UK company law
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British company law regulates
corporations A corporation or body corporate is an individual or a group of people, such as an association or company, that has been authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law as ...
formed under the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
. Also governed by the
Insolvency Act 1986 The Insolvency Act 1986 (c. 45) is an act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 followed the publication ...
, the
UK Corporate Governance Code The UK Corporate Governance code, formerly known as the Combined Code (from here on referred to as "the Code") is a part of UK company law with a set of principles of good corporate governance aimed at companies listed on the London Stock Exchang ...
,
European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...
Directives and court cases, the company is the primary
legal Law is a set of rules that are created and are law enforcement, enforceable by social or governmental institutions to regulate behavior, with its precise definition a matter of longstanding debate. It has been variously described as a Socia ...
vehicle to organise and run business. Tracing their modern history to the late
Industrial Revolution The Industrial Revolution, sometimes divided into the First Industrial Revolution and Second Industrial Revolution, was a transitional period of the global economy toward more widespread, efficient and stable manufacturing processes, succee ...
, public companies now employ more people and generate more of wealth in the United Kingdom economy than any other form of organisation. The United Kingdom was the first country to draft modern corporation statutes, where through a simple registration procedure any investors could incorporate, limit liability to their commercial creditors in the event of business
insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet i ...
, and where management was delegated to a centralised
board of directors A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency. The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
. An influential model within Europe, the
Commonwealth A commonwealth is a traditional English term for a political community founded for the common good. The noun "commonwealth", meaning "public welfare, general good or advantage", dates from the 15th century. Originally a phrase (the common-wealth ...
and as an international standard setter, British law has always given people broad freedom to design the internal company rules, so long as the mandatory minimum rights of investors under its legislation are complied with. Company law, or
corporate law Corporate law (also known as company law or enterprise law) is the body of law governing the rights, relations, and conduct of persons, companies, organizations and businesses. The term refers to the legal practice of law relating to corpora ...
, can be broken down into two main fields,
corporate governance Corporate governance refers to the mechanisms, processes, practices, and relations by which corporations are controlled and operated by their boards of directors, managers, shareholders, and stakeholders. Definitions "Corporate governance" may ...
and
corporate finance Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analy ...
. Corporate governance in the UK mediates the rights and duties among shareholders, employees, creditors and directors. Since the
board of directors A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency. The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
habitually possesses the power to manage the business under a company constitution, a central theme is what mechanisms exist to ensure directors' accountability. British law is "shareholder friendly" in that
shareholders A shareholder (in the United States often referred to as stockholder) of corporate stock refers to an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the ...
, to the exclusion of
employees Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any othe ...
, typically exercise sole voting rights in the general meeting. The
general meeting A general assembly or general meeting is a meeting of all the members of an organization or shareholders of a company. Specific examples of general assembly include: Churches * General Assembly (presbyterian church), the highest court of presby ...
holds a series of minimum rights to change the company constitution, issue resolutions and remove members of the board. In turn, directors owe a set of
duties A duty (from "due" meaning "that which is owing"; , past participle of ; , whence "debt") is a commitment or expectation to perform some action in general or if certain circumstances arise. A duty may arise from a system of ethics or morality, e ...
to their companies. Directors must carry out their responsibilities with competence, in
good faith In human interactions, good faith () is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case with , which i ...
and undivided loyalty to the enterprise. If the mechanisms of voting do not prove enough, particularly for minority shareholders, directors' duties and other member rights may be vindicated in court. Of central importance in public and listed companies is the securities market, typified by the
London Stock Exchange The London Stock Exchange (LSE) is a stock exchange based in London, England. the total market value of all companies trading on the LSE stood at US$3.42 trillion. Its current premises are situated in Paternoster Square close to St Paul's Cath ...
. Through the
Takeover Code The Takeover Code, or more formally The City Code on Takeovers and Mergers, is a binding set of rules that apply to listed companies in the United Kingdom, such as those trading on the London Stock Exchange. Many of its provisions are mirrored in ...
the UK strongly protects the right of shareholders to be treated equally and freely to company shares. Corporate finance concerns the two money raising options for limited companies. Equity finance involves the traditional method of issuing shares to build up a company's capital. Shares can contain any rights the company and purchaser wish to contract for, but generally grant the right to participate in
dividend A dividend is a distribution of profits by a corporation to its shareholders, after which the stock exchange decreases the price of the stock by the dividend to remove volatility. The market has no control over the stock price on open on the ex ...
s after a company earns profits and the right to
vote Voting is the process of choosing officials or policies by casting a ballot, a document used by people to formally express their preferences. Republics and representative democracies are governments where the population chooses representative ...
in company affairs. A purchaser of shares is helped to make an informed decision directly by prospectus requirements of full
disclosure Disclosure may refer to: Arts and media Film and television *'' CBC News: Disclosure'', a television newsmagazine series in Canada * ''Disclosure'' (1994 film), an American erotic thriller film based on the 1994 novel by Michael Crichton * ''Dis ...
, and indirectly through restrictions on financial assistance by companies for purchase of their own shares.
Debt finance Debt is an obligation that requires one party, the debtor, to pay money borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Comm ...
means getting loans, usually for the price of a fixed annual
interest In finance and economics, interest is payment from a debtor or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct f ...
repayment. Sophisticated lenders, such as
bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
s typically contract for a
security interest In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the '' collateral'') which enables the creditor to have recourse to the property if the debtor defaults in m ...
over the assets of a company, so that in the event of default on loan repayments they may seize the company's property directly to satisfy debts. Creditors are also, to some extent, protected by courts' power to set aside unfair transactions before a company goes under, or recoup money from negligent directors engaged in
wrongful trading Wrongful trading is a type of civil wrong found in UK insolvency law, under Section 214 Insolvency Act 1986. It was introduced to enable contributions to be obtained for the benefit of creditors from those responsible for mismanagement of the inso ...
. If a company is unable to pay its debts as they fall due,
UK insolvency law United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While Bankruptcy in the United Kingdom, UK bankruptcy law concerns the rules for natural persons, the term ''insolvency'' is generall ...
requires an
administrator Administrator or admin may refer to: Job roles Computing and internet * Database administrator, a person who is responsible for the environmental aspects of a database * Forum administrator, one who oversees discussions on an Internet forum * N ...
to attempt a rescue of the company (if the company itself has the assets to pay for this). If rescue proves impossible, a company's life ends when its assets are liquidated, distributed to creditors and the company is struck off the register. If a company becomes insolvent with no assets it can be wound up by a creditor, for a fee (not that common), or more commonly by the tax creditor (HMRC).


History

Company law in its modern shape dates from the mid-19th century; however, an array of business associations developed long before. In medieval times, traders would do business through
common law Common law (also known as judicial precedent, judge-made law, or case law) is the body of law primarily developed through judicial decisions rather than statutes. Although common law may incorporate certain statutes, it is largely based on prece ...
constructs, such as
partnership A partnership is an agreement where parties agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations ...
s. Whenever people acted together with a view to
profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...
, the law deemed that a partnership arose. Early
guilds A guild ( ) is an association of artisans and merchants who oversee the practice of their craft/trade in a particular territory. The earliest types of guild formed as organizations of tradespeople belonging to a professional association. They so ...
and
livery companies A livery company is a type of guild or professional association that originated in medieval times in London, England. Livery companies comprise London's ancient and modern trade associations and guilds, almost all of which are Style (form of a ...
were also often involved in the regulation of competition between traders. As England sought to build a
mercantile Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market. Traders generally negotiate through a medium of cred ...
Empire An empire is a political unit made up of several territories, military outpost (military), outposts, and peoples, "usually created by conquest, and divided between a hegemony, dominant center and subordinate peripheries". The center of the ...
, the government created corporations under a
Royal Charter A royal charter is a formal grant issued by a monarch under royal prerogative as letters patent. Historically, they have been used to promulgate public laws, the most famous example being the English Magna Carta (great charter) of 1215, but ...
or an Act of Parliament with the grant of a
monopoly A monopoly (from Greek language, Greek and ) is a market in which one person or company is the only supplier of a particular good or service. A monopoly is characterized by a lack of economic Competition (economics), competition to produce ...
over a specified territory. The best-known example, established in 1600, was the
British East India Company The East India Company (EIC) was an English, and later British, joint-stock company that was founded in 1600 and dissolved in 1874. It was formed to Indian Ocean trade, trade in the Indian Ocean region, initially with the East Indies (South A ...
.
Queen Elizabeth I Elizabeth I (7 September 153324 March 1603) was Queen of England and Ireland from 17 November 1558 until her death in 1603. She was the last and longest reigning monarch of the House of Tudor. Her eventful reign, and its effect on history ...
granted it the exclusive right to trade with all countries to the east of the
Cape of Good Hope The Cape of Good Hope ( ) is a rocky headland on the Atlantic Ocean, Atlantic coast of the Cape Peninsula in South Africa. A List of common misconceptions#Geography, common misconception is that the Cape of Good Hope is the southern tip of Afri ...
. Corporations at this time would essentially act on the government's behalf, bringing in revenue from its exploits abroad. Subsequently, the company became increasingly integrated with British military and colonial policy, just as most British corporations were essentially dependent on the British navy's ability to control trade routes on the
high seas The terms international waters or transboundary waters apply where any of the following types of bodies of water (or their drainage basins) transcend international boundaries: oceans, large marine ecosystems, enclosed or semi-enclosed regiona ...
. A similar
chartered company A chartered company is an association with investors or shareholders that is Incorporation (business), incorporated and granted rights (often Monopoly, exclusive rights) by royal charter (or similar instrument of government) for the purpose of ...
, the
South Sea Company The South Sea Company (officially: The Governor and Company of the merchants of Great Britain, trading to the South Seas and other parts of America and for the encouragement of the Fishery) was a British joint-stock company founded in Ja ...
, was established in 1711 to trade in the Spanish South American colonies, but met with less success. The South Sea Company's monopoly rights were supposedly backed by the
Treaty of Utrecht The Peace of Utrecht was a series of peace treaty, peace treaties signed by the belligerents in the War of the Spanish Succession, in the Dutch city of Utrecht between April 1713 and February 1715. The war involved three contenders for the vac ...
, signed in 1713 as a settlement following the
War of Spanish Succession The War of the Spanish Succession was a European great power conflict fought between 1701 and 1714. The immediate cause was the death of the childless Charles II of Spain in November 1700, which led to a struggle for control of the Spanish ...
, which gave the United Kingdom an ''
assiento The () was a monopoly contract between the Spanish Crown and various merchants for the right to provide enslaved Africans to colonies in the Spanish Americas. The Spanish Empire rarely engaged in the transatlantic slave trade directly from Af ...
'' to trade, and to sell slaves in the region for thirty years. In fact the Spanish remained hostile and let only one ship a year enter. Unaware of the problems, investors in the UK, enticed by
company promoters A corporate promoter is a firm or person who does the preliminary work related to the formation of a company, including its promotion, incorporation, and flotation, and solicits people to invest money in the company, usually when it is being ...
' extravagant promises of profit, bought thousands of shares. By 1717, the South Sea Company was so wealthy (still having done no real business) that it assumed the
public debt A country's gross government debt (also called public debt or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit occu ...
of the British government. This accelerated the inflation of the share price further, as did the
Royal Exchange and London Assurance Corporation Act 1719 The Bubble Act 1720 ( 6 Geo. 1. c. 18) (also Royal Exchange and London Assurance Corporation Act 1719) was an act of the Parliament of Great Britain passed on 11 June 1720 that incorporated the Royal Exchange Assurance Corporation and London As ...
, which (possibly with the motive of protecting the South Sea Company from competition) prohibited the establishment of any companies without a Royal Charter. The share price rose so rapidly that people began buying shares merely in order to sell them at a higher price. By inflating demand this in turn led to higher share prices. The "South Sea bubble" was the first
speculative bubble Speculative may refer to: In arts and entertainment *Speculative art (disambiguation) *Speculative fiction, which includes elements created out of human imagination, such as the science fiction and fantasy genres ** Speculative Fiction Group, a Pe ...
the country had seen, but by the end of 1720, the bubble had "burst", and the share price sank from £1000 to under £100. As bankruptcies and recriminations ricocheted through government and high society, the mood against corporations, and errant directors, was bitter. Even in 1776,
Adam Smith Adam Smith (baptised 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the field of political economy and key figure during the Scottish Enlightenment. Seen by some as the "father of economics"——— or ...
wrote in the ''
Wealth of Nations ''An Inquiry into the Nature and Causes of the Wealth of Nations'', usually referred to by its shortened title ''The Wealth of Nations'', is a book by the Scottish people, Scottish economist and moral philosophy, moral philosopher Adam Smith; ...
'' that mass corporate activity could not match private entrepreneurship, because people in charge of "other people's money" would not exercise as much care as they would with their own. The
Bubble Act 1720 The Bubble Act 1720 ( 6 Geo. 1. c. 18) (also Royal Exchange and London Assurance Corporation Act 1719) was an act of the Parliament of Great Britain passed on 11 June 1720 that incorporated the Royal Exchange Assurance Corporation and London As ...
's prohibition on establishing companies remained in force until 1825. By this point the
Industrial Revolution The Industrial Revolution, sometimes divided into the First Industrial Revolution and Second Industrial Revolution, was a transitional period of the global economy toward more widespread, efficient and stable manufacturing processes, succee ...
had gathered pace, pressing for legal change to facilitate business activity. Restrictions were gradually lifted on ordinary people incorporating, though businesses such as those chronicled by
Charles Dickens Charles John Huffam Dickens (; 7 February 1812 – 9 June 1870) was an English novelist, journalist, short story writer and Social criticism, social critic. He created some of literature's best-known fictional characters, and is regarded by ...
in ''
Martin Chuzzlewit ''The Life and Adventures of Martin Chuzzlewit'' (commonly known as ''Martin Chuzzlewit'') is a novel by English author Charles Dickens, considered the last of his picaresque novels. It was originally serialised between January 1843 and July 1 ...
'' under primitive companies legislation were often scams. Without cohesive regulation, undercapitalised ventures like the proverbial "Anglo-Bengalee Disinterested Loan and Life Assurance Company" promised no hope of success, except for richly remunerated promoters. Then in 1843,
William Gladstone William Ewart Gladstone ( ; 29 December 1809 – 19 May 1898) was a British politican, starting as Conservative MP for Newark and later becoming the leader of the Liberal Party. In a career lasting over 60 years, he was Prime Minister ...
took chairmanship of a Parliamentary Committee on Joint Stock Companies, which led to the
Joint Stock Companies Act 1844 The Joint Stock Companies Act 1844 ( 7 & 8 Vict. c. 110) was an act of the Parliament of the United Kingdom that expanded access to the incorporation of joint-stock companies. Before the act, incorporation was possible only by royal charter o ...
. For the first time it was possible for ordinary people through a simple registration procedure to incorporate. The advantage of establishing a company as a separate legal person was mainly administrative, as a unified entity under which the rights and duties of all investors and managers could be channeled. The most important development came through the
Limited Liability Act 1855 The Limited Liability Act 1855 ( 18 & 19 Vict. c. 133) was an act of the Parliament of the United Kingdom that first expressly allowed limited liability for corporations that could be established by the general public in England and Wales as wel ...
, which allowed investors to limit their liability in the event of business failure to the amount they invested in the company. These two features - a simple registration procedure and limited liability - were subsequently codified in the world's first modern company law, the
Joint Stock Companies Act 1856 The Joint Stock Companies Act 1856 ( 19 & 20 Vict. c. 47) was an act of the Parliament of the United Kingdom. It was a consolidating statute that was recognised as the founding piece of modern United Kingdom company law. Overview Unlike other ...
. A series of
Companies Acts Companies Act (with its variations) is a stock short title used for legislation in Botswana, Hong Kong, India, Kenya, Malaysia, New Zealand, South Africa and the United Kingdom in relation to company law. The Bill for an Act with this short title w ...
up to the present
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
have essentially retained the same fundamental features. Over the 20th century, companies in the UK became the dominant organisational 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 The Companies Act 1948 ( 11 & 12 Geo. 6. c. 38) was an Act of the Parliament of the United Kingdom, which regulated UK company law. Its descendant is the Companies Act 2006. Cases decided under this Act *'' Bushell v Faith'' 970AC 1099 *'' Sc ...
, ensured that directors could be removed by shareholders with a simple majority
vote Voting is the process of choosing officials or policies by casting a ballot, a document used by people to formally express their preferences. Republics and representative democracies are governments where the population chooses representative ...
. In 1977, the government's
Bullock Report The ''Report of the committee of inquiry on industrial democracy'' (1977) Cmnd 6706, also the Bullock Report for short, was a report proposing for a form of worker participation or workers' control, chaired by Alan Bullock. The idea was seen by s ...
proposed reform to allow employees to participate in selecting the
board of directors A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency. The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
, as was happening across Europe, exemplified by the German
Codetermination Act 1976 Mitbestimmungsgesetz 1976 or the Codetermination Act 1976 is a German law that requires companies of over 2000 employees to have half the supervisory board of directors as representatives of workers, and just under half the votes. Background From ...
. However the UK never implemented the reforms, and from 1979 the debate shifted. Although making directors more accountable to employees was delayed, the
Cork Report ''Report of the Review Committee on Insolvency Law and Practice'' (1982) Cmnd 8558, also known as the "Cork Report" was an investigation and set of recommendations on modernisation and reform of UK insolvency law. It was chaired by Kenneth Cork and ...
led to stiffer sanctions in the
Insolvency Act 1986 The Insolvency Act 1986 (c. 45) is an act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 followed the publication ...
and the
Company Directors Disqualification Act 1986 The Company Directors Disqualification Act 1986 (c. 46) forms part of UK company law and sets out the procedures for company directors to be disqualified in certain cases of misconduct. History Lord Millett, in the opinion he gave in , summari ...
against directors who negligently ran companies at a loss. Through the 1990s the focus in
corporate governance Corporate governance refers to the mechanisms, processes, practices, and relations by which corporations are controlled and operated by their boards of directors, managers, shareholders, and stakeholders. Definitions "Corporate governance" may ...
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 Executive compensation is composed of both the financial compensation (executive pay) and other non-financial benefits received by an executive from their employing firm in return for their service. It is typically a mixture of fixed salary, varia ...
. These rules applicable to listed companies, now found in the
UK Corporate Governance Code The UK Corporate Governance code, formerly known as the Combined Code (from here on referred to as "the Code") is a part of UK company law with a set of principles of good corporate governance aimed at companies listed on the London Stock Exchang ...
, have been complemented by principles based regulation of
institutional investors An institutional investor is an entity that pools money to purchase security (finance), securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, s ...
' activity in company affairs. At the same time, the UK's integration in the
European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...
meant a steadily growing body of EU Company Law Directives and case law to harmonise company law within the internal market.


Companies and the general law

Companies occupy a special place in private law since they have a
legal personality Legal capacity is a quality denoting either the legal aptitude of a person to have rights and liabilities (in this sense also called transaction capacity), or the personhood itself in regard to an entity other than a natural person (in this sen ...
separate from those who invest their capital and labour 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 A sole proprietorship, also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by only one person and in which there is no legal distinction between the owner and the business entity. ...
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 The Partnership Act 1890 (53 & 54 Vict. c. 39) is an Act of the Parliament of the United Kingdom The Parliament of the United Kingdom of Great Britain and Northern Ireland is the supreme legislative body of the United Kingdom, and may also ...
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 Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior, with its precise definition a matter of longstanding debate. It has been variously described as a science and as the ar ...
,
accountancy Accounting, also known as accountancy, is the process of recording and processing information about economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activities and conveys ...
and
actuarial Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in insurance, pension, finance, investment and other industries and professions. Actuaries are professionals trained in this discipline. In m ...
firms are commonly organised as partnerships. Since the
Limited Liability Partnerships Act 2000 The Limited Liability Partnerships Act 2000 (c.12) is an Act of the Parliament of the United Kingdom which introduced the concept of the limited liability partnership into English and Scots law. It created an LLP as a body with legal personality ...
, 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.


Forming a company

A variety of companies may be incorporated under the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
. The people interested in starting the enterprise - the prospective directors, employees and shareholders - may choose, firstly, an unlimited or a limited company. " Unlimited" will mean the incorporators will be liable for all losses and debts under the general principles of private law. The option of a limited company leads to a second choice. A company can be "
limited by guarantee A company limited by guarantee (CLG) is a type of company where the liability of members in the event the company is wound up is limited to a (typically very small) amount listed in the company's articles or constitution. Most have no share capi ...
", meaning that if the company owes more debts than it can pay, the guarantors' liability will be limited to the extent of the money they elect to guarantee. Or a company may choose to be "limited by shares", meaning capital investors' liability is limited to the amount they subscribe for in share capital. A third choice is whether a company limited by shares will be public or private. Both kinds of companies must display (partly as a warning) the endings "plc" or "Ltd" following the company name. Most new businesses will opt for a
private company limited by shares A private company limited by shares is a class of private limited company incorporated under the laws of England and Wales, Hong Kong, Northern Ireland, Scotland, certain Commonwealth jurisdictions, and the Republic of Ireland. It has shareh ...
, while unlimited companies and companies limited by guarantee are typically chosen by either charities, risky ventures or mutual funds wanting to signal they will not leave debts unpaid. Charitable ventures also have the option to become a
community interest company A community interest company (CIC, pronounced "see-eye-see", or colloquially, "kick") is a form of social enterprise in the United Kingdom intended "for people wishing to establish businesses which trade with a social purpose..., or to carry on ...
.
Public companies A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange ( ...
are the predominant business vehicle in the British economy. While far less numerous than private companies, they employ the overwhelming mass of British workers and turn over the greatest share of wealth. Public companies can offer shares to the public, must have a
minimum capital Minimum capital is a concept used in corporate law and banking regulation to stipulate what assets the organisation must hold as a minimum requirement. The purpose of minimum capital in corporate law is to ensure that in the event of insolvency or ...
of £50,000, must allow free transferability of its shares, and typically (as most big public companies will be listed) will follow requirements of the
London Stock Exchange The London Stock Exchange (LSE) is a stock exchange based in London, England. the total market value of all companies trading on the LSE stood at US$3.42 trillion. Its current premises are situated in Paternoster Square close to St Paul's Cath ...
or a similar securities market. Businesses may also elect to incorporate under the
European Company Statute A (, ; "European society" or "company"; plural: ; abbr. SE) is a public company registered in accordance with the European corporate law, corporate law of the European Union (EU), introduced in 2004 with the Council Regulation on the Statute ...
as a
Societas Europaea A (, ; "European society" or "company"; plural: ; abbr. SE) is a public company registered in accordance with the European corporate law, corporate law of the European Union (EU), introduced in 2004 with the Council Regulation on the Statute ...
. An "SE" will be treated in every
European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...
member state as if it were a public company formed in accordance with the law of that state, and may opt in or out of employee involvement. Once the decision has been made about the type of company, formation occurs through a series of procedures with the registrar at
Companies House Companies House is the executive agency of the British Government that maintains the Company register, register of companies, employs the company registrars and is responsible for Incorporation (business), incorporating all forms of Company, co ...
. Before registration, anybody promoting the company to attract investment falls under strict
fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (legal person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, ...
duties to disclose all material facts about the venture and its finances. Moreover, anybody purporting to contract in a company's name before its registration will generally be personally liable on those obligations. In the registration process, those who invest money in a company will sign a
memorandum of association The memorandum of association of a company is an important corporate document in certain jurisdictions. It is often simply referred to as the memorandum. In the UK, it has to be filed with the Registrar of Companies during the process of incorp ...
stating what shares they will initially take, and pledge their compliance with the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
. A standard company constitution, known as the
Model Articles The Companies (Model Articles) Regulations 2008SI 2008/3229 are the default company constitution for limited companies under UK company law. The Model Articles will apply to a limited company if it does not register its own articles or, if it doe ...
, is deemed to apply, or the corporators may register their own individualised
articles of association In corporate governance, a company's articles of association (AoA, called articles of incorporation in some jurisdictions) is a document that, along with the memorandum of association (where applicable), forms the company's constitution. The ...
. Directors must be appointed - one in a private company and at least two in a public company - and a public company must have a secretary, but there needs to be no more than a single member. The company will be refused registration if it is set up for an unlawful purpose, and a name must be chosen that is not inappropriate or already in use. This information is filled out in a form available on the Companies House website. In 2018, a £12 fee was paid for online registration when
Model Articles The Companies (Model Articles) Regulations 2008SI 2008/3229 are the default company constitution for limited companies under UK company law. The Model Articles will apply to a limited company if it does not register its own articles or, if it doe ...
are adopted, or a £40 for postal registration using the "IN01" form. The registrar then issues a certificate of incorporation and a new legal personality enters the stage.


Corporate personality

English law recognised long ago that a corporation would have "legal personality". Legal personality simply means the entity is the subject of legal rights and duties. It can sue and be sued. Historically, municipal councils (such as the
Corporation of London The City of London Corporation, officially and legally the Mayor and Commonalty and Citizens of the City of London, is the local authority of the City of London, the historic centre of London and the location of much of the United Kingdom's fi ...
) or charitable establishments would be the primary examples of corporations. In 1612,
Sir Edward Coke Sir Edward Coke ( , formerly ; 1 February 1552 – 3 September 1634) was an English barrister, judge, and politician. He is often considered the greatest jurist of the Elizabethan and Jacobean eras. Born into an upper-class family, Coke was ...
remarked in the ''
Case of Sutton's Hospital ''Case of Sutton's Hospital'' (1612) 77 Eng Rep 960 is an old common law case decided by Sir Edward Coke. It concerned The Charterhouse, London, which was held to be a properly constituted corporation. Facts Thomas Sutton was a coal mine own ...
'',
the Corporation itself is onely ''in abstracto'', and resteth onely in intendment and consideration of the
Law Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior, with its precise definition a matter of longstanding debate. It has been variously described as a science and as the ar ...
; for a Corporation aggregate of many is
invisible Invisibility is the state of an object that cannot be seen. An object in this state is said to be ''invisible'' (literally, "not visible"). The phenomenon is studied by physics and perceptual psychology. Since objects can be seen by light fr ...
,
immortal Immortality is the ability to live forever, or eternal life. Immortal or Immortality may also refer to: Film * ''The Immortals'' (1995 film), an American crime film * ''Immortality'', an alternate title for the 1998 British film '' The Wisdom of ...
, & resteth only in intendment and consideration of the Law; and therefore it cannot have predecessor nor successor. They may not commit
treason Treason is the crime of attacking a state (polity), state authority to which one owes allegiance. This typically includes acts such as participating in a war against one's native country, attempting to Coup d'état, overthrow its government, spy ...
, nor be outlawed, nor
excommunicate Excommunication is an institutional act of religious censure used to deprive, suspend, or limit membership in a religious community or to restrict certain rights within it, in particular those of being in communion with other members of the co ...
, for they have no
soul The soul is the purported Mind–body dualism, immaterial aspect or essence of a Outline of life forms, living being. It is typically believed to be Immortality, immortal and to exist apart from the material world. The three main theories that ...
s, neither can they appear in person, but by Attorney. A Corporation aggregate of many cannot do
fealty An oath of fealty, from the Latin (faithfulness), is a pledge of allegiance of one person to another. Definition In medieval Europe, the swearing of fealty took the form of an oath made by a vassal, or subordinate, to his lord. "Fealty" also r ...
, for an invisible body cannot be in person, nor can swear, it is not subject to imbecilities, or death of the natural,
body Body may refer to: In science * Physical body, an object in physics that represents a large amount, has mass or takes up space * Body (biology), the physical material of an organism * Body plan, the physical features shared by a group of anim ...
, and divers other cases.
Without a body to be kicked or a soul to be damned, a corporation does not itself suffer penalties administered by courts, but those who stand to lose their investments will. A company will, as a separate person, be the first liable entity for any obligations its directors and employees create on its behalf. If a company does not have enough assets to pay its debts as they fall due, it will be
insolvent In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet in ...
- bankrupt. Unless an
administrator Administrator or admin may refer to: Job roles Computing and internet * Database administrator, a person who is responsible for the environmental aspects of a database * Forum administrator, one who oversees discussions on an Internet forum * N ...
(someone like an auditing firm partner, usually appointed by creditors on a company's insolvency) is able to rescue the business, shareholders will lose their money, employees will lose their jobs and a liquidator will be appointed to sell off any remaining assets to distribute as much as possible to unpaid creditors. Yet if business remains successful, a company can persist
forever Forever or 4ever may refer to: Film and television Films * ''Forever'' (1921 film), an American silent film by George Fitzmaurice * ''Forever'' (1978 film), an American made-for-television romantic drama, based on the novel by Judy Blume * '' ...
, even as the natural people who invest in it and carry out its business change or pass away. Most companies adopt
limited liability Limited liability is a legal status in which a person's financial Legal liability, liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company, or joint venture. If a company that provides limi ...
for their members, seen in the suffix of " Ltd" or " plc". This means that if a company does go insolvent, unpaid
creditor A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some propert ...
s cannot (generally) seek contributions from the company's shareholders and employees, even if shareholders and employees profited handsomely before a company's fortunes declined or would bear primary responsibility for the losses under ordinary civil law principles. The liability of a company ''itself'' is unlimited (companies have to pay all they owe with the assets they have), but the liability of those who invest their capital in a company is (generally) limited to their shares, and those who invest their labour can only lose their jobs. However, limited liability acts merely as a default position. It can be "contracted around", provided creditors have the opportunity and the
bargaining power Bargaining power is the relative ability of parties in a negotiation (such as bargaining, contract writing, or making an agreement) to exert influence over each other in order to achieve favourable terms in an agreement. This power is derived f ...
to do so. A bank, for instance, may not lend to a small company unless the company's director gives his own house as
security Security is protection from, or resilience against, potential harm (or other unwanted coercion). Beneficiaries (technically referents) of security may be persons and social groups, objects and institutions, ecosystems, or any other entity or ...
for the loan (e.g., by
mortgage A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners t ...
). Just as it is possible for two contracting parties to stipulate in an agreement that one's liability will be limited in the event of contractual breach, the default position for companies can be switched back so that shareholders or directors do agree to pay off all debts. If a company's investors do not do this, so their limited liability is not "contracted around", their assets will (generally) be protected from claims of creditors. The assets are beyond reach behind the metaphorical "veil of incorporation".


Rules of attribution

While a limited company is deemed to be a legal person separate from its shareholders and employees, as a matter of fact, a company can only act through its employees, from the board of directors down. So there must be rules to attribute rights and duties to a company from its actors. This usually matters because an aggrieved third party will want to sue whoever has money to pay for breach of an obligation, and companies rather than their employees often have more money. Up until reforms in 2006 this area used to be complicated significantly by the requirement on companies to specify an
objects clause An objects clause is a provision in a Company Law, company's constitution stating the purpose and range of activities for which the company is carried on. In UK company law, until reforms enacted in the Companies Act 1989 and the Companies Act 20 ...
for their business, for instance "to make and sell, or lend on hire, railway-carriages". If companies acted outside their objects, for instance by giving a
loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...
to build railways in Belgium, any such contracts were said to be ''
ultra vires ('beyond the powers') is a Latin phrase used in law to describe an act that requires legal authority but is done without it. Its opposite, an act done under proper authority, is ('within the powers'). Acts that are may equivalently be termed ...
'' and consequently void. This is what happened in the early case of ''
Ashbury Railway Carriage and Iron Co Ltd v Riche ''Ashbury Railway Carriage and Iron Co Ltd v Riche'' (1875) LR 7 HL 653 is a UK company law case, which concerned the objects clause of a company's memorandum of association. Its importance as case law has been diminished as a result of the Com ...
''. The policy was thought to protect shareholders and creditors, whose investments or credit would not be used for an unanticipated purpose. However, it soon became clear that the ''ultra vires'' rule restricted the flexibility of businesses to expand to meet market opportunities. Void contracts might unexpectedly and arbitrarily hinder business, so companies began to draft ever longer objects clauses, often adding an extra provision stating all objects must be construed as fully separate, or the company's objects include anything directors feel is reasonably incidental to the business. Now the 2006 Act states that companies are deemed to have unlimited objects, unless they opt for restrictions. The 2006 reforms have also clarified the legal position that if a company does have limited objects, an ''ultra vires'' act will cause the directors to have breached a duty to follow the constitution under section 171. Therefore, a shareholder who disagreed with an action outside the company's objects must sue directors for any loss. Contracts remain valid and third parties will be unaffected by this alone. Contracts between companies and third parties, however, may turn out to be unenforceable on ordinary principles of
agency law The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual fiduciary relationships that involve a person, called the agent, who is authorized to act on behalf of another (called the p ...
if the director or employee obviously exceeded their authority. As a general rule, third parties need not be concerned with constitutional details conferring power among directors or employees, which may only be found by laboriously searching the register at
Companies House Companies House is the executive agency of the British Government that maintains the Company register, register of companies, employs the company registrars and is responsible for Incorporation (business), incorporating all forms of Company, co ...
. In general, if a third party acts in
good faith In human interactions, good faith () is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case with , which i ...
, then any contract, even one going beyond the constitutional authority of the director or employee with whom they strike a deal, is valid. However, if it would appear to a reasonable person that a company employee would not have the authority to enter an agreement, then the contract is voidable at the company's instance so long as there is no equitable bar to rescission. The third party would have a claim against the (probably less solvent) employee instead. First, an agent may have express actual authority, in which case there is no problem. Her actions will be attributed to the company. Second, an agent may have implied actual authority (also sometimes called "usual" authority), which falls within the usual scope of the employee's office. Third, an agent may have "
apparent authority In law, apparent authority (also called "ostensible authority") relates to the doctrines of the law of agency. It is relevant particularly in corporate law and constitutional law. Apparent authority refers to a situation where a reasonable third pa ...
" (also called "ostensible" authority) as it would appear to a reasonable person, creating an
estoppel Estoppel is a judicial device whereby a court may prevent or "estop" a person from making assertions or from going back on their word. The person barred from doing so is said to be "estopped". Estoppel may prevent someone from bringing a particul ...
. If the actions of a company employee have authority deriving from a company constitution in none of these ways, a third party will only have recourse for breach of an obligation (a warrant of authority) against the individual agent, and not to the company as the principal. The
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
section 40 makes clear that directors are always deemed to be free of limitations on their authority under the constitution, unless a third party acting in callous bad faith takes advantage of a company whose director acts outside the scope of authority. For employees down the chain of delegation, it becomes less and less likely that a reasonable contracting party would think big transactions will have had authority. For instance, it would be unlikely that a bank cashier would have the authority to sell the bank's
Canary Wharf Canary Wharf is a financial area of London, England, located in the Isle of Dogs in the London Borough of Tower Hamlets. The Greater London Authority defines it as part of London's central business district, alongside Central London. Alongside ...
skyscraper. Problems arise where serious torts, and particularly fatal injuries occur as a result of actions by company employees. All torts committed by employees in the course of employment will attribute liability to their company even if acting wholly outside authority, so long as there is some temporal and close connection to work. It is also clear that acts by directors become acts of the company, as they are "the very ego and centre of the personality of the corporation". But despite
strict liability In criminal and civil law, strict liability is a standard of liability under which a person is legally responsible for the consequences flowing from an activity even in the absence of fault or criminal intent on the part of the defendant. Und ...
in tort, civil remedies are in some instances insufficient to provide a deterrent to a company pursuing business practices that could seriously injure the life, health and environment of other people. Even with additional regulation by government bodies, such as the
Health and Safety Executive The Health and Safety Executive (HSE) is a British public body responsible for the encouragement, regulation and enforcement of workplace health, safety and welfare. It has additionally adopted a research role into occupational risks in Great B ...
or the
Environment Agency The Environment Agency (EA) is a non-departmental public body, established in 1996 and sponsored by the United Kingdom government's Department for Environment, Food and Rural Affairs, with responsibilities relating to the protection and enha ...
, companies may still have a collective incentive to ignore the rules in the knowledge that the costs and likelihood of enforcement is weaker than potential profits. Criminal sanctions remain problematic, for instance if a company director had no intention to harm anyone, no ''
mens rea In criminal law, (; Law Latin for "guilty mind") is the mental state of a defendant who is accused of committing a crime. In common law jurisdictions, most crimes require proof both of ''mens rea'' and '' actus reus'' ("guilty act") before th ...
'', and managers in the corporate hierarchy had systems to prevent employees committing offences. One step toward reform is found in the
Corporate Manslaughter and Corporate Homicide Act 2007 The Corporate Manslaughter and Corporate Homicide Act 2007 (c. 19) is an Act of the Parliament of the United Kingdom that seeks to broaden the law on corporate manslaughter in the United Kingdom. The Act created a new offence respectively named ...
. This creates a criminal offence for
manslaughter Manslaughter is a common law legal term for homicide considered by law as less culpable than murder. The distinction between murder and manslaughter is sometimes said to have first been made by the ancient Athenian lawmaker Draco in the 7th ce ...
, meaning a penal fine of up to 10 per cent of turnover against companies whose managers conduct business in a grossly negligent fashion, resulting in deaths. Without lifting the veil there remains, however, no personal liability for directors or employees acting in the course of employment, for
corporate manslaughter Corporate manslaughter is a crime in several jurisdictions, including England and Wales and Hong Kong. It enables a corporation to be punished and censured for culpable conduct that leads to a person's death. This extends beyond any compensation ...
or otherwise. The quality of a company's accountability to a broader public and the conscientiousness of its behaviour must rely also, in great measure, on its governance.


Piercing the veil

If a company goes insolvent, there are certain situations where the courts lift the veil of incorporation on a limited company, and make shareholders or directors contribute to paying off outstanding debts to creditors. However, in British law the range of circumstances is limited. This is usually said to derive from the "principle" in ''
Salomon v A Salomon & Co Ltd is a landmark UK company law case. The effect of the House of Lords' unanimous ruling was to uphold firmly the doctrine of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could not sue the ...
''. In this leading case, a
Whitechapel Whitechapel () is an area in London, England, and is located in the London Borough of Tower Hamlets. It is in east London and part of the East End of London, East End. It is the location of Tower Hamlets Town Hall and therefore the borough tow ...
cobbler Cobbler(s) may refer to: *A person who repairs shoes * Cobbler (food), a type of pie Places * The Cobbler, a mountain located near the head of Loch Long in Scotland * Mount Cobbler, Australia Art, entertainment and media * ''The Cobbler' ...
incorporated his business under the
Companies Act 1862 The Companies Act 1862 ( 25 & 26 Vict. c. 89) was an act of the Parliament of the United Kingdom regulating UK company law, whose descendant is the Companies Act 2006. Provisions *s 6 'Any seven or more persons associated for any lawful purpos ...
. At that time, seven people were required to register a company, possibly because the legislature had viewed the appropriate business vehicle for fewer people to be a
partnership A partnership is an agreement where parties agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations ...
. Mr Salomon met this requirement by getting six family members to subscribe for one share each. Then, in return for money he lent the company, he made the company issue a
debenture In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term "debenture" originally referred to a document that either creates a debt or acknowle ...
, which would secure his debt in priority to other creditors in the event of insolvency. The company did go insolvent, and the company liquidator, acting on behalf of unpaid creditors attempted to sue Mr Salomon personally. Although the Court of Appeal held that Mr Salomon had defeated Parliament's purpose in registering dummy shareholders, and would have made him indemnify the company, the House of Lords held that so long as the simple formal requirements of registration were followed, the shareholders' assets must be treated as separate from the separate legal person that is a company. There could not, in general, be any lifting of the veil. This principle is open to a series of qualifications. Most significantly, statute may require directly or indirectly that the company not be treated as a separate entity. Under the
Insolvency Act 1986 The Insolvency Act 1986 (c. 45) is an act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 followed the publication ...
, section 214 stipulates that company directors must contribute to payment of company debts in winding up if they kept the business running up more debt when they ought to have known there was no reasonable prospect of avoiding insolvency. A number of other cases demonstrate that in construing the meaning of a statute unrelated to company law, the purpose of the legislation should be fulfilled regardless of the existence of a corporate form. For example, in ''
Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd ''Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd'' 9162 AC 307 is a UK company law case, concerning the concept of "control" and enemy character of a company. It is usually discussed in the context of lifting the corporate ...
'', the
Trading with the Enemy Act 1914 The Trading with the Enemy Act 1914 ( 4 & 5 Geo. 5. c. 87) was an act of the Parliament of the United Kingdom that prescribed an offence of conducting business with any person of "enemy character". It was enacted soon after the United Kingdom ...
said that trading with any person of "enemy character" would be an offence. So even though the Continental Tyre Co Ltd was a "legal person" incorporated in the UK (and therefore British) its directors and shareholders were German (and therefore enemies, while the
First World War World War I or the First World War (28 July 1914 – 11 November 1918), also known as the Great War, was a World war, global conflict between two coalitions: the Allies of World War I, Allies (or Entente) and the Central Powers. Fighting to ...
was being fought). There are also case based exceptions to the ''Salomon'' principle, though their restrictive scope is not wholly stable. The present rule under English law is that only where a company was set up to commission fraud, or to avoid a pre-existing obligation can its separate identity be ignored. This follows from a Court of Appeal case, ''
Adams v Cape Industries plc ''Adams v Cape Industries plc'' 990Ch 433 is a UK company law case on separate legal personality and limited liability of shareholders. The case also addressed long-standing issues under the English conflict of laws as to when a company would ...
''. A group of employees suffered
asbestos Asbestos ( ) is a group of naturally occurring, Toxicity, toxic, carcinogenic and fibrous silicate minerals. There are six types, all of which are composed of long and thin fibrous Crystal habit, crystals, each fibre (particulate with length su ...
diseases after working for the American
wholly owned subsidiary A subsidiary, subsidiary company, or daughter company is a company completely or partially owned or controlled by another company, called the parent company or holding company, which has legal and financial control over the subsidiary company. Unl ...
of Cape Industries plc. They were suing in New York to make Cape Industries plc pay for the debts of the subsidiary. Under
conflict of laws Conflict of laws (also called private international law) is the set of rules or laws a jurisdiction applies to a Legal case, case, Transactional law, transaction, or other occurrence that has connections to more than one jurisdiction."Conflict o ...
principles, this could only be done if Cape Industries plc was treated as "present" in America through its US subsidiary (i.e. ignoring the separate legal personality of the two companies). Rejecting the claim, and following the reasoning in ''
Jones v Lipman ''Jones v Lipman'' 9621 WLR 832 is a UK company law case concerning piercing the corporate veil. It exemplifies the principal case in which the veil will be lifted, that is, when a company is used as a "mere facade" concealing the "true facts", ...
'', the Court of Appeal emphasised that the US subsidiary had been set up for a lawful purpose of creating a group structure overseas, and had not aimed to circumvent liability in the event of asbestos litigation. The potentially unjust result for
tort A tort is a civil wrong, other than breach of contract, that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with cri ...
victims, who are unable to contract around limited liability and may be left only with a worthless claim against a bankrupt entity, has been changed in ''
Chandler v Cape plc ''Chandler v Cape plc'' [2012EWCA Civ 525is a decision of the Court of Appeal which addresses the availability of damages for a tort victim from a parent company, in circumstances where the victim suffered industrial injury during employment by ...
'' so that a duty of care may be owed by a parent to workers of a subsidiary regardless of separated legal personality. However even though tort victims are protected, the restrictive position remains subject to criticism where a
company group A corporate group, company group or business group, also formally known as a group of companies, is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. These types of gr ...
is involved, since it is not clear that companies and actual people ought to get the protection of limited liability in identical ways. An influential decision, although subsequently doubted strongly by the House of Lords, was passed by
Lord Denning MR Alfred Thompson Denning, Baron Denning, (23 January 1899 – 5 March 1999), was an English barrister and judge. He was called to the Bar of England and Wales in 1923 and became a King's Counsel in 1938. Denning became a judge in 1944 when he w ...
in ''
DHN Ltd v Tower Hamlets BC ''DHN Food Distributors Ltd v Tower Hamlets London Borough Council'' 9761 WLR 852 is a UK company law case where, on the basis that a company should be compensated for loss of its business under a compulsory acquisition order, a group was recog ...
''. Here Lord Denning MR held that a group of companies, two subsidiaries wholly owned by a parent, constituted a single
economic An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...
unit. Because the companies' shareholders and controlling minds were identical, their rights were to be treated as the same. This allowed the parent company to claim compensation from the council for compulsory purchase of its business, which it could not have done without showing an address on the premises that its subsidiary possessed. Similar approaches to treating corporate "groups" or a " concern" as single economic entities exist in many continental European jurisdictions. This is done for tax and accounting purposes in English law, however for general civil liability broadly the rule still followed is that in ''
Adams v Cape Industries plc ''Adams v Cape Industries plc'' 990Ch 433 is a UK company law case on separate legal personality and limited liability of shareholders. The case also addressed long-standing issues under the English conflict of laws as to when a company would ...
''. In 2013 in Prest v Petrodel Resources Ltd 013UKSC 34 the UK Supreme Court returned to the issue of veil lifting/piercing. In an unusual sitting of seven Justices, indicating the importance of the case, they declined to lift the veil in family law preferring instead to utilise trust law. In reaching that decision Lords Sumption and Neuberger set out principles of evasion and concealment to assist in determining when to lift/pierce the corporate veil. The other justices disagreed with this analysis and as
Alan Dignam Alan may refer to: People *Alan (surname), an English and Kurdish surname *Alan (given name), an English given name ** List of people with given name Alan ''Following are people commonly referred to solely by "Alan" or by a homonymous name.'' * ...
and Peter Oh have argued this has made it extremely difficult for subsequent judges to interpret lifting/piercing precedent. However it is still very rare for English courts to lift the veil. The liability of the company is generally attributed to the company alone.


Capital regulations

Because limited liability generally prevents shareholders, directors or employees from being sued, the Companies Acts have sought to regulate the company's use of its capital in at least four ways. "Capital" refers to the
economic value In economics, economic value is a measure of the benefit provided by a goods, good or service (economics), service to an Agent (economics), economic agent, and value for money represents an assessment of whether financial or other resources are ...
of a company's assets, such as money, buildings, or equipment. First, and most controversially, the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
section 761, following the EU's
Second Company Law Directive The Second Company Law Directive''2012/30/EU(sometimes also called the "Capital Directive") is a European Union Directive concerning the capital requirements of public companies that operating within the European Union. A number of its provisions ha ...
, requires that when a
public company A public company is a company whose ownership is organized via shares of share capital, stock which are intended to be freely traded on a stock exchange or in over-the-counter (finance), over-the-counter markets. A public (publicly traded) co ...
begins to trade, it has a minimum of £50,000 promised to be paid up by the shareholders. After that, the capital can be spent. This is a largely irrelevant sum for almost any public company, and although the first Companies Acts required it, since 1862 there has been no similar provision for a private company. Nevertheless, a number of EU member states kept minimum capital rules for their private companies, until recently. In 1999, in ''
Centros Ltd v Erhvervs- og Selskabsstyrelsen ''Centros Ltd v Erhvervs- og Selskabsstyrelsen'' (1999) is a European company law case, concerning the right of freedom of establishment. Facts Centros Ltd, a wine import and export business, was registered in the United Kingdom and applied in ...
'' the
European Court of Justice The European Court of Justice (ECJ), officially the Court of Justice (), is the supreme court of the European Union in matters of European Union law. As a part of the Court of Justice of the European Union, it is tasked with interpreting ...
held that a Danish minimum capital rule for private companies was a disproportionate infringement of the right of establishment for businesses in the EU. A British private limited company was refused registration by the Danish authorities, but it was held that the refusal was unlawful because the minimum capital rules did not proportionately achieve the aim of protecting creditors. Less restrictive means could achieve the same goal, such as allowing creditors to contract for guarantees. This led a large number of businesses in countries with minimum capital rules, like France and Germany, to begin incorporating as a British " Ltd". France abolished its minimum capital requirement for the SARL in 2003, and Germany created a form of
GmbH (; ) is a type of Juridical person, legal entity in German-speaking countries. It is equivalent to a (Sàrl) in the Romandy, French-speaking region of Switzerland and to a (Sagl) in the Ticino, Italian-speaking region of Switzerland. It is a ...
without minimum capital in 2008. However, while the Second Company Law Directive is not amended, the rules remain in place for public companies. The second measures, which originally came from the common law but also went into the
Second Company Law Directive The Second Company Law Directive''2012/30/EU(sometimes also called the "Capital Directive") is a European Union Directive concerning the capital requirements of public companies that operating within the European Union. A number of its provisions ha ...
, were to regulate what was paid for shares. Initial subscribers to a memorandum for public companies must buy their shares with cash, though afterwards it is possible to give a company services or assets in return for shares. The problem was whether the services or assets accepted were in fact as valuable to the company as the cash share price otherwise would be. At common law, ''
In re Wragg Ltd ''In re Wragg Ltd'' 8971 Ch 796 is a UK company law case, also relevant for English contract law, concerning shares, and the rule that shares should be exchanged for consideration that is in some sense at least sufficient, not necessarily adequa ...
'' said that any exchange that was "honestly and not colourably" agreed to, between the company and the purchaser of shares, would be presumed legitimate. Later on it was also held that if the assets given were probably understood by both parties to have been insufficient, then this would count as a "colourable" taint, and the shares could be treated as being not properly paid for. The shareholder would have to pay again. This ''laissez faire'' approach was changed for public companies. Shares cannot be issued in return for services that will only be provided at a later date. Shares can be issued in return for assets, but a public company must pay for an independent valuation. There are also absolute limits to what a share can be bought for in cash, based on a share's "nominal value" or "par value". This refers to a figure chosen by a company when it begins to sell shares, and it can be anything from 1 penny up to the market price. British law always required that some nominal value be set, because it was thought that a lower limit of some kind should be in place for how much shares could be sold, even though this very figure was chosen by the company itself. Every share, therefore, is still required to have a nominal value and shares cannot be sold at a price lower. In practice this has meant companies always set nominal values so low below the issue price, that the actual market price at which a share ends up being traded is very unlikely to plummet so far. This has led to the criticism for at least 60 years that the rule is useless and best abolished. The third, and practically most important strategy for creditor protection, was to require that dividends and other returns to shareholders could only be made, generally speaking, if a company had profits. The concept of "
profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...
" is defined by law as having assets above the amount that shareholders, who initially bought shares from the company, contributed in return for their shares. For example, a company could launch its business with 1000 shares (for public companies, called an "IPO" or
initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investm ...
) each with a nominal value of 1 penny, and an issue price of £1. Shareholders would buy the £1 shares, and if all are sold, £1000 would become the company's "
legal capital A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's Shareholders' equity, equity that has been derived by the issue of Share (finance), shares in the corporation to a sha ...
". Profits are whatever the company makes on top of that £1000, though as a company continues to trade, the market price of shares could well be going up to £2 or £10, or indeed fall to 50 pence or some other number. The
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
states in section 830 that
dividends A dividend is a distribution of profits by a corporation to its shareholders, after which the stock exchange decreases the price of the stock by the dividend to remove volatility. The market has no control over the stock price on open on the ex ...
, or any other kind of distribution, can only be given out from surplus profits beyond the legal capital. It is generally the decision of the board of directors, affirmed by a shareholder resolution, whether to declare a dividend or perhaps simply retain the earnings and invest them back into the business to grow and expand. The calculation of companies' assets and liabilities, losses and profits, will follow the
Generally Accepted Accounting Principles Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on t ...
in the UK, but this is not an objective, scientific process: a variety of different accounting methods can be used which can lead to different assessments of when a profit exists. The prohibition on falling below the legal capital applies to "distributions" in any form, and so "disguised" distributions are also caught. This has been held to include, for example, an unwarranted salary payment to a director's wife when she had not worked, and a transfer of a property within a company group at half its market value. A general principle, however, recently expounded in ''
Progress Property Co Ltd v Moorgarth Group Ltd is a UK company law case concerning the circumstances by which a undervalue transaction, transaction at an undervalue would be considered an unauthorised return of capital. Facts Tradegro Ltd, which owned approximately 75% of Progress Propertie ...
'' is that if a transaction is negotiated in good faith and at arm's length, then it may not be unwound, and this is apparently so even if it means that creditors have been "ripped off". If distributions are made without meeting the law's criteria, then a company has a claim to recover the money from any recipients. They are liable as constructive trustees, which probably mirrors the general principles of any action in
unjust enrichment Restitution and unjust enrichment is the field of law relating to gains-based recovery. In contrast with damages (the law of compensation), restitution is a claim or remedy requiring a defendant to give up benefits wrongfully obtained. Liability ...
. This means that liability is probably strict, subject to a change of position defence, and the rules of tracing will apply if assets wrongfully paid out of the company have been passed on. For example, in ''
It's A Wrap (UK) Ltd v Gula "It's a Wrap" is a song recorded by American singer Mariah Carey for her twelfth studio album '' Memoirs of an Imperfect Angel'' (2009). It is a doo wop-inflected R&B breakup song with minimal instrumentation and features lyrics about dismiss ...
'' the directors of a bankrupt company argued that they had been unaware that dividend payments they paid themselves were unlawful (as there had not in fact been profits) because their tax advisers had said it was okay. The Court of Appeal held that ignorance of the law was not a defence. A contravention existed so long as one ought to have known of the facts that show a dividend would contravene the law. Directors can similarly be liable for breach of duty, and so to restore the money wrongfully paid away, if they failed to take reasonable care. Legal capital must be maintained (not distributed to shareholders, or distributed "in disguise") unless a company formally reduces its legal capital. Then it can make distributions, which might be desirable if a company wishes to shrink. A private company must have a 75 per cent vote of the shareholders, and the directors must then warrant that the company will remain solvent and will be able to pay its debts. If this turns out to be a negligent statement, the director can be sued. But this means it is hard to
claw back A claw is a curved, pointed appendage found at the end of a toe or finger in most amniotes (mammals, reptiles, birds). Some invertebrates such as beetles and spiders have somewhat similar fine, hooked structures at the end of the leg or Arthro ...
any profits from shareholders if a company does indeed go insolvent, if the director's statement appeared good at the time. If not all the directors are prepared to make a solvency statement, the company may apply to court for a decision. In public companies, a special resolution must also be passed, and a court order is necessary. The court can make a number of orders, for example that creditors should be protected with
security interest In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the '' collateral'') which enables the creditor to have recourse to the property if the debtor defaults in m ...
. There is a general principle that shareholders must be treated equally in making capital reductions, however this does not mean that unequally situated shareholders must be treated the same. In particular, while no ordinary shareholder should lose shares disproportionately, it has been held legitimate to cancel preferential shares before others, particularly if those shares are entitled to preferential payment as a way of considering "the position of the company itself as an economic entity". Economically, companies buying their own shares back from shareholders would achieve the same effect as a reduction of capital. Originally it was prohibited by the common law, but now although the general rule remains in section 658 there are two exceptions. First, a company may issue shares on terms that they may be redeemed, though only if there is express authority in the constitution of a public company, and the re-purchase can only be made from distributable profits. Second, since 1980 shares can simply be bought back from shareholders if, again this is done out of distributable profits. Crucially, the directors must also state that the company will be able to pay all its debts and continue for the next year, and shareholders must approve this by special resolution. Under the
Listing Rules The UK Listing Rules (UKLR) are a set of regulations applicable to any company listed on a United Kingdom stock exchange, subject to the oversight of the Financial Conduct Authority (FCA). The UK Listing Rules set out mandatory standards for any c ...
for public companies, shareholders must generally be given the same buy back offer, and get shares bought back pro rata. How many shares are retained by the company as
treasury shares A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ("open market" including insiders' holdings). Stock repurchases are used as a tax efficien ...
or cancelled must be reported to Companies House. From the company's perspective the legal capital is being reduced, hence the same regulation applies. From the shareholder's perspective, the company buying back some of its shares is much the same as simply paying a dividend, except for one main difference. Taxation of dividends and share buy backs tends to be different, meaning that often buy backs are popular just because they "
dodge Dodge is an American brand of automobiles and a division of Stellantis, based in Auburn Hills, Michigan. Dodge vehicles have historically included performance cars, and for much of its existence, Dodge was Chrysler's mid-priced brand above P ...
" the Exchequer. The fourth main area of regulation, which is usually thought of as preserving a company's capital, is prohibition of companies providing other people with financial assistance for purchasing the company's own shares. The main problem which the regulation was intended to prevent was
leveraged buyouts A leveraged buyout (LBO) is the acquisition of a company using a significant proportion of borrowed money ( leverage) to fund the acquisition with the remainder of the purchase price funded with private equity. The assets of the acquired company ...
where, for example, an investor gets a loan from a bank, secures the loan on the company it is about to buy, and uses the money to buy the shares. It was seen as a capital problem in the sense that if the venture proved unsustainable, all the company's assets would be seized under the mortgage terms, even though technically it did not reduce a company's capital. A leveraged buy out, in effect, is the same as a bank giving someone a loan to buy a house with a 100 per cent mortgage on that house. However, in a company's case, the bank is likely to be only one among a large number of creditors, such as
employee Employment is a relationship between two party (law), parties Regulation, regulating the provision of paid Labour (human activity), labour services. Usually based on a employment contract, contract, one party, the employer, which might be a cor ...
s,
consumer A consumer is a person or a group who intends to order, or use purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...
s,
taxpayer A taxpayer is a person or organization (such as a company) subject to pay a tax. Modern taxpayers may have an identification number, a reference number issued by a government to citizens or firms. The term "taxpayer" generally characterizes o ...
s, or small businesses who rely on the company's trade. Only the bank will have priority for its loan, and so the risk falls wholly on other stakeholders. Financial assistance for share purchase, especially indemnifying a takeover bidder's loan, was therefore seen as encouraging risky ventures that were prone to failure, to the detriment of creditors other than the bank. It was prohibited from 1929. The prohibition remains in regard to public companies, however the
Companies Act 1981 A company, abbreviated as co., is a legal entity representing an association of legal people, whether natural, juridical or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specifi ...
relaxed the restrictions and the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
section 678, following various sources of academic criticism, repealed the prohibition for private companies altogether. It became possible to "
take private A leveraged buyout (LBO) is the acquisition of a company using a significant proportion of borrowed money ( leverage) to fund the acquisition with the remainder of the purchase price funded with private equity. The assets of the acquired company ...
" a public company (on its purchase, change the company from a plc to an Ltd). The result has been a growing number of
leveraged buyout A leveraged buyout (LBO) is the acquisition of a company using a significant proportion of borrowed money (Leverage (finance), leverage) to fund the acquisition with the remainder of the purchase price funded with private equity. The assets of t ...
s, and an increase in the
private equity Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...
industry of the UK.


Corporate governance

Corporate governance is concerned primarily with the balance of power between the two basic organs of a British company: the
board of directors A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency. The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
and the
general meeting A general assembly or general meeting is a meeting of all the members of an organization or shareholders of a company. Specific examples of general assembly include: Churches * General Assembly (presbyterian church), the highest court of presby ...
. The term "governance" is often used in the more narrow sense of referring to principles in the
UK Corporate Governance Code The UK Corporate Governance code, formerly known as the Combined Code (from here on referred to as "the Code") is a part of UK company law with a set of principles of good corporate governance aimed at companies listed on the London Stock Exchang ...
. This makes recommendations about the structure, accountability and remuneration of the board of directors in listed companies, and was developed after the
Polly Peck Polly Peck International (PPI) was a small British textile company which expanded rapidly in the 1980s and became a constituent of the FTSE 100 Index before collapsing in 1991 with debts of £1.3 billion, eventually leading to the flight of its ...
,
BCCI The Board of Control for Cricket in India (BCCI) is the principal national governing body of the sport of cricket in India. Its headquarters are situated at the Cricket Centre in Wankhede Stadium, Mumbai. BCCI is the wealthiest governing body ...
and
Robert Maxwell Ian Robert Maxwell (born Ján Ludvík Hyman Binyamin Hoch; 10 June 1923 – 5 November 1991) was a Czechoslovakia, Czechoslovak-born British media proprietor, politician and fraudster. After escaping the German occupation of Czechoslovakia, ...
scandals led to the
Cadbury Report The Cadbury Report, titled ''Financial Aspects of Corporate Governance'', is a report issued by "The Committee on the Financial Aspects of Corporate Governance" chaired by Sir Adrian Cadbury, chairman of Cadbury, that sets out recommendations o ...
of 1992. However, put broadly corporate governance in British law focuses on the relative rights and duties of directors,
shareholders A shareholder (in the United States often referred to as stockholder) of corporate stock refers to an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the ...
,
employees Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any othe ...
,
creditors A creditor or lender is a Party (law), party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided ...
and others who are seen as having a "
stake A stake is a large wooden or metal implement designed to be driven into the ground and may refer to: Tools * Archer's stake, a defensive stake carried by medieval longbowmen * Survey stakes, markers used by surveyors * Sudis (stake) (Latin for ...
" in the company's success. The
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
, in conjunction with other statutes and case law, lays down an irreducible minimum core of mandatory rights for shareholders, employees, creditors and others by which all companies must abide. British rules usually focus on protecting shareholders or the investing public, but above the minimum, company constitutions are essentially free to allocate rights and duties to different groups in any form desired.


Constitutional separation of powers

The constitution of a company is usually referred to as the "
articles of association In corporate governance, a company's articles of association (AoA, called articles of incorporation in some jurisdictions) is a document that, along with the memorandum of association (where applicable), forms the company's constitution. The ...
". Companies are presumed to adopt a set of "
Model Articles The Companies (Model Articles) Regulations 2008SI 2008/3229 are the default company constitution for limited companies under UK company law. The Model Articles will apply to a limited company if it does not register its own articles or, if it doe ...
", unless the incorporators choose different rules. The Model Articles set out essential procedures for conducting a company's business, such as when to hold meetings, appointment of directors, or preparing accounts. These rules may always be changed, except where a provision is a compulsory term deriving from the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
, or similar mandatory
law Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior, with its precise definition a matter of longstanding debate. It has been variously described as a science and as the ar ...
. In this sense a company constitution is functionally similar to any business contract, albeit one that is usually variable among the contracting parties with less than consensus. In ''
Attorney General of Belize v Belize Telecom Ltd is a judicial decision of the Privy Council in relation to contract law, company law and constitutional law. It concerns the correct method for interpretation and implication of terms into a company's articles of association. It was approved b ...
'',
Lord Hoffmann Leonard Hubert "Lennie" Hoffmann, Baron Hoffmann (born 8 May 1934) is a senior South African–British judge. Currently, he serves as a Non-Permanent Judge of the Court of Final Appeal of Hong Kong; he formerly served as a Lord of Appeal in O ...
held that courts construe the meaning of a company's articles in the same way as any other contract, or a piece of legislation, mindful of the context in which it was formulated. So in this case, the appropriate construction of a company's articles led to the implication that a director could be removed from office by shareholders (and did not have a job for life), even though a literal construction would have meant no person possessed the two classes of shares required to remove that director under the articles. Even if companies' articles are silent on an issue, the courts will construe the gaps to be filled with provisions consistent with the rest of the instrument in its context, as in the old case of ''
Attorney General v Davy ''Attorney General v Davy'' (174126 ER 531is a UK company law case, which establishes this small but essential point of law: the default rule is that a majority of a corporate body can determine what it does. Equivalent rules in contemporary co ...
'' where
Lord Hardwicke LC Philip Yorke, 1st Earl of Hardwicke, (1 December 16906 March 1764) was an England, English lawyer and politician who served as Lord High Chancellor of Great Britain. He was a close confidant of the Duke of Newcastle, Prime Minister between 1 ...
held that a simple majority was enough for the election of a chaplain. Typically, a company's articles will vest a general power of management in the board of directors, with full power of directors to delegate tasks to other employees, subject to an instruction right reserved for the general meeting acting with a three quarter majority. This basic pattern can theoretically be varied in any number of ways, and so long as it does not contravene the Act, courts will enforce that balance of power. In ''
Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame Automatic may refer to: Music Bands * Automatic (Australian band), Australian rock band * Automatic (American band), American rock band * The Automatic, a Welsh alternative rock band Albums * ''Automatic'' (Jack Bruce album), a 1983 e ...
'', a shareholder sued the board for not following a resolution, carried with an ordinary majority of votes, to sell off the company's assets. The Court of Appeal refused the claim, since the articles stipulated that a three quarter majority was needed to issue specific instructions to the board. Shareholders always have the option of gaining the votes to change the constitution or threaten directors with removal, but they may not sidestep the separation of powers found in the company constitution. Though older cases raise an element of uncertainty, the majority opinion is that other provisions of a company's constitution generate personal rights that may be enforced by company members individually. Of the most important is a member's right to vote at meetings. Votes need not necessarily attach to shares, as preferential shares (e.g., those with extra
dividend A dividend is a distribution of profits by a corporation to its shareholders, after which the stock exchange decreases the price of the stock by the dividend to remove volatility. The market has no control over the stock price on open on the ex ...
rights) are frequently non-voting. However, ordinary shares invariably do have votes and in ''
Pender v Lushington ''Pender v Lushington'' (1877) 6 Ch D 70 is a leading case in UK company law, which confirms that a company member's right to vote may not be interfered with, because it is a right of property. Furthermore, any interference leads to a personal r ...
'' Lord Jessel MR stated votes were so sacrosanct as to be enforceable like a "right of property". Otherwise, the articles may be enforced by any member privy to the contract. Companies are excluded from the
Contracts (Rights of Third Parties) Act 1999 The Contracts (Rights of Third Parties) Act 1999 (c. 31) is an Acts of Parliament in the United Kingdom, Act of the Parliament of the United Kingdom that significantly reformed the common law Privity in English law, doctrine of privity and "there ...
, so people who are conferred benefits under a constitution, but are not themselves members, are not necessarily able to sue for compliance. Partly for certainty and to achieve objectives the Act would prohibit, shareholders in small closely held companies frequently supplement the constitution by entering a
shareholders' agreement A shareholders' agreement (sometimes referred to in the U.S. as a stockholders' agreement) (SHA) is an enforceable agreement amongst the shareholders or members of a company. In practical effect, it is analogous to a partnership agreement. There ...
. By contract shareholders can regulate any of their rights outside the company, yet their rights within the company remain a separate matter.


Shareholder rights

In the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
there is no duty to maximise profits for shareholders, and shareholders have few rights, because the word "shareholder" (those who usually invest capital in a company) is rarely used. Instead, "members" have rights in British company law. Anybody can become a company member through agreement with others involved in a new or existing company. However, because of the bargaining position that people have through capital investment, shareholders typically are the only members, and usually have a monopoly on governance rights under a constitution. In this way, the UK is a "pro-shareholder" jurisdiction relative to its European and American counterparts. Since the ''
Report of the Committee on Company Law Amendment The ''Report of the Committee on Company Law Amendment'' (1945Cm 6659 known best as the "Cohen Report" for short, was a company law reform committee appointed by the United Kingdom Coalition Government, during the Second World War. It was chaired b ...
'', chaired in 1945 by Lord Cohen, led to the
Companies Act 1947 The Companies Act 1947 ( 10 & 11 Geo. 6. c. 47) was a United Kingdom Act of Parliament, that updated UK company law after the Companies Act 1929. It covered issues such as winding-up and bankruptcy.UK Legislation http://www.legislation.gov.uk/ ...
, as members and voters in the general meeting of public companies, shareholders have the mandatory right to remove directors by a simple majority, while in Germany, and in most American companies (predominantly incorporated in
Delaware Delaware ( ) is a U.S. state, state in the Mid-Atlantic (United States), Mid-Atlantic and South Atlantic states, South Atlantic regions of the United States. It borders Maryland to its south and west, Pennsylvania to its north, New Jersey ...
) directors can only be removed for a "good reason". Shareholders will habitually have the right to change the company's constitution with a three quarter majority vote, unless they have chosen to entrench the constitution with a higher threshold. Shareholders with support of 5 per cent of the total vote can call
meetings A meeting is when two or more people come together to discuss one or more topics, often in a formal or business setting, but meetings also occur in a variety of other environments. Meetings can be used as form of group decision-making. Definiti ...
, and can circulate suggestions for resolutions with support of 5 per cent of the total vote, or any one hundred other shareholders holding over £100 in shares each. Categories of important decisions, such as large asset sales, approval of mergers, takeovers, winding up of the company, any expenditure on political donations, share buybacks, or a (for the time being) non-binding
say on pay Say on pay is a term used for a role in corporate law whereby a firm's shareholders have the right to vote on the remuneration of executives. In the United States, this provision was ushered in when the Dodd–Frank Wall Street Reform and Consumer ...
of directors, are reserved exclusively for the shareholder body.


Investor rights

While shareholders have a privileged position in British corporate governance, most are themselves, institutions - mainly
asset managers Asset management is a systematic approach to the governance and realization of all value for which a group or entity is responsible. It may apply both to tangible assets (physical objects such as complex process or manufacturing plants, infrastru ...
- holding "other people's money" from pension funds, life insurance policies and mutual funds. Shareholding institutions, who are entered on the share registers of public companies on the
London Stock Exchange The London Stock Exchange (LSE) is a stock exchange based in London, England. the total market value of all companies trading on the LSE stood at US$3.42 trillion. Its current premises are situated in Paternoster Square close to St Paul's Cath ...
, are mainly
asset managers Asset management is a systematic approach to the governance and realization of all value for which a group or entity is responsible. It may apply both to tangible assets (physical objects such as complex process or manufacturing plants, infrastru ...
and they infrequently exercise their governance rights. In turn, asset managers take money from other
institutional investors An institutional investor is an entity that pools money to purchase security (finance), securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, s ...
, particularly
pension fund A pension fund, also known as a superannuation fund in some countries, is any program, fund, or scheme which provides pension, retirement income. The U.S. Government's Social Security Trust Fund, which oversees $2.57 trillion in assets, is the ...
s,
mutual fund A mutual fund is an investment fund that pools money from many investors to purchase Security (finance), securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in ...
s and
insurance fund Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...
s, own most shares. Thousands or perhaps millions of persons, particularly through
pensions A pension (; ) is a fund into which amounts are paid regularly during an individual's working career, and from which periodic payments are made to support the person's retirement from work. A pension may be either a "defined benefit plan", wher ...
, are
beneficiaries A beneficiary in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example, the beneficiary of a life insurance policy is the person who receives the payment of the amount of ...
from the returns on shares. Historically, institutions have often not voted or participated in general meetings on their beneficiaries' behalf, and often display an uncritical pattern of supporting management. Under the
Pensions Act 2004 The Pensions Act 2004 (c. 35) is an Act of the Parliament of the United Kingdom to improve the running of pension schemes. Background In the years following the introduction of the Pensions Act 1995, it was widely perceived that it was failing ...
sections 241 to 243 require that pension fund trustees are elected or appointed to be accountable to the beneficiaries of the fund, while the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
section 168 ensures that directors are accountable to shareholders. However, the rules of
contract A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. A contract typically involves consent to transfer of goods, services, money, or promise to transfer any of thos ...
, equity and
fiduciary duty A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (legal person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, fo ...
that operate between asset managers and the real capital investors have not been codified. Government reports have suggested, and case law requires, that asset managers follow the instructions about voting rights from investors in
pooled funds An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages inc ...
according to the proportion of their investment, and follow instructions entirely when investors have separate accounts. Some institutional investors have been found to work "behind the scenes" to achieve corporate governance objectives through informal but direct communication with management, although an increasing concern developed after the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
that asset managers and all financial intermediaries face structural
conflicts of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates to situations in whi ...
and should be banned from voting on other people's money entirely. Individual shareholders form an increasingly small part of total investments, while foreign investment and institutional investor ownership have grown their share steadily over the last forty years. Institutional investors, who deal with other people's money, are bound by
fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (legal person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, ...
obligations, deriving from the law of
trusts A trust is a legal relationship in which the owner of property, or any transferable right, gives it to another to manage and use solely for the benefit of a designated person. In the English common law, the party who entrusts the property is k ...
and obligations to exercise care deriving from the
common law Common law (also known as judicial precedent, judge-made law, or case law) is the body of law primarily developed through judicial decisions rather than statutes. Although common law may incorporate certain statutes, it is largely based on prece ...
. The Stewardship Code 2010, drafted by the
Financial Reporting Council The Financial Reporting Council (FRC) is an independent regulator in the UK and Ireland based in London Wall in the City of London, responsible for regulating auditors, accountants and actuaries, and setting the UK's Corporate Governance and ...
(the corporate governance watchdog), reinforces the duty on institutions to actively engage in governance affairs by disclosing their voting policy, voting record and voting. The aim is to make directors more accountable, at least, to investors of capital.


Employees' rights

While it has not been the norm, employee participation rights in corporate governance have existed in many specific sectors, particularly
universities A university () is an educational institution, institution of tertiary education and research which awards academic degrees in several Discipline (academia), academic disciplines. ''University'' is derived from the Latin phrase , which roughly ...
, and many workplaces organised as
partnerships A partnership is an agreement where parties agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations m ...
. Since the turn of the 20th century Acts such as the
Port of London Act 1908 The Port of London Act 1908 ( 8 Edw. 7. c. 68) was an Act of Parliament of the United Kingdom, which established the Port of London Authority and regulated corporate governance at the Port of London. It merged numerous inefficient and overlapp ...
,
Iron and Steel Act 1967 The Iron and Steel Act 1967 (c. 17) was an act of Parliament of the United Kingdom, which regulated corporate governance in the iron and steel industries. It required that employees had voting rights for the board of directors. Contents Schedul ...
, or the
Post Office Act 1977 The Post Office Act 1977 (c. 44) was an act of Parliament of the United Kingdom, which regulated corporate governance at the Post Office. It required that employees had voting rights for the board of directors. It is generally thought to have p ...
, all workers in those specific companies had votes to elect directors on the board, meaning the UK had some of the first "
codetermination Worker representation on corporate boards of directors, also known as board-level employee representation (BLER), refers to the right of workers to vote for representatives on a board of directors in corporate law. In 2018, a majority of Organisatio ...
" laws in the world. However, as many of those Acts were updated, the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
today still has no general requirement for workers to vote in the
general meeting A general assembly or general meeting is a meeting of all the members of an organization or shareholders of a company. Specific examples of general assembly include: Churches * General Assembly (presbyterian church), the highest court of presby ...
to elect directors, meaning
corporate governance Corporate governance refers to the mechanisms, processes, practices, and relations by which corporations are controlled and operated by their boards of directors, managers, shareholders, and stakeholders. Definitions "Corporate governance" may ...
remains monopolised by shareholding institutions or
asset managers Asset management is a systematic approach to the governance and realization of all value for which a group or entity is responsible. It may apply both to tangible assets (physical objects such as complex process or manufacturing plants, infrastru ...
. By contrast in 16 out of 28 EU member states employees have participation rights in private companies, including the election of members of the boards of directors, and binding votes on decisions about individual employment rights, like dismissals, working time and social facilities or accommodation. At board level,
UK company law British company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directive (European Union), Directives and court cases, the company is th ...
, in principle, allows any measure of employee participation, alongside shareholders, but voluntary measures have been rare outside employee share schemes that usually carry very little voice and increase employees' financial risk. Crucially, the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
section 168 defines "members" as those with the ability to vote out the board. Under section 112 a "member" is anybody who initially subscribes their name to the company memorandum, or is later entered on the members' register, and is not required to have contributed money as opposed to, for instance, work. A company could write its constitution to make "employees" members with voting rights under any terms it chose. In addition to national rules, under the
European Company Statute A (, ; "European society" or "company"; plural: ; abbr. SE) is a public company registered in accordance with the European corporate law, corporate law of the European Union (EU), introduced in 2004 with the Council Regulation on the Statute ...
, businesses that reincorporate as a
Societas Europaea A (, ; "European society" or "company"; plural: ; abbr. SE) is a public company registered in accordance with the European corporate law, corporate law of the European Union (EU), introduced in 2004 with the Council Regulation on the Statute ...
may opt to follow the Directive for employee involvement. An SE may have a two-tiered board, as in German companies, where shareholders and employees elect a supervisory board that in turn appoints a management board responsible for day-to-day running of the company. Or an SE can have a one tiered board, as every British company, and employees and shareholders may elect board members in the desired proportion. An "SE" can have no fewer employee participation rights than what existed before, but for a British company, there is likely to have been no participation in any case. In the 1977 ''
Report of the committee of inquiry on industrial democracy The ''Report of the committee of inquiry on industrial democracy'' (1977) Cmnd 6706, also the Bullock Report for short, was a report proposing for a form of worker participation or workers' control, chaired by Alan Bullock. The idea was seen by s ...
'' the Government proposed, in line with the new German
Codetermination Act 1976 Mitbestimmungsgesetz 1976 or the Codetermination Act 1976 is a German law that requires companies of over 2000 employees to have half the supervisory board of directors as representatives of workers, and just under half the votes. Background From ...
, and mirroring an EU
Draft Fifth Company Law Directive The Draft Fifth Company Law Directive (1972–2001) was a European Union proposed directive (European Union), directive for a right of co-determination in large companies, i.e. for employees to vote for boards of directors. The draft went through se ...
, that the
board of directors A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency. The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
should have an equal number of representatives elected by employees as there were for shareholders. But reform stalled, and was abandoned after the 1979 election. Despite successful businesses like the
John Lewis Partnership John Lewis Partnership plc (JLP) is a British company that operates John Lewis & Partners department stores, Waitrose supermarkets, financial services and a build to rent operation. The public limited company is owned by a trust on behalf o ...
and
Waitrose Waitrose Limited, trading as Waitrose & Partners, is a British supermarket chain, founded in 1904 as Waite, Rose & Taylor, later shortened to Waitrose. In 1937, it was acquired by the John Lewis Partnership, the UK's largest employee-owned b ...
that are wholly managed and owned by the workforce, voluntary granting of participation is rare. Many businesses run
employee share schemes Employee stock ownership, or employee share ownership, is where a company's employees own shares in that company (or in the parent company of a group of companies). US employees typically acquire shares through a share option plan. In the UK, Emp ...
, particularly for highly paid employees; however, such shares seldom compose more than a small percentage of capital in the company, and these investments entail heavy risks for workers, given the lack of diversification.


Directors' duties

Directors appointed to the
board Board or Boards may refer to: Flat surface * Lumber, or other rigid material, milled or sawn flat ** Plank (wood) ** Cutting board ** Sounding board, of a musical instrument * Cardboard (paper product) * Paperboard * Fiberboard ** Hardboard, a ...
form the central authority in British companies. In carrying out their functions, directors (whether formally appointed, '' de facto'', or "
shadow director A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency. The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
s") owe a series of duties to the company. There are presently seven key duties codified under the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
sections 171 to 177, which reflect the common law and equitable principles. These may not be limited, waived or contracted out of, but companies may buy insurance to cover directors for costs in the event of breach. The remedies for breaches of duty were not codified, but follow common law and equity, and include compensation for losses,
restitution Restitution and unjust enrichment is the field of law relating to gains-based recovery. In contrast with damages (the law of compensation), restitution is a claim or remedy requiring a defendant to give up benefits wrongfully obtained. Liability ...
of illegitimate gains and
specific performance Specific performance is an equitable remedy in the law of contract, in which a court issues an order requiring a party to perform a specific act, such as to complete performance of a contract. It is typically available in the sale of land law, b ...
or
injunction An injunction is an equitable remedy in the form of a special court order compelling a party to do or refrain from doing certain acts. It was developed by the English courts of equity but its origins go back to Roman law and the equitable rem ...
s. The first director's duty under section 171 is to follow the company's constitution, but also only exercise powers for implied "proper purposes". Prior proper purpose cases often involved directors plundering the company's assets for personal enrichment, or attempting to install mechanisms to frustrate attempted
takeovers In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are publicly listed, in contrast to the acquisi ...
by outside bidders, such as a poison pill. Such practices are improper, because they go beyond the reason for which directors were delegated their power. The all-important duty of care is found in section 174. Directors must display the care, skill and competence that is reasonable for somebody carrying out the functions of the office, and if a director has any special qualifications an even higher standard will be expected. However, under section 1157 courts may, if directors are negligent but found to be honest and ought to be excused, relieve directors from paying compensation. The "objective plus subjective" standard was first introduced in the
wrongful trading Wrongful trading is a type of civil wrong found in UK insolvency law, under Section 214 Insolvency Act 1986. It was introduced to enable contributions to be obtained for the benefit of creditors from those responsible for mismanagement of the inso ...
provision from the
Insolvency Act 1986 The Insolvency Act 1986 (c. 45) is an act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 followed the publication ...
, and applied in ''
Re D'Jan of London Ltd ''Re D’Jan of London Ltd''
994 Year 994 ( CMXCIV) was a common year starting on Monday of the Julian calendar. Events By place Byzantine Empire * September 15 – Battle of the Orontes: Fatimid forces, under Turkish general Manjutakin (also the governor ...
1 BCLC 561 is a leading English company law case concerning a Directors' duties, director's duty of care and skill, whose main precedent is now codified under Section 174 of the Companies Act 2006. The case wa ...
''. The liquidator sought to recover compensation from Mr D'Jan, who failing to read an insurance policy form, did not disclose he was previously the director of an insolvent company. The policy was void when the company's warehouse burnt down.
Hoffmann LJ Leonard Hubert "Lennie" Hoffmann, Baron Hoffmann (born 8 May 1934) is a senior South African–British judge. Currently, he serves as a Non-Permanent Judge of the Court of Final Appeal of Hong Kong; he formerly served as a Lord of Appeal in ...
held Mr D'Jan's failure was negligent, but exercised discretion to relieve liability on the ground that he owned almost all of his small business and had only put his own money at risk. The courts emphasise that they will not judge business decisions unfavourably with the benefit of hindsight, however simple procedural failures of judgment will be vulnerable. Cases under the
Company Director Disqualification Act 1986 The Company Directors Disqualification Act 1986 (c. 46) forms part of UK company law and sets out the procedures for company directors to be disqualified in certain cases of misconduct. History Lord Millett, in the opinion he gave in , summari ...
, such as ''
Re Barings plc (No 5) ''Re Barings plc (No 5)'' 0001 BCLC 523 is a leading UK company law case, concerning company directors' duties of care and skill. The case is formally identified and cited as "No 5", though some observers regard it as the sixth in the saga of l ...
'' show that directors will also be liable for failing to adequately supervise employees or have effective risk management systems, as where the London directors ignored a warning report about the currency exchange business in Singapore, where a
rogue trader In financial trading, a rogue trader is an employee authorized to make trades on behalf of their employer (subject to certain conditions) who makes unauthorized trades. It can also involve mismarking of securities. The perpetrator is a legitimat ...
caused losses so massive that it brought the whole bank into insolvency. The central equitable principle applicable to directors is to avoid any possibility of a
conflict of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple wikt:interest#Noun, interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates t ...
, without disclosure to the board or seeking approval from shareholders. This core duty of loyalty is manifested firstly in section 175 which specifies that directors may not use business opportunities that the company could without approval. Shareholders may pass a resolution ratifying a breach of duty, but under section 239 they must be uninterested in the transaction. This absolute, strict duty has been consistently reaffirmed since the economic crisis following the
South Sea Bubble South is one of the cardinal directions or compass points. The direction is the opposite of north and is perpendicular to both west and east. Etymology The word ''south'' comes from Old English ''sūþ'', from earlier Proto-Germanic ''*sunþa ...
in 1719. For example, in '' Cook v Deeks'', three directors took a railway line construction contract in their own names, rather than that of their company, to exclude a fourth director from the business. Even though the directors used their votes as shareholders to "ratify" their actions, the Privy Council advised that the conflict of interest precluded their ability to forgive themselves. Similarly, in ''
Bhullar v Bhullar is a leading UK company law case on the principle that directors must avoid any possibility of a conflict of interest, particular relating to corporate opportunities. It was not decided under, but is relevant to, section 175 of the Companies ...
'', a director on one side of a feuding family set up a company to buy a carpark next to one of the company's properties. The family company, amidst the feud, had in fact resolved to buy no further investment properties, but even so, because the director failed to fully disclose the opportunity that could reasonably be considered as falling within the company's line of business, the Court of Appeal held he was liable to make restitution for all profits made on the purchase. The duty of directors to avoid any ''possibility'' of a conflict of interest also exists after a director ceases employment with a company, so it is not permissible to resign and then take up a corporate opportunity, present or maturing, even though no longer officially a "director". The purpose of the no conflict rule is to ensure directors carry out their tasks like it was their own interest at stake. Beyond corporate opportunities, the law requires directors accept no benefits from third parties under section 176, and also has specific regulation of transactions by a company with another party in which directors have an interest. Under section 177, when directors are on both sides of a proposed contract, for example where a person owns a business selling iron chairs to the company in which he is a director, it is a default requirement that they disclose the interest to the board, so that disinterested directors may approve the deal. The company's articles could heighten the requirement, say, to shareholder approval. If such a
self dealing Self-dealing is the conduct of a trustee, attorney, corporate officer, or other fiduciary that consists of taking advantage of their position in a transaction and acting in their own interests rather than in the interests of the beneficiaries o ...
transaction has already taken place, directors still have a duty to disclose their interest and failure to do so is a criminal offence, subject to a £5000 fine. While such regulation through disclosure hovers with a relatively light touch, self dealing rules become more onerous as transactions become more significant. Shareholder approval is requisite for specific transactions with directors, or connected persons, when the sum of money either exceeds 10% of the company and is over £5000, or is over £100,000 in a company of any size. Further detailed provisions govern loaning money. On the question of director remuneration where the conflict of interest appears most serious, however, regulation is again relatively light. Directors pay themselves by default, but in large listed companies have pay set by a remuneration committee of directors. Under section 439, shareholders may cast a vote on remuneration but this "
say on pay Say on pay is a term used for a role in corporate law whereby a firm's shareholders have the right to vote on the remuneration of executives. In the United States, this provision was ushered in when the Dodd–Frank Wall Street Reform and Consumer ...
", as yet, is not binding. Finally, under section 172 directors must "promote the success of the company". This somewhat nebulous provision created significant debate during its passage through Parliament, since it goes on to prescribe that decisions should be taken in the interests of members, with regard to long term consequences, the need to act fairly between members, and a range of other " stakeholders", such as employees, suppliers, the environment, the general community, and creditors. Many groups objected to this "enlightened
shareholder value Shareholder value is a business term, sometimes phrased as shareholder value maximization. The term expresses the idea that the primary goal for a business is to increase the wealth of its shareholders (owners) by paying dividends and/or causing th ...
" model, which in form elevated the interests of members, who are invariably shareholders, above other stakeholders. However, the duty is particularly difficult to sue upon since it is only a duty for a director to do what she or "he considers, in good faith, would be most likely to promote the success of the company". Proof of subjective bad faith toward any group being difficult, directors have the discretion to balance all competing interests, even if to the short term detriment of shareholders in a particular instance. There is also a duty under section 173 to exercise independent judgment and the duty of care in section 174 applies to the decision-making process of a director having regard to the factors listed in section 172, so it remains theoretically possible to challenge a decision if made without any rational basis. Only registered shareholders, not other stakeholders without being members of the general meeting, have standing to claim any breach of the provision. But section 172's criteria are useful as an aspirational standard because in the annual Director's Report companies must explain how they have complied with their duties to stakeholders. Also, the idea of whether a company's success will be promoted is central when a court determines whether a derivative claim should proceed in the course of corporate litigation.


Corporate litigation

Litigation among those within a company has historically been very restricted in British law. The attitude of courts favoured non-interference. As Lord Eldon said in the old case of ''
Carlen v Drury ''Carlen v Drury'' (1812) 35 ER 61 is a UK partnership law case, which is often cited for a broader principle in UK company law that the court generally does not allow litigation by members where a procedure for redress is set out in the articl ...
'', "This Court is not required on every Occasion to take the Management of every Playhouse and Brewhouse in the Kingdom." If there were disagreements between the directors and shareholders about whether to pursue a claim, this was thought to be a question best left for the rules of internal management in a company's constitution, since litigation could legitimately be seen as costly or distracting from doing the company's real business. The
board of directors A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency. The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
invariably holds the right to sue in the company's name as a general power of management. So if wrongs were alleged to have been done to the company, the principle from the case of ''
Foss v Harbottle ''Foss v Harbottle'' (1843) 2 Hare 46167 ER 189is a leading English precedent in corporate law. In any action in which a wrong is alleged to have been done to a company, the proper claimant is the company itself. This is known as "the proper pla ...
'', was that the company itself was the proper claimant, and it followed that as a general rule that only the board could bring claims in court. A majority of shareholders would also have the default right to start litigation, but the interest a minority shareholder had was seen as relative to the wishes of the majority. Aggrieved minorities could not, in general, sue. Only if the alleged wrongdoers were themselves in control, as directors or majority shareholder, would the courts allow an exception for a minority shareholder to derive the right from the company to launch a claim. In practice very few derivative claims were successfully brought, given the complexity and narrowness in the exceptions to the rule in ''
Foss v Harbottle ''Foss v Harbottle'' (1843) 2 Hare 46167 ER 189is a leading English precedent in corporate law. In any action in which a wrong is alleged to have been done to a company, the proper claimant is the company itself. This is known as "the proper pla ...
''. This was witnessed by the fact that successful cases on directors' duties before the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
seldom involved minority shareholders, rather than a new board, or a liquidator in the shoes of an insolvent company, suing former directors. The new requirements to bring a "
derivative claim A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are ...
" are now codified in the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
sections 261–264. Section 260 stipulates that such actions are concerned with suing directors for breach of a duty owed to the company. Under section 261 a shareholder must, first, show the court there is a good ''
prima facie ''Prima facie'' (; ) is a Latin expression meaning "at first sight", or "based on first impression". The literal translation would be "at first face" or "at first appearance", from the feminine forms of ' ("first") and ' ("face"), both in the a ...
'' case to be made. This preliminary legal question is followed by the substantive questions in section 263. The court must refuse permission for the claim if the alleged breach has already been validly authorised or ratified by disinterested shareholders, or if it appears that allowing litigation would undermine the company's success by the criteria laid out in section 172. If none of these "negative" criteria are fulfilled, the court then weighs up seven "positive" criteria. Again it asks whether, under the guidelines in section 172, allowing the action to continue would promote the company's success. It also asks whether the claimant is acting in good faith, whether the claimant could start an action in her own name, whether authorisation or ratification has happened or is likely to, and pays particular regard to the views of the independent and disinterested shareholders. This represented a shift from, and a replacement of, the complex pre-2006 position, by giving courts more discretion to allow meritorious claims. Still, the first cases showed the courts remaining conservative. In other respects the law remains the same. According to ''
Wallersteiner v Moir (No 2) ''Wallersteiner v Moir (No 2)'' 975QB 373 is a UK company law case, concerning the rules to bring a derivative claim. The updated law, which replaced the exceptions and the rule in ''Foss v Harbottle'', is now contained in the Companies Act 200 ...
'', minority shareholders will be indemnified for the costs of a derivative claim by the company, even if it ultimately fails. While derivative claims mean suing in the company's name, a minority shareholder can sue in her own name in four ways. The first is to claim a "personal right" under the constitution or the general law is breached. If a shareholder brings a personal action to vindicate a personal right (such as the right to not be misled by company circulars) the principle against double recovery dictates that one cannot sue for damages if the loss an individual shareholder suffers is merely the same as will be reflected in the reduction of the share value. For losses reflective of the company's, only a derivative claim may be brought. The second is to show that a company's articles were amended in an objectively unjustifiably and directly discriminatory fashion. This residual protection for minorities was developed by the Court of Appeal in ''
Allen v Gold Reefs of West Africa Ltd ''Allen v Gold Reefs of West Africa Ltd'' 9001 Ch 656 is a UK company law case concerning alteration of a company's articles of association. It held that alterations could not be interfered with by the court unless the change that had been made ...
'', where
Sir Nathaniel Lindley MR Nathaniel Lindley, Baron Lindley, (29 November 1828 – 9 December 1921) was an English judge. Early life He was the second son of the botanist Dr. John Lindley, born at Acton Green, London. From his mother's side, he was descended from Sir Edw ...
held that shareholders may amend a constitution by the required majority so long as it is "''bona fide'' for the benefit of the company as a whole". This constraint is not heavy, as it can mean that a constitutional amendment, while applying in a formally equal way to all shareholders, has a negative and disparate impact on only one shareholder. This was so in ''
Greenhalgh v Arderne Cinemas Ltd ''Greenhalgh v Arderne Cinemas Ltd (No 2)'' 9461 All ER 512;
951 Year 951 (Roman numerals, CMLI) was a common year starting on Wednesday of the Julian calendar. Events By place Europe * King Berengar II of Italy seizes Liguria, with help from the feudal lord Oberto I. He reorganizes the territorie ...
Ch 286 is UK company law case concerning the issue of shares, and "fraud on the minority", as an exception to the rule in ''Foss v Harbottle''. Facts Mr Greenhalgh was a min ...
'', where the articles were changed to remove all shareholders' pre-emption rights, but only one shareholder (the claimant, Mr Greenhalgh, who lost) was interested in preventing share sales to outside parties. This slim set of protections for minority shareholders was, until 1985, complemented only by a third, and drastic right of a shareholder, now under the
Insolvency Act 1986 The Insolvency Act 1986 (c. 45) is an act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 followed the publication ...
section 122(1)(g), to show it is "just and equitable" for a company to be liquidated. In '' Ebrahimi v Westbourne Galleries Ltd'',
Lord Wilberforce Richard Orme Wilberforce, Baron Wilberforce, (11 March 1907 – 15 February 2003) was a British judge. He was a Lord of Appeal in Ordinary from 1964 to 1982. Early life and career Born in Jalandhar, India, Richard Wilberforce was the son of ...
held that a court would use its discretion to wind up a company if three criteria were fulfilled: that the company was a small "quasi-partnership" founded on mutual confidence of the corporators, that shareholders participate in the business, and there are restrictions in the constitution on free transfer of shares. Given these features, it may be just and equitable to wind up a company if the court sees an agreement just short of a contract, or some other "equitable consideration", that one party has not fulfilled. So where Mr Ebrahmi, a minority shareholder, had been removed from the board, and the other two directors paid all company profits out as director salaries, rather than dividends to exclude him, the House of Lords regarded it as equitable to liquidate the company and distribute his share of the sale proceeds to Mr Ebrahimi. The drastic remedy of liquidation was mitigated significantly as the
unfair prejudice Unfair prejudice in United Kingdom company law is a statutory form of action that may be brought by aggrieved shareholders against their company. Under the Companies Act 2006 the relevant provision is s 994, the identical successor to s 459 Compan ...
action was introduced by the
Companies Act 1985 The Companies Act 1985 (c. 6) is an Act of the Parliament of the United Kingdom of Great Britain and Northern Ireland, enacted in 1985, which enabled companies to be formed by registration, and set out the responsibilities of companies, their ...
. Now under the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
section 996, a court can grant any remedy, but will often simply require that a minority shareholder's interest is bought out by the majority at a fair value. The cause of action, stated in section 994, is very broad. A shareholder must simply allege they have been prejudiced (i.e. their interests as a member have been harmed) in a way that is unfair. "Unfairness" is now given a minimum meaning identical to that in '' Ebrahimi v Westbourne Galleries Ltd''. A court must at least have an "equitable consideration" to grant a remedy. Generally this will refer to an agreement between two or more corporators in a small business that is just short of being an enforceable contract, for the lack of legal
consideration Consideration is a concept of English law, English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions. It is commonly referred to a ...
. A clear assurance, on which a corporator relies, which would be inequitable to go back on, would suffice, unlike the facts of the leading case, ''
O'Neill v Phillips is a UK company law case on an action for unfair prejudice under s.459 Companies Act 1985 (now s.994 Companies Act 2006). It is the only case thus far in the House of Lords on the provision and it deals with the concept of members of a busines ...
''. Here Mr O'Neill had been a prodigy in Mr Phillips' asbestos stripping business, and took on a greater and greater role until economic difficulties struck. Mr O'Neill was then demoted, but claimed that he should be given 50 per cent of the company's shares because negotiations had started for this to happen and Mr Phillips had said one day it might.
Lord Hoffmann Leonard Hubert "Lennie" Hoffmann, Baron Hoffmann (born 8 May 1934) is a senior South African–British judge. Currently, he serves as a Non-Permanent Judge of the Court of Final Appeal of Hong Kong; he formerly served as a Lord of Appeal in O ...
held that the vague aspiration that it "might" was not enough here: there was no concrete assurance or promise given, and so no unfairness in Mr Phillips' recanting. Unfair prejudice in this sense is an action not well suited to public companies, when the alleged obligations binding the company were potentially undisclosed to public investors in the constitution, since this would undermine the principle of transparency. However it is plain that minority shareholders can also bring claims for more serious breaches of obligation, such as breach of
directors' duties Directors' duties are a series of statutory, common law and equitable obligations owed primarily by members of the board of directors to the corporation that employs them. It is a central part of corporate law and corporate governance. Directors' ...
. Unfair prejudice petitions remain most prevalent in small companies, and are the most numerous form of dispute to enter company courts. But if to hold directors accountable dispersed shareholders do not engage through voting, or through litigation, companies may be ripe for takeover.


Corporate finance and markets

While corporate governance primarily concerns the general relative rights and duties of shareholders, employees and directors in terms of administration and accountability,
corporate finance Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analy ...
concerns how the monetary or capital stake of shareholders and creditors are mediated, given the risk that the business may fail and become
insolvent In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet in ...
. Companies can fund their operations either through debt (i.e. loans) or equity (i.e. shares). In return for loans, typically from a bank, companies will often be required by
contract A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. A contract typically involves consent to transfer of goods, services, money, or promise to transfer any of thos ...
to give their
creditor A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some propert ...
s a
security interest In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the '' collateral'') which enables the creditor to have recourse to the property if the debtor defaults in m ...
over the company's assets, so that in the event of insolvency, the creditor may take the secured asset. The
Insolvency Act 1986 The Insolvency Act 1986 (c. 45) is an act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 followed the publication ...
limits powerful creditors ability to sweep up all company assets as security, particularly through a
floating charge In finance, a floating charge is a security interest over a fund of changing assets of a company or other legal person. Unlike a fixed charge, which is created over ascertained and definite property, a floating charge is created over property of ...
, in favour of vulnerable creditors, such as employees or consumers. If money is raised by offering shares, the shareholders' relations are determined as a group by the provisions under the constitution. The law requires disclosure of all material facts in promotions, and prospectuses. Company constitutions typically require that existing shareholders have a
pre-emption right A pre-emption right, right of pre-emption, or first option to buy is a contractual right to acquire certain property newly coming into existence before it can be offered to any other person or entity. It comes from the Latin verb ''emo, emere, emi, ...
, to buy newly issued shares before outside shareholders and thus avoid their stake and control becoming diluted. Actual rights, however, are determined by ordinary principles of construction of the company constitution. A host of rules exist to ensure that the company's capital (i.e. the amount that shareholders paid in when they bought their shares) is maintained for the benefit of creditors. Money is typically distributed to shareholders through
dividend A dividend is a distribution of profits by a corporation to its shareholders, after which the stock exchange decreases the price of the stock by the dividend to remove volatility. The market has no control over the stock price on open on the ex ...
s as the reward for investment. These should only come out of profits, or surpluses beyond the capital account. If companies pay out money to shareholders which in effect is a dividend "disguised" as something else, directors will be liable for repayment. Companies may, however, reduce their capital to a lower figure if directors of private companies warrant solvency, or courts approve a public company's reduction. Because a company buying back shares from shareholders in itself, or taking back redeemable shares, has the same effect as a reduction of capital, similar transparency and procedural requirements need to be fulfilled. Public companies are also precluded from giving financial assistance for purchase of their shares, for example through a
leveraged buyout A leveraged buyout (LBO) is the acquisition of a company using a significant proportion of borrowed money (Leverage (finance), leverage) to fund the acquisition with the remainder of the purchase price funded with private equity. The assets of t ...
, unless the company is delisted and or taken private. Finally, in order to protect investors from being placed at an unfair disadvantage, people inside a company are under a strict duty to not trade on any information that could affect a company's share price for their own benefit.


Debt finance

*Corporate bonds to raise capital, determined by contract *Priorities on insolvency through security,
IA 1986 The Insolvency Act 1986 (c. 45) is an Act of Parliament (UK), act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 f ...
ss 40, 115, 175, 176A, 386, Sch 6 and SI 2003/2097 *
Fixed charge In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the '' collateral'') which enables the creditor to have recourse to the property if the debtor defaults in ma ...
and
floating charge In finance, a floating charge is a security interest over a fund of changing assets of a company or other legal person. Unlike a fixed charge, which is created over ascertained and definite property, a floating charge is created over property of ...
,
Re Spectrum Plus Ltd was a UK company law decision of House of Lords that settled a number of outstanding legal issues relating to floating charges and recharacterisation risk under the English common law. However, the House of Lords also discussed the power of ...
005 ''005'' (pronounced "''double-o five''") is a 1981 arcade video game by Sega. They advertised it as the first of their RasterScan Convert-a-Game series, designed so that it could be changed into another game in minutes "at a substantial savings. ...
UKHL 41 *Registration of charges,
CA 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
ss 738, 860-877


Equity finance

Companies limited by shares also acquire finance through 'equity' (a synonym for the share capital). Shares differ from debt in that shareholders rank last in
insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet i ...
. The main justification for shareholders' residual claim is that, unlike many creditors (though not large banks) they are capable of diversifying their portfolio. Taxation of profits on shares can also be treated differently with a different tax rate (under the
Income Tax Act 2007 The Income Tax Act 2007c 3 is an Act of the Parliament of the United Kingdom. It is the primary Act of Parliament concerning income tax paid by individual earners subject to the law of United Kingdom, and mostly replaced the Income and Corporat ...
) to
capital gains tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property. In South Africa, capital g ...
on debt (which falls under the
Taxation of Chargeable Gains Act 1992 The Taxation of Chargeable Gains Act 1992 (c. 12) is an act of Parliament which governs the levying of capital gains tax in the United Kingdom. This is a tax on the increase in the value of an asset between the date of purchase and the date of sa ...
). This makes the distinction between shares and debt important. In principle, all forms of debt and equity arise from contractual arrangements with a company, and the rights which attach are a question of construction. For instance, in '' Scottish Insurance Corp Ltd v Wilsons & Clyde Coal Co Ltd'' the House of Lords held that when the
Coal Industry Nationalisation Act 1946 The Coal Industry Nationalisation Act 1946 (9 & 10 Geo. 6. c. 59) was an Act of Parliament (United Kingdom), Act of the Parliament of the United Kingdom which nationalised, or brought into state control, the coal industry in the United Kingdom. I ...
was passed, preferential shareholders were entitled to no extra, special share of assets upon winding up: construction of the terms of the shares entitled them to extra dividends, but without special words to the contrary, shareholders were presumed equal otherwise. For anyone to become a member of a company under the
Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
section 33, the contract for shares must simply manifest the intention to do so. However, beyond this, the dividing line between shares and debt is more a matter of standard practice than law. It is legally possible to become a member of the company without being a shareholder, simply by being accepted and registered on the members' register. It is also possible to be a shareholder without being a member immediately. It is standard practice that shareholders have one vote per share, but occasionally shareholders (particularly those with preferential dividend rights) do not have votes, and debt holders and others may have votes without having shares. It is even possible for creditors to contract to be subordinated behind shareholders in insolvency – it is just unlikely, and strongly discouraged by the regulatory framework. Shares are also presumed to be transferable to other people, although like other rights, the right to trade is subject to the company's constitution. To give people shares initially there is formally a two step process. First, under
CA 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
section 558, shares must be "allotted", or created in favour of a particular person. Second, shares are "issued" by being "transferred" to a person. In practice, because shares are not usually 'bearer shares' (i.e. the share is a physical piece of paper), the "transfer" simply means that the person's name is entered on the register of members. Under
CA 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
sections 768 and 769, a certificate that evidences the share issue should be given by the company within two months. In a typical company constitution, directors are entitled to issue shares as part of their general management rights, although they have no power to do so outside the constitution. An authorisation must state the maximum number of allottable shares and the authority can only last for five years. The main reason to control directors' power over share allotments and issues is to prevent shareholders' rights being watered down if new shares are created. Under
CA 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
section 561, existing shareholders have a basic
pre-emption right A pre-emption right, right of pre-emption, or first option to buy is a contractual right to acquire certain property newly coming into existence before it can be offered to any other person or entity. It comes from the Latin verb ''emo, emere, emi, ...
, to be offered any new shares first in proportion to their existing holding. Shareholders have 14 days to decide whether to buy. There are a series of exceptions under
CA 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
sections 564–567, for issuing bonus shares, partly paid shares, and employee shares, while private companies can opt out of pre-emption rules altogether. Furthermore, by special resolution (a three-quarter majority vote) under
CA 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...
sections 570–571, shareholders may disapply pre-emption rights. In practice, large companies frequently give directors ad hoc authority to disapply pre-emption rights, but within the scope of a 'Statement of Principles' issued by asset managers. At present, the most influential guide is the document by the Institutional investors' Pre-emption Group, ''Disapplying Pre-emption Rights: A Statement of Principle''
2008
. This suggests that the general practice is to disapply the pre-emption rights on a rolling basis for routine share issues (e.g. shares subject to a clawback) at no more than 5% of share capital each year.


Market regulation

;Prospectuses *
Listing Directive Listing may refer to: * Enumeration of a set of items in the form of a list * Listing (computer), a computer code listing * Listing (finance), the placing of a company's shares on the list of stocks traded on a stock exchange * Johann Benedict Listi ...
br>2001/34/EC
arts 42 – 51 *
Financial Services and Markets Act 2000 Finance refers to monetary resources and to the study and discipline of money, currency, assets and liabilities. As a subject of study, is a field of Business Administration wich study the planning, organizing, leading, and controlling of an o ...
ss 74-8 *'' R v International Stock Exchange, ex parte Else''
993 Year 993 ( CMXCIII) was a common year starting on Sunday of the Julian calendar. Events By place Europe * Spring – The 12-year-old King Otto III gives the Sword of Saints Cosmas and Damian (also known as the Sword of Essen) as ...
QB 534 *
Prospectus Directive Prospectus may refer to: * Prospectus (finance), also called a ''concept note'' * Prospectus (university) * Prospectus (book) * ''Prospectus'' (album), a 1983 album by saxophonist Steve Lacy * Parkland College's newspaper {{disambig