Problem
You are a first-year trainee solicitor with AssessLaw Solicitors LLP. You will be attending a meeting with Aidan Koban and Nico Rizzuto to discuss the incorporation of their business. Andrea has sent you a memorandum with some instructions for the meeting.
MEMORANDUM
From: Andrea Swift
To:
Client: Aidan Koban and Nico Rizzuto
Matter: Actitex - proposed incorporation
Client Ref: Act/as/tl
Date: [yesterday's date]
As background to our meeting tomorrow, in 2016, Aiden Koban and his friend, Nico Rizzuto set up in business together manufacturing 3D spacer fabrics for use in the sports wear industry. They trade under the name "Actitex" ('the Business').
Although still small, the Business is highly profitable, with an estimate worth of £1 million. Aidan and Nico have developed innovative technology which increases the bioclimatic and hygiene properties of their fabrics. These are much in demand. They operate from a leasehold industrial unit near Colchester in Essex. Its other assets include high tech equipment and computer systems. They employ eight people, including administrative staff. Much of the business comes from long term contracts with a number of sportswear manufacturers. In view of the demand for their products, the Business has now reached the stage where additional finance is required for its expansion.
To manage the risk of their expansion plans, I have advised Aidan and Nico to incorporate the Business. The plan is to set up a new company, Actitex Limited, of which Aidan and Nico will each be the directors and shareholders, initially with one £1 ordinary share each.
All the assets of the Business will then be transferred to Actitex Limited in return for 999,998 £1 ordinary shares (499,999 each for Aidan and Nico) in the company.
They have identified two potential investors, Angelica Hune and Mani Senthilkumar, who will subscribe for 250,000 £1 ordinary shares each, which will raise the £500,000 that Aidan and Nico think they need for their expansion plans.
Aidan and Nico did not enter into any formal agreements when they set up the Business. They contributed equal amounts to the Business when it was set up and they have split the profits of the Business equally in order to make best use of their personal tax allowances. They are both involved in managing and running the Business and wish to continue to do so when incorporated. I have recommended that they are given service contracts in their new capacity as directors.
I would like you to conduct the meeting with Aidan and Nico.
Task
Write a memorandum which explains the type of business entity Actitex is now prior to incorporation and the type of business which Actitex Limited will be following incorporation and in each case, who would own the assets of the business. You should also briefly explain how incorporation of the Business will help to manage the risk associated with Aidan and Nico's expansion plans.