Incorporation and Constitution of Companies

Question 1

What happens before the company is incorporated?

Answer 1

The person who deals with the formalities of stock and trading etc is called a promoter.

Question 2

Can the company enter contracts before it is incorporated?

Answer 2

No - the promoter is personally liable for all pre-incorporation contracts unless otherwise agreed.

Royal Mail Estates Ltd v Maples Teesdale - law firm entered in to a contract to buy property, but made a clause that was intended to be agreement to the contrary, but was rejected by the court, setting a high hurdle for anyone relying on an ‘agreement to the contrary’.

Question 3

How is a company incorporated?

Answer 3

The following must be sent to the Registrar:

The Memorandum of Association
The Articles of Association
Details of directors and registered office
A formal document confirming legal formalities
Payment of necessary fees

Question 4

Memorandum of Association before CA 2006:

Answer 4

Proposed Name and Country of RO
If Liability is Limited
Amount of Nominal Capital
The objects of the Company
Signature of original subscriber

Question 5

Changes to Memorandum of Association in CA 2006:

Answer 5

No need for an objects clause

No need to state maximum amount of nominal capital

Question 6

What are the Articles of Association?

Answer 6

They are the company’s internal rule book and are a crucial document.

Question 7

What is Table A?

Answer 7

The Companies Act 1985 provides a specimen set of articles. These apply by default if nothing else is agreed by shareholders.

Question 8

What are Model Articles?

Answer 8

Updated version of Table A, but more simple and up to date to reduce regulation.

Question 9

What does incorporation mean?

Answer 9

It creates the separate legal entity and is evidence that all the formalities have been complied with. Private companies can now start trading; public companies requires further formality.

Question 10

What is a shelf company and how can you purchase one?

Answer 10

A dormant company that has already been incorporated.

They are fairly cheap, and all it requires is to change the name, directors, shareholders etc and give notice to the Registrar. Lawyers and Accountants can perform this service.

Question 11

What other things does a company need to get started?

Answer 11

Trading Premises
Bank Account
Auditors
Insurance
Company Stationery
Tax Documents
Statutory Books

Question 12

What can be included in a Shareholders agreement?

Answer 12

It could be issues unrelated to pure membership which Articles can not deal with.
Otherwise it could include:
Restriction on directors or share transfers or competition
Unanimous consent for all major decisions
Dividend Policy

Question 13

Why is a Shareholders Agreement different to Articles of the company?

Answer 13

Articles can be changed by a 75% majority vote, whereas a Shareholders agreement is binding and cannot be changed without unanimous consent of all members.

Articles are a public document, whereas shareholder agreement is private.

Question 14

What is the Company Constitution?

Answer 14

The Memorandum (represents the company and its structure to the outside world) and The Articles (internal workings of the company and how members interact)

Question 15

Memorandum of Association under CA 2006:

Answer 15

Name of Company
Where the RO is situated
If there is limited liability
Statement of Capital
Details of proposed directors

Question 16

What restrictions are on company name?

Answer 16

Does not have to use registered name to trade
Must include ‘ltd’ or ‘plc’ (otherwise officers can be held personally liable)
Can not be similar to another name or trademark
Must not denote criminal activity or imply connection with government or royalty.

Following CA2006, there is a Office of Company Name Adjudicator.

Question 17

Under CA 1985, what are the objects of the company?

Answer 17

Set out the purposes for the company and the business it could undertake. Companies could not become involved in business not covered by the objects clause.

Question 18

Under CA 2006, what are the objects of the company?

Answer 18

A company can undertake any business as long as it is not restricted in the articles.

Question 19

What is the RO of a company?

Answer 19

Official address for legal documents. Not necessarily trading address.

Question 20

What is quorum?

Answer 20

The minimum number of members needed to make a meeting valid.

Question 21

What general matters do Articles deal with?

Answer 21

Shares
Rights attached to shares
Conduct of meetings
Duties of Directors

Question 22

What are special articles?

Answer 22

Where a company adopts Table A or Model Articles but modifies them to suit their particular needs.

Question 23

Can the Articles be altered?

Answer 23

Yes, with a special resolution of more then 75%.

However, change must be for the good of the company and not just majority shareholders.

Some articles are ‘entrenched’ and more difficult to change.

Question 24

Brown v British Abrasive Wheel Co. 1919

Answer 24

Proposal to amend articles to provide that majority shareholders have the right to buy minority members shares.

Court decided this did not benefit the company as a whole and did not allow the amendment.

Question 25

Sidebottom v Kershaw Lees and Co 1920

Answer 25

Alteration that any member leaving for a competing business had to transfer shares to nominees at a fair price. This was a benefit to the company as a whole.