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Factors to be considered in forming a business organization
- Nature of business
- Amount of capital required
- Number of members
- Relationship among the members
- Tax considerations
- Development plans of the business
- Procedure and time frame, possibly costs involved for setting up a company
meaning of separate legal entity
- the company has its own rights and obligations, which is separate to the individuals who participate in it
- has perpetual existence
- can own property
- can be a party to a contract
- sue and be sued in its own name.
Unincorporated firm VS incorporated firm(aspects)
- Legal status
- Number of owners
- Raise of capital
- Ownership of properties
public firm VS private firm
- raise of capital: public firm can, in addition to private issue and right issue, can have public issue
- transfer of ownership: freely transferrable VS transfer of shares needs consensus of shareholders
- public firm pays higher profit tax rate
limited by shares vs limited by guarantee
- the liability of the shareholder is limited to the amount they have paid, or they are due to pay, to provide adequate consideration for the shares that they own. shareholders must inject capital for the shares VS
- The liability of the guarantor is limited to the guaranteed amount. The guarantor only need to inject capital upon liquidation
perpetual succession means..
continue irrespective of change of membership
exceptions for sole traders and partnerships: partnerships can have more then 20 parnters if...; there can be perpetual continuity for partnerhship that...;
- the partnership is regulated by professional bodies
- has a continuity clause in the partnership agreement
definition of private company
- 1-50 shareholders
- no public issue
- restriction in the transfer of shares
- must keep profit track record for 3 years
- each year earning more than $30M
In case of a limited liability company, the company name must ..... ;Under what situations can you abandon the word “limited”?; usually ... satisfy this requirement
- end with the word “limited”;
- 1. Promoting commerce, art, science
- 2. Income must be used to promote its objective
- 3. No dividends to its member;
- charitable organization
The standard clauses of Memorandum of Association:
- (a) the name of the company
- (b) the situation of the registered office (in H.K.) (ie. The address, for the purpose of service of legal documents-writ of summons)
- (c) the objects of the company (optional) (commit ultra vires if company operate outside of scope)
- (d) the limited liability of the members
- (e) the authorized share capital
to increase the level of authorized share capital, the board needs to..
have to ask for shareholder’s approval
Under what situations will the registrar reject your chosen name?
- Too similar to an existing name or trademark
- Contrary to the public interest
- The name itself would constitute a criminal offence
incorporation formalities: ....; Upon submission and verification of the above documents, the Registrar will issue a ... to the company, which will be a … of the companies existence
- Choose a name
- Preparation of Memorandum & Articles of Association
- Prepare a Statement of Compliance
- Around $2,000 for registration fee
- $1 for every $1,000 of the authorized share capital (capital duty)(will be abolished)
- Covering letter;
- Certificate of Incorporation, conclusive evidence
Articles of Association VS Memorandum of Association
deals with the internal structure eg, the appointment of directors, the rules governing the holdings of meetings VS deals with constitution as it provides some basic information to the outsiders like customers and traders.
Articles creates a contract between..
between members and members as well as between company and members.
to pass ordinary resolution, the motion must gain ... votes; to pass special resolution, the motion must get ... votes
fixed charge VS floating charge
over land property
or real property VS charge over a class of assets
- after the charge is created, you cannot sell the charged property to a
- 3rd party VS this class of assets would change from time to time as you can sell the charged items to the customers
both companies and unincorp
firms VS only for companies
which form of company can an accounting firm take?
Accounting firm: sole pro; unlimited partnership, limited partnership, limited company, now they are asking for limited liability partnership
which form of company can solicitor and barrister take?
- solicitor: sole pro and partnership
- barrister: only sole pro
separation of ownership and management: in a partnership:...; in a company:...
- sleeping/non-executive partner VS general/executive partner
- shareholder VS director
Advantages of partnership
- • Enjoy higher degree of confidentiality
- • Easy to setup
- • Losses are shared
- • Additional funding
Disadvantages of partnership
- • Unlimited liability
- • Control is shared(decision making can be time-consuming)
- • Limited liability(limited by shares)
- • Separate legal entity
- • Perpetual succession
- • Access to funds
- • Financial disclosure to company registry
- • Agency problems(can be resolved when there’s rules and regulations)
validity of floating charge upon liquidation - the rules
- Liquidation automatically renders void any floating charge created within the period of 12 months of the commencement of the winding up subject to the following exceptions:
- • the charge is valid if the company was solvent at the time when the charge was created, unless as a result of the transaction under which the charge was created the company became unable to pay its debts.
- • if the company was not solvent, the floating charge is still valid to the extent of money paid(fresh loan: the money must be paid after the floating charge is created) to the company at the same time or after the charge is created in consideration for the charge, together with interest on that amount.
validity of floating charge upon liquidation - the purpose
to prevent an unsecured creditor of an insolvent company from getting an advantage over other creditors by obtaining a floating charge to secure an existing debt.
- priority of the charges are based on the date of registration of the charges
- fixed charge always have priority over floating charges
legal action that an unsesured creditor can undertake in debtor's liquidation
- sue the debtor
- win and get the court's judgement
- hire an investigator to see if the borrower has any property to pay you back
- exercise Charging order over the borrower’s real properties and exercise Freezing order over the properties
fraudulent preference before 1998 VS after 1998
- try to list out different type of act of preference VS lay out general formula unfair preference
- dominant intention to prefer VS provided one of the reason is to prefer, this is enough to give rise to desire to prefer
element of unfair preference
- a) That person is one of the debtor’s creditors;and
- b) The debtor does anything has the effect of putting that person into a position which will be better than the position he would have been if that transaction had not been done.
- c) Mental intention to prefer: The debtor who gave the unfair preference was influenced in deciding to give it by a desire to produce that effect. (Such desire is presumed where the person to whom an unfair preference was given was an associate of the debtor.)
fraudulent preference timing rules
- If the unfair preference occurs within 6 months immediately before the commencement of winding up, the payment would be invalidated.
- If the unfair preference occurs within 2 years immediately before the commencement of winding up, the payment would be invalidated in the case of an unfair preference given to an associate of the debtor.