5 Company law 1
Partnerships
A Partnerships is a business arrangement in which several people work together , and share the risks and profits. In Britain and the US, partnerships do not have limited liability for debts, so the partners are fully liable or responsible for any debts the business has. Furthermore, partnerships are not legal entities, so in case of a legal action, it is the individual partners and not the partnerships that is taken to count. In most continental European countries there are various kinds of partnerships which are legal entities.
A sole trader business – an enterprise owned and operated by a single person – also has unlimited liability for debts.
Limited liability
A company is a business that is a legal entity. In other works, it has a separate legal existence from its owners, the shareholders. It can enter into contracts, and can be sued or taken to court if it breaks a contract. A company can (in theory) continue for ever, even if all the staff and owners change. Most companies have Limited liability, which mean that the owners are not fully liable for – or responsible for – the business’s debts. These companies are known as limited companies. Their Limited is liability to the value of their share capital: the amount of cash that the shareholders have contributed to the company. This limitation of liability encourages investors to risk their money to become part owners of companies, while leaving the management of these companies to qualified managers and senior managers, known as directors.
These managers and full-time executive directors run the company for its owners. There are standard procedures of corporate governance – the way a company is run by the management for the shareholders, and how the managers are accountable to the shareholders. These include separating the job of chairman from that of managing director, and having several non-executive directors on the board of directors who do not work full-time for company but can offer it expert advice. Non executive directors are often more objective: less influenced by their opinions and beliefs. There is also an audit committee, containing several non-executive directors, to which the auditors report.
BrE: chairman; AmE: president
BrE: managing director; AmE: chief executive officer (CEO)
Founding companies
When people found or start companies, they draw up or prepare Articles of Associationand a Memorandumof Association.The Articles of Association state:
The rights and duties of the shareholders and directors
The relationships among different classes of shareholder (See Unit 29)
The relationships between shareholders and the company and its directors.
The Memorandum of Association states:
The company’s name
The location of the company’s registered office – where to send official documents
The company’s purpose – its aims or objectives
The authorized share capital – the maximum share capital it can have.
BrE: Articer of Association; AmE: Bylaws
BrE: Memorandum of Association; AmE: Certificate of Incorporation