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Company Shares Shareholders

RE: Advise on Private Company limited by shares.

Dear Tracy and Terry,

I am aware of your background and current issues you are facing regarding incorporating your partnership business to a private company limited by shares. In order to advise you on the matters you have raised, I have outlined the issues and solutions in order to incorporate in the best and efficient lawful manner.

Upon incorporation you may be faced with the following issues, I have outlined and discussed them in the light of law so that you get a better understanding and consequently can make a sound judgment.

Issue: How to minimise the risk to the assets to be transferred to the company:

Rule: Doctrine of Incorporation, Illustrations of the Doctorine

Apply: To minimize the risk of the assets being transferred to the company we should firstly value the assets that are being transferred secondly we have to decided which securities in the company we opt to go for. There are two types of securities in the company one is Shares and the other is Debentures. For the amount being invested in shares we receive dividends and in case of debentures we receive interest.

Both shares and debentures have their advantages and disadvantages but the main ones are:

Transferring assets in return of shares gives the shareholder a flexibility of ownership in the company and its administration, but in case of debentures there is no such flexibility.

Disadvantage of shares is that in times of liquidation the shareholders don't receive anything if the company is stated insolvent but the debenture holders receive their interest before the shareholders even if the company's insolvent.

Further to the argument we can refer to the case of Salomon v Salomon & Company Ltd (1897) in which the preceding of the House of Lords was in favor Salomon discussing the separate entity of the company in times of it being solvent.

Conclusion: Looking at both the sides now it's up to you which way you want to secure your assets on. There are different types of debentures but the safest one is the one with a floating charge that means the debenture is secured on company's asset which makes it a secured investment.

Having looked at the risk of transferring asset I would like to further advise you on

Provisions included in the Articles of Association to ensure the realization of the shareholding in the company

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