and the liability of the
shareholders. Hence, LCR will have a better understanding of the legal regulatory framework
of the Act in order to plan its expansion.
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References
Ferran, E., 2016. Corporate Mobility and Company Law. The Modern Law Review, 79(5),
pp.813-839.
Kitching, J., Kašperová, E., and Collis, J., 2015. The contradictory consequences of
regulation: The influence of filing abbreviated accounts on UK small company
performance. International Small Business Journal, 33(7), pp.671-688.
Koh, P., LEE, P.W. and Tjio, H., 2017. Form, substance, and context in company law.
Nyoni, E. and Hart, T., 2018. The Concept of Limited Liability and the Plight of Creditors
within Corporate Governance and Company Law: A UK Perspective. InterEU law
east: journal for the international and european law, economics and market
integrations, 5(2), pp.309-322.
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