Business forms and liability: the wall and its toll
Introduced| English | Meaning |
|---|---|
| limited liability/ˈlɪmɪtɪd ˌlaɪəˈbɪlɪti/ | A legal arrangement limiting owners' responsibility for business debts to their investment or another specified amount. |
| director duties | the Companies Act 2006 duties, including s.172 success and s.174 care |
| agency/ˈeɪdʒənsi/ | one party binding another by acting with authority |
| apparent authority | authority the principal's holding-out appears to give |
The legal skin the business lives in
- The raise succeeded; the site grows. The form the founder chooses decides who bears the bad-bun claim - her house, or the company's balance sheet.
- Salomon v Salomon: a company is a separate person. The wall is real, and it has a toll.
Four forms, one comparison
- Sole trader and partnership: unlimited liability, the claim reaches the person. LLP and Ltd: limited liability 有限责任 - shareholders lose only what they invested.
- The toll: filings, the Companies Act duties, and eventually an audit. A PLC needs 50,000 of allotted share capital; the audit exemption holds while turnover stays at or under 10.2m.
Which form fits this need?
Route each requirement to the form that answers it.
Minimum allotted share capital for a PLC, in pounds?
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Companies Act rules: 50,000 allotted.
Small-company audit exemption applies while turnover stays at or under how many million?
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10.2m - accounts still filed.
Salomon v Salomon established that:
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The wall: the company debts are not the founder debts.
Match each form to its liability.
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Two unlimited, two walled.
Director duties: the price of the wall
- Director duties 董事义务 (Companies Act 2006): s.172 promote the success of the company; s.174 care, skill and diligence.
- Agency 代理: the company is bound by those with authority - and apparent authority 表见代理 is what the business holds someone out as having.
The sponsor recalls a deal with the Saturday supervisor. The company is bound if:
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Holding-out manufactures authority; publish the schedule.
A director takes a quiet 5% in the fit-out contractor. The consequence:
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The no-profit rule (Regal (Hastings)) is a loyalty test, not a numbers test.
The signature that bound the company
- A recalled deal with the Saturday supervisor: no actual authority (not a director), but the title, the email signature, past conduct?
- If the company held her out, it is bound. The fix is an authority schedule: who may sign what, up to how much - published and honoured.
A declared, board-approved interest keeps both the profit and the office.
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Disclosure converts breach into governance.
Three forms slips
- Believing Ltd ends personal exposure. Guarantees, wrongful trading and s.214 punch through.
- Trading as informal partners. Two people in business for profit are a partnership, like it or not.
- The quiet side-deal. The no-profit rule takes the gain whatever the NPV; disclosure converts breach into governance.
Trading as a Ltd company means the founder can never be personally liable.
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Personal guarantees and wrongful trading punch through the wall.
Recap
- Ltd and LLP stop the claim; the toll is filings plus ss.172-174.
- Authority is what you appear to give - publish the schedule.
- Declare interests: the no-profit rule is not a suggestion.