Lecture notes (Chapter 1)

COMPANY LAW (UL 3033) I 1. Definition of company Simple definition: An association of a number of individuals for the purpose of carrying on some legitimate business. 2. Legal definition: A company is a separate legal entity governed by the Companies Act*, which conducts activities on its own behalf and is distinct from the persons who own and control it. 3. Under Article 4(1) of the Trading Companies Law (Act No. 22 for the Year 1997, With Regards to Trading Companies): Trading companies is where there exists an agreement under which a person takes part with another or others in some of the trading companies activities or property and shares in their profits as well as in their losses.

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II

Differences between a company and unincorporated associations partnership and sole proprietorship Members Separate legal entity Company and people who own it are considered as different entities Company capable of owning property, making contracts, employing people, being sued or of suing Liability Limited company: Limited to value of shareholding Unlimited company: Unlimited liability Succession Continuity of succession not affected by death or incapacity of one or more of its members

Company A legal entity that is separate and distinct from its members and shareholders Governed by the Companies Act 1965 need to be registered with the Registrar of Companies Partnership A type of business organisation when at least 2 persons agree to pool capital and carry on a business with a view to sharing profit and risks Sole Proprietorship Simplest form of business organisation owned by 1 person. However need not be solely operated by that person.

Minimum: 2 Maximum: unlimited

Minimum: 2 Maximum: 20

Does not exist as a separate legal entity

Each partner liable for partnership debts even if caused by actions of other partners Each partner may be liable to use private resources to meet partnership debts

Lack of succession partnership ends if any partner resigns or dies

Does not exist as a separate legal entity

Unlimited liability

Lack of succession business ceases once owner dies

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III

Advantages and Disadvantages Advantages Disadvantages

Company

Company exists independently of its members Greater capital potential than sole proprietorship and partnership If limited company shareholders have limited liability up to their respective shareholdings Wider capital base than sole proprietorship An arrangement where different skills can be utilised e.g. specific knowledge, skills or strong contacts

Considerable legal procedures High cost of incorporation e.g. company must publish financial reports to be checked by authorised auditors

Partnership

All partners carry the same responsibilities. This means that each partner is liable for risks and debts of the business even if it is caused by the actions of the other partners. Disagreements and disputes may occur among partners and this may disrupt business plans. A partnerships lifespan is limited it may end if any one of the partners has mental disorder, falls bankrupt, resigns or dies. Unlimited liability for debts and risks of the business no difference between personal and business property Expertise limited, may need to obtain advice from other experts Funds may be inadequate main source of funds will usually be savings

Business risks can be distributed and shared among partners

Sole Proprietorship

Satisfaction and freedom in making your own decisions Minimum capital requirements Owner receives all the profits Business affairs can be kept private

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