Business Law Structures
Anglais juridique

Business Law Structures

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Plan : 

  1. US BUSINESS STRUCTURES
  2. REASONS TO INCORPORATE IN DELAWARE
  3. CONTROL AND MANAGEMENT OF A CORPORATION (US)
  4. UK LEGAL BUSINESS STRUCTURES
  5. THE COMPANIES ACT 2006
  6. COMMON LAW BUSINESS TRUST
  7. COMMON LAW NON-PROFIT ORGANIZATION
  8. UK INSOLVENCY LAW
  9. US BANKRUPTCY LAW

I. US BUSINESS STRUCTURES

1. Sole proprietorship (= entreprise individuelle)

  • It is the simplest form of business entity ;
  • It is a business owned and operated by a single person ;
  • Create a sole proprietorship is not very expensive and is simple ;
  • It is a flow-through structure = the profits or losses pass through the structure to the owner’s personal income tax ;
  • The owner has unlimited personal liability on all business debts and any judgments held against the structure.

2. Partnerships

GENERAL PARTNERSHIPS :

  • It involves 2 or more persons who agree to share all profits and losses ;
  • Partners are personally liable for the acts done by any partner, the partnership or its employees = it is a « joint and several » liability ;
  • It is also a flow-through structure.

LIMITED PARTNERSHIPS :

  • At least one general partner is personnaly liable for the company and liable for its debts ;
  • For limited partners, their liability is limited to the amount of their investment or capital contribution to the business ;
  • A limited partner does not participate in the control or management of the partnership.

LIMITED LIABILITY PARTNERSHIPS (LLPs) :

  • They have been created by statute (= législation) in the course of the last 20 years ;
  • They limit the liability of their partners ;
  • They allow the partners to participate in the structure’s controle and management ;
  • The partner who incurs the liability or causes the fault remains personally liable ;
  • They are limited to professionals such as attorneys and accountants.

3. Corporations

  • Its shares can be transferred and it survives the death of its investors (/ Solde proprietorship and Partnerships) ;
  • It is a legal person : it means it must file and pay corporate and business taxes.

II. REASONS TO INCORPORE IN DELAWARE

The state of Delaware is the registered domicile of nearly 50% of the corporations because :

  • It is the least costly state in which to form a corporation and
  • There are various advantages regarding taxes.

III. CONTROL AND MANAGEMENT OF A CORPORATION (US)

1. Directors

  • The authority of a corporation is exercised by its board of directors ;
  • Directors are elected by the shareholders ;
  • The directors elect a Chairperson who presides over the board of directors meeting ;
  • Inside directors work inside the structure and could be either officers or even employees ;
  • Outside directors have to be unaffiliated with the corporation except they may be shareholders ;
  • Directors have a fiduciary duty to the shareholders and the corporation to perform their duties in good faith, with due care and in the best interest of the corporation ;
  • Directors make decisions that require the balancing of benefits and risks for the corporation.

2. Officers

  • The officers put into practise or execute the board’s directives concerning the day-to-day management ;
  • The officers are appointed by the board of directors : they are the President (= CEO = Chief executive order), the tresurer (= CFO = Chief financial officer) and the corporate secretary (= CLO = Chief legal officer) ;
  • They are agents of the corporation ;
  • Officers may be personally liable if they go beyond their corporate authority ;
  • An officer owes a fiduciary duty to the corporation.

3. Shareholders

  • The first shareholders of a corporation are the subscribers ;
  • New shares are issued by the board of directors ;
  • Every new shareholder must receive a share certificate from the company stating the number and type of share held ;
  • A shareholder becomes a registered legal owner of the shares only when his name is entered on the register of the corporation ;
  • Shareholders exercice their powers by passing resolutions in general or special meetings ;
  • Resolutions are only validly passed if the meeting has a quorum (a certain number of people must ne present) ;
  • The profits of a corporation are generally distributed to shareholders by dividends if there are profits available ;
  • A company may have different classes of shares : ordinary shares (no special rights or restrictions), preference shares (preferential right), redeemable shares (by the company at the option of the company or the shareholder), convertible shares (may be exchanged into a different class of shares) ;
  • The liability of a shareholder is limited to the value of his or her shares ;
  • Piercing the corporate veil (= soulèvement du voile corporatif) : under this principle, shareholders can be exposed to personal liability in certain circumstances (for example : the corporate structure perpetuates a fraud).

IV. UK LEGAL BUSINESS STRUCTURES

When one organizes a business, it must be in compliance with various legal authorities including the HM Revenue and Customs (HMRC).

1. Sole trader (= entreprise individuelle)

  • An individual runs a business on his or her own ;
  • He or she must register as self-employed ;
  • His or her profits are taxed as personal income ;
  • A sole trader is personally responsible for any debts run up by his or her business ;
  • He or she must make an annual self-assessment tax return (= déclaration fiscale annuelle d’auto-évaluation) to HMRC.

2. Partnerships : 3 categories (ordinary, limited and limited liability partnerships)

  • It is an association of 2 or more people formed for the purpose of a business ;
  • 2 or more partners share the risks, cost and responsabilities of being in business ;
  • The profits are divided equally amongst the partners ;
  • Each partner must register as self-employed and register with HMRC and complete the annual self-assessment tax return ;
  • It is similar to a sole trader ;
  • The operation of partnership is usually governed by a partnership agreement ;
  • Partners are jointly liable for debts owed by the partnership and are equally responsible for paying off the whole debt ;

3. Limited Liability Partnership (LLP)

  • There were created by the Limited Liability Partnership Act 2000 ;
  • There are considered as legal persons : the partnership itself has a legal existence separate from that of its members ;
  • In a LLP, all partners have limited liability ;
  • LLPs must register at Companies House ;
  • Each member takes an equal share of the profits.

4. Limited liability companies (Ltd)

  • Limited liability companies are the most common form of business registration in the UK ;
  • The company’s finances are separate from the personal finances of their owners ;
  • The shareholders are not responsible for the company’s debts unless they have given guarantees ;
  • Ltds must be registered at Companies House ;
  • Board of directors make the management decisions ;
  • Profits are usually distributed to shareholders (dividends), apart from profits retained in the business as working capital (= fonds de roulement).
  • Private limited companies can have 1 or more members, they can’t offer shares to the public
    Private company limited by shares = the members’ liability is limited to the amount unpaid on the shares they hold.
    Private company limited by guarantee = the members’ liability is limited to the amount they have agreed to contribute to the company’s assets if the company is wound up.
  • Public limited companies must have at least 2 shareholders, at least 2 directors and a qualified company secretary. It cas offer shares to the public and must have a minimum share capital of £50.000. It may be listed on the stock exchange.
  • Private unlimited companies can be or whithout share capital. There is no limit to the members’ liability.
  • Community interest companies (2005) are designed to meet the needs of social enterprises (for charitable organizations).

N.B : There are incorporated companies (= sociétés immatriculées) : it means the company itself has a legal existence separate from that of its members. The majority of company incoporated in UK are private limited liability company.

5. Franchises

  • You can take advantage of the success of an already established business ;
  • You buy a licence to use a name, products, services and management support systems of the franchisor company ;
  • You pay an itinial fee, yearly management fees, a pourcentage of the turnover (= chiffre d’affaires), purchases of goods from the franchisor ;
  • Most of franchises are a sole trader, a partnership or a limited company.

V. THE COMPANIES ACT 2006

  • It is an Act of the UK Parliament which forms the primary source of UK company law ;
  • This Act made changes to almost every aspect of the law in relation to companies ;
  • It provides a comprehensive code of company law for UK.

For example : it introduces new provisions for private and public companies, private companies will be able to reduce their share capital without the need to obtain a court order.

VI. COMMON LAW BUSINESS TRUST (= fiducie commerciale)

  • The common law business trust is a further entity, used both in the US and the UK for the control and management of assets and property ;
  • Trustees (= fiduciaires) take responsability for the management and administration of the assets in the trust ;
  • The person or group of people who create a business trust = the trustor, grantor or settlor (= fiduciant) ;
  • Trustees have a fiduciary duty to the beneficiaries to act in their best interests ;
  • The trustees have legal title (= les titres de propriété) of the assets within it which permits them to receive profits or income from the trust.

VII. COMMON LAW NON-PROFIT ORGANIZATION

  • A non-profit organization often referred to as an association ;
  • It is formed for the purpose of serving a purpose of public or mutual benefit ;
  • Most public benefit organizations survive thanks to donations ;
  • They have a tax exempt status.

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VOCABULARY :

– income tax = impôt sur le revenu
– accountants = comptable
– shares = titres
– board of directors = conseil d’administration
– shareholders = actionnaires
– a Chairperson = un président
– good faith = bonne foi
– due care = prudence
– beyond = au delà
– the subscribers = les souscripteurs
– are issued = sont émises
– in general or special meetings = assemblées générales ordinaires ou extraordinaires
– redeemable shares = actions rachetables
– in compliance = conformité
– is wound up = est liquidée
– to meet the needs of social enterprises = répondre aux besoins des entreprises sociales
– run out of money = n’ont plus d’argent
– winding up = dissolution