This text provides an introduction to the key terms used when talking about companies as legal entities, how they are formed and how they are managed. It also covers the legal duties of company directors and the courts’ role in policing them.
1 Read the text quickly, then match these phrases ( a-f ) with the paragraphs
( 1-6 ).
a directors’ duties b management roles c company definition
d company health e partnership definition f company formation
1 A company1 is a business association which has the character of a legal person, distinct from its officers and shareholders. This is significant, as it allows the company to own property in its own name, continue perpetually dispute changes in ownership, and insulate the owners against personal liability. However in some instances, for example when the company is used to perpetrate fraud or acts ultra vires, the court may ‘ lift 2 the corporate veil’ and subject the shareholders to personal liability.
2 By contrast, a partnership is a business association which, strictly speaking, is not considered to be a legal entity but, rather, merely an association of owners. However, in order to avoid impractical results, such as the partnership being precluded from owning property in its own name, certain rules of partnership law treat a partnership as if it were a legal entity. Nonetheless, partners are not insulated against personal liability, and the partnership may cease to exist upon a change in ownership, for example, when one of the partners dies.
3 A company is formed upon the issuance of a certificate of incorporation3 by the appropriate governmental authority. A certificate of incorporation is issued upon the filing of the constitutional documents of the company, together with statutory forms and the payment of a filing fee. The ‘constitution’ of a company consists of two documents. One, the memorandum of association4, states the object of the company and the details of its authorized capital. The second document, the articles of association5, contain provisions for the internal management of the company, for example, shareholders’ annual general meetings6, or AGMs, and extraordinary general meetings7, the board of directors, corporate contracts and loans.
4 The Management of a company is carried out by its officers, who include a director, manager and/or company secretary. A director is appointed to carry out and control the day-to-day affairs of the company. The structure, procedures and work of the board of directors, which as a body govern the company, are determined by the company’s articles of association. A manager is delegated supervisory control of the affairs of the company. A manager’s duties to the company are generally more burdensome than those of the employees, who basically owe a duty of confidentiality to the company. Every company must have a company secretary, who cannot also be the sole director of the company. This requirement is not applicable if there is more than one director. A company’s auditors are appointed at general meetings. The auditors do not owe a duty to the company as a legal entity, but, rather, to the shareholders, to whom the auditor’s report is addressed.
5 The duties owed by directors to a company can be classified into two groups. The first is a duty of care and the second is a fiduciary duty. The duty of care requires that the directors must exercise the care of an ordinarily prudent and diligent person under the relevant circumstances. The fiduciary duty stems from the position of trust and responsibility entrusted to directors. This duty has many aspects, but, broadly speaking, a director must act in the best interests of the company and not for any collateral purpose. However, the courts are generally reluctant to interfere, provided the relevant act or omission involves no fraud, illegality or conflict of interest.
6 Finally, a company’s state of health is reflected in its accounts8, including its balance sheet and profit-and-loss account9. Healthy profits might lead to a bonus10 or capitalization issue11 to the shareholders. On the other hand, continuous losses may result in insolvency and the company going into liquidation.
| 1 (US) corporation 2 (US) pierce 3 (US) generally no official certificate is issued; companies are formed upon the filing of the articles/certificate of incorporation (see footnote 4) 4 (US) articles of incorporation or certificate of incorporation | 5 (US) bylaws 6 (US) annual meetings of the shareholders 7 (US) special meetings of the shareholders 8 (US) financial statements 9 (US) profit-and-loss statement or income statement 10 (US) stock dividend 11 (US) cash dividend |
Business Vocabulary
accounting firm n бухгалтерская фирма
authorization n 1 разрешение; 2 наделение правами
balance sheet n балансовый отчёт
bill n законопроект
burdensome adj обременительный
bylaw n устав; правила внутреннего распорядка
capital gain n прирост капитала; pl доходы от прироста капитала
cease v прекратить
collateral adj побочный
company n компания: Объединение юридических и физических лиц, предпринимателей для проведения экономической (производственной, торговой, посреднической, финансовой, страховой) деятельности. Компания имеет статус юридического лица.
affiliate n дочерняя компания, компания- филиал; to affiliate присоединить в качестве филиала.
associated company 1 «ассоциированная компания» (контролирующая фирму или подконтрольная ей); 2 холдинг- компания; 3 дочерняя компания; подконтрольная компания
close company компания закрытого типа (с ограниченным числом участников, не имеющая права продавать свои акции без согласия других акционеров)
daughter company дочерняя компания
holding company холдинг-компания, материнская компания, компания- держатель (владеющая контрольным пакетом акций других компаний)
investment (trust) company англ. инвестиционная компания: Компания, которая инвестирует средства, получаемые от своих акционеров, в самые разнообразные ценные бумаги. Её прибыли образуются за счёт приносимых этими ценными бумагами доходов и увеличения рыночной стоимости капитала.
joint- stock company, stock company акционерная компания: Компания в которой участники объединяют свой капитал и проводят коммерческие операции на основе этого объединённого капитала.
limited (liability) company (LLC) компания с ограниченной ответственностью: Ограничение ответственности компании состоит в том, что она обещает отвечать по принятым ею обязательствам возмещать причинённые убытки только в пределах суммы вложенного в компанию капитала.
nonprofit company некоммерческая компания: Организации, не ориентирующиеся на прибыль (напр. музеи, благотворительные организации).
private (limited) company англ. частная акционерная компания; закрытая акционерная компания: Зарегистрированная компания, не являющаяся публичной. Акции частной компании не могут быть предложены и проданы широкому населению.
public limited company (PLC) англ. открытая [публичная] компания с ограниченной ответственностью: Компания имеет право свободно предлагать свои акции и другие ценные бумаги населению.
sister company дочерняя компания (одна из дочерних компаний в группе подконтрольных компаний)
subsidiary дочерняя компания
trust company траст-компания (выполняющая доверительные функции для частных лиц и организаций)
Company Act n закон о компаниях
conform n соответствовать
constant adj постоянный
constitute v составлять
continuity n непрерывность, преемственность
corporate body n корпорация
corporation n корпорация, объединение; (амер.) акционерное общество, акционерная компания
domestic corporation компания, зарегистрированная в данном штате; отечественная компания
debenture n облигация, долговое обязательство
duty of care n обязанность соблюдать осторожность
entity n самостоятельное образование, самостоятельная правовая единица
corporate entity корпорация, юридическое лицо
legal entity 1 юридическое лицо; 2 субъект права; syn. legal person
equity n 1 обыкновенная акция; 2 акционерный капитал; 3 доля акционера в капитале предприятия; 4 чистая стоимость капитала; активы (предприятия) за вычетом задолженности
equities обыкновенные акции
fiduciary duty n обязанность, основанная на доверии; фидуциарная обязанность
flexibility n гибкость
gains n прибыль, доходы
capital gains доходы от прироста капитала
grant n получать; давать, наделять
hybrid adj смешанный
incorporation n 1 объединение, включение; 2 регистрация
institution n учреждение
loan institution кредитное учреждение
savings institution, depository institution депозитное учреждение
interest n процент(ы)
interest in a business участие в предприятии
interest in profits доля в прибылях
issuance n выдача
liability n ответственность
limited liability ограниченная ответственность
unlimited liability неограниченная ответственность
lift the veil поднять завесу
limited (Ltd) с ограниченной ответственностью
liquidator ликвидатор (лицо, ведающее распродажей имущества банкрота)
nominal value of the shares номинальная стоимость акции; установленная стоимость; номинал
partnership n товарищество, компания
general partnership компания с неограниченной (имущественной) ответственностью
limited partnership компания с ограниченной (имущественной) ответственностью (большинства партнеров при неограниченной ответственности главного партнера)
perpetrate fraud v совершить мошенничество/обман
perpetual adj постоянный
preclude n препятствовать
profit- and- loss account n счет прибылей и убытков
promoter v учредитель (компании)
proprietor n собственник
proxy n уполномоченный; доверенное лицо
receiver n ликвидатор (имущества должника); official receiver официальный ликвидатор
reduce v превращать; сводить
Registrar of Companies бюро регистрации компаний
reluctant adj неохотный
retain profits v удерживать прибыль
royal charter n королевская грамота
securities n ценные бумаги; фонды
share n акция
ordinary share обыкновенная акция
shareholder n акционер; держатель акций
sole proprietorship n единоличное владение
sole trader n единоличный владелец/торговец
statute n статут; закон; законодательный акт (парламента)
statutory adj действующий в силу закона, основанный на законе, установленный законом, предусмотренный законом, законный
stock nамер. акция, акции; акционерный капитал; англ. ценные бумаги; облигации; фонды
stockholder nамер. акционер; владелец государственных ценных бумаг
syndicate n синдикат: Объединение предприятий/компаний, выпускающих однородную продукцию, созданное в интересах коллективного сбыта такой продукции через единую торговую сеть; to syndicate объединять в компанию или синдикат
trader n 1 торговец; 2 брокер
trait n признак
transferability n возможность свободной передачи (использования)
ultra vires лат. принцип «ультра вирес»; с превышением полномочий
undertaking n 1 дело, предприятие; 2 обязательство, гарантия; to undertake предпринимать, брать на себя ответственность
wind up n ликвидировать (компанию); Wind up by the courtn ликвидировать по постановлению суда
withdrawal n выход из состава, из дела
Vocabulary tasks
A Some of the important roles in company management are discussed in the text above. Which roles are mentioned?
B Here is a more comprehensive list of roles in company management. Match the roles ( 1- 10 ) with their definitions ( a- j ).
| 1 auditor 2 company secretary 3 director 4 liquidator 5 managing director 6 official receiver 7 promoter 8 proxy 9 receiver 10 shareholder | a person appointed by a shareholder to attend and vote at a meeting in his/her place when the shareholder is unable to attend b company director responsible for the day-to-day operation of the company c person elected by the shareholders to manage the company and decide its general policy d person engaged in developing or taking the initiative to form a company (arranging capital, obtaining personnel, making arrangements for filing corporate documentation) e person appointed by the company to examine the company’s accounts and to report to the shareholders annually on the accounts f company’s chief administrative officer, whose responsibilities include accounting and finance duties, personnel administration and compliance with employment legislation, security of documentation, insurance and intellectual property rights g member of the company by virtue of an acquisition of shares in a company h officer of the court who commonly acts as a liquidator of a company being wound up by the court i person appointed by creditors to oversee the repayment of debts j person appointed by a court, the company or its creditors to wind up the company’s affairs |
Text B
Company Formation
Lawyers play important roles in the formation of a company, advising clients which entities are most suited to their needs and ensuring that the proper documents are duly filed.
You are going to read a conversation between an American lawyer, Ms Norris, and her client, Mr O’Hara. The lawyer describes how a specific type of corporation is formed in the state of Delaware.
Ms Norris: So, based on all the background information you provided me with, my strongest recommendation is for you to incorporate for the reasons we discussed.
Mr O’Hara: All right. Of course, I trust your judgement. But I’m completely new to this. How does it work exactly? I mean, I assume that the paperwork has to be drafted by you and filed with the State…
Ms Norris: Well, um, let me begin by telling you about how the process works in our state, in Delaware. You know, quite a few large corporations choose to incorporate here due to our highly developed corporate legal system.
Mr O’Hara: Right. So what do we have to do first?
Ms Norris: The first thing you have to do is select a name — but the incorporator has to check whether that name is available in the State.
Mr O’Hara: The incorporator?
Ms Norris: That’s the person who prepares, files and signs the articles of incorporation and everything necessary for incorporation. Of course, that’s something I could do for you.
Mr O’Hara: Got it. Go on.
Ms Norris: Well, I mentioned the articles of incorporation: that’s the first main document that needs to be filed. It includes information like the name of the corporation, the address of the corporation and of the corporation’s registered office, and the name of the register agent at that office – um, that’s the person to be served if the corporation is sued.
Mr O’Hara: OK, right. Er, what else do the articles of incorporation include?
Ms Norris: They must state the purpose of the corporation and length of time that the corporation is to exist. The duration can be either perpetual or renewable, another thing you’d have to provide is information about the capital structure: how much common stock, how much preferred stock, and what are the rights and responsibilities of each. This would be stated in the stock ledger. The stock ledger and the stock certificates are kept with the company records. Any questions?
Mr O’Hara: Er, could you explain what a stock ledger is?
Ms Norris: Sure, that’s just a record of each shareholder’s ownership in a corporation.
Mr O’Hara: I understand. So, is that all? Are there any other documents we have to file?
Ms Norris: Of course, the other document necessary for the company to function as a corporation is the bylaws…
Mr O’Hara: Those are the rules of the corporation?
Ms Norris: Exactly: the bylaws are the rules and regulations adopted by a corporation for its internal governance. There’s one more thing: you’re also required to file the organizational board resolutions.
Mr O’Hara: What are those?
Ms Norris: Well, they’re drawn up after the articles of incorporation have been filed and the bylaws created. That’s the time when the first organizational meeting of your corporation will take place. At this meeting, the bylaws are then approved and adopted, officers are elected, and directors are appointed, among other things. All of these decisions are made during this meeting and then set down in the organizational board resolutions, and these resolutions are then filed. Then the incorporation process is complete.
Vocabulary
capital structure n структура капитала
incorporate v предоставить статус корпорации, зарегистрировать как корпорацию; incorporator n учредитель корпорации; articles of incorporation амер. устав корпорации
renewable adj возобновляемый
stock n капитал; capital stock акционированный капитал; common stock обычные/обыкновенные акции; preferred stock привилегированные акции (с фиксированным дивидендом)
stock ledger n книга учета акций.
Reading tasks
Answer these questions.
1 What is the role of lawyers in the formation of a company?
2 What is the first thing to do for a company incorporation?
3 What does the term ‘the articles of incorporation’ mean?
4 What information do they include?
5 What are bylaws?
6 What decisions are made during the organizational meeting?
Language focus
A These sentences deal with company formation and management. In each case, choose the correct word or phrase to complete them.
1 The constitution of a company comprises / consists / contains of two documents.
2 The memorandum of association states/ provides for/ sets up the objects of the company and details its authorized capital.
3 The articles of association contain arguments / provisions / directives for the internal management of a company.
4 The company is governed by the board, of directors, whilst the day-to-day management is delegated upon / to/ for the managing director.
5 In some companies, the articles of association make / give / allow provision for rotation of directors, whereby only a certain portion of the board must retire and present itself for re-election before the AGM.
6 Many small shareholders do not bother to attend shareholders' meetings and will often receive proxy circulars from the board, seeking authorization to vote on the basis of/ in respect of/ on behalf of theshareholder.
B Complete this table by filling in the correct noun or verb form. Underline the stressed syllable in each word with more than one syllable.
| Verb | Abstract noun | Personal noun |
| ad mini strate | adminis trat ion | ad mini strator |
| audit | ||
| liquidation | ||
| perpetrate | ||
| appointment | ||
| assume | ||
| authorize | ||
| formation | ||
| issue | ||
| omit | ||
| provide | ||
| redemption | ||
| require | ||
| resolution | ||
| transmit |
С Prepositional phrases The following prepositional phrases are common in legal texts. Match the prepositional phrases (1-4) with their definitions
(a-d).
1 in terms of a 1) for the purpose of; 2) by the route through
2 in the course of b as an answer to; in reply to
3 by way of c 1) with respect or relation to; 2) as indicated by
4 in response to d while, during
D Prepositional phrases. Complete these sentences using the prepositional phrase from Exercise C that best fits in each. For some of the sentences, there is more than one correct answer.
1 In the course of choosing the name of the company, a number of matters
must be considered.
2 Confidential information acquired ____________ one's directorship shall not be used for personal advantage.
3 I would advise that members of your project group formalize your relationship _____________ a partnership agreement, incorporation or limited liability company.
4 This form of corporation is often considered to be the most flexible body ______________ corporate structure.
5 Our company formations expert is unable to provide advice ___________ your query as there are a number of factors which need to be taken into account which do not relate directly to his area of expertise.
6 The relationship between management and boards of directors at US multinational companies has been changed dramatically through a series of corporate governance initiatives begun ________________ corporate and other requirements.
7 Shareholders and other investors in corporations tend to view corporate governance ______________ the corporation's increasing value over time.
8 Regular and extraordinary board meetings may be held by telephone, video - telephone and ________________ written resolutions.
9 ______________ the articles of association, the board has the power to appoint board committees and to delegate powers to such board committees.
E Verb-noun collocations Match each verb (1-5) with the noun it collocates with (a-e).
| violate | a | affairs | |
| call | b | representation | |
| overturn | с | a meeting | |
| gain | d | a decision | |
| conduct | e | a law |
F Collocations with file. Decide which of the following words and phrases can go with the verb to file. You may need to consult a dictionary.
an action an AGM1 an appeal an amendment a breach a brief charges a claim a complaint a debt a defence a dispute a document a fee an injunction a motion provisions a suit
__________
1 AGM abbr. for annual general meeting