Sources of Company Law
1
Sources of Company Law
1.1
W HAT IS COMPANY LAW?
For the last century and a half a complex body of legislation called the Companies
Acts has declared that if anyone presents to Companies House the documents required to form a ‘company’, the Registrar of Companies will issue a Certificate of Incorporation stating, like a birth certificate, that a new person, a ‘limited company’, has that day come into being. This robotic person, ‘owned’ by its shareholders, has no arms or legs, nor even a brain, but it is recognised by the law as being capable of doing all the things necessary to own and run a business. Those dealing with the company make contracts directly with the company itself and the shareholders who formed it are not liable if it defaults on its obligations. They are not party to its contracts and the law allows them the privilege of ‘limited liability’.
Thus, even if it was they who set up the company and have themselves been running it for their own benefit, in principle they have no liability at all.
It is the function of the legislation as interpreted by the courts to determine how this new person, the company, though artificial and abstract, can have an existence and perform its functions. Thus companies have their own bye-laws called the memorandum and articles of association, the members in general meeting
(i.e., the shareholders) elect directors, and the board of directors sees to or delegates the day-to-day running of the business. In addition, the law has to deal with the risk that the extraordinary privilege of limited liability could so easily be unfair and cause harm to creditors. In the final analysis, however, the law cannot protect creditors against limited companies that are not credit worthy. All it can do is to ensure that companies ‘disclose’ sufficient information to enable alert creditors to look after themselves by making informed decisions when dealing with them.
Core company law has been found in ‘the Companies
Sources of Company Law
1.1
W HAT IS COMPANY LAW?
For the last century and a half a complex body of legislation called the Companies
Acts has declared that if anyone presents to Companies House the documents required to form a ‘company’, the Registrar of Companies will issue a Certificate of Incorporation stating, like a birth certificate, that a new person, a ‘limited company’, has that day come into being. This robotic person, ‘owned’ by its shareholders, has no arms or legs, nor even a brain, but it is recognised by the law as being capable of doing all the things necessary to own and run a business. Those dealing with the company make contracts directly with the company itself and the shareholders who formed it are not liable if it defaults on its obligations. They are not party to its contracts and the law allows them the privilege of ‘limited liability’.
Thus, even if it was they who set up the company and have themselves been running it for their own benefit, in principle they have no liability at all.
It is the function of the legislation as interpreted by the courts to determine how this new person, the company, though artificial and abstract, can have an existence and perform its functions. Thus companies have their own bye-laws called the memorandum and articles of association, the members in general meeting
(i.e., the shareholders) elect directors, and the board of directors sees to or delegates the day-to-day running of the business. In addition, the law has to deal with the risk that the extraordinary privilege of limited liability could so easily be unfair and cause harm to creditors. In the final analysis, however, the law cannot protect creditors against limited companies that are not credit worthy. All it can do is to ensure that companies ‘disclose’ sufficient information to enable alert creditors to look after themselves by making informed decisions when dealing with them.
Core company law has been found in ‘the Companies