A Company is very easily legally defined. According to Sealy and Worthington “[i]t is the kind of legal entity or corporate body which is brought into being by the registration procedures laid down by the Companies Act 2006 and its predecessors. Its creation is evidenced by the issue of a certificate of incorporation by the registrar of companies.” This is a good definition but there are exceptions, a tiny number of companies are formed outside of the Companies Acts. A company may also be created in the UK by Royal Charter or by a special act of Parliament. Very few of these companies still exist and they often fall outside of general company law. Everyday usage of the word company may also cause confusion. In the UK and Ireland the word “company” has other meanings in everyday speech. In particular, the abbreviation “Co.” and “&Co.” are commonly used as part of the name of an unincorporated partnership that is not a “company” in the strict legal sense and is occasionally used by sole traders. In the UK, except in the rare case of a company with unlimited liability, the last word of the name of a company will be “Limited” often abbreviated to “Ltd.” or in the case of a public company the abbreviation PLC. Company Law has a very wide scope. Company law is about the formation of companies, their continuing regulation during their life and the procedures for dealing with their assets when they are terminated on liquidation. The state consequently plays a major role in company law. However, self-regulation, as we have seen in all our Commercial law topics, also plays a Company Law Page 3 of 84 significant part in the regulation of larger companies and is widely discussed in the theoretical literature. Like much of our course of British Commercial and Company law it is not easily compartmentalized, tort, contract, and equity all combine. Companies have a crucial role to play in British Commercial law. Companies are the most important Business structure. Their popularity is relatively recent; they came to prominence in the Victorian era. The registered company has been the main vehicle for business activity since 1844, when the Joint Stock Companies Act 1844 was passed and provided for incorporation of companies by registration. The current companies’ legislation is the Companies Act 2006, with specific legislation dealing with the insolvency of companies and financial services. Like other organizations, registered companies have a constitution – documents or statements that govern their relations internally and with third parties, internal structure and operating procedures. The Companies Act not only provides the facilities and procedure for registration but also authorizes subsidiary legislation (e.g. the Companies (Model Articles) Regulations 2007, which prescribe a default constitution for registered companies). Two important topics that we have come across before and that are essential to understanding how companies operate are separate legal personality and limited liability.
Different Companies and its related Law in United Kingdom
A company can be formed in a number of ways:
- By Royal Charter (Chartered Companies) Formed by grant of a charter by the Crown.
Promoters of the company petition the Privy Council attaching draft of proposed charter to the petition.
Still used to incorporate learned societies and professional bodies. No longer used to incorporate trading companies.
- By Act of Parliament (Statutory Companies) Formed by private Act of Parliament.
Formerly used to incorporate public utilities such as gas, electricity and railways. (The privatised public utilities have been incorporated as registered companies).
- By Registration (Registered Companies)
Formed by registration under the Companies Act 1985 (as amended) or one of the preceding Companies Acts.
Registration is the most commonly used means of forming a company and virtually the only method now used to form a trading company.
CA 1985, s.1(1): “Any two or more persons associated for a lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company, with or without limited liability.”
“Limited Liability” – this refers to the liability of the members, not the liability of the company. The company will always be liable to the full extent of its debts.
The liability of the members, whether limited or unlimited, is to the company, not to the individual creditors of the company.
- Unlimited Companies
- Members have unlimited liability (If company is being wound up, members can be made to contribute to the company’s assets without limit to enable it to pay its debts.)
- Cannot be public companies.
- Can be set up with or without a share capital.
- Not subject to the same restrictions on alteration of capital as other types of company, and do not normally have to file annual accounts.
- Companies Limited by Guarantee
- Members agree to contribute a specified amount to the company’s assets in the event of the company being wound up. (Total amount payable by all members is called the “guarantee fund”)
- Members do not have to pay anything as long as company is a going concern – so company has no contributed capital.
- Companies limited by guarantee are not usually formed for business ventures.
- Prior to 1980, a company could be registered as a company limited by guarantee, but also have a share capital – these are called “hybrid companies”.
- Companies Limited by Shares
- The most common kind of registered company.
- Members of the company take shares issued by the company. Each share is assigned a nominal value – the amount that must be paid to the company for the share. Members may also agree to pay an extra amount – called a premium.
- When the company is registered, its memorandum must state the total nominal value of all the shares it is going to issue (called the registered capital, or nominal capital or authorised share capital).
The memorandum also states the number of shares to be issued:
e.g. 10,000 shares of £1 each = registered capital of £10,000.
- Liability of a member (shareholder), when the company is wound up is limited to the amount, if any, of the nominal value of his shares which has not been paid.
( Shareholder is also contractually bound to pay any premium which has not been paid).
- Shares are normally partly or fully paid for when issued, so company will have a contributed capital.
Companies Limited by Shares may be Public or Private
- Public Companies
CA 1985, s.1(3): “a company limited by shares which has a memorandum stating that it is to be a public company and which complies with the requirements of the Act for registration as a public company.”
- A company cannot be registered as a public company unless it has a minimum allotted share capital of £50,000, at least one quarter of which has actually been paid.
- A public company must have at least two shareholders and at least two directors.
- Private Companies
CA 1985 defines a private company as “any company that is not a public company”. Private companies have no authorised minimum share capital.
A private company is only required to have one director and, since 1992, it can be formed with only one member.
Only Public Companies can have their shares listed on the Stock Exchange – but Public Companies are regulated much more strictly than Private Companies.
Different Companies and its related Law in Sri Lanka
If any business entity, organizations or any association is registered under the companies act no. 07 of 2007, such entity, organization or association treated as a company. After 3rd may, 2007 the companies are registered under the companies act no 07 of 2007.
In new act the single share companies are permitted. Any person or persons may apply to incorporate the company other than a company limited by guarantee (section 4(2)). It means individual or body corporate can own all the 100% shares in the company.
Under no 07 of 2007 company’s act any companies can be incorporated within few minutes.
According to the company act a company could be incorporate as a,
- Limited company
- Unlimited company
- Limited by guarantee
According to the Section 4(1)
The first step in incorporating the company is selecting the name and getting that name approval by the registrar. After getting the name approval following documents should be submitted to the registrar to register to the company
- A declaration signed by the initial shareholders stating that the name of the company is not identical or similar to name of the existing company.
- The article of association of the company
- Consent from each of initial directors to act as a director of the company
- Consent from each of initial secretary to act as a director of the company
When the companies incorporated it will get certain consequences or effects. They are separate legal personality, perpetual succession, Common seal and Increase borrowing power.
The name of every
- Limited company other than a listed company, shall end in the word “Limited” or by the abbreviation “Ltd” ;
- Private company, shall end in the words “(Private) Limited” or by the abbreviation “(Pvt) Ltd”
- Limited company which is a listed company shall end in the words “Public Limited Company” or by the abbreviation “PLC”.
7. (1) A company shall not be registered by a name which
- is identical with the name of any other company or of any registered overseas company
- contains the words “Chamber of Commerce”, unless the company is a company which is to be registered under a license granted under section 34 without the addition of the word “Limited” to its name ; or Requirements as to name restrictions on names.
- is in the opinion of the Registrar, misleading.
Except with the consent of the Minister given having regard to the national interest, no company shall be registered by a name which contains the words
- “President”, “Presidential” or other words which in the opinion of the Registrar suggest or are calculated to suggest, the patronage of the President or connection with the Government or any Government Department
- “Municipal”, “incorporated” or other words which in the opinion of the Registrar suggest or are calculated to suggest, connection with any Municipality or other local authority or with any society or body incorporated by an Act of Parliament
- “Co-operative” or “Society”
- “National”, “State” or “Sri Lanka” or other words which in the opinion of the Registrar suggest or are calculated to suggest, any connection with the Government or any Government Department.
In determining for the purposes of subsection (1) whether one name is identical with another, the following words shall be disregarded
- the word “the”, where it is the first word of the name
- the following words and expressions, where they appear at the end of the name
(ii) “and company”
(iii) “company limited”
(iv) “and company limited”
(v) “limited” ;
(vi) “unlimited” ;
(vii) “(Private) limited” ;
(viii) “Public Limited Company” ;
- abbreviations referred to in section 6, where they appear at the end of the name ;
- type and case of letters, accents, spaces between letters and punctuation marks ; and
- “and” or “&”.
Type of companies under the coronary’s act
The following companies can be incorporated under no 07 of 2007 act. They are
- Private companies
- Public companies
- Company limited by guarantee
- Offshore companies
- Overseas companies
The companies which are prohibited offering shares or securities to the public that have not more than 50 shareholders in the company.
The companies which can offer shares or securities to the public that have no any limit to the shareholders in the company.
Limited by guarantee
The companies which specified the amount of each member of the company undertakes to contribute to the assets of the company, in the event of such company going in to liquidation.
Any two or more person can apply to form a company limited by guarantee.
An offshore company is a company that is registered in Sri Lanka, but it does its business abroad and not in Sri Lanka
Overseas company means any company or body corporate incorporated outside the Sri Lanka.
Main Legal Documents of United Kingdome Company Law
The company law related to Sri Lanka coming from the law in United Kingdom. The history of company law in United Kingdom goes back to 1837, the chartered companies act. Under this law a company was formed by an agreement under seal containing certain provisions specified by this act. The first general act for the registration of companies was The Joint Stock Companies Act, 1844. This was passed to obviate the difficulties, which arose in suing trading partnerships consisting very large number of members. The bodies were incorporated by this act, but the members had unlimited liability. The act has been repealed, but some of the companies formed under it still exist. The next act comes with the building societies. Building societies incorporated under the building societies acts 1874, 1894, and 1939 were the next stage of the improvement of incorporation. After that in 1948 the companies act was came. The bulk of law relating to companies is found in the companies Act, 1948, which consolidates and in a number of important respects modifies, the law contained in statutes passed between 1862 and 1947.The cases which had been decided from time to time under the old Acts were relevant under this Act, except in so far as that act provides in other way. The arrangement of the matter will not necessarily follow the arrangement of the sections of the act, which were divided in to thirteen parts with eighteen schedules. It was proposed subject in four parts. They were formation, government, liquidation and miscellaneous matters in appendix. So time to time this law was developed and then the present law came to the system with the requirements of the modern world. In Sri Lanka presently applicable act is the companies act, 2007.
Over the 20th century, companies in the UK became the dominant organizational form of economic activity, which raised concerns about how accountable those who controlled companies were to those who invested in them. The first reforms following the Great Depression, in the Companies Act 1948, ensured that shareholders with a simple majority vote could remove directors. In 1977, the government’s Bullock Report proposed reform to allow employees to participate in selecting the board of directors, as was happening across Europe, exemplified by the German Code termination Act 1976. However the UK never implemented the reforms, and from 1979 the debate shifted. Although making directors more accountable to employees were delayed, the Cork Report led to stiffer sanctions in the Insolvency Act 1986 and the Company Directors Disqualification Act 1986 against directors who negligently ran companies at a loss. Through the 1990s the focus in corporate governance turned toward internal control mechanisms, such as auditing, separation of the chief executive position from the chair, and remuneration committees as an attempt to place some check on excessive executive pay. These rules applicable to listed companies, now found in the UK Corporate Governance Code, has been complemented by principles based regulation of institutional investor’s activity in company affairs. At the same time, the UK’s integration in the European Union meant a steadily growing body of EU Company Law Directives and case law to harmonize company law within the internal market.
Company Law and Civil Law
Companies occupy a special place in civil law, because they have a legal personality separate from those who invest their capital and labor to run the business. The general rules of contract, tort and unjust enrichment operate in the first place against the company as a distinct entity. This differs fundamentally from other forms of business association. A sole trader acquires rights and duties as normal under the general law of obligations. If people carry on business together with a view to profit, they are deemed to have formed a partnership under the Partnership Act 1890 section 1. Like a sole trader, partners will be liable on any contract or tort obligation jointly and severally in shares equal to their monetary contribution, or according to their culpability. Law, accountancy and actuarial firms are commonly organized as partnerships. Since the Limited Liability Partnerships Act 2000, partners can limit the amount they are liable for to their monetary investment in the business, if the partnership owes more money than the enterprise has. Outside these professions, however, the most common method for businesses to limit their liability is by forming a company.
Companies Ensure Employment Health, Safety and welfare law in Europe and Sri Lanka
The first step for employers who are concerned about compliance issues is to gain a general understanding of what the law requires. In 1970, Congress passed the Occupational Safety and Health Act (OSH Act). This legislation can be viewed in terms of the rights it creates for workers, and the obligations it places on their employers.
With respect to workers’ rights, the OSH Act generally provides that each employee must be told about hazards existing at the workplace, and receive training in how to avoid those hazards. Employees also have a right to information about the health and safety laws applicable to the business. They must have means to file a complaint with the government if it appears the laws are being broken, on a confidential basis, and without fear of retaliation.
Employers have duties under the OSH Act to seek out potential threats to the wellbeing of their employees. In other words, business owners must be proactive, and take it upon themselves to discover hazards before they cause harm. Once discovered, hazards must be removed or otherwise addressed in order to minimize the risk to employees. Hazards that cannot be rendered safe must be brought to the attention of the employees, and appropriate training and safety gear provided. Finally, employers are required to maintain accident records and make them available for viewing.
Federal regulations implemented under the OSH Act are administered by the Occupational Safety and Health Administration (OSHA). Well-known among members of the construction and mining industries in particular, OSHA sends officials to physically inspect workplaces and issue citations for violations. It also provides educational outreach programs for businesses.
Avoiding Workplace Safety Claims
Perhaps more so than in any other field of law, workplace safety attorneys spend a great deal of time consulting with their business clients to avoid legal problems before they arise. The audit process may reveal the need for additional equipment such as respirators or safety guards on machinery. Or, it may indicate that new practices should be utilized, such as storing dangerous materials offsite to minimize the risk of exposure.
With the help of experienced legal counsel, a compliance audit may also show the need for enhanced training programs that take into account workers’ language and learning abilities. Record keeping procedures will be reviewed, and even seemingly minor problems like missing OSHA posters can be caught and rectified before they come to the attention of agency officials.
Claim Investigation and Defense
If a claim is made, the need for legal assistance becomes more urgent. An internal investigation by the company and its attorney will help determine if the employee’s claim is valid, and what steps are necessary to deal with the problem. In situations where an OSHA citation has been issued, there is a possibility the citation can be resolved through an informal negotiation process with the agency. If not, a strong defense will still benefit the company by keeping fines, sanctions, and publicity to a minimum.
Of course, just because the services of an attorney are useful in representing the employer’s interests in a workplace safety dispute, this is not to suggest that goals of the employer, its workers, and the government are at odds with each other. Workplace safety has come a long way in the decades since the OSH Act was passed into law. The most important benefit of working with an attorney familiar with safety regulations is that it will help the client provide a workplace in which employees can perform their duties without the risk of bodily harm.
In Sri Lanka
In accordance with the Factories Ordinance, it is obligatory for the employer to ensure health, safety and welfare of persons at workplace.
The establishment should be monitored to check the quality of the premises; cleanliness; overcrowding; maintain reasonable temperature; ventilation; lighting; drainage of floors and sanitary convenience.
Safety of the worker must be ensured by installing and maintaining the machinery, mechanisms, transmission apparatus, tools, equipment and machines in best possible safety conditions. Tools, equipment, machines, or products used must be organized properly guaranteeing the safety of workers.
Safety conditions of an establishment should also be monitored regarding risks of falling; moving heavy objects; protection from dangerous machines and apparatus; preventive measures to be taken for work in confined areas or for work done in an isolated environment; risks of liquids spilling and fire prevention.
Factories Ordinance further contain provisions which specifically call for the employers to put in place all practicable measures to protect the persons employed against inhalation of the dust, fume or other impurity. Moreover, specific conditions for the usage of internal combustions engines are dictated such as the need to conduct the exhaust of gases from the engine into the open air; and to partition the rooms so that any injurious fumes from are not shifted to other persons other than those attending to the engine.
Source: §6-60 of the Factories Ordinance, 1942
Different provisions under the Factories Ordinance, 1942 require the employer to provide free protective equipment (breathing apparatus, eye protection glasses, exhaust appliances) to the worker whose work involves exposure to wet or injurious substances.
Source: §32, 51, 53 & 58 of the Factories Ordinance, 1942
The Factories Ordinance requires that no young worker (under the age of 18 years) is allowed to work on a machine unless he has been fully instructed about the dangers involved in operating the machine, has received sufficient training in that regard and is working under supervision of an experienced and knowledgeable worker.
Source: §26 of the Factories Ordinance, 1942
Labour Inspection System
Labour Inspection system seems quite in line with the provisions of C081 as Sri Lanka became the first South Asian country to launch the Labour Inspection System Application. The system allows the Labour Ministry to better coordinate its labour administration institutions in country’s 56 labour department offices. The Industrial Safety Division works under the Department of Labour to ensure safety, health and welfare of workers at the workplace by registering factories and conducting routine inspections. Labour Inspection system is provided under various sections of Factories Ordinance.
The inspector has the power to enter the work premises; take samples for investigation; carry out investigations on accidents or dangerous occurrences; and issue improvement or prohibition notices until elimination of risk or its reduction to a suitable level.
Legal background / Act and ordinance related to above activities in Sri Lanka
- Factories Ordinance No.45 of 1942
- Factories (Amendment) Ordinance No.22 of 1946
- Factories (Amendment) Act No.54 of 1961
- Factories (Amendment) Law No.12 of 1976
- Factories (Amendment) Act No.18 of 1998
- Factories (Amendment) Act No.33 of 2000
- Factories (Amendment) Act No.19 of 2002
In addition to the above following regulations are also in effective.
- Factories (No.1) Regulations 1960
- Factories (Sanitary Conveniences) Regulations 1965
- Factories (Dangerous Occurrences Notification) Regulations 1965
- Factories (Washing facilities General) Regulations 1965
- Factories (General Standards of Lighting) Regulations 1965
- Factories (Meal Room) Regulations 1965
- Factories (Steam Boiler Attendants Certificates of competency) Regulations 1965
- Factories (Notifiable Industrial Diseases) Regulations 1972
- Factories (Protection of Eyes) Regulations 1979
- Factories (First Aid) Regulations 1995
- Leaflet on first aid
In earlier times companies originated in England in the later part of the 17th century. At that time there was a very slow start of the history of companies because there were only two methods to incorporate a company. But according to the No 07 of 2007 companies act any person can incorporate a company within few hours.
In No 07 of 2007 companies act “single share holder companies” are permitted. That is an individual or body corporate can own all the 100% shares in a company. On behalf of the government, the secretary to the treasury is also empowered to incorporate a single share holder company. As well as the process of incorporation and the given documents under the new companies act are easy to provide
The No 07 of 2007 companies act provide all the support and facilities to incorporate company and to continue the business of that company. The unnecessary and confused rules & regulations of the previous companies act are avoided by the No 07 of 2007 new companies act.
Therefore when comparing with previous company act; the new company act drives the companies efficiently and effectively.
Sources of company law
1. European Union Company Law Directives – Davies and Gower
8th Edition pp 129-138 and go to:
to keep up to date.
2. Companies Act 2006 – Statute Book, and HMSO Legislation Site
3. Insolvency Acts 1986 and 2000 and Enterprise Act 2002 Statute Book, HMSO
Legislation Site and Handout Materials
4. City Code on Takeovers and Mergers – Blackboard External Link to
http://www.thetakeoverpanel.org.uk/ for full text.
5. Judge Made Law – Common Law and Equity – usual electronic and hard copy case
law sources and Hicks and Goo.