6d Formation of a Company

Question 1

What documents need to be submitted to the Registrar in order to form a company?

Answer 1

• Memorandum of association
• Application
• Articles
• Statement of capital and initial share holdings
• Statement of guarentee
• Statement of compliance
• Registration fee

Question 2

What is the Memorandum of association?

Answer 2

Signed statement that all subscribers wish to form a company and agree to become members and take a share each providing they are limited by share capital.

Question 3

What is in the application to form a company?

Answer 3

• Proposed name
• Whether members will have limited liability
• Whether company will be public or private
• Registered office

Question 4

What must the statement of capital and initial shareholding’s state?

Answer 4

• Number of shares
• Aggregate nominal value of shares
• Details of each share class
• How much has been paid up on each share

Question 5

What must the statement of guarantee state?

Answer 5

Maximum amount each member undertakes to contribute.

Question 6

What does the statement of proposed officers show?

Answer 6

First directors (and secretary) and their consent to act.

Question 7

What does the statement of compliance provide?

Answer 7

Confirmation that CA 2006 has been complied with.

Question 8

What must the registrar do on receipt of the required documents to form a company?

Answer 8

• Inspect to ensure CA requirements are met
• Issue certificate of incorporation

Question 9

When does a company officially exist?

Answer 9

From the date of the certificate of incorporation (public companies must also obtain a trading certificate).

Question 10

What must a company do to obtain a trading certificate?

Answer 10

Must apply to Registrar stating:
- Nominal value of allotted share capital >= £50,000.
- 25% of nominal value of shares paid and all premium paid.
- Amount of preliminary expenses and who has/is to pay them.
- Any benefits given or to be given to promotors.

Question 11

What happens if a plc trades before the Registrar have issued a trading certificate?

Answer 11

• Company is fined.
• Criminal offence but contracts still binding.
• Directors personally liable if defaults after 21 days.
• Ground for winding up if not obtained within 1 year.

Question 12

What is an off-the-shelf company?

Answer 12

A company that has already been formed and ready to trade.

Question 13

What’s the advantages of buying an off-the-shelf company?

Answer 13

• Cheaper than going through the process yourself.
• No issue with pre-incorporation contracts.

Question 14

What is the main disadvantage of an off-the-shelf company?

Answer 14

All the details like name of company, registered offices etc will need amending.

Question 15

What is a promoter?

Answer 15

Anyone who makes business preparations for a company.

Question 16

What are the fiduciary duties of a promoter?

Answer 16

• Exercise reasonable care and skill.
• Disclose any interest in transactions with the company and not make a secret profit.
• Disclose any benefit acquired to an independent board or to the shareholders.

Question 17

What are the remedies for a promoter making a secret profit?

Answer 17

• Rescind the contract.
• Obtain damages.
• Recover the profit.

Question 18

What are the problems with the following remedies of a promoter making a secret profit?
1. Rescind the contract.
2. Obtain damages.
3. Recover the profit.

Answer 18

1. Not always possible say if a third part has rights under the contract.
2. Must prove a loss.
3. Must prove that the promoter failed to disclose a profit.

Question 19

What is a pre-incorporation contract?

Answer 19

Contract made by someone on behalf of an unformed company; this becomes personally liable as company does not have the capacity to enter a contract as does not legally exist.

Question 20

What happens if a company enters into a pre-incorporation contract?

Answer 20

Company cannot ratify the contract.
Company is not bound by the contract.
Company cannot enforce the contract against 3rd party.

Question 21

How may a promoter protect his position?

Answer 21

• Enter into an agreement of novation.
• Postponing finalising contracts until company is formed.
• Buying an off-the-shelf company.
• Agreeing with the company that it will meet his expenses.
• Including a term giving the co. the right to sue under the contracts act (this does not remove the promotors liability).