Company Law For Accountants 6

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1.What are the three forms of business organisation?

They are 1) soleproprietorship 2) partnership 3) corporation/company

2. Whatare the advantages of the company over other forms?

The company has limitedliability compared to the other two forms of business

The company has an advantageof raising more capital than the other two

The company has more chancesof expanding compared to the other two forms of business

The company has an assuranceof continuity, as it is not affected by the status of the owners.

Disadvantages of companyover other forms of business

The company requires so manylegal formalities compared to other forms

It becomes a challenge to sellone’s shares has it require the consent of another shareholder

Advantages of a privatecompany over partnership

The company has limitedliability to shar es unlike partnership where personal belongings canbe seized to cater for the debts.

Under a private company, theywill be able to raise more capital through shares as opposed underpartnership (Perks, 1993).

The company is assured ofcontinuity as opposed to partnership where one may decide to dissolvehis partnership.

Disadvantages of privatecompany over partnership

In a private company, theywill be required to adhere to many legal formalities than inpartnership.

Their expansion may be limitedto a maximum of 50 shares.

Formalities of setting up acompany

Requires, a company name Inchoosing, the name need to be relevant that reflects the projectionimage and the name should not be a copyright of any other existingcompany name to avoid legal problems.

Requires a trademark

Requires a legal protectionpatent

Who owns the company?

Shareholders and the ownersown the company.

Who manages the company?

Chief executive Office, theboard of directors and the shareholders manage the company.

What is the corporate veil?

It is a legal concept thatprotects the shareholders from being liable to company’s debts.

Does a company in a groupexist (in law) in its own right?

Yes it does

What is meant by the term‘lifting the corporate veil?’

It is the legal requirementsto treat the duties of a corporation as the liability of its sharesholders. Applicable in a situation, where a person leaves anothercompany but signs a contract of not competing with the previouscompany. After sometime, this person starts another company that in away competes with the former company. At this situation, the formercompany can sue the person for breach of fraud (Perks, 1993).

Is the corporate veillifted? if it is fair to do so?

Yes. Yes

7. Yesthe law allows a group of companies to organise its affairs to avoidany potential future legal liability. Yes, it is fair. It is theresponsibility of the Group Company, which, operate under oneumbrella, to organise its affairs to avoid legal liability. Forexample conglomerates business need to.

8.A holding company will be responsible for health and safety materswhen

When the holding company assubsidiary have same relevant respect over the business

When the holding company has asuperior knowledge on relevant spects pertaining health and safetymatters

The holding company knows thatthe subsidiary company is doing unsafe work.

9. Company might be used onlyif a partner decides to transfer the shares to another person.However, the court might use other measures to ensure that all thefinancial information is fully disclosed.

Tutorial 3

Fiona will be dismissed underthe circumstances of the shareholders votes against her for dismissal

She might be dismissed due todisagreements

She might also be dismissed ifshe proves to be dishonest in her position as an accountant.

2. Proceduresfor altering the article of association

Hold a meeting to pass aresolution of altering the article.

Give a 21-day notice to themembers

The company to hold a generalmeeting to pass a special resolution

The company must also ensurethat the alteration is not centrally to memorandum of association.

In the process of making thealteration, the company might be faced difficulties of complying withmany procedures (Perks, 1993).

3 a) one can avoid personalliability by stating rightly that the company’s liability islimited meaning that even if the company has some debts, personalproperty is not taken to cater for debts.

B) The name ministry ofclothing might not be allowed, as it seems to be too broad. One needsto look for a specific name.

Tutorial 4

1 A secured loan is a loanthat has been guaranteed by any type of property that in return makesthem less risk to lenders.

2. Fixed charges will attachto the fixed assets of the company.

3. Floating charge will attachnon-fixed assets of the company. E.g. inventory

4. The lender will sell thecirculating assets to cater for the default repayment.

5. They have seven days toregister a charge failure to which they face the consequences.

6. A preferential creditor isa creditor who has a preferential right to receive payment when thedebtor is declared bankrupt.

7. Borrow bank is paid firsthas it s secured by a fixed charge that makes it a preferentialcreditor.


Perks, R.W. 1993, Accountingand Society.Chapman &amp Hall, London.

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