Company Formation

Question 1

What are the Three Types of Corporate Forms allowed under the Companies Act 2006?

Answer 1

• Unlimited Company.
• Company Limited by Shares.
• Company Limited by Guarantee.

Companies Act (CA) 2006 — §3.

The most common is the Company Limited by Shares, which we will default to henceforth.

Question 2

What is an Unlimited Company?

Answer 2

A company whose Members do not have Limited Liability.

§3(4) — CA 2006.

Question 3

What is a Member?

Answer 3

A person whose name is on a company’s Register of Members, and enjoys any associated rights.

CA 2006 — §112.

Question 4

What is Limited Liability?

Answer 4

The restriction of Members’ liability to the extent dictated by the company’s Constitution.

CA 2006 — §3(1).

Question 5

What is the Company’s Constitution?

Answer 5

The body of documents that govern:
* Its operation; and
* The relationship between Shareholders, Directors, and Management.

CA 2006 — §17.

This includes the Memorandum of Association (MOA), Articles of Association (AOAs), and any Shareholder Agreements or Resolutions that affect either criterion.

Question 6

What is the Memorandum of Association?

Answer 6

A statement by Subscribers that they wish to:
* Form a company;
* Become Members thereof; and
* Hold at least one share each in.

CA 2006 — §8.

A Subscriber is a merely a person who signs the MOA. The MOA must follow the prescribed form and be authenticated by each Subscriber.°

° Sch. 1 — Companies (Registration) Regulations 2008.

Question 7

What are the Articles of Association?

Answer 7

The set of rules governing the relationship between the company and its Members.

CA 2006 — §18(1), §33(1).

Always start with the Model Articles° and add or detract from there.

° Sch. 1 — Companies (Model Articles) Regulations 2008.

Question 8

How are the Articles of Association construed?

Answer 8

According to the ordinary principles of contract law,° with a mind to give them reasonable business efficacy.°°

° Cosmetic Warriors v Gerrie [2017] EWCA Civ 324.
°°Palmer’s Company Law — Para. 2.1112.

Question 9

Can the Articles of Association be amended?

Answer 9

• Yes, either through:
  
  • A Special Resolution;°
  • A Written Resolution (LLCs only);°° or
  • The Duomatic Principle.°°°
• The Registrar must be notified within 15 days on pain of criminal fines.°°°°

This assumes no Entrenchment and bona fida intentions and outcomes.

° CA 2006 — §21(1).
°° CA 2006 — §281(1).
°°° Cane v Jones [1980] 1 WLR 1451.
°°°° CA 2006 —§26(1).

Question 10

What is the Duomatic Principle?

Answer 10

Assent by all Shareholders entitled to attend and vote at a General Meeting to a matter within their authority functions as a binding Resolution.

Re Duomatic [1969] 2 Ch 365.

Question 11

What is Entrenchment?

Answer 11

Any condition that increases the threshold for an amendment beyond what a Special Resolution would require.

CA 2006 — §22(1).

Question 12

When can an Entrenchment Provision be added to the AOAs?

Answer 12

• Either at formation; or
• By a Resolution with the unanimous consent of all Members.

Notice of such provisions must be given to the Registrar.

CA 2006 — §22(b).

Question 13

When can an Entrenchment Provision be superseded?

Answer 13

• Either by court order; or
• By a Resolution with the unanimous consent of all Members.

CA 2006 — §22(c).

Question 14

What is a Company Limited by Shares?

Answer 14

A company whose Members’ liability is limited to the amount, if any, unpaid on their shares.

CA 2006 — §3(2).

Question 15

What is a Company Limited by Guarantee?

Answer 15

A company whose Members’ liability is limited to fixed amount they have contributed.

CA 2006 — §3(3).

Question 16

Which of the Three Corporate Forms may be either Private or Public?

Answer 16

The Company Limited by Shares. Both others may only be private.

Question 17

What is a Private Company?

Answer 17

Any company that is not a public company.

CA 2006 — §4(1).

Question 18

What is a Public Company?

Answer 18

A company able to:
* Offer or allot securities to the public;° and
* Satisfy the Minimum Capital Requirement of £50,000.°°

° CA 2006 — §755.
°° CA 2006 — §761, §763.

Question 19

When is a Company Formed?

Answer 19

When the Registrar of Companies (Registrar) issues its Certificate of Incorporation.

CA 2006 — §15.

Attaining a Certificate of Incorporations results from filing the necessary documents° and paying the required fee at Companies House.

° CA 2006 — §9-§13.

Question 20

What Documents are Needed to Form a Company?

Answer 20

• A MOA.
• An IN01 Form.
• An SH50 Form (PLCs only).

Question 21

What Information is included in an IN01 Form?

Answer 21

• AOAs.
• Proposed name.
• Type and intended business activities.
• Details of the Registered Office.
• Details of the Directors and Secretary.
• Statement of Capital.
• Statement of Compliance.
• Statement of Initial Shareholdings.
• Statement of Initial Significant Control.

CA 2006 — §9-13.

Question 22

What is the Registered Office?

Answer 22

The location to which all communications and notices may be addressed.

CA 2006 — §86.

Question 23

What is a Statement of Capital?

Answer 23

A document outlining the:
* Total number of shares held by Subscribers;
* Aggregate nominal value of those shares; and
* Aggregate sum left unpaid on those shares, if any, whether on account of their nominal value or by way of premium.

Question 24

What is a Statement of Initial Shareholdings?

Answer 24

A document outlining the:
* Class and number of shares held by Subscribers;
* The nominal value of each share;
* The amount to be paid up or left unpaid, if any, for each share.

For public companies, shares and any premium thereon are technically taken, not alloted, at incorporation and must be paid up in cash.°

° Zavarco v Sidhu [2022] EWCA Civ 1040.

Question 25

What is a Statement of Initial Significant Control?

Answer 25

A document outlining the presence, or absence, and particulars of any Persons with Significant Control (PSCs).

Question 26

What is an SH50 Form?

Answer 26

An application to acquire a trading certificate.

Question 27

Following Incorporation, what should be addressed at the First Board Meeting?

Answer 27

• Approving business contracts.
• Completing all incorporation formalities.
• Appointing and approving the Board of Directors.
• Appointing lawyers, bankers, and accountants.
• Sorting issues of tax, insurance, and intellectual property.
• Approving Subscribers’ registration and share transfers or allotments, and authorising the share issue.

Incorporation formalities include:
* (1) Reporting incorporation;
* (2) Approving incorporation costs;
* (3) Selecting an Accounting Reference Date (ARD);
* (4) Selecting a business name; and optionally
* (5) Adopting a company seal.

Question 28

Following the First Board Meeting, which Documents should be filed with the Registrar?

Answer 28

• Any Special Resolutions passed.
• Any Resolutions passed on the authority to allot shares.
• In case of a new Director, Form AP01 or AP02.
• In case of a change to the ARD, Form AA01.
• In case of a Share Allotment, Form SH01 and a Statement of Capital.°
• In case company records and registers are moved from the reigstered office, Form AD02 and AD03.

° CA 2006 —§555.

Question 29

What must a company keep Records of?

Answer 29

• PSCs.°
• Charges.
• Names and addresses of Directors.°°
• Names and addresses of Members.°°°
• Resolutions and Shareholder Meetings.°°°°
• Directors’ service contracts or memonranda of terms.°°°°°

° CA 2006 — §790M.
°° CA 2006 — §162-§166.
°°° CA 2006 — §113-§114.
°°°° CA 2006 — §358.
°°°°° CA 2006 — §228.