1. List the main business organizations recognized by Scots Law.
2. Given the fact that Lisa will be running the business herself and, for the time being, she is unlikely to be employing anyone, how would you classify her business? 3. Identify two advantages and two disadvantages of the type of business organization run by Lisa
Case Question 1
The main business organizations recognized by Scots Law are: Sole trader Partnership Limited liability Private company Public company Question 2
① Lisa is running a very small business, so the most appropriate form of organization is sole trader.
② According to the Companies Regulation 1992, Lisa’s organization form does not fit for the condition of private company; such a private company is limited by shares or by guarantee and need only have on member.
③ As a result, we can judge that the organization form of Lisa’s company is sole trader. Question 3
Advantages:
① very basic legal requirements to comply with
② Total control over his/her business and does not have to take into account the opinions of any shareholders.
③ It is the simplest form of business organization recognized by Scots Law ④ A sole trader is to all intents and purposes to be regarded as a self-employed person.
Disadvantages:
① A sole trader may find it difficult to fund an expansion of the business because she/he cannot offer shares to other parties in order to raise funds.(筹集资金) ② If the business fail, the sole trader is said to have unlimited liability for any debts or obligations owed to third parties.
③ The inclusion of new partners would force a change in the nature of business, operation by converting it into a partnership or some other form of corporate body. ④ (in any case), A business expansion requiring a major injection of capital might entail a loss of control over the business because new members who are a source of new finance will almost certainly demand a say in the running of the business.
以上优、缺点各选两个答即可
Case Study 2 Question 1
What are the main differences between a traditional partnership and a limited liability partnership (LLP)?
Partnership Unincorporated body
Partners have unlimited liability in respect of partnership debts
No need to be registered with registrar of companies and no need to supply formal documents
Regulated by Partnership Act 1890 LLP
Corporate body
Members enjoy limited liability in respect of LLP debts
Must be registered with the registrar of companies and certain documents must be supplied
Regulated by LLP Act 2000 Question 2
What are the main advantages for an existing partnership when it changes to a limited liability partnership?
① The reason why many traditional partnerships try to translate to LLP is that the members can enjoy the limited responsibilities.
② Further more, under the conditions of losing of privacy and greatering external regulation for the members, lots of traditional partnerships definitely hope to translate
to LLP.(because of LLP…) Question 3
What is the nature of the legal relationship between partners in firm and members of a LLP?
① there exist a fiduciary relationship in law relationship between company and partners.
② 举例说明公司与成员之间的忠实关系 Pillans Brothers v Pillans [1908] ③ According to Limited Liability Partnerships Act 2000, section 6 regulations, there should be recognized to an agent’s relationship between members and LLP. ④ The general rule of the law agency that an agent (member) must always act in the best interest of his principal (LLP).
⑤ A member is not an agent of his fellow members.
Case Study 3 Question 1
What is a company’s objects clause?
① Object clause 是存在于Memorandum of Association 之中的。
② Object clause 通常是公司的成立目的并且列出了公司可以从事的商业或商事行为。
③ Before the reforms introduced by the Companies Act 1989, 公司无权与第三人签订任何商业协议，除非公司的object clause有明确规定。
④ 假如公司 object clause 没有授权公司去从事某项商业交易时，则公司就没有行为能力（lack of capacity）去订立合同，并且第三方也不能抗辩（third party was no defence）.
⑤ Nowadays, many companies will have straight forward objects clauses which allow them to enter into any type of business of commercial transaction whatsoever. Question 2
Does MacGregor have the right to withdraw from the project with Constructit? ① Macgregor 没有权力撤销它与Constructit 之间的协议。
② As a result of reforms introduced by the Companies Act 1989, Section 35 of the Companies Act 1985 now states that every contract is enforceable against the company.
③ No act done by a company may be questioned by the fact that it was beyond its legal capacity as stated in its objects clause in the Memorandum of Association. ④ Section 35B of the 1985 Act goes on to say that there is no necessity for a third party to check that a proposed contract is within the powers of the company as per the Memorandum of Association.
⑤ The Section 3A of the company Act 1985 now permits a company to have a simplified objects clause which means a company can enter into practically any
contract whatsoever with third parties.
⑥ In situation where third parties dealing with the company here failed to act in good faith and where the Directors have exceed their authority, Section 35A, Companies Act 1985 raise the possibility that such an ultra virus (毒树之果) contract may be declared voidable by the company.
⑦ 举例 Ashbury Railway Carriage & Iron Co v Riche [1875] Question 3
Will the legal action by MacGregor shareholders be successful so that the company will be forced to pay out the expected bonuses?
① 根据Companies Act 1985, Section 14中的规定，公司当中最重要的两个文件分别是Article of Association & Memorandum of Association. 股东是否有权利分红（receive bonuses）完全取决于公司的Article of Association 的规定。 ② 假使规定可以，那么股东可以根据Section 14 的规定去起诉并要求公司分红 （force payment of dividends）。但是，假如分红的规定只是随意的（discretionary）由公司决定，那么公司就有权暂缓（suspend）在今年分红。 ③ 举例（任选其一）：
⒈ Eley v Positive Life Assurance Co Ltd [1876]
2. Hickman v Kent or Romney Marsh sheep Breaders’ Association [1915] 3. Rayfield v Hands [1960]
4. Wood v Odessa Waterworks Co [1889]
Case 4 Question 1
List three differences between a private company and a public company. Question 2
Can people simply decide to set up any kind of company and begin to trade immediately? Question 3
What kind of legal status is a company said to have? Question 4
What management body is responsible for the day-to-day running of a company? Question 5
What is the most common type of liability for company members? Keys
Question 1 (注意看上面的题目，只用选三个写就好） ① private: only one director is required public: there must be at least 2 directors
② private: limited by shares or by guarantee need only have one member public: there must by at least 2 members
③ private: there is no upper age limit for directors public: directors must retire when they reach the age of 70
④ private: Audited accounts must be produced within 10 months of the end of
the financial year
public: Audited accounts must be produced within 7 months of the year end (更为严格)
⑤ private: Trading can start as soon as a certificate of Incorporation is obtained. public: Public companies cannot begin trading without having been issued with a Section 117 certificate.
⑥ private: Company name must end in “Limited” or “Ltd” public: Company name must end in “public limited company” or “PLC”
⑦ private: The Article of Association of a private limited company may provide for a right of pre-emption so that when a member wishes to sell or to transfer ownership of his share he must first offer them to existing member. public: Members must be free to transfer their shares as they please. ⑧ private: There is no minimum capital requirement
public: A public company must have minimum issued share capital of at least ￡50,000.
⑨ private: The shares cannot be traded or listed on the other exchange. public: Shares can be listed on the stock exchange and can be traded.
Question 2
① 根据 Companies Act 1985 的规定，一家新成立的公司必须向Registrar of Companies 登记并提交两个最重要的文件，分别是Article of Association & Memorandum of Association。
以便于提供公司的性质与营运状况的重要信息（provide important information about the nature of the company and how it will be run）.
② 直到公司成立之前，公司并不具备法律资格，因此也无法与第三方签订任何合同。因此公司不能简单地在设立之后，立即与第三方进行交易。
③ 一家新公司必须取得Registrar of Companies 所颁发的 Certificate of Incorporation 并且 public limited company 也必须取得Section 117 certificate 之后才能进行商业交易。 Question 3
① 当一家公司成立的时候，意味着该公司享有separate corporate personality 的资格。
② 而separate corporate personality 意味着一家公司是一个具有法人资格的企业 （artificial legal person）, 并且与成员的责任区分开来，成员承担的是有限责任。 ③ 举例说明（情况、法院判决、与本题的联系）
Salomon v Salomon & Co Ltd [1897] 课本 217-218页中有该案例 Question 4
The Board (董事会) is the management body for the company’s day-to-day business. Question 5
① The most important type of liability that company members will be subject to is that of limited liability.
② The term “limited” relates to the fact that the members of the company enjoy “limited liability” status.
③ This means that a member’s individual liability is confined solely to the amount unpaid, if any on their shareholding in the company.
④ In companies limited by guarantee, the members agree to be liable to the company’s creditors for an agreed sum should the business fail. Company limited by guarantee are running as private companies.
Case Study 1 Question 1
The main business organisations recognised by Scots Law are: sole trader, partnerships, limited partnerships, limited liability partnerships, private companies, public companies
Question 2
Given the fact that Lisa is running a very small business, it will almost be certainly run as a sole trader enterprise.
There is the very remote possibility — and it is very remote — that a small business could be run as a single member private company in terms of the Companies (Single Member Private Limited Companies) Regulations 1992. Such a private company is limited by shares or by guarantee and need only have one member. Nowhere, however, does it mention that the business is limited by shares or by guarantee and we would, therefore, assume that it has the character of a sole trader. Question 3
The advantages of a sole trader business are:
1. It is the simplest form of business organisation recognised by Scots Law.
2. A sole trader is to all intents and purposes to be regarded as a self-employed person. In other words, no difference is made between the sole trader and his or her business; they are legally indistinguishable.
3. Very basic legal requirements to comply with i.e. submission of income tax returns to the Inland Revenue and the disclosure requirements of the Business Names Act 1985.
4. Total control over his or her business and does not have to take into account the opinions of any shareholders, members or partners.
The disadvantages of a sole trader business are:
1. If the business fails, the sole trader is said to have unlimited liability for any debts or obligations owed to third parties.
2. A sole trader may find it difficult to fund an expansion of the business because she/he cannot offer shares to other parties in order to raise funds.
3. In any case, a business expansion requiring a major injection of capital might entail a loss of control over the business because new partners, shareholders or members who are a source of new finance will almost certainly demand a say in the running of the business.
4. The inclusion of new partners, members or shareholders would force a change in the nature of the business operation by converting it into a partnership or some other form of corporate body (public/private companies or a limited liability partnership).
Case Study 2
Question 1
There are many differences between a traditional partnership and a limited liability partnership (LLP), but candidates should be able to pinpoint the following characteristics of both types of business organisation from the table below:
Partnership Limited liability partnership Unincorporated business Corporate body
No need to be registered with Registrar of Companies and no need to supply formal documents
Must be registered with the Registrar of
Companies and certain documents must be supplied
Regulated by Partnership Act 1890 (unless the partners agree otherwise) Regulated by the Limited Liability Partnerships Act 2000
Partners have unlimited liability in respect of partnership debts/liabilities ie they are jointly and severally liable and can be pursued to their last penny Members enjoy limited liability in respect of
LLP debts/liabilities ie they will only be liable to the extent of their stake in the business
Practice Note
It would be highly advisable to concentrate on the differences between a traditional partnership and an LLP when introducing candidates to this area of the course. Question 2
Currently, many traditional partnerships have sought LLP status because of the perceived benefits of limited liability for the members of an LLP — even if this does represent a loss of privacy and greater external regulation for the members ie registration with the Registrar of Companies and tougher auditing requirements. Question 3
The legal relationship between partners in a firm is classified as a fiduciary relationship ie a relationship of trust. Partners are agents of their fellow partners and also of the firm itself.
Candidates should cite the following case which exemplifies the nature of the fiduciary relationship between partners:
Pillans Brothers v Pillans [1908]
The legal relationship between a member and a limited liability partnership will also be classified as a fiduciary relationship. Section 6 of the Limited Liability Partnerships Act 2000 states that the members of an LLP are to be regarded as the agents of the business and it is a general rule of the law of agency that an agent (the member) must always act in the best interests of his principal (the LLP). It is important to bear in mind that a member is not an agent of his fellow members.
Case Study 3
Question 1
A company’s objects clause is found in its Memorandum of Association. The objects clause sets out the purpose of the company usually in the form of a list (sometimes a very long list) of the various commercial and business activities that it is likely to undertake. Before the reforms introduced by the Companies Act 1989, companies could not enter into certain contracts with third parties unless such a commercial transaction was listed in the objects clause. Such an unauthorised contract was void by reason of the company’s lack of capacity to enter such an agreement in the first place and ignorance of the contents of the objects clause on the part of the third party was no defence. Nowadays, many companies will have straightforward objects clauses which allow them to enter into any type of business or commercial transaction whatsoever. Question 2
No is the simple answer. MacGregor does not have legal justification for its
withdrawal from the contract with Constructit. MacGregor is attempting to rely on the old ultra vires rule.
As a result of reforms introduced by the Companies Act 1989, Section 35 of the Companies Act 1985 now states that every contract is enforceable against the company.
No act done by a company may be questioned by the fact that it was beyond its legal capacity as stated in its objects clause in the Memorandum of Association. Section 35B of the 1985 Act goes on to say that there is no necessity for a third party to check that a proposed contract is within the powers of the company as per the Memorandum of Association.
Furthermore, Section 3A of the Companies Act 1985 now permits a company to have
a simplified objects clause which means a company can enter into practically any contract whatsoever with third parties.
In situations where third parties dealing with the company have failed to act in good faith and where the Directors have exceeded their authority, Section 35A: Companies Act 1985 raises the possibility that such an ultra virus contract may be declared voidable by the company.
In other words, the ultra virus rule comes back to haunt third parties dealing with the company when they act in bad faith — but not in this case study.
Candidates should cite the following case which emphasises the harshness of the old ultra virus rule: Ashbury Railway Carriage & Iron Co v Riche [1875]
Question 3
Candidates must reference their answer to Section 14 of the Companies Act 1985 ie the binding contractual nature of the Memorandum of Association and the Articles of Association.
The shareholders will have to establish whether they are entitled to receive bonuses in terms of the company’s Articles of Association. If so, they can raise an action against the company in terms of Section 14 to force payment of dividends. If the payment of bonuses is purely discretionary, the company may well have the right to suspend payment this year.
Candidates should be able to cite at least one of the following examples from case law in support of their answer which demonstrate that the relationship between a company and its members and between the members themselves is contractual in nature as per Section 14 of the Companies Act 1985: Eley v Positive Life Assurance Co Ltd [1876]
Hickman v Kent or Romney Marsh Sheep Breeders’ Association [1915] Rayfield v Hands [1960]
Wood v Odessa Waterworks Co [1889]
Case Study 4 Question 1
There are numerous differences between private and public companies. It is often useful to give candidates a list of the different characteristics of both organisations whereby they are able to compare and contrast.
Candidates are only being asked to list three differences between a private company and a public company from the two lists set out below and there is plenty to choose from.
The main characteristics of a private limited company are: 1. Company name must end in “limited” or “ltd”.
2. The Articles of Association of a private limited company may provide for a right of preemption so that when a member wishes to sell or to transfer ownership of his shares he must first offer them to existing members. 3. There is no minimum capital requirement.
4. The shares in a private limited company cannot be traded or listed on the stock exchange.
5. Only one director is required.
6. In terms of the Companies (Single Member Private Limited Companies) Regulations 1992, a private company limited by shares or by guarantee need only have one member.
7. There is no upper age limit for directors.
8. Audited accounts must be produced within 10 months of the end of the financial year.
9. Trading can start as soon as a Certificate of Incorporation is obtained.
The main characteristics of a public limited company are:
1. The company name must end in “public limited company” or “plc”. 2. Members must be free to transfer their shares as they please.
3. A public company must have minimum issued share capital of at least ￡50,000. 4. Shares can be listed on the stock exchange and can be traded. 5. There must be at least 2 directors. 6. There must be at least two members.
7. Directors must retire when they reach the age of 70.
8. Audited accounts must be produced within 7 months of the year end.
9. After incorporation, trading cannot begin until a “trading certificate” is issued by the Registrar of Companies upon satisfaction of the nominal value of share capital. This trading certificate is referred to as a Section 117 certificate after the relevant section of the Companies Act 1985 which makes possession of such a document compulsory for public limited companies. Public companies cannot begin trading without having been issued with a Section 117 certificate. Question 2
Candidates must be able to show that they understand that, in terms of the Companies Act 1985, a new company must be registered with the Registrar of Companies. Among the two most important documents submitted to the Registrar will be the Memorandum of Association and the Articles of Association which provides important information about the nature of the company and how it will be run. Until the new business has been registered, it is not regarded as a person recognised by law and, therefore, it cannot enter into contracts with third parties. So, you cannot simply
decide to set up a company and begin trading immediately. Any new company must have Certificate of Incorporation issued by the Registrar of Companies — a birth certificate if you want to make the comparison. Additionally, public limited companies must have a Section 117 certificate (so named after the relevant provision in the Companies Act 1985) issued before they can begin to trade. Question 3
When a company is created it is said to enjoy separate corporate personality.
Fundamentally, the doctrine of separate corporate personality means that a company is to be regarded as an artificial legal person completely separate from its members. It is a person in its own right whose existence is recognised by the courts.
Candidates must be able to cite the leading case of Salomon v Salomon & Co Ltd [1897] in support of their answer. Question 4
The most common type of liability that company members will be subject to is that of limited liability. The term “limited” relates to the fact that the members of the company enjoy “limited liability” status. This means that a member’s individual liability is confined solely to the amount unpaid, if any, on their shareholding in the company. In companies limited by guarantee, the members agree to be liable to the company’s creditors for an agreed sum should the business fail. Companies limited by guarantee are run as private companies.
NB It is important that candidates are able to give a short summary of the facts of any
case law cited AND the decision of the court in order to support their answers. It is not sufficient merely to name a case or cases.
Making an assessment decision
Candidates answering eight or more questions correctly will be deemed to have passed the Assessment. Those candidates who answer six or seven questions correctly should resit those questions that they have answered incorrectly. Clarification of candidate responses during the resit opportunity could be by oral questioning. Candidates who have correctly answered five questions or less would have to resit the entire Assessment. NB
The number of questions based on each case study will be dependent on the case study content. Assessors should take this into account with making an assessment decision.
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