Formation of a company Flashcards
What are the two constitutional documents that a company is required to have and which one remains relevant?
- Articles of Association
- Memorandum (as of CA 2006 it is no longer a part of constitution and now is required only for CH registration to declare that first members wish to form a company)
What did a memorandum contain and what was their effect for companies incorporated under CA 1985? Will it still apply today?
- Objects clause setting out purpose of company’s formation - acting outside of this would be ultra vires
- Will continue to apply as a limitation on company unless Articles of company are amended to remove it
How are objects restricted for companies incorporated under CA 2006?
Companies have unrestricted objects unless specifically restricted in Articles
What is the purpose of Articles of association?
Regulate relationship between shareholders, directors and company
Contract between company and members + between members themselves
What provisions would be included in Articles?
- the number of directors required to transact business (both to form a quorum at board meetings and to take decisions at board meetings);
- the method of appointment of directors;
- the powers of directors;
- how board meetings are to be conducted;
- any special rights attaching to shares;
- how shareholder meetings are to be conducted; and
- how and to whom shareholders may transfer their shares.
How much must the Articles comply with CA 2006?
Must comply with the minimum provisions, but Articles can make procedures more onerous than CA (or remove those provided by default e.g. power to issue redeemable shares)
E.g. CA provides a Ltd must have at least one director - but company could provide in its Articles that it requires 3 directors (so company must comply with this!)
Will CA provisions override a company’s Articles?
Some can override anything in Articles e.g. right to demand a poll vote at GM cannot be removed from Articles
What choices does a company have regarding its Articles?
- Model Articles (MA) - default if no Articles registered
- Amended MA - MA with modifications
- Tailor made - solicitor drafts tailor-made Articles for company concerned
How does a company amend its Articles at a later date?
By special resolution of shareholders
When will more than a SR be required to amend Articles?
Where specific provisions have been entrenched i.e. can only be amended/repealed if specific conditions met or restrictive procedures complied with
What is the basic rule for an alteration to the Articles to be valid?
Aside from procedurally
Alteration must be made bona fide in the interests of the company as a whole
What is the test for whether an alteration would be for the benefit of the company?
I.e. when would an alteration be deemed unreasonable?
Where no reasonable man could consider it to be for the benefit of the company, e.g. …
- Provision giving directors power to buy out (at fair price) shareholding of member competing w company = good faith and in company’s interests
- Provision allowing shares of minority shareholder to be compulsorily acquired under takeover offer valid if consistent with terms of shareholder agreement = absence of bad faith/improper motive
To what extent do the Articles bind the company and its members?
To the same extent as if there were covenants on part of the company and each member to observe those provisions - i.e. binding on both company and its members and enforceable
Articles evidence a contract between the company and its members in their capacity as members and with respect to their rights and obligations as members
When is a member unable to enforce rights contained in the Articles against the company?
If the rights are not relevant to his capacity as member
Eley v Positive Government Security Life Assurance Company (1876): member inserted right into Articles for him to be employed as company’s solicitor for life. Could not enforce provision as this was in capacity as company’s solicitor and not member
Can the courts prevent a company from infringing its members’ rights in breach of Articles?
Yes - as the Articles form a contract between the company and its members
E.g. grant an injunction where member does not receive financial dividend if declared
What is the only situation in which a member can enforce Articles against another member directly (rather than only through company itself)?
Through company itself = requiring company to enforce provisions against member
A member can only enforce Articles against another member directly if one member accepted a personal obligation to another member through the Articles e.g. to transfer shares
How should a member enforce rights against other members?
Using a shareholders’ agreement; a private agreement between shareholders that is enforceable as a contract between members
What are the 2 ways a client can start a business through medium of a company?
- Incorporate company from scratch
- Purchase a shelf company and convert to conduct business
To incorporate a company from scratch, what 4 things must be delivered to CH?
- Company’s memorandum
- Articles (if not using MA)
- Fee (premium for same-day)
- Application for registration (Form IN01) stating name, whether reg office in E+W, S or NI, whether liability limited and whether public or private
What must the application contain statements of?
3
- Capital and initial shareholdings (where company is to have a share capital)
- Proposed officers (directors, secretary)
- Compliance w/ CA 2006
When will a certificate of incorporation be sent and what 3 things will it set out?
Sent out once Registrar has approved application for incorporation - certificate sets out:
- Name of company (can be changed)
- Company’s registered number (never changes)
- Date of incorporation
On what date does the company become a legal entity?
I.e. come into existence
From the date of incorporation set out in certificate
What is a shelf company and why use one?
- Company set up in adavance by company station registration agent or law stationer
- Can be done all the time on every day of year (unlike online incorporation limited to CH opening hours)
Speed might be an advantage but advent of online incorporation services means the difference in speed converting shelf company and incorporation from scratch is negligible
What changes must be made to shelf company and how are they made?
- Name by SR or provision in Articles e.g. BR
- Articles (if amending) by SR!
- Registered office
- Members, directors and company secretary by BR
Shares held by subscribers transferred to client; client’s reps are appointed as director(s); first directors resign from positions
If changing the name of a shelf company, must a SR always be used?
Yes, unless otherwise provided for in articles
What are the rules for a company’s name?
- Cannot be offensive
- Must not be ‘same as’ another on index of company names
- Must obtain approval if it suggests a ‘connection with GOV/public authority’ or contains other sensitive words
- Once chosen - must be displayed in certain prescribed locations
From what date is a new name effective?
From date on which new certificate of incorporation on change of name is issued by Registrar of Companies
What 4 practical issues must be attended to post-incorporation and how is each done?
- Deciding whether to elect a chairperson and if they should have casting vote in event of tie (MA 13)
- Adjusting accounting reference date to align with their financial year (Form AA01)
- Appoint auditor to prepare annual account (BR)
- Register for corp tax, VAT and PAYE and NI (if it has employees)
- Decide whether to make shareholders’ agreement
What is the ‘GM sandwich’? What is the notice for each stage?
I.e. order of meetings for a GM
- BM (reasonable notice) - to decide on issues, convene GM, approve and authorise circulation of notice
- GM (14 days’ notice) - shareholders vote on resolutions in notice
- BM (reasonable notice) - effect outcome of shareholder vote
- PMM
What is the sequence of meetings for a short notice GM and how long will it take?
Can all be dealt with in under an hour…
1. BM - convene GM; approve form of notice for GM; approve form of consent to short notice and to authorise circulation to shareholders; shareholders indicate agreement by signing form. BM adjourned and immediately following this…
2. GM - shareholders vote on resolutions set out in notice
3. BM…reconvened, directors informed on how shareholders voted and authorises one of their number to take relevant action and deal with PMMs
What is the sequence of meetings for a written resolution?
- BM - resolve to use WR procedure; approve wording and circulate
- Then either…
2a. Shareholders are present = BM adjourned and approval/abstaining takes place immediately
2b. Shareholders are not present = BM closed and WR passes or lapses after 28 days
- BM - reconvened; authorise relevant action
