US and UK Commercial and Company Law – Key Differences

US Attorneys and UK Solicitors likely already know legal systems in both the U.K. and the U.S. share the same historical common law roots, and are for that reason similar.

As a dual qualified US Lawyer and UK solicitor I am more aware than moast at how the U.S. and U.K. legal systems differ and this post is designed to provide an outline of the key factors.

STATES

Both the UK and US have their own constituent parts with differing laws and sytems.

One point to bear in mind though is that there is no such thing as “UK law”. England and Wales share a common legal system, but Scotland and Northern Ireland have their own and although many of their laws are created in Parliament (less so since devolution), they have their own distinct legal history, precedents, and practices.

The U.K. (i.e. England and Wales, Scotland, and Northern Ireland), is similar to the states of the U.S. and they each have their own laws, court systems, and law society and bar associations.

In the U.S., Federal law and court decisions generally take precedence over State laws and decisions. Powers not granted to the Federal government are instead specifically reserved to the states in the U.S. Constitution.

COMMON LAW

Both United Kingdom laws and United States laws and legal systems are built on the “Common law” system, which means that much of the law is based on “Precedent”, or past court rulings. (In contrast to Civil law under which each case is tried entirely on its own merits against the written law, without past precedents being taken into account.)

STATUTORY FRAMEWORK

Both the UK and the US law also have a statutory framework.

In the UK, statute law is that enacted by Parliament and always supersedes common law.

If there is a conflict between 2 statutes, the later one prevails. Some areas of medical practise are goverened more by statutory law than common law.

Over in the US, for legislation, the U.S. has two centralised federal bodies, the House of Representatives and the Senate (together, known as the Congress), which are similar to the Houses of Parliament. Each of the 50 states in the U.S. is afforded two senators, while representatives are allocated proportionally based on each state’s population.

Statutory law in the United States consists of the laws passed by the legislature. For the federal government, then, the statutory law is the acts passed by the Congress.

In order to become a law in the U.S., a bill under discussion must be approved by a majority of both congressional bodies, and then signed into law by the President. If the President refuses to sign the bill into law, his or her veto can be overridden by a two-thirds majority vote in Congress.

Acts passed by Congress are designated as (mainly) Public Laws relating to the general public, and Private Laws, which relate to specific institutions or individuals.  Most of the laws passed by Congress are public laws. 

Once a bill is passed by Congress and signed by the President it becomes a Public Law.  The legislation receives a Public Law number based on the Congress and when it was issued.   

Public laws are first published as slip laws and are subsequently bound into the Statutes at Large.  The Statutes at Large are bound laws in the order that they were passed.

Eventually, the laws are organised by subject, indexed, and published in the United States Code.  The United States Code consists of 50 separately numbered titles.  Each title contains laws specifically relating to that subject.  The code enables researchers to find the particular law they are looking for without having to know when it was passed.

WRITTEN CONSTITUTION

One difference between the two legal systems is that UK law is not based on a written constitution, so there is no single document that can be used to challenge a newly created law.

Rather, the English Parliament is itself “sovereign”; it decides what becomes the law, and can change its mind over time.

COURTS

Both the US and the UK have layers of courts, with a Supreme Court at the top to make the final judgement.

A lot of old English law was adopted in the US and still applies, though much of it has morphed over the years as legislation, judgements and precedents have modified it. Also, a lot of law is quite similar since it has to address the same problem in society.

UK AND US COMPANY LAW DIFFERENCES

In both the US and the UK, operating a corporation or company offers limited liability for members and shareholders.

Delve a little deeper and significant differences in how companies are formed in the two countries, as well as in the post-formation requirements these companies face. Here are a few differences of note:

Centralised and Decentralised Company Registration

Whereas in the UK Companies House serves as a central registry for companies, the US has no such central registry. Instead, corporations are established under the laws of individual states. If the corporation transacts business in a state other than its state of incorporation, it typically must also register in the state or states in which it transacts business. Unfortunately, each state defines for itself what activities within their borders trigger this registration requirement. Generally, isolated transactions or the mere selling to customers through independent contractors will not trigger this registration requirement.

Privacy

Whereas, in the UK, limited companies must file annual accounts, there is no requirement in any US state for the filing of annual accounts. The filing requirements vary from state to state. However, in many states all that is required is an annual or biennial report of the corporation’s officers and directors, with no disclosure of the shareholders or members.

Unlimited Companies

The UK recognises unlimited companies, the members of which have unlimited personal liability in the event that the company cannot pay its debts. In the US, no analogy exists. All companies, once formed, have limited liability, protecting members or shareholders from liability for the corporation’s debts. (A US court can – in very rare circumstances – pierce the corporate veil and hold owners personally liable if they fail to respect the corporation’s separate existence and/or they use the corporation to perpetrate a fraud.)

Public Versus Private Companies

In the UK, limited companies can be either public or private. A public limited company must meet minimum issued share and paid up capital requirements before being issued a certificate of incorporation as a public company. In the US, in contrast, the distinction between a public company and a private company is not determined at incorporation. Instead, the term “public company” is used in the US to describe a publicly traded corporation. Virtually any corporation can seek to go public, typically through an initial public offering (or IPO).

Director Disqualification

Under the UK Company Directors Disqualification Act 1986, a court may disqualify a person from acting as a director of a company for a period of up to 15 years. The US has no similar procedure. Instead, one’s right to serve as a director is left solely to the discretion of the shareholders, who are presumed to have sufficient knowledge and insight not to elect directors who are untrustworthy.

Dissolution

Generally, in the US, shutting down a corporate entity is painless and simple. A US corporation is typically dissolved through the simple act of filing articles of dissolution. There is no requirement – such as exists in the UK on an application for voluntary strike off and dissolution – to demonstrate that the company has ceased to operate for any particular period of time, nor is there any requirement that prior notice be provided via any public record or that the public be permitted to object to the dissolution.

Company Constitutions

It would be too complex for this post to delve into the differences in management and administrative requirements found in UK and US companies’ foundational documents across both jurisdictions. However, these documents are:

• Memorandum and Articles of Association: These derive from the English system, although the memorandum is increasingly being merged into the articles of association rather than being a separate document as countries reform their company law.
• Articles of Incorporation / Articles of Organization: A short document similar to the memorandum of association used in the US, setting out the company’s registered address, capital, objects and limitations on liability. The company’s governance requirements are often augmented following incorporation using bylaws.

Author’s Note:

Should you require any US Commercial or Corporate Legal advice from ann attorney based in the UK, contact the Law Office Jonathan N. Abrams Esq., a USA qualified Attorney at Law based in London.

Jonathan can be contacted by:

• Email: [email protected]

• Telephone:
• UK: +44 (0) 208 004 7016
• USA: +1 (646) 873 7573.