Sources of Company Law
W HAT IS COMPANY LAW?
For the last century and a half a complex body of legislation called the Companies Acts has declared that if anyone presents to Companies House the documents required to form a ‘company’, the Registrar of Companies will issue a Certiﬁcate of Incorporation stating, like a birth certiﬁcate, that a new person, a ‘limited company’, has that day come into being. This robotic person, ‘owned’ by its shareholders, has no arms or legs, nor even a brain, but it is recognised by the law as being capable of doing all the things necessary to own and run a business. Those dealing with the company make contracts directly with the company itself and the shareholders who formed it are not liable if it defaults on its obligations. They are not party to its contracts and the law allows them the privilege of ‘limited liability’. Thus, even if it was they who set up the company and have themselves been running it for their own beneﬁt, in principle they have no liability at all. It is the function of the legislation as interpreted by the courts to determine how this new person, the company, though artiﬁcial and abstract, can have an existence and perform its functions. Thus companies have their own bye-laws called the memorandum and articles of association, the members in general meeting (i.e., the shareholders) elect directors, and the board of directors sees to or delegates the day-to-day running of the business. In addition, the law has to deal with the risk that the extraordinary privilege of limited liability could so easily be unfair and cause harm to creditors. In the ﬁnal analysis, however, the law cannot protect creditors against limited companies that are not credit worthy. All it can do is to ensure that companies ‘disclose’ sufﬁcient information to enable alert creditors to look after themselves by making informed decisions when dealing with them. Core company law has been found in ‘the Companies Acts’, a constantly changing morass of legislation that has recently undergone the ﬁrst comprehensive reform ever attempted, culminating in a massive new statute, the Companies Act 2006. For students of the subject, developing expertise in reading detailed modern legislation such as this is a major challenge and for this purpose many key sections are included in these pages. The law relating to companies is also demanding because it requires you to have some understanding of other areas of the law such as contract and tort, equity and trusts, aspects of property and commercial law and the law of the European Union. No longer can you expect to be spoon fed in bite-sized nuggets but must use your maturing expertise to absorb and digest a broad-based diet of law and practice.
The expansive nature of company law also poses particular problems for the authors of this book because many gallons of rich source material must necessarily
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2 Sources of Company Law
be distilled into a manageable pint pot. This task is made more difﬁcult as the law relating to companies also includes laws on the public issue of shares and the stock markets, of winding up and insolvency, both huge bodies of law in themselves. In addition, many other disciplines are of direct relevance and cannot be ignored, such as economics, accounting and business management. Recent years have also seen the emergence of new areas of concern and regulation such as ﬁnancial services and investor protection, ﬁnancial reporting and corporate governance, business ethics and corporate social responsibility. New buzz words abound such as competitiveness and deregulation, stakeholders and shareholder value and each of these areas of concern has spawned thriving industries, built around growing bodies of rules and regulation which this book can do little more than mention in passing. Nonetheless, while the essential content of the Companies Acts at ﬁrst glance...