Pages: 8

A company is a means to an end. It is an abstract legal device created by human minds. Companies are not found growing in fields, or hanging from trees, or swimming in rivers. They are not a part of nature. There is nothing ‘real’ about companies in that sense. Nothing can be understood about company law unless we recognise this.

Pages: 4

This very brief introductory chapter is intended to give you a list of ten basic propositions about company law which it would be helpful for you to know about before we begin in earnest. Briefly put, if you are aware of these ten concepts, you will probably find the rest of this book much easier to use.

Pages: 8

This book analyses the foundational principles of company law in detail. It is only possible to understand many of those principles if we understand their historical and jurisprudential bases. For example, it is only possible to understand the nature of the duties of directors if one understands how the law conceived of directors in their earliest incarnations as trustees. Much of the modern law will make more sense if we understand its roots. Similarly, it is only possible to unpick many of the problems with modern company law if the history of the company is understood. So, in this chapter we begin, as all good stories do, at the beginning.

Pages: 26

In the previous chapter we considered how the modern company grew of out of the law on unincorporated associations, how it used ideas long identified with town corporations created by royal charter, how it evolved from the joint stock company, and how shareholders in companies were granted limited liability by statute. One key element of the modern company, however, remained outstanding: the principle of separate corporate personality, which was created by the House of Lords in Salomon v A Salomon & Co Ltd (1897). We will refer to this principle as ‘the Salomon principle’. We will begin with a close reading of the Salomon litigation. (This topic often forms an essay question on company law courses, so it repays some attention.)

Pages: 14

This chapter considers the various types of modern company. Modern companies are used for many more purposes than were ever considered by the people who drafted the early companies legislation. Just as Aron Salomon hit upon an imaginative use of the limited liability company (as considered in the previous chapter), so there have been many more uses developed by clever practitioners to help their clients since then. Aron Salomon used the company to avoid the possibility of personal liability for the potential failure of his business. However, as we shall see, most companies in existence today have no trade at all because they are used either simply to hold assets or as holding companies in trading groups. Most company law scholarship is concerned with trading companies, although there are many differences between individual trading companies. We shall consider the different ways in which various types of people may think about the same trading company: whether as creditors, employees, directors, customers, policymakers, or long-term or short-term shareholders. We shall also consider how different types of company have different impacts on the economy. Finally, we shall also consider the various ways in which modern company law theory has explained the nature of the company. Our consideration of company law in this book will be greatly assisted by understanding how companies are used in the real world and how they affect ordinary people.

Pages: 21

This chapter sets out the key concepts relating to the legal structure of a company. It describes in legal terms how companies are created and how their constitutions are established. What this chapter will also do is to introduce you to some of the key personnel and some of the key terminology relating to companies in UK law, which is in essence an extended glossary defining key terms and explaining where those concepts are discussed in greater detail elsewhere in the book.

Pages: 9

The ultimate ownership of a company limited by shares (the most common form of company) can be understood as being divided among its ‘shareholders’: literally, people who own shares. The way in which company shareholdings operate can be very simple or they can be made wilfully complicated. This chapter sets out a brief description of the various forms of shares, the means by which those shares are issued, and the rights that attach to those shares in the form of dividends. For the time being, we are only interested in understanding how a shareholding operates at a basic level, whereas in Chapter 10 on the company’s capital we shall consider the complexity surrounding the entirety of a company’s capital assets and liabilities in greater detail, and the legal rules that govern them. We shall begin by asking what it means to be a shareholder.

Pages: 27

This chapter is concerned with the way in which a company is managed and operated. One way of thinking about the way company law works is as a sort of ‘How to’ manual. If you want the benefits of limited liability, a structure for your owners to share their rights, a number of means of acquiring further capital and so on, then company law offers you a model for doing all of those things. If you obey the rules governing that model, you will receive the protection of English law. That is effectively how all private law works: the law creates models and you obtain the protection of the law if you follow the rules on creating and operating those models. Company law is one of the most complex examples of private law creating such a model.

Pages: 32

So far in this book we have considered the history of company law and the legal foundations of the modern company, and the previous chapter explained how a company is operated. In that chapter we saw how significant the directors and other officers are in the operation of any company, whether large or small. The key obligations for managing the company are placed in the hands of the directors. The directors owe fiduciary duties to the company and a number of common law duties besides. In this chapter we shall analyse the general duties that are imposed on directors to govern all their activities when dealing with the company. This is the beating heart of company law. The duties that the directors owe to the company, and the effect that that can have on shareholders, employees and others, is central to the functioning of any company. Company law as a discipline is about regulating the way in which those fiduciaries interact with the other stakeholders in the company.

Pages: 19

This chapter is concerned with the rights of shareholders. The greater part of this chapter is concerned with the way in which minority shareholders can protect themselves against the actions of the majority. This is at the heart of the law on shareholder rights because the basic proposition is that the majority shareholders can vote for whatever they want, and therefore the most interesting legislation and case law have related to the minority shareholders trying to resist a decision of the majority. Two further issues are also considered: first, the power to remove directors and, second, the legal basis on which dividends are paid to shareholders. Chapter 4 considered the rights of shareholders as they relate specifically to the company’s constitution.

Pages: 26

This chapter considers both the UK corporate governance code which relates to the internal operation of public companies and also the disqualification of directors. The concept of ‘corporate governance’ can also be understood as encompassing the material considered in Chapter 7 ‘Directors’ Duties’ and Chapter 8 ‘Shareholder Rights’. Taken together, this material considers the way in which companies function internally.

Pages: 16

One of the most complicated aspects of the organisation of a company can be the organisation of its capital. This is particularly true if there are many different types of shareholder or a number of competing interests inside the company. From the perspective of company law, however, it is also important to ensure that outsiders are not disadvantaged by the company’s particular capital structure, and particularly to ensure that reorganisations of the company’s capital structure do not leave a mere corporate shell behind that cannot pay third parties what they are owed by the company. This chapter considers the main legal principles relating to a company’s capital, particularly its share capital, beginning with a brief introduction to the vagaries of corporate capital structures.

Pages: 20

If this book were focusing, as so many company law books do, on the creation of a trading company from scratch and its struggle into life, then we would have to consider how money would be raised to fund the company’s activities. That is what we shall do in this chapter. When a company is first formed, the original shareholders (known as ‘the members’) are said to ‘subscribe’ to the company’s constitution and consequently they pay for the first shares that are issued by the company in accordance with that constitution. From the company’s perspective, this is often the first capital that is raised by the company. The complexities that may be associated with the company’s capital were considered in the previous chapter; as was discussed there, it is possible to divide between different classes of shareholders with different rights. A start-up company may also borrow money from a bank or from some other person in accordance with the ordinary law of contract, and in accordance with banking law if the lender is a bank. A company may be able to issue ‘bonds’ – that is, a type of borrowing where all the lenders acquire identical securities in return for their loans, as discussed below. Bank borrowing makes no difference to a company’s share capital, except that a company with too much debt may well be a poor investment for shareholders because much of the profits may be needed to pay off the debt. In relation to small, private companies established by an entrepreneur, that person may have savings or be able to borrow from friends or family. Let us suppose that our company is being set up on a different basis.

Pages: 10

This short chapter considers three types of corporate restructuring: takeovers, mergers and internal reorganisations. The key theme of this book has been that companies are tools that are used to achieve particular ends. So when their human users change their minds about those goals or the best means of achieving them, they can change their companies too. There may be changes in regulation or taxation; or the businesses within a group of companies may wax or wane, suggesting a need to keep some businesses and sell off others; or a multinational group of companies may need to reorganise itself as there are changes across those jurisdictions in which it is based. The forms of restructuring that are considered here are mergers, takeovers and internal reconstructions, although others are possible.

Pages: 12

This is the 13th chapter of this book. Traditionally for the British, the number 13 is considered to be unlucky. So, it is appropriate that this is the chapter in which we consider corporate insolvency and the way in which companies, in effect, die. During bad times in the economy, many company law practitioners find themselves specialising in insolvency as companies are wound up and others go into insolvency. This chapter divides between a discussion of winding up solvent companies and, its principal focus, winding up insolvent companies. Because windings up for solvent and for insolvent companies come to similar end-points, it makes most sense to consider both forms of winding up together, even though this chapter is primarily concerned with insolvency. There are a number of methods of insolvency for companies, each of which depends upon the circumstances of the business and seeks to achieve different goals. We shall consider each in turn. Before we turn to the detail of the legislation, however, we need to consider some of the broader issues that relate to insolvency.

Pages: 21

This chapter considers the idea of ‘corporate social responsibility’ that has emerged in recent years as part of a growing consciousness about the effects of globalisation on the developing world, about the degradation of the environment and about the role of companies in those things. For our purposes, the advocacy of the concept of corporate social responsibility by a range of different groups and organisations worldwide is an assertion that companies should take responsibility for the impact that they have on the world beyond the issues that company law has traditionally recognised.

Pages: 17

Company law is part of an ideology. It is part of an ideology about the way in which our society should function. Ever since the decision in Salomon v A Salomon & Co Ltd (1897), it has become a part of our national culture that investment and economic growth were more important than an old morality about an individual being responsible for their own actions and their own debts. The House of Lords gave legitimacy to the idea that businesspeople could protect themselves from loss (and thus impose the risk of loss on everyone they dealt with) by using a company. Companies proliferated wildly as a result. The effect was twofold. First, companies became the most significant economic actors in our economies and acquired a personality in the minds of ordinary people as well as in our company law. Second, a sense of unreality took hold in that we all accepted that these abstract entities controlled so much of our lives. We accepted that these intangible legal persons should be treated as though they were people because of the status that company law gave them.