7: Starting a Company

Question 1

What does the MAs state about shares being paid up?

Answer 1

MA21 require that all shares other than the shares taken by the subscribers when formed must be fully paid up. Bespoke articles are required if they don’t want fully paid up shares.

Question 2

What type of company is most frequently encountered in the UK?

Answer 2

The private company limited by shares is the most frequently encountered type of company in the UK.

Question 3

What is the main form of internal constitution for a company?

Answer 3

A company’s articles of association.

Question 4

What must be sent to the Registrar of Companies at Companies House to register the company?

Answer 4

• a form along with a fee
• a memorandum of association
• articles of association may also be required.

Question 5

What does the Registrar issue upon approval of the company’s formation?

Answer 5

A certificate of incorporation.

Question 6

What does the client need to decide between for the articles of association?

Answer 6

The Model Articles for Private Companies Limited by Shares (Model Articles or MA)
or
Its own bespoke articles

Question 7

If the company is to be formed with the Model Articles, do they need to submit articles of association with the application for registration?

Answer 7

No, the Model Articles will apply automatically.

Question 8

Where are the Model Articles from?

Answer 8

Companies (Model Articles) Regulations 2008.

Question 9

What is a shelf company?

Answer 9

A shelf company is a company that has already been formed and is kept ready to be sold to parties who want to use it.

Question 10

What is a tailor-made company?

Answer 10

A tailor-made company is a company that is formed specifically for use by a particular client.

Question 11

What must be done before a shelf company can take major decisions?

Answer 11

Transfer the shares in the shelf company to the client and appoint new directors. Also probably issue more shares, so everyone can own a stake who needs to.

Question 12

What are the first people who form a company and become its first shareholders called?

Answer 12

Its subscribers, who will be named in the incorporation document.

Question 13

Who must consent to being appointed in a private company?

Answer 13

Each director must consent to being appointed in a private company.

Question 14

Is it usual for shareholders and directors to be the same people in small companies?

Answer 14

Yes, it is.

Question 15

What is the company’s share capital?

Answer 15

The amount of money payable to the company in return for its shares. It can be formed with as little as one £1 ordinary share (a nominal value).

Question 16

What does it mean if the share capital is not ‘paid up’?

Answer 16

It means that the value of the share has not been paid by the shareholder and it remains a debt payable to the company. It will be required to be paid if the company becomes insolvent.

Question 17

Is there a requirement for private company share capital to be fully paid up?

Answer 17

No, not in a private company.

Question 18

What is the registered office of a company used for?

Answer 18

• Where the company’s records will normally be kept
• Where official correspondence, including court proceedings, will be sent.

Question 19

How are directors and the secretary referred to collectively?

Answer 19

The company’s officers.

Question 20

Can two companies have the same name?

Answer 20

No, a company can’t be registered with a name under which an existing LLP or company is already registered.

Question 21

What are the key requirements for forming a company under s7?

Answer 21

• 1 or more people
• subscribing their names to a memorandum of association
• and then complying with the requirements in ss9-13.

Question 22

What form needs to be used for registration of companies?

Answer 22

Form IN01

Question 23

What is included in Form IN01?

Answer 23

• Company Name and Type
• Principal business activity
• Registered office
• Company’s officers (and confirmation)
• Articles of association (any restrictions)
• Statement of capital
• Initial shareholdings of subscribers
• Statement of compliance
• PSCs

Question 24

What must be filed at Companies House together with Form IN01?

Answer 24

The memorandum of association must be filed at Companies House together with Form IN01.

Question 25

What is a company’s share capital?

Answer 25

A company’s share capital is the amount of money payable to the company in return for its shares.

Question 26

Who is a PSC?

Answer 26

A person of significant control, who:
- owns or controls more than 25% of the voting rights
- has the right to appoint or remove a majority of the board of directors
- has the right to exercise significant control over the company.

Question 27

What is an RLE?

Answer 27

An RLE is a relevant legal entity, who is not an individual, but it meets the requirements for a PSC.

Question 28

What is an ORP?

Answer 28

Other registrable persons is a government body which is not an individual but meets the requirements for a PSC/RLE.

Question 29

What are the roles and responsibilities of a company secretary?

Answer 29

The company secretary handles compliance with administrative rules such as issuing notices of meetings, taking minutes, filing at Companies House, and keeping records.

Question 30

What must be included in the incorporation document regarding shareholders?

Answer 30

The names of the subscribers or shareholders must be included in the incorporation document.

Question 31

Who are the promoters of a company?

Answer 31

Promoters are the entrepreneurs who set up the company. They may obtain investments or sell assets to the company before it is formed. Not lawyers etc.

Question 33

What is required for a company to adopt bespoke articles at incorporation?

Answer 33

If a company is to have bespoke articles, they must be submitted with the application, unlike the Model Articles which apply automatically.

Question 34

What must promoters disclose to avoid breaching fiduciary duties?

Answer 34

Promoters must disclose any profit they have made to an independent board of directors or the existing or prospective members of the company.

Question 35

What is the key issue with pre-incorporation contracts?

Answer 35

The promoters acts in their own name and may be personally liable unless they ensure the new company adopts the contract upon formation.

Question 36

What does s51 say about pre-incorporation contracts?

Answer 36

Section 51 states that a contract made on behalf of a company not yet formed is binding on the person making it, unless expressly agreed otherwise with the other party. If it is expressly agreed, then the contract is made with the party and not the promoter.

Question 37

What is the solution for promoters’ pre-incorporation expenditure?

Answer 37

The new company can agree after formation to reimburse the promoters for any pre-incorporation expenditure incurred in connection with its formation.

Question 38

What are some matters to be dealt with after a company’s formation?

Answer 38

Matters include:
- appointing a chair,
- opening a bank account,
- appointing directors and a secretary,
- entering into service contracts,
- setting an accounting reference date, and
- dealing with other administrative issues.

Question 39

What is MA13’s provision regarding the chair’s voting rights?

Answer 39

MA13 provides that the chair has a second or casting vote at directors’ meetings if votes are tied.

Question 40

What must be specified when opening a company bank account?

Answer 40

The bank must specify who is allowed to sign on the company’s behalf and approve specimen signatures, including any limits on withdrawals without a second signature.

Question 41

What is an accounting reference date (ARD)?

Answer 41

The ARD is the company’s financial year-end date, determining when annual accounts are made up. It is usually the anniversary of the last day of the month in which the company was incorporated.

Question 42

What additional requirements apply if a company trades under a business name?

Answer 42

The company must ensure that its registered name, number, and address are displayed on all business documents and websites, and the names of directors are included if mentioned in the text or as signatories.

Question 43

What is a shareholders’ agreement?

Answer 43

It is a private agreement containing details about how the company is run, which can be changed by a specified majority of shareholders or with the agreement of all parties.

Question 44

What is required for a PLC to start doing business according to s763?

Answer 44

A PLC must have an issued share capital of at least £50,000, with at least one-quarter of its nominal value paid up, and must apply to the Registrar of Companies for a trading certificate.