Company Law: The Sole Proprietorship Essay Example

severally liable for the debts and obligations of the partnership.

To satisfy commercial interests, separate legal personalities have been bestowed in the United States and some Commonwealth Caribbean jurisdictions with the advent of the Limited Liability Partnership Act, for example, St. Lucia. But, by and large the United Kingdom Partnership Act of the 19th century continues to represent the foundation of partnership law in the Commonwealth Caribbean.

The attractiveness lies in the informality of formation. They are not required to register and there are no filing requirements. It operates as a sole proprietorship as there is a collection of sole traders who co-operate for the sake of the business. The advantage lies in the flexibility and ease of operation. See the Jamaican decision in the case of Joseph v. MCKenzie (1993) 30 JLR 305 which is instructive of the essential characteristics of a partnership. The facts involved a breakdown in the relationship between the defendant (MCKenzie) and the plaintiff (Joseph) in relation to a restaurant. This business relationship started with an oral agreement relating to profit sharing.

Justice Smith found the oral agreement was binding. He noted that it is a settled principle that a partnership can be formed as a result of an agreement between the parties to carry out a business in common with a view to sharing profit or loss. “There must be a community of profit or loss and to ascertain whether or not a partnership exists the agreement must be construed as a whole. The mere fact that the parties to it claim that they are partners is not conclusive. ”

Co-operatives

1. A co-operative
   

differs from other forms of businesses in that its structure reflects its aims, which are generally stated as to service its members and to benefit the society at large. This is reflected in the course of its business as well as the use of profits.

Liability

A co-operative is an un-incorporated association so that historically a person seeking an action against a common fund would in effect have to prove the liability of

all the members personally, since the fund is thought to be owned by all the members for the time being. This created problems because of fluctuations in membership and the procedural burden of getting judgement against all the members personally. Legislation now permits that an association can be sued in its own name.

Taff Vale Ry v. A. S. R. S. [1901] AC 426 is authority for the proposition that an un-incorporated association can be liable in Tort through a class action. Boyce v. Committee of Management Enterprise Co-operative Credit Union Ltd. (1975) 10 Barb. L.R 6 The court found for the credit union as the dispute related only to the committee as the body responsible for the management of the society.

As far as corporate legislation is concerned, it has many functions:

• It is enabling; i. e. it empowers people to attain what they could not otherwise achieve, creating a body with a distinct corporate personality.
• It is regulatory; legislation prescribes conditions, which have to be complied with to obtain incorporation.

Some companies are listed on the stock exchange. Stock exchanges were incorporated in the region in the mid 1980’s. These were created to fill a void in the financial system. It comprises designated and non-designated members who make up the board. Designated members include the Minister of Trade, Governor of the Central Bank and Minister of Finance. Companies listed on the exchange fall under the purview of Securities Legislation. Such as: Barbados Securities Act of 2002 Jamaica Securities Act of 1993 Trinidad and Tobago Securities Act of 1995. The listed company must enter into a listing

agreement, which imposes a number of obligations on issuing companies.

They enter into obligations relating to the conduct of trading prohibiting manipulative and fraudulent practices. In order to secure a listing a company must have a trading record or history and a certain number of shares must be held by members of the public who are not associated with the directors or major shareholders. Private Companies Generally these are small family type companies.

According to statute in “new law” jurisdictions, there must be at least one director. It is a closely-knit unit with family members often comprising the share holding body. Because of the nature of this type of company, many of the formal requirements stipulated in the Companies Act are abandoned i. e. equirements for taking minutes, the holding of meetings. This is because often Directors do not bother to hold general meetings concentrating rather on running the business. Another characteristic of Private Companies is they normally have in their constitution a pre-emptive rights clause.

It is used to ensure shareholders remain “friendly”. It is a clause, which states that no shareholder can sell shares without the approval of the board. Holding and Subsidiary Companies This is where one company is in a position of control over another by owning more than 50% of the shares in that company. This is covered by the Companies Acts: Barbados S442 Jamaica S149.

Trinidad and TobagoS5. Control is an essential ingredient. The parent or holding company has the ability to control or influence the policies of the other company and they can appoint executives. Limited and Unlimited Companies Not all companies are limited

by shares, if they are limited, the letters Ltd. or the word “limited” must be affixed after the corporate name. If it is a public limited company the letters PLC or the words “Public Limited Company” must also be affixed after the corporate name. Method of Incorporation In Jamaica, Belize and the Bahamas, incorporation is achieved by filing the memorandum of association and the articles of association.

The memorandum of association is the company’s principal constitutional document and it governs the relationship between the company and the outside world. The memo sets out the details of the company’s existence. For example the company name, domicile, capital structure, whether it is a private or public company and the company’s objects. The articles of association regulate the company’s internal day to day affairs.

For example when meetings have to be held, the number and rights of shareholders as well as directors powers. The first subscribers for shares sign both the memorandum and the articles of association, see for example Jamaica Companies Act Arts. 3 & 6. The signatures must be witnessed and each subscriber must take at least one share. The number of hares taken will be entered alongside the name in the memorandum. In new law jurisdictions there are pre-printed forms which are filled out. There are actually five standard forms, these are: Notice of Directors form Request for Name Search form Registered Head Office form Certificate of Incorporation and an Affidavit The affidavit stems from articles such as S. 4 of the Barbados Companies Act, which provides that you must be over 18, you must not be bankrupt, and you must be of

sound mind. These things are sworn by an attorney in an affidavit. Lecturer:Ms. Lesley Walcott Date:September 23rd, 2003.

Advantages of Incorporation:

1. A company has perpetual succession. Unlike partnerships and sole traders, the “business” continues despite the death (or serious illness) or shareholders and directors.
2. Its assets are owned and its debts owed by the company and not its members, this is so even with one-man companies, which are permissible in some territories.
3. Generally a shareholder can freely transfer his share holdings unlike a partnership where the consent of the other partners must be obtained.
4. The liability of a shareholder is limited by his shares. In Barbados all shares must be fully paid whereas in Jamaica shares might be partially paid.
5. Shareholders are not bound by a fiduciary duty either to themselves or the company.
6. There are fiscal advantages of incorporation as opposed to being a sole trader, there is scope for tax avoidance (which is legal as opposed to tax evasion which is illegal. ) Where there are high profits, it is advantageous to incorporate.
7. It is arguably easier for a company to raise additional finance from banks and other financial institutions through shares and debentures.
8. As a separate legal person, the company can sue or be sued in its own name.