COMPANY FORMATION

I. OVERVIEW OF COMPANY
1. THE NATURE OF COMPANY
2. THE CORPORATE VEIL
3. CLASSIFICATION OF COMPANIES
II. FORMATION OF COMPANY
FORMATION OF REGISTERED COMPANIES
PROMOTERS AND PRE-INCORPORATION
CONTRACTS
THE COMPANY NAME
A. OVERVIEW OF COMPANY
I. THE NATURE OF COMPANY
1. Separate legal entity
- Sự độc lập trong tư cách chủ thể: A company has a legal identity of its own, which is quite separate from
the legal identity of its owners.
- It follows that if a wrong is done to a company, only the company has the right to sue, not those who own
the company’s shares.
- Conversely, a person who is injured by a company will have the right to sue the company, but will not have
the right to sue the company’s shareholders or its officers.
- Exercise - HW: List the conditions for an organization to be recognized as a legal person under the
Civil Code 2015 (Vietnam)?
- Example: Salomon v Salomon and Co Ltd [1897]
Mr Salomon was a shoemaker in England. His sons wanted to become his business partners so he
converted his business into a limited company (A Salomon & Co Ltd). A Salomon & Co Ltd purchased Mr
Salomon’s business for above market value. His wife and his five children became subscribers. The two
eldest sons became directors of the company. Mr Salomon was allocated 20,001 of the company’s 20,007
shares. The company gave Mr Salomon £10,000 in debentures and received an advance of £5,000 from
Edmund Broderip, on security of the debentures. Salomon’s business eventually failed and it defaulted on
its interest payments on the debentures (half held by Broderip). The company went into liquidation.
Broderip was repaid his £5,000. This left £1,055 company assets remaining. Salomon claimed this amount
under his retained debentures. This would leave nothing for unsecured creditors. The company’s liquidator
argued that Salomon should be responsible for the company’s debts. Salomon sued for the £1,055.
 Held. The company had been formed properly and without any fraud. Although Salomon owned all but six
of the issued shares he was one person and the company was another. Salomon therefore had no more
obligation to pay the company’s debts than he had to pay his next-door neighbour’s debts.
2. Liability
- Chỉ áp dụng Limited company – Ko áp dụng vs tất cả loại hình cty
- Example
 3. Perpetual succession - độc lập trong tồn tại
- Perpetual succession is the continuation of a corporation’s existence despite the death, bankruptcy,
change in membership or an exit from the business of any owner or member, or any transfer of stock,
etc.
- “Perpetual succession” is one of the factors explaining a corporation's legal existence as separate from
those of its owners.

4. Ownership of property – quyền tư hữu tài sản

- A company can own property, and this property will continue to be owned by the company regardless
of who owns the shares in the company.
- This can be important when a company is trying to borrow money, because the company can give its
own property, both present and future assets, as security for a loan.
- Example: Macaura v Northern Assurance Ltd [1925]
Facts
 Mr Macaura sold all timber to a company (Irish Canadian Saw Mills Ltd) in which he and his nominees
held all the shares. Subsequently Mr Macaura insured the timber against fire on policies in his own name.
After two weeks, a fire broke out and he claimed the insurance. The insurance company, Northern
Assurance Co Ltd, argued that Mr Macaura did not have an insurable interest as a shareholder in the
company. They argued that the company is a separate legal entity.
Issue: Does Mr Macaura have an insurance interest?
Held
 House of Lords held that he did not have an insurable interest. Claim failed because he has no legal or
equitable interest needed to sure on insurance policy and a mere moral certainty of profiting or losing not
enough.
 In English law in order to insure an asset, you need to have insurable interest in the asset and before he sold
the timber he had complete ownership but once he sold the timber to the company, the timber belong to the
company NOT him so therefore he didn’t have any insurable interest in the company.
 5. Contractual capacity - năng lực tham gia hợp đồng

6. Criminal liability - trách nhiệm hình sự

- A living person has a mind which can have knowledge or intention or be negligent and he has hands to
carry out his intention. A corporation has none of these; it must act through living persons, though not
always one or the same person. They are agents of company. If it is a guilty mind then that guilt is the
guilt of the company.
- It must be a question of law whether, once the facts have been ascertained, a person in doing particular
things is to be regarded as the company or merely as the company’s servant or agent.
- Example:
In 1994 a company called OLL Ltd, and its managing director, were both found guilty of manslaughter
after four sixth form students died as a result of grossly inadequate safety measures while on a canoe trip
across Lyme Bay. The “mens rea” of the managing director was attributed to the company. The managing
director was sentenced to three years’ imprisonment, reduced on appeal to two years, the company was
fined £60000, which represented all of its assets. This case was the first one in which a company had been
convicted of manslaughter. Such convictions are very difficult to secure and new statutory regulation of
corporate manslaughter is proposed by the government.

II. THE CORPORATE VEIL – rèm che pháp lý

 nhấn mạnh sự độc lập của chủ thể
Only the company itself can be liable in respect of a wrong
done by the company. The owners of the company will
normally be free of any liability. They are said to be protected
by the ‘veil of incorporation’.

But there are circumstances in which a court or a statute will

“lift the corporate veil” (Piercing the corporate veil)
 xuyên thủng rèm che pháp lý để có thể xem xét trách
nhiệm của SH so that the members of the company are not
protected by the company’s artificial legal personality

Gilford Motor Co Ltd v Horne [1933]

 Mr. Horne was employed as managing director of GMC Ltd. In his contract of employment Horne
agreed that after leaving GMC he would not solicit its customers. When his contract was
terminated Horne did begin to solicit GMC’s customers. He knew that GMC would not allow him
to get away with this, so he formed a company, the sole purpose of which was to employ him
 while he continued to solicit the customers. Horne’s defence, when sued by GMC, was that his
promise in his contract of employment was binding only on himself, not on the new company.
 Held. An injunction was granted preventing either Horne or the company from soliciting GMC’s
customers. The Court “pierced the corporate veil” and ordered an injunction against Horne. Courts
can “pierce the corporate veil” if a company is simply a mere device to evade legal obligations,
though this is only in limited and discrete circumstances.
 If the company can be characterised as an enemy in time of war
 Khi 1 cty đc cho là kẻ thù trong gđoạn chiến tranh  xuyên qua rèm che  mâu thuẫn
- A country at war with another country is likely to restrict the activities of citizens of the
other country, who may be regarded as enemy aliens. If a company is owned by enemy aliens
then the court may lift the veil and regard the company as having an enemy character.
- Một quốc gia đang có chiến tranh với một quốc gia khác có thể hạn chế hoạt động của công dân
của quốc gia kia, những người có thể bị coi là người nước ngoài thù địch. Nếu một công ty do
người nước ngoài thù địch sở hữu thì tòa án có thể gỡ bỏ bức màn che và coi công ty đó có tính
chất thù địch.
- EXAMPLE: Daimler Ltd v Continental Tyre and Rubber Co Ltd [1916]
Fact:
The Continental Tyre Co was registered in England. It was owed money by Daimler and
sued to recover the debt. Daimler argued that as all but one of the £25.000 shares in the
Continental Tyre Co were owned by German residents the company should not be
allowed to sue on the debt when Britain was at war with Germany. (Công ty Continental
Tyre được đăng ký tại Anh. Daimler nợ tiền và đã kiện để đòi nợ. Daimler lập luận rằng vì tất
cả trừ một trong số 25.000 cổ phiếu của Continental Tyre đều thuộc sở hữu của cư dân Đức
nên công ty không được phép kiện về khoản nợ khi Anh đang có chiến tranh với Đức. )
Held:
The company could not sue on the debt. The company had assumed an enemy character and
therefore anyone trading with it would be trading with the enemy. (Công ty không được phép
kiện về khoản nợ. Công ty đã tự nhận mình là kẻ thù và do đó bất kỳ ai giao dịch với công ty
này đều sẽ giao dịch với kẻ thù.)
 Groups of companies regarded as one  chế định tập đoàn
- Commonly one company, known as a holding company, owns a majority or all of the voting
shares in another company, known as a subsidiary company. As a general principle, the veil of
incorporation will hang between the two companies. In exceptional circumstances, a court may lift
the veil either on the grounds of agency or on the grounds of economic reality.
- Example: DHN Foods Ltd v London Borough of Tower Hamlets [1976]
 Fact.
DHN was the holding company in a group of three companies. There were two
subsidiaries, wholly owned by DHN. One subsidiary owned land used by DHN, the other
owned vehicles used by DHN. The land was subject to compulsory purchase by the
Government, and DHN sought compensation for disturbance of its business. (DHN là công
ty mẹ trong một nhóm ba công ty. Có hai công ty con, do DHN sở hữu hoàn toàn. Một công ty
con sở hữu đất do DHN sử dụng, công ty con còn lại sở hữu xe do DHN sử dụng. Đất đai bị CP
cưỡng chế thu hồi và DHN đã tìm cách bồi thường cho việc gây xáo trộn hoạt động kinh doanh
của mình. Được nắm giữ.)
 Held.
The group of companies could be treated as one economic enterprise, because they were
virtually a partnership with the three companies as partners. Consequently DHN was
entitled to damages.
However, this is likely to only be followed where the subsidiaries are wholly owned and
serve no purpose other than to own the parent company’s assets.(Nhóm công ty có thể được
 coi là một doanh nghiệp kinh tế, vì về cơ bản họ là quan hệ đối tác với ba công ty là đối tác.
Do đó, DHN có quyền được bồi thường thiệt hại. Tuy nhiên, điều này có khả năng chỉ được
thực hiện khi các công ty con được sở hữu hoàn toàn và không phục vụ mục đích nào khác
ngoài việc sở hữu tài sản của công ty mẹ. )
 Treating a company as a partnership in order to wind it up
 Cty đc coi là partnership để giải thể
- Ebrahimi v Westbourne Galleries [1972]
 Facts:
Mr Ebrahimi and Mr Nazar were partners. They decided to incorporate as the business was highly
successful, buying and selling expensive rugs. Mr Ebrahimi and Mr Nazar were the sole
shareholders in the company and took dividends rather than director's salary for tax reasons. A few
years later, when Mr Nazar's son came of age, he was appointed to the board of directors and Mr
Ebrahimi and Mr Nazar both transferred shares to him. After a falling out between the directors,
Mr Nazar and his son voted to remove Mr Ebrahimi as a director and excluded him from the
management of the business. Mr Ebrahimi decided to petition the court for relief.
 Judgment:
The House of Lords stated that as a company is a separate legal person, the court would not
normally entertain such an application. However, they believed that as the company was so similar
in its operation as it was when it was a partnership, they created what is now known as a quasi-
partnership.Based on the personal relationship between the parties it would be inequitable to allow
Mr Nazar and his son to use their rights against Mr Ebrahimi so as to force him out of the
company and so it was just and equitable to wind it up. The company was wound up and Mr
Ebrahimi received his capital interest.
 Other situations where the veil may be lifted
 TH khác cần vén rèm che pháp lý
- The courts have the power to lift the veil in other situations if they think that this is the best way to
do justice in the case.
- The Companies Act requires all companies other than private limited companies to have at least
two members. If the number of members falls to only one, the sole member can become liable for
the company’s debts which arose more than six months after the membership of the company was
reduced to one.
- Section 214 of the Insolvency Act allows a court to make directors liable for wrongful trading.
This liability arises only in respect of the liquidation of insolvent companies where directors have
continued to run the company when they knew, or should have known, that there was no
reasonable prospect of avoiding insolvency.
- Exercise - HW:
Take an example about “the corporate veil”.
Take an example: the court “lifts the corporate veil”.
III. CLASSIFICATION OF COMPANIES
1. INCORPORATION

2. LIABILITY - TN của CSH

3. Public company and Private company

B. FORMATION OF COMPANY – Quy định pháp luật lquan đến thành lập cty
1. FORMATION OF REGISTERED COMPANIES
- Quy trình thành lập 1 cty
- A registered company is formed by promoters (sáng lập viên), who must register certain
documents with the Registrar of Companies. (CQ đăng ký kinh doanh)
- If the Registrar is satisfied with the documents, he will issue a Certificate of incorporation (GCN
đăng ký DN), and the company will then exist as a corporate body.

- Company’s constitution – Văn bản bản lề của cty

A company’s constitution is contained in its memorandum (biên bản thỏa thuận tlap cty)
and articles of association (điều lệ của cty).
The memorandum of association sets out the structure of the company.
The articles of association form a contract between the company and members and among the
member themselves. They are the internal rules of the company.
- Companies “off-the-shelf” – mua bán doanh ngiệp đã đc thành lập
Those who form such
companies register themselves
as the company’s first director
and company secretary and
take one share.
When a customer wishes to
buy an “off the shelf
company”, the share is
transferred to whoever the
customer nominates, and the
original director and secretary
resign and, having first
procured the appointment of a
new director and secretary, notify Companies House that they have resigned.
2. PROMOTERS AND PRE-INCORPORATION CONTRACTS
 PROMOTER – sáng lập viên
- Promoters are people who undertake to form a company and take the preliminary steps for it.
 - Are all promoters subscribers? // Are all subscribers members?

Subscribers

Promoters
Members

Subscribers

- Fiduciary duties to the company - Nghĩa vụ ủy thác của các nhà sáng lập đối vs cty do họ tlập

Erlanger v New Sombrero Phosphate Co (1878)

 Facts: Erlanger (E) was a French banker who bought the lease for the Anguilian island of
“Sombrero”, phosphate mining for £55,000. E then established New Erlanger Phosphate Co (P),
before selling Sombrero’s lease to P for £110,000 through a nominee. One of P’s directors was the
Lord Mayor of London, who was independent of E’s initial group of founders. Two other directors
were abroad, and the other directors were puppet directors of E. Due E’s strong control over P, the
company was essentially an extension of Erlanger. P ratified the sale of the lease. Many people
invested in P due to E’s skills at promotion. Eventually, the investors realised that E had sold the
lease to P for double the price he had bought it for, and P sued E for recession due to non-
disclosure and an account of profits.
 Issues: Was E liable to P due to not disclosing to his conflict of interest?
 Held: E was a promoter for P. The House of Lords (Thượng viện) unanimously held that the
relationship between a promoter and a newly formed company attracts a fiduciary relationship.
The majority also held that the contract can be rescinded. A promoter owes duties of good faith
and honesty to the company. E should have declared any conflicting interests to the company
promoted and cannot make any “secret profits”. A promoter who breaches any duty to the
 company by failing to disclose to the company conflicting interests would be liable. The company
is able to seek remedies such as rescission of contract and recovery of profits. A constructive trust
can also be formed for the profits gained by the promoter in breach of his or her duties.
 PRE-INCORPORATION CONTRACT – hợp đồng tiền cty
- In practice, promoters will need to contract with third parties for such things as a lease of
premises, business equipment and connection to utilities so that once the certificate of
incorporation is issued the company can begin trading. They are pre- incorporation contracts.
- Pre-incorporation contract is a contract made on behalf of company before incorporating .  phát
sinh trc khi cty thành lập nhân danh lợi ích của cty
- Features of pre-incorporation contract

Example: Kelner v Baxter (1866)

 Facts
A group of promoters for a new hotel company, the “Gravesend Royal Alexandra Hotel Company”
(Gravesend) entered into a contract for wine. This contract was purportedly on behalf of
Gravesend, but Gravesend had not at that point been registered. It was a “pre-incorporation
contract”. Gravesend was eventually registered, but by that stage the wine had been consumed
before the money had been paid. Gravesend soon went into liquidation.
The promoters, as Gravesend’s agents, were sued. The promoters argued that, as Gravesend had
been incorporated, the contract had subsequently been ratified and the liability had passed to the
company.
 Issues: Were the agents liable for the pre-incorporation contract post ratification by Gravesend?
 Held
The Court of Common Pleas held that because the company did not exist at the time of the signing
of the agreement it would be wholly inoperative unless it was binding on the promoters. A
stranger cannot, by subsequent ratification, relieve the promoters from that responsibility of
liability.
- A promoter can avoid potential liability if:
 Not making contracts until the company has been incorporated  ko có hợp đồng tiền cty,
ko có TN cá nhân
 Using an “off-the-shelf” company  mua lại cty đã và đang hđộng trên TT
 Agreeing a draft only with the third party on the basis that the company, once formed, will
enter into the agreed form with the third party.  thỏa thuận 1 bản dự thảo theo đó bên t3
sẽ ký “official contract” sau khi cty đc tlap
HOMEWORK:
 Take an example about “pre-
incorporation contract”.
 CỤ THỂ HÓA TÊN PROMOTERS

 NGẮN GỌN XÚC TÍCH, KO CẦN

HẬU QUẢ HAY PHÁN XÉT CỦA
TÒA ÁN
 BS ĐEM LẠI LỢI ÍCH CHO CTY
 CÂU HỎI LÚC THI
- Muôn nhà sáng lâp muốn tránh TN
cá nhân -> đưa ra phương án??
- Xay dụng tình huông => tránh bằng
cách nào??
3. THE COMPANY NAME
- Prohibited names
o (i) The words ‘limited’ or
‘unlimited’ or ‘public limited
company’, or their Welsh
equivalents, can only be used at
the end of the name.
o (ii) The Registrar will refuse to register a name which is identical to the name of another
company already on the register.
o Nor will a name be registered if it is identical except for: (i) the inclusion of the word ‘The’ at
the beginning of the name; (ii) the way the letters which spell out the name are differently
punctuated or differently divided into words; or (iii) the use of the words ‘company’,
‘limited’, unlimited’ or ‘public limited company’ at the end of the name.
o (iii) The Registrar will refuse to register a name the use of which would, in the opinion of the
Secretary of State, constitute a criminal offence or be offensive.
o (iv) Regulations made by the Secretary of State prohibit the use of certain words which
suggest a connection with the Government or with local authorities. The Registrar can register
such a name but permission from an appropriate body may be required.
- Passing-off
o If a company registers a name which is too similar to the name of an established business, an
action for the tort of passing-off might be brought by the established business to prevent the
company from trading under its registered name. If such a passing-off action is brought the
court will grant an injunction to prevent use of that name.
o However, a passing-off action will only be successful if the use is likely to divert customers
away from the established business or cause confusion between the two businesses.
- Business names
o Sometimes companies trade under a name other than their registered corporate name.
o A company which does trade under another name will have to comply with the Business
Names Act 1985. The Act will apply if the company carries on business in any name other
than its exact registered name, except that it may add to that name that it is carrying on
business as a successor to a former owner of that business.
o Even if the company does trade under another name it must continue to print its proper
corporate name on all business documents, as explained above.