ACCA F4 - Corp and Business Law (ENG)

184 12: Corporations and legal personality  Part D The formation and constitution of business organisations

3.6.4 Commencement of business

A private company can commence business as soon as it is incorporated. A public company if

incorporated as such must first obtain a trading certificate from the Registrar.

3.6.5 General meetings

Private companies are not required to hold annual general meetings, (AGMs). Public companies must

hold one within six months of their financial year end.

3.6.6 Names and Identification

The rules on identification as public or private are as follows.

 The word 'limited' or 'Ltd' in the name denotes a private company; 'public limited company' or

'plc' must appear at the end of the name of a public company.

 The constitution of a public company must state that it is a public company. A private company

should be identified as private.

3.6.7 Disclosure requirements

There are special disclosure and publicity requirements for public companies.

The main advantage of carrying on business through a public rather than a private company is that a

public company, by the issue of listing particulars, may obtain a listing on The Stock Exchange and so

mobilise capital from the investing public generally.

There is an important distinction between public companies and listed public companies. Listed (or

quoted) companies are those which trade their shares (and other securities) on stock exchanges. Not all

public companies sell their shares on stock exchanges (although, in law, they are entitled to sell their

shares to the public). Private companies are not entitled to sell shares to the public in this way.

In practice, only public companies meeting certain criteria would be allowed to obtain such a listing by the

Stock Exchange.

Private companies may be broadly classified into two groups: independent (also called free-standing)

private companies and subsidiaries of other companies.

4 Additional classifications

There are a number of other ways in which companies can be classified.

4.1 Parent (holding) and subsidiary companies

There is a distinction between an 'accounting' definition of a parent company, and a 'legal' definition under

the Companies Act. A company will be the parent (or holding) company of another company, its

subsidiary company, according to the following rules.

Parent company

(a) It holds a majority of the voting rights in the subsidiary.

(b) It is a member of the subsidiary and has the right to appoint or remove a majority of its board of

directors.

(c) It has the right to exercise a dominant influence over the subsidiary:

(i) By virtue of provisions contained in the subsidiary's articles

(ii) By virtue of a control contract

Attention!

Key term

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