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Topics

Purpose
What is a company?
Private
Formation of a limited company
Memorandum of Association
Articles of Association

Purpose

This act outlines the procedures to be followed, when setting up, running and winding up both private and public companies. However for the purpose of the Leaving Certificate Business course one only needs to understand, how the act relates to private companies. Many of the procedures for running companies were already in place due to previous Company Acts and were either amended or reinforced by this act.

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What is a company?

Companies are the next stage up from partnerships as a form of business ownership. On commencement the founders(or subscribers as they are known) seek investors to invest in shares in the company. Each share will have the same value and investors can purchase different numbers of shares. These people are the owners of the company and are known as shareholders.
In the future, if the company is making good profits or it's prospects look good, prospective shareholders will be prepared to give the present shareholders more than what they themselves paid when they purchased the shares. Alternatively if the company is doing badly, the prospective shareholders will give the present shareholders less than what they paid. Note this change of ownership will not effect the finances of the company. All companies must keep a record of present shareholders and issue a stamped share certificates to each new shareholder.

When a company is being formed, it must declare the amount money it plans to raise through the sale of shares and pay stamp duty on the same, This is known as the authorised share capital. Issued share capital is the total number of shares sold multiplied by the initial value of each share and it cannot exceed the authorised share capital, until the relevant stamp duty has been paid.

Companies have limited liability, this means that a shareholder can only loose the amount he contributed to purchasing his shares. Companies can also be sued and sue in court themselves rather than the owners being sued or suing on behalf of the business, as is the case in a partnership, this is known as the company having separate legal entity. Companies can also enter contracts in their own right.

Each company must have a statutory meeting within 3 months of the company being entitled to commence business . Shareholders must also be invited and given 21 days notice to attend an annual meeting known as an Annual General Meeting or AGM. At this meeting the shareholders have voting rights, allocated by one vote per share that they own. Shareholders have the right to send a proxy i.e. someone who will vote on their behalf. Minutes of the AGM have to be kept and signed by the chairperson of the company. At the AGM the shareholders will appoint Directors. Directors do not necessary have to be shareholders. These people will meet on a more regular basis to oversee the running of the company and will appoint from among themselves a company chairperson and company secretary. In some cases the directors will appoint a Managing Director to run the company on a day to day basis. Directors must declare their interests in other companies, in case of divided loyalties and fraudulent trading by a director can lead to a director loosing the protection of limited liability. If a director is involved in a company that has become insolvent, they are known as restricted directors and are prohibited from starting another company unless they can produce a certain amount of capital themselves.

If special problems occur in the company during the year, an extra meeting of shareholders can be called known as an Extraordinary General Meeting or EGM.

Each company must have a registered office and is obliged to keep proper audited accounts, including details of income and expenditure or profit and loss if it is making a profit, plus details of assets and liabilities. The annual accounts have to be signed by two of the directors. At the AGM the company's auditors for the coming year have to be appointed, these people check that the company's accounting procedures are accurate.

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Private

When a shareholder of a private company is planning to sell his shares, he must get the approval of the other shareholders, as to who the new shareholder will be. This is not the case in a public company, where the present shareholders have no say in who their co-owners are. In a public company shares are sold on the stock exchange, which is not the case with the private company.

A private company can have only one shareholder, provided there are two directors. The maximum number of shareholders that a private company can have is fifty.

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Formation of a limited company

The following must be presented to the companies office before a private company is formed:

If the companies office is satisfied, they will issue a Certificate of Incorporation, this is the document that acts as evidence that all the conditions necessary to form the company have been fulfilled . It is sometimes called the birth certificate of the company. The company is then said to be incorporated i.e. it can act as a company.

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Memorandum of Association

A memorandum of association, also known as the memorandum, outlines, how the company plans to deal with the rest of the world. The act states it should contain the following information:

The memorandum of association cannot be changed unless the register of companies is informed and a new memorandum of association drawn up. Copies of this document must be given to all the subscribers. If a director of a company does not act according to the rules of the memorandum of association, he is said to be ultra vires and can be held liable for his actions. For example a director would be ultra vires, if the memorandum of association of the company he is director to states the objective of the company is to provide a hairdressing service and the director gives permission for it to sell confectionary. In this case the objectives of the company should state that the purpose of the company is to provide a hairdressing service and engage in the retail business.

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Articles of Association

This document is also known as the articles. It outlines the internal rules of how the company is to be run and the following are examples of information that it could contain:

Copies of this document must be given to all the subscribers.

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