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 the Firm’s:

• Operation; and
• Relationship between its Shareholders, Directors, and Managers.

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.

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.

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, by way of:

• 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.

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

The use of conditions to increase the threshold for 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.

Question 19

When is a Company Formed?

Answer 19

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

Question 20

What Documents are Needed to Form a Company?

Answer 20

• An 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 Address.
• Details of the Registered Email Address.
• 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; and
• The amount to be paid up or left unpaid, if any, for each share.

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

• Novating pre-incorporation 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) using Form AA01;
* (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 new Secretary, Form AP03.
• In case of a Director resignation, Form TR01.
• In case of a Secretary resignation, Form TR02.
• 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 the company changes its Regsitered Office, Form AD01.
• 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.

Question 30

What is the Object of a Company?

Answer 30

The purpose for which the Company was formed.

The 1985 Act requries the inclusion of an Objects clause in the AOAs, whereas the 2006 Act does not, and until that clause is removed by resolution, it will continue to bind the Company.

Question 31

What are the Rules around Business names?

Answer 31

S. 53(b): It must not be offensive.
S. 54-55: It must be approved if it suggests a connection with a public body or contains sensitive words.
S. 59: It must end in an abbreviation indiciating the Company’s form.
S. 66: It must not be the ‘same as’ another on the index of company names.
S. 53A: It must not constitute an offence of dishonesty or deception.
S. 56A: It must not suggest a connection with a foreign government or its off-shoots.
S. 57A: It must not consist of or include compute code.
S. 76: It must not give a misleading indication of its activities.
S. 76A: It must not have been used or intended to be used for criminal activities.
S. 82: It must be displayed in certain locations, namely its registered office, business premises, and company documents and correspondences.

CA 2006.