Company law I
Business forms, governance, meetings and community enterprise
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Lead-in: build a company map
Start with purpose, ownership and risk.
Discuss.
- What business forms are common in your jurisdiction?
- Who owns, manages and bears the risk in each form?
- Why might a founder choose limited liability?
Show possible directions
A strong comparison considers formation, cost, capital, control, liability, continuity and disclosure. The label on its own tells you very little. Limited liability can separate business obligations from members’ personal assets, but it is not absolute immunity: capital commitments, personal guarantees, directors’ duties and insolvency rules can still create exposure.
Sole proprietor, partners, shareholders or members.
Partnership, limited partnership, company or LLC.
Personal, shared, capped or limited to an investment.
Clear notes
Business idea: We plan to open a small bakery café with two friends from college.
Possible legal forms: a general partnership or a private limited company.
Who controls it: In a partnership, all three of us would share management. In a company, the directors manage the business on behalf of the shareholders.
Main risks and questions: What happens if the café cannot pay a supplier? Would we be personally liable? We need to find out how much registration costs and how long it takes.
- Each heading gets one or two sentences. These are notes, not an essay.
- Compares two forms using would to show they are options, not facts.
- Ends with real questions a lawyer could answer.
Analytical notes
Business idea: A consultancy offering data-protection audits to small firms, founded by three developers and part-funded by an outside investor.
Possible legal forms: A limited partnership would allow the investor to remain passive, with capped exposure; by contrast, a private company limited by shares would offer separate legal personality and easier fundraising.
Who controls it: The founders as executive directors; the investor as a shareholder whose voting rights are set out in the articles, possibly joining the board as a non-executive director for oversight.
Main risks and questions: Claims in professional negligence could exceed the value of a contract. Subject to local law, would limited liability actually protect our homes, or would the bank require personal guarantees? It remains unclear whether the investor should be given a veto over new work.
- Uses precise terms (capped exposure, separate legal personality) instead of general words.
- Qualifies each point with Subject to and It remains unclear whether. Careful, never absolute.
- Relative and passive structures pack more information into each line.
Listening 1: taking the client’s brief
Identify the people, purpose, place and market before discussing legal form.
First company-law consultation
Kate is a company lawyer. Charles wants to set up a business with his two brothers. Listen once for the situation, then again for the details in Exercise 2a.
Show transcript (Audio 7.1)
Check your answers first. Tap any line to replay it.
Kate: Right. Before we get into company types, tell me about the venture. Have you set up a company before?
Charles: No, never. My two brothers and I have worked as independent engineers for years, but this’ll be our first company.
Kate: OK. And what exactly will the business do?
Charles: Water drilling, essentially. We supply the equipment, the training and the technical support, mainly for communities in developing countries.
Kate: And where will it be registered and managed?
Charles: Bristol. Most of the projects are overseas, but we’d run everything from Bristol.
Kate: Who else is working in that market?
Charles: A few specialist engineering consultancies, equipment suppliers, and some charities with their own technical teams. Our advantage, we think, is combining the equipment with long-term training. Very few people do both.
Kate: That’s useful. Let’s compare control, liability and finance, and I’d also like to look at whether a community interest company would suit you.
Reading 1: choosing a business entity
Compare formation, control and exposure.
Four routes into business
A sole proprietorship is normally the simplest structure: one person controls the enterprise and is personally responsible for its obligations. A general partnership can arise with few formalities, although a written agreement is prudent. Partners usually contribute capital, share management and accept risk under their agreement and the applicable law.
A limited partnership separates general partners, who manage and usually carry unlimited liability, from limited partners, whose loss is generally confined to their agreed contribution. To keep that protection, a limited partner must not assume a prohibited management role.
A limited-liability entity requires formal registration and constitutional documents. Its members normally risk no more than their original investment, while the structure can offer flexible management and fundraising. That protection comes with filing, reporting and dissolution requirements.
Continuity differs too. A sole proprietorship may terminate on the owner’s death, while a partnership may be dissolved under the terms of the agreement. Management may be shared between the owners or centralised in one of them, again by agreement.
Reading 2: the language of legal documents
Notice how purpose affects wording.
Directors’ remuneration should support long-term sustainability. Variable payments should be linked to measurable performance and may be reclaimed if based on materially incorrect data.
A guarantee company’s memorandum must state the sum each member undertakes to contribute if the company is wound up while that person is a member or shortly afterwards.
Each partner shall devote appropriate time to the business and, without the other partner’s consent, shall not borrow on behalf of the partnership. Each partner shall execute any document reasonably required to give effect to this agreement.
Reading 3: who runs the company?
Separate ownership, direction and administration.
Shareholders, directors and the secretary
Shareholders are registered owners of shares. Their rights commonly include voting, receiving declared dividends and enforcing certain rights against the company. They appoint or remove directors and can alter constitutional documents, subject to law.
Directors manage the company and set general policy on behalf of the shareholders. Executive directors work in the business; non-executive directors are not normally employees and focus on oversight. Both carry legal duties and must use company assets and powers for proper purposes.
The board appoints the company secretary, the organisation’s senior administrative officer. The role may include records, filings, meeting procedure, insurance and support for governance.
The secretary is accountable to the whole board. Modern practice often treats the role as a guardian of lawful and responsible administration, although exact duties depend on the jurisdiction and company type.
Reading 4: company meetings
Use collocations to reconstruct professional guidance.
Board meetings and notice
A company’s articles normally delegate management to the board. Directors meet to decide issues affecting the company. Board procedure is largely for the articles and the board itself to determine, so long as the law and constitution are respected.
Reasonable notice depends on the organisation and its established practice. A small on-site board may need only short notice; an international board may fix dates far in advance. In addition, notice of a board meeting must reach each director, whether that director is also a shareholder or not.
Shareholder meetings are more formal: the correct recipients, period, method and content of notice matter because a defect may invalidate the meeting or its resolutions. Where the articles and the applicable law allow it, notice may be sent electronically, although a shareholder may opt out of electronic delivery and ask for paper.
Listening 2: explaining the options
Notice the phrases a lawyer uses to clarify, compare and recommend.
From facts to recommendation
Listen for how Kate clarifies, compares, qualifies and proposes a next step, then do Exercise 7a.
Show transcript (Audio 7.2)
Tap any line to replay it.
Kate: Let me check that I have understood. You want all three brothers involved in the important decisions, but you don’t want your homes at risk if a contract goes wrong.
Charles: Exactly. And we’ll need outside finance fairly early on.
Kate: In that case a sole proprietorship is out, and a general partnership could leave you personally liable. A limited company gives you a much clearer line between the business and its owners.
Charles: What about a community interest company? Someone mentioned it at a conference.
Kate: That may be suitable if the regulator accepts your community purpose. The asset lock and the limits on distributions protect that purpose. They also restrict how investors take value out, so it cuts both ways.
Charles: So what would you recommend?
Kate: First, put together a short business and community benefit plan. Then we can compare an ordinary private company with a community interest company, and sort out the governance between the three of you.
Phrase bank: advising a client
Am I right in understanding that…?
Given what you have said…
The main limitation is…
This would depend on…
The next step is…
Writing: advise a community founder
Turn structured notes into a concise client letter.
Client brief
You are Kate. After the meetings in Audio 7.1 and 7.2, Charles emails you. He and his brothers want an engineering business that supplies water-drilling equipment and training to communities in developing countries. He asks whether this purpose can qualify as a community interest company (CIC), how “community” is understood, how the entity differs from an ordinary company, how it may be financed and what duties the directors owe. Write 250 to 320 words.
- Regulator considers each application.
- Overseas groups with identifiable needs may qualify.
- A family, friendship group or one company’s employees is not normally enough.
- Constitution contains an asset lock.
- Profit distributions and investor returns are capped.
- Possible funding: grants, trading, shares, loans and secured debentures.
- Act honestly, carefully and within powers.
- Declare personal financial interests.
- Prepare annual accounts and a community-interest report.
Useful language
Further to our recent discussion…; On the information presently available…; The regulator will consider…; By contrast…; A CIC differs from an ordinary company in that…; Depending on eligibility…; I recommend that the next step be…
Clear, well-organised letter
Dear Charles,
Thank you for your email about setting up your engineering business as a community interest company (CIC). I have set out my answers to your questions below.
First, you asked whether your purpose can qualify. The regulator looks at each application separately. Communities in developing countries can qualify if they have a clear need, so working overseas is not a problem in itself. However, a family, a group of friends or the staff of one company would not normally count as a community.
You also asked how a community is understood. It does not have to be in the UK. It can be a group of people who share a clear need, such as villages without safe drinking water.
Secondly, a CIC is different from an ordinary company. Its constitution must include an asset lock, which means that the company’s assets must mainly be used for the community. Profits paid to investors are limited, so investors cannot receive unlimited returns.
As for finance, the company could use income from trading, grants, loans, shares or secured debentures. It is important to explain the limits on investor returns before you accept any money. For example, a grant from a charity could pay for your first training programme.
Finally, as directors, you and your brothers must act honestly, carefully and within your powers. You must also declare any personal financial interest and prepare annual accounts and a community interest report.
I recommend that we meet to discuss a short business plan. Please let me know a convenient time.
Yours sincerely,
Kate
- One paragraph per question, signposted with First, Secondly, As for, Finally.
- Explains technical terms immediately: which means that.
- Uses would not normally instead of an absolute rule.
- About 260 words, inside the 250 to 320 limit, and it ends with a clear next step.
Precise, nuanced advice
Dear Charles,
Further to our recent discussion, I have considered whether your proposed engineering venture could be established as a community interest company (CIC).
On the information presently available, the fact that the intended beneficiaries are overseas would not, by itself, prevent the company from qualifying. The regulator will examine whether the proposed activities benefit an identifiable community, and groups with a demonstrated need may well fall within that concept. By contrast, a private group such as a single family would not normally be sufficient without a wider community benefit. In practice, it would be helpful to describe the villages concerned, their access to safe water and the way local people will be involved in the training programme.
A CIC differs from an ordinary private company in several respects. Its constitution must contain community-purpose provisions and an asset lock, which ensures that its property and surpluses are applied mainly for its community objects. Distributions to investors and returns on capital may also be capped.
Depending on eligibility, funding could be drawn from trading income, grants, concessionary loans, share investment or secured debentures; in each case, the restrictions on investor returns should be explained before any funds are accepted.
As directors, you and your brothers would be expected to act honestly, exercise reasonable care and skill and remain within your powers. Personal financial interests should be declared, and the company would need to prepare its annual accounts and community interest report.
I recommend that the next step be to prepare a short business plan identifying the beneficiaries, measurable outcomes and funding needs. We can then compare a CIC with an ordinary company in light of those facts.
Please let me know if you would like a checklist for that meeting.
Yours sincerely,
Kate
- Opens with Further to and On the information presently available. That frame limits the advice to the facts the writer actually has.
- Heavy use of passive modals (should be declared, may be capped) keeps the focus on the rule, not the person.
- I recommend that the next step be uses the subjunctive, which is common in formal legal writing.
- About 292 words; every legal point is qualified (Depending on eligibility, may well).
Speaking: formation conference
Role-play a first lawyer–client meeting using the phrase bank from Audio 7.2.
Explain the business, expected investment, decision-making needs and risk tolerance. Ask for a recommendation.
Ask who will own, fund and manage the business; how profits should be distributed; and what continuity and reporting the founders can accept.
Did the lawyer ask before advising? Was any uncertainty qualified? Did the client leave with a usable next step?
Bullet-point notes
Client’s priorities: The client wants all three brothers to take part in big decisions. They do not want their homes to be at risk. They need outside finance.
Options discussed: Sole proprietorship: not suitable, only one owner. General partnership: partners could be personally liable. Private limited company: protects the owners’ assets. CIC: possible if the regulator accepts the community purpose.
Provisional recommendation: My provisional view is that a limited company is better than a partnership.
Information still needed: We still need to know how profits will be shared and how much each brother will invest.
- Short phrases under each heading, quick enough to write while the client is talking.
- Each option has a reason after the colon.
- My provisional view is that keeps the advice tentative.
Attendance note
Client’s priorities: The client confirmed that the three founders wish to be jointly involved in strategic decisions, while limiting their personal exposure to contractual claims. External equity or debt finance will be required from year one.
Options discussed: General partnership rejected owing to unlimited personal liability. Private company limited by shares preferred for separate legal personality and flexible fundraising. CIC worth exploring, provided that the founders accept an asset lock and capped distributions.
Provisional recommendation: On balance, a limited structure; CIC status to be considered once the community-benefit plan is drafted.
Information still needed: It remains to be confirmed how voting rights will be allocated, whether any founder will provide personal guarantees, and how the beneficiaries are to be identified.
- Written as a formal file note: The client confirmed that, On balance, It remains to be confirmed.
- Note-style passives (to be considered) save words without losing meaning.
- Reasons are packed in with owing to and conditions with provided that.
Teacher’s answer key
Answers, models, acceptable alternatives and teaching notes.
Chapter 7 answer key
Teaching priorities
- CodesTwo different codes. This answer key uses 0880 and stays with you. The model answers use 1234, which you can give to learners: one entry opens all three sets of models (the map, the written task and the speaking notes), and the Lock button hides them again. Each task has a B2 and a C1 model with legal vocabulary, sentence starters and grammatical structures underlined.
- Lead-inAccept jurisdiction-appropriate answers. In a UK-oriented discussion: sole trader, general partnership, limited partnership, private company limited by shares or by guarantee, unlimited company, plc and CIC. Criteria: formation, legal personality, ownership, control, capital, profit distribution, exposure, continuity, disclosure, tax, transferability and dissolution. Do not present limited liability as absolute immunity.
- Audio 7.1 (Listening 1)First play: who, what and why. Second play: place, competitors and advantage. The facts feed the entity comparison: three founders need governance arrangements, engineering contracts make liability relevant, outside finance makes capital relevant, and the community purpose raises the CIC option.
- Entities and documentsEntity labels vary by jurisdiction; require qualifiers such as “generally”, “subject to the agreement” and “under the applicable statute”. For modals, the source and purpose of the document matter more than the verb alone. Ask what precision a plain-English substitute may lose: execute may involve formalities beyond a signature.
- MeetingsExtension: distinguish a board meeting from a general meeting by participants, notice, decision-making power, minutes and the consequences of procedural defects.
- Audio 7.2 language boardClarify: “Am I right in understanding that…?” Compare: “The main difference is…” Qualify: “Subject to…” or “This would depend on…” Recommend: “My provisional view is…” Next step: “Before deciding, we should…”
Educational material based on teacher-supplied pages. Verify current law, terminology and local procedure before relying on any legal proposition.