Reading 1: Introduction to company law
This text provides an introduction to the key terms used when talking about companies as
legal entitities, how they are formed and how they are managed.
1 Read through the text quickly and decide which of these phrases (a–f) best
expresses the topic of each paragraph (1–6).
a directors’ duties
d company health
b management roles
e partnership definition
c company definition
f company formation
Company law: 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 despite 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 ‘lift2 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 objects of the company and the details of its authorised capital, otherwise known as the