Company is a Legal Entity Considered as a Fictional Person in Law

998 words (4 pages) Essay in Business Law

02/02/18 Business Law Reference this

Last modified: 02/02/18 Author: Law student

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“A company is a legal entity considered as a fictional person in law, distinct from its members and with separate company rights and liabilities”.

A private company is a term to describe a privately held ‘Limited Partnership’ that does not report financial information to the public. Section 32(1) of the Companies Act Cap 247 OF Fiji states that:

‘….private company” means a company which by its articles restricts the right to transfer its shares; and limits the number of its members to 50, excluding persons in employment of the company; and prohibits any invitation to the public to subscribe for any shares or debentures of the company’.

It also states that where one or more shares are held by two or more persons in a company jointly, they shall be treated as a single member. A private company shall have a minimum of 2 directors.

For an entity to legally operate as a company, its incorporators (promoters) have to file the appropriate incorporation documents to the particular type of company along with the fee. The effect of incorporation is to confer a separate corporate identity on the company. Before incorporation, a company does not exist and cannot enter into legal associations.

For Mr. Nice to register a private company, he will have to go through the following basic steps of incorporation.

Firstly, he will have to file documents such as Memorandum of Association and Articles of Association. These documents collect up to being called the constitution of a company which explains the relationship between the company and the outside world clearly. The five clauses that normally make up these documents include the name of the company, the registered office of the company, the authorized capital and the limited liability of members/ shareholders. The subscription clause concludes the Memorandum containing names and addresses of subscribers and the total shares they intend to take. It is then dated, signed and witnessed. Each subscriber takes at least a share each. The Articles of Association regulates internal matters and contains information on shares, powers and responsibilities of directors and rules of membership including meetings.

Secondly, lodgment has to be done at the Company registry. S4 of the Companies Act of Fiji further elaborates the law on Memorandum and Articles of Association in Fiji. Thirdly, payment has to be made for the prescribed fee for such a request of registering a company. The second schedule of the Companies Act of Fiji states the fee and amount to be paid to the Registrar by a company having a share capital. Within these processes, the promoters or their solicitors have to do a regular follow up on the status to obtain the certificate.

Forthly, the Registrar of Companies will issue the Certificate of Incorporation and lastly, the company acquires legal personality.

The advantages of a private company is that since it is acquired by virtue of the law, it acquires an independent personality of its own. This means that the company is considered as a fictional person and distinct from its members. Secondly, the company can act on its own, it can sue or be sued in its own name, hold property, enter into contracts, be invested with perpetual succession and possess a common seal.

To conclude, having an incorporated company takes Mr. Nice and the 10 others to a safer side by way of the separate entity concept.

Question B

A partnership is an association of persons for business purposes with a view to profit. It has been the form of association which competed with the limited liability companies as the appropriate vehicle for the conduct of commercial enterprise. It did predate the limited liability companies for commercial purposes.

If Mr. Nice did not necessarily need a company but any other business arrangement, I would suggest that he enter into a partnership with the ten others with whom he is in a tenancy agreement.

However, s29 of the Partnership Act says that “partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representative’. Mr. Nice does not want to be bogged down with the complicated financing reporting requirements and this could be a problem to his specifications. Also, partners are treated as the unlimited agents of each other therefore they have the power to bind one another in their dealings with third parties.

Moreover, an unlimited company has no limit on the liability of its members. There is no clause in the memorandum dealing with the liability of the members.

As per Mr. Nice’s wish, unlimited companies do not have any public scrutiny of its accounts and financial records. Unlike a public company, an unlimited company need not file annual accounts in the company registry. An unlimited company is not forbidden to purchase its own shares. However, members of unlimited company can be held liable and be required to contribute in full in order to discharge the debts and liabilities of the company in the event of its insolvency.

As such, Mr Nice could engage either in a partnership or in an unlimited company. Both have its flaws and advantages. However, an unlimited company may not be very safe since annual accounts need not be filed in registries which can cause accounting problems and if Mr. Nice chose partnership then he would still have to submit accounts and he could be responsible with others business dealings done by partners since it is binding on partners. My advice to Mr. Nice would be to be incorporated in a private company which would cause him a bit of hassle in submitting his accounts but it would be safe since the company would be a separate legal entity from its members.

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