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Showing posts from August, 2022

Given the substantial protections potentially provided to creditors by minimum capital, financial assistance and capital maintenance rules, discuss whether divergences in treatment between public and private companies in respect of those rules is unjustified.

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Although minimum capital, financial assistance and capital maintenance rules aim to protect creditors, it is argued that the protection is insubstantial in practice and only increase costs for firms. Moreover, public companies should not be held to a higher standard than private firms, so separate rules for public companies are unnecessary. Thus, divergence here is unjustified and the rules should be reformed.  Divergences in treatment Under the Companies Act 2006 (CA), public companies are subject to a minimum capital requirement of £50,000, of which one-quarter must be paid up (s.761-767 and s.91). Public companies are also prohibited from giving, directly or indirectly, financial assistance to a person for the acquisition of their shares (s.678), and otherwise face criminal and civil liability. Moreover, public companies face different rules regarding capital maintenance; private companies can purchase their own shares (up to £15,000 or 5% of share capital) whilst public companies c

Discuss whether the concept of “limited liability” has long engaged the academic community, whilst arguably the concept of “entity shielding” deserves more attention from company law scholars.

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The concept of limited liability (LL) operates to prevent firm creditors having recourse against assets of the firm owners. On the other hand, entity shielding (ES) prevents personal creditors of the firm owners from any claim to assets of the firm itself. Discussions surrounding LL has long engaged the academic community, indicated by the courts reluctant approach in ‘piercing the corporate veil’ where LL is at stake. Conversely, ES is underdiscussed, despite the concept being equally as significant as LL for firms and creditors. Therefore, more attention is needed to protect the concept of ES and prevent the application of the veil doctrine in these cases.  Limited liability has long engaged the academic community  LL is key in establishing the incorporation of a company as a distinct legal entity (Salomon). The concept denotes that a company’s shareholders are not personally liable for the company’s debts. This is evident in s.3(1) Companies Act 2006 (CA), where a limited company wi