3. Formation of a company

Question 1

When did the Companies Act (CA) 2006 come into force?

Answer 1

1 October 2009

Question 2

Do memorandums form part of a company’s constitution?

Answer 2

Under s17 CA 2006 the memorandum no longer forms part of the company’s constitution-it is only required as part of the procedure to register a company at Companies House.

Question 3

Outline what an objects clause is in the context of CA 1985.

Answer 3

Under the CA 1985, the memorandum was a more complex document and was required to include an objects clause setting out the purposes for which the company has been formed.

Question 4

Do companies formed under CA 2006 have an objects clause?

Answer 4

Companies formed under CA 2006 have unrestricted objects (s31 CA 2006) unless the objects are specifically restricted in the company’s Articles.

Question 5

Under CA 2006, what happens to the objects clause of an older company incorporated under CA 1985?

Answer 5

The objects clause of an older company continues in force operating as a limitation on that company’s capacity unless and until the Articles of that company are amended to remove its objects clause.

Question 6

What are Articles of association and do all companies require them?

Answer 6

The Articles form the main constitutional document of a company and regulate the relationship between the shareholders, directors and the company. All companies must have Articles of association (s18 CA 2006).

Question 7

What must the Articles of association comply with?

Answer 7

The Articles must comply with the minimum provisions of CA 2006 (known as the Legality Test).

Question 8

What CA 2006 provisions override anything in a company’s Articles?

Answer 8

s321 CA 2006-right to demand a poll vote at a general meeting cannot be removed in the Articles.

Question 9

What are the three choices a company has as to the form of its Articles?

Answer 9

-Model Articles (MA)
-Amended Model Articles
-Tailor made Articles

Question 10

If a new company does not register Articles at Companies House, what happens?

Answer 10

s20(1) CA 2006 provides that the relevant MA will constitute the company’s Articles in default.

Question 11

Once a company has adopted Articles, how does it alter them?

Answer 11

it is able to alter them at any future date by special resolution (s31(1) CA 2006).

Question 12

What is the basic rule regarding alterations to a company’s Articles?

Answer 12

The basic rule is that, to be valid, any alteration must be made bona fide in the interests of the company as a whole (Allen v Gold Reefs (1900).

Question 13

What is the legal effect of the Articles on the company and its members under CA 2006?

Answer 13

The provisions in the company’s Articles bind the company and its members to the same extent as if there were covenants on the part of the company and each member to observe those provisions (s33(1) CA 2006).

Question 14

Do the Articles form a contract between the company and its members?

Answer 14

Yes, the Articles take effect as a contract between the company and its members in respect of their rights and obligations as members (s33 CA 2006).

Question 15

What are the two options for a client wishing to start a business through the medium of a company?

Answer 15

-Incorporate a new company from scratch
-Purchase and then convert an existing shelf company

Question 16

What must be delivered to Companies House under s9 CA 2006 to incorporate a new company from scratch?

Answer 16

-memorandum
-Articles
-the fee
-an application for registration form (Form IN01)

Question 17

What happens once the Registrar of Companies has approved an application to become a company?

Answer 17

The company is sent a certificate of incorporation authenticated by the Registrar’s official seal. The certificate of incorporation sets out:
-name of the company
-company’s registered number
-date of incorporation

Question 18

At what point does a company become a legal entity after incorporation?

Answer 18

From the date on which the certificate of incorporation is issued by Companies House. The date of incorporation is set out in the certificate (s15 CA 2006).

Question 19

What is a shelf company?

Answer 19

A shelf company is one that has been set up in advance by a company registration agent or law stationer.

Question 20

What changes will need to be made to a shelf company upon purchase?

Answer 20

-Name
-Registered office
-Articles
-Members, directors and company secretary

Question 21

What is the process for changing a shelf company’s name (including the relevant form)?

Answer 21

Under s77(1) CA 2006, a company’s name can be changed by a special resolution of the shareholders or by any other means provided by the company’s Articles. Form NM01 is required to be filed at Companies House with the special resolution passed to change the name and the fee.

Question 22

What is the process for changing a shelf company’s registered office (including the relevant form)?

Answer 22

The chosen address will need to be substituted for the first registered office in accordance with s87(1) CA 2006. Form AD01 is required to be filed at Companies House.

Question 23

What is the process for changing a shelf company’s Articles?

Answer 23

Some shelf companies have been incorporated with MA. If these need amending, this can be done via via special resolution and the amended Articles and special resolution need to be filed at Companies House.

Question 24

What is the process for changing a shelf company’s members?

Answer 24

The shares held by the first members are transferred using a stock transfer form. The new members become the shareholders once they are entered on the register of members.

Question 25

What is the process for changing a shelf company’s directors & company secretary (including the relevant forms)?

Answer 25

The new representatives are appointed as directors and company secretary. Forms AP01(director) and AP03 (company secretary) are required to be filed at Companies House.
The first directors and company secretary must also resign-Forms TM01 (director) and TM02 (company secretary) are filed at Companies House.

Question 26

What are the main requirements for a company’s name?

Answer 26

-must not be offensive (s53(b) CA 2006)

-must end in a limited/ltd (s59 CA 2006)

-must not be the same as another on the index of company names (s66 CA 2006)

-must obtain approval if it suggests a government connection (s54 CA 2006) or contains sensitive words (s55 CA 2006)

Question 27

At what point does a new company name become effective?

Answer 27

A new company name becomes effective from the date on which the new certificate of incorporation on change of name is issued by the Registrar of Companies (s81(1) CA 2006).

Question 28

What must the Board do in relation to a chairperson once a new company has been formed?

Answer 28

They must elect a chair and decide whether the Chairperson should have casting vote in a tied board resolution. MA 13 provides for this but may be amended by special resolution (s21). SR and amended Articles need to be filed at Companies House.

Question 29

What is the default accounting reference date for a new company and how can this be changed?

Answer 29

s391(4) CA 2006 provides that the default accounting reference date will be the last day of the month in which the company was incorporated. If the company want to change this to align with the financial year, Form AA01 is required to be filed at Companies House.

Question 30

How does a new company appoint an auditor?

Answer 30

All companies must prepare annual accounts (s394 CA 2006) and will need to appoint an auditor by Board resolution if company has MA.

Question 31

What tax registrations will a new company need to register for?

Answer 31

-Corporation tax
-VAT
-PAYE
-National Insurance (if it has employees)

Question 32

What is the legal position of a company that has not yet been issued with a certificate of incorporation by the Registrar of Companies?

Answer 32

It is not a legal person and therefore has no capacity to enter into contracts.

Question 33

What does S51 CA 2006 seek to do in the context of third parties and companies?

Answer 33

S51 CA 2006 seeks to protect third parties who believe they are entering into a contract with a company which is incorporated and registered by making pre-incorporation contracts enforceable as personal contracts against the persons purporting to act on the company’s behalf.

Question 34

How are decisions of the directors taken?

Answer 34

By passing Board Resolutions at Board Meetings.

Question 35

What is the process for a Board Resolution?

Answer 35

Each director has one vote. Board Resolutions are passed by simple majority (MA7) unless the directors have agreed that a particular decisions requires unanimity (MA 8).

Question 36

If all the directors are in agreement with a decision, how else can they pass it?

Answer 36

Via written Board Resolution which means the directors don’t have to waste time attending Board Meetings.

Question 37

How are decisions of the shareholders taken?

Answer 37

By passing Shareholder Resolutions either at a GM (General Meeting) or in writing (for private companies only under s288 CA 2006).

Question 38

What are the two types of Shareholder Resolution?

Answer 38

-Ordinary Resolutions which are passed by a simple majority (over 50% of the votes)

-Special Resolutions which are passed by a majority of 75% or more of the votes

Question 39

What are the two ways shareholders can vote at a GM?

Answer 39

-Via a show of hands

-On a poll

Question 40

Outline how shareholders vote via a show of hands.

Answer 40

When the shareholders vote on a show of hands, each shareholder who is present at the meeting will be entitled to one vote regardless of the number of shares held by that shareholder (s284(2)

Question 41

Outline how shareholders vote on a poll.

Answer 41

When the shareholders vote on a poll, every shareholder has one vote in respect of each share held by them (s284(3))

Question 42

What does MA44 Poll voting set out?

Answer 42

This section sets out that a poll resolution can be demanded either in advance of the GM where the vote will take place, or at a GM either before a show of hands on that resolution or immediately after the result of that vote.

Question 43

Under MA44(2), who can demand a poll vote?

Answer 43

-chairperson of the meeting
-directors
-two or more persons having the right to vote on the resolution
-a person or persons representing at least 10% of the total voting rights of all the shareholders entitled to vote on the resolution

Question 44

What type of companies may pass a shareholders resolution by way of a written resolution?

Answer 44

Under s281 CA 2006 only private companies may pass a shareholders resolution by way of a written resolution.

Question 45

Where a company has share capital, how many votes does each member have when voting on a written resolution?

Answer 45

S284(1) states that, where a company has a share capital, every member has one vote in respect of each share held by them when voting on a written resolution.

Question 46

What are the two types of written resolution?

Answer 46

-written ordinary resolution-passed by a simple majority of the total voting rights of eligible members (s282(2) CA 2006)

-written special resolution-must state that it is a special resolution and passed by a majority of members not less than 75% of the total voting rights of eligible members (ss283(2) and (3) CA 2006).

Question 47

What are the two types of decision which can not be passed as written resolutions?

Answer 47

-Removal of a director (s168 CA 2006)

-Removal of an auditor (s510 CA 2006)

Question 48

Outline the following for a Board Meeting:
-who calls a BM?
-notice
-quorum
-voting

Answer 48

-MA 9 provides that any director may call a BM or require the company secretary to do so at any time

-Reasonable notice of the BM is necessary, whatever notice is usual for the directors to give

-Minimum number of two directors must be present (MA11 (2))

-Majority vote on a show of hands (MA7(1)). Each director has one vote and the chair may have a casting vote to prevent deadlock.

Question 49

Outline the following for a General Meeting:
-who calls a GM?
-notice
-quorum
-voting

Answer 49

-The Board will usually convene a GM

-14 days clear notice is required for private companies (the day of the meeting and notice are both excluded). S1147 CA 2006 provides that if posted or emailed, the notice is deemed served 48 hours after sending.

-Two shareholders must be present although one shareholder for single member companies

-Via a show of hands or a poll vote

Question 50

Outline the sequence of meetings for a full notice GM.

Answer 50

BM1-to decide on the issues to be considered at the GM., to approve the form of notice for the GM and to circulate it.

GM-held at least 14 clear days from BM1, the shareholders will vote on the resolutions set out in the notice.

BM2-a further BM will be held and the directors will be informed of the shareholders vote and whether the resolutions were passed.

Post-Meeting Matters (PMMs)-copies of the relevant documents filed at Companies House and company’s internal records updated.

Question 51

How can a company agree to call a GM on short notice?

Answer 51

S307(5) CA 2006 provides that, for a private company, a GM may be called on short notice if this is agreed to by:
-a majority in numbers of the members who,
-together hold shares with a nominal value of not less than 90% of the total nominal value of the shares which give the right to attend and vote at the GM.

Question 52

Outline the sequence of meetings for a short notice GM.

Answer 52

BM-to convene the GM, approve the form of notice and circulate the notice. The BM is then adjourned.

GM-takes place immediately following the adjournment of the BM and the shareholders vote on the resolutions.

BM-is reconvened and the directors are informed as to how the shareholders voted and authorize relevant action.

PMMs then carried out.

Question 53

Who can propose written resolutions (WR)?

Answer 53

Can be proposed by the directors or the members of a private company and is passed when the required majority is passed.

Question 54

What happens if a company does not receive a sufficient number of responses to pass the WR?

Answer 54

It will lapse. For a company with MA, the lapse date is 28 days beginning with the circulation date.

Question 55

Outline the sequence of meetings for a written resolution where the shareholders are present.

Answer 55

BM-to propose the use of the WR procedure and to approve the form and circulate the WR.

BM adjourned- approval of the WR takes place immediately after.

BM reconvened-to inform the Board how the shareholders voted.

PMMs are then carried out.

Question 56

Outline the sequence of meetings for a written resolution where the shareholders are not present/available.

Answer 56

BM-to propose the use of the WR procedure and to approve the form and circulate the WR.

BM closed-the WR is passed once it receives the required level of support (or lapses after 28 days for an MA company).

BM2-to inform the Board how the shareholders voted.

PMMs are then carried out.