Company formation

This note is a snapshot guide and should be read in conjunction with the relevant legalisation or subject to professional advice.

These notes sets out the requirements for the incorporation of private limited companies, public limited companies and un-limited companies. The note refers to the major differences between types of company, the documents required for their formation, shareholders, capital and officers and secretary. Following formation there are obligations that require you to amend the public records of the company. If the company's circumstances change, if its address changes or if the officers change, these changes must be registered at Companies House.

The relevant law is set out in the Companies Act 1985 (as amended by Acts in 1989 and later) and the latest Companies Act 2006 which was fully implemented on 1st October 2009, and in addition, for RTM (Right to manage) companies and commonhold associations, in the Commonhold and Leasehold Reform Act 2002 and related legislation.

When you set up a company in the United Kingdom you become responsible for many obligations and it is always worthwhile taking advice from a qualified professional as to the best way a business should be run.

New Companies

Under United Kingdom law there are four types of company that can be registered.

Private companies limited by shares – the liability of any share holder cannot be more than the amount that is unpaid on shares held by them. This includes those community interest companies (CICs) which are private companies limited by shares. When shares are issued, there are a certain number of shares in any company. There is a particular face value on each share and , say 100 shares comprise the share capital of the company. Two may be issued and fully paid up and a balance of 98, namely Ј98 is the extent of the liability in relation to the company.

Private Company Limited by Guarantee – the liability of any members/shareholders is limited to the amount that they have agreed to contribute to the company's assets if it is wound up. This type of company is generally only used for charitable work and cannot be used as a company trading for profit.

Private Unlimited Company – this is a private company with no limit as to members liability.

Public Limited Company (plc) – the shares in a plc may be offered for sale to the general public but the liability of shareholders as with private limited companies cannot exceed the amount unpaid on shares held by them. This also includes community interest public limited companies (CICs which are PLCs).

Who may establish a company?

In general legislation allows only people to form a company for any lawful purpose if they establish a memorandum of association. A public company or an unlimited company must have at least two shareholders.

Incorporation

To make it easier to set up and run a company there are a number of changes to the company incorporation process. The new system of incorporation will be preceded by a 'clearing period' to process any application made under the Companies Act 1985 that is received before 1st October 2009.

The new incorporation process will require an application to register a company (Form IN01) accompanied by a memorandum of association, the articles of association and the correct fee.

The memorandum of association is a much shorter document which will serve the limited purpose of providing evidence of the intention of each subscriber to form a company and become a member of that company. In the case of a company that is to have a share capital on formation, each member agrees to take at least one share.

There will be 3 types of articles: model articles, model articles with amended provisions and bespoke articles.

Amendments to a company’s articles must be notified to Compaies House within 15 days, and failure to comply will be a criminal offence. The Companies Act 2006 introduces a new civil penalty of £200 for failure to comply in response to a notice from the registrar.

Authorised / nominal share capital will be discontinued on incorporation, which means that there will also no longer be a limit set out in the Memorandum on the number of shares that directors can issue.

Finally, the need for a solicitor to make a statutory declaration of compliance will be replaced with a statutory statement of compliance from the company - also designed to make the company incorporation process simpler. The statement maybe made in paper or electronic form and need not be witnessed. It will be an offence to make a false statement of compliance.

It is also necessary to register details of the first director(s) and/or secretary and the proposed address of the registered office. As well as providing names and address, any company director must give their date of birth, profession/occupation.

The registered office of a company is the address to which any correspondence or formal reminders from Companies House will be sent. A registered office can be anywhere in England and Wales and it must be a proper address for the delivery of documents to the company. It is important to avoid delays and ensure that correspondence is dealt with promptly. Any company that changes its registered office following its establishment must notify Companies House of a new address.

Single Alternative Inspection Location (SAIL)

The Companies Act 2006 introduces changes to the arrangements for inspecting a company’s registers. Depending on the nature and situation of the company it may be obliged to keep up to 13 possible registers. These registers must either be held at the Registered Office Address (ROA), or at a Single Alternative Inspection Location (SAIL).

Companies must notify Companies House when they initially set up a SAIL address or if the SAIL address is moved. Once the SAIL address is set up the company can move some or all registers to the SAIL address by notifying Companies House.

Directors Service Address

From 1st October 2009 every director must provide Companies House with both their usual residential address, and for each directorship they hold, a service address. The service address will be on the public record and will be public information but the residential address will be protected information. A director can choose any address as the service address including the registered office address of the company. The address must be where documents can be delivered and an acknowledgement or receipt can be provided if required. The address can not be a PO Box or a DX number. If the director chooses to use his residential address as the service address the fact that the two addresses are the same would not be apparent from the public record.

The residential address will only be available to prescribed regulatory authorities such as the police and HMRC, and it may also be made available to Credit Reference Agencies.

If the service address is ineffective the Registrar does have the power to ban the use of this address and to place the usual residential address on the public register.

How many officers must a company have? 

Every company must have officers formally appointed at all times. According to the Companies Act 2006, a private limited company requires at least one individual director over 16 years old  and a company secretary. There must therefore be two officers as a sole director cannot also be company secretary.

A public limited company must have at least 2 directors and one secretary who is formally qualified to carry out the role.

All officers of companies have broad responsibilities under legalisation but these are dealt with in a separate note.

If a new director or secretary is appointed; a director or secretary resigns or a director or secretary changes their name or address or other details, then a form must be sent to Companies House.

What requirements are there to be a company director?

Within reason any person may become a company director. There are few major restrictions:

• The person must not have been disqualified by a court from acting as a company director
• The person must not be an undischarged bankrupt - both 1 and 2 may be overridden with leave of the court
• If the company is a plc anybody over the age of 70 may be a director (from 6th April 2007 maximum age for directors of plc was waived).
• A person must be mentally competent and of sufficient age to understand and obligations and responsibilities being entered into.

In addition, at least one director must be an individual. Companies who only had corporate directors on or before 6 November 2006 have until 1 October 2010 to appoint such a director.

What name can I choose? 

The use of names for a company does have restrictions. Firstly, Companies House will not register a name which is the same as that of another company. Certain words may not be used for companies unless particular circumstances apply and further no name may be registered that may cause offence.

It is also important to check whether any name is similar to any other names already on the register. There is a provision that within 12 months of registration a company may be directed by the Secretary of State to change the company's name.

Company name

From 1st October 2009 the rules applying to the company name on ‘same as’ will be stricter. For example, Companies House will disregard a number of matters if they appear at the end of the name and they are preceded by a full stop including “GB”, “services”, and “com”.

You may register a name that is the same as another in the registrar’s index if the company belongs or is to belong to the same group as the company already on the register and a written consent from the latter is sent to Companies House. If you wish to have further information please contact us.

In addition if there is a trade mark registration or application for or including a trade mark which is identical or similar to the company name you have chosen you may face legal action for a trade mark infringement. You can check the trade marks register at The Patent Office before registering a name at Companies House.

Public Limited Companies 

A Public Limited Company must comply with the following:

• Both its memorandum and its name must refer to the fact it is a Public Limited Company or PLC
• For public limited companies that are also community interest companies (CICs) the name must end with 'community interest public limited company' or 'community interest p.l.c.'.
• There must be Memorandum in a specified form
• It must have an authorised share capital of at least £50,000 or  at least €65000

An application by a public company for a certificate to commence business and borrow (trading certificate) will no longer be required to be in the form of a statutory declaration. Earlier, you would need to show proof that the authorized minimum capital has been paid.

If a public  company applying for a trading certificate or a private company re-registering to a public company will need to determine on the application whether they are meeting the authorised minimum requirement in sterling or euros.
Companies may continue to use the existing prescribed forms 117 (application for a trading certificate) and 43(3) (application by a private company for re-registration as a public company), but will need to modify them as appropriate, so that they comply with the new provisions for applications made on or after 6th April 2008.

Companies House has produced optional forms 117 and 43(3), which have been modified to meet the new requirements for applications made on or after 6th April 2008 and companies may wish to use these instead of the prescribed forms.

There are few main restrictions on a plc:

• A plc must have at least 2 directors, one of the whould be individual over 16 years old and at least 2 shareholders (requirement relating to shareholders is only applicable to companies registered before 1st October 2009). These may be the same person. It must also have appointed a secretary who is capable of fulfilling the relevant functions and is deemed sufficiently qualified.
• Unlike a limited company a plc will only have 6 months following the end of its financial year to submit accounts to the Registrar at Companies House. If the accounts are late a civil penalty will be incurred. This will involve a fine. Hopefully none of our clients will be in that situation.

The main advantage of a plc is that it may offer its shares for sale to the public through a stock exchange. It may also advertise its shares for sale to the public. A private limited company may not offer to sell shares in itself to the public.

There are ways to re-register from a private Cp,[any to Public and from a Public Company into Private and certain rules should be observed.
From 1st October 2009 voluntary dissolution is extended to public limited companies, they will be eligible to apply under Section 1003 of the Companies Act 2006.

Company Stationery 

It is required that all company paper, compliment slips etc must give certain information about itself. The company must display its name outside of every office or place where business is carried on. The name must be legible and able to be seen and must also be displayed on all letterheads, notices other official publications. Cheques, orders for moneys, bills of exchange etc.

The company must also show its place of registration and registered number together with its name and address.

The letterheads may show the names of directors but if a company chooses to have directors names on its letterhead them it must show all directors and not select between them.

The form, authentication and manner of delivery of information

From 1st October 2009, Part 35 of the Companies Act 2006 gives the registrar of companies a range of powers. These include powers to decide on the form and manner in which companies must deliver documents, what is needed for a document to be properly delivered, provision of electronic delivery for certain documents, and amendments to the register.

The powers which relate to the delivery of information define how the company information will look, how it can be authenticated and how it should be submitted. This sets out the requirements companies must meet when sending documents, for example signatures, fees etc. If companies fail to meet these requirements the registrar will normally reject the document. However in some circumstances he may decide to accept a document even if it has not been properly delivered and mark as ‘’incomplete’’. The registrar may decide to take further action after registration, e.g. following a complaint by a third party. The registrar would send letters to the company asking them to file a document that complies with the proper delivery requirements. If they fail to respond, he may ultimately send a notice to the company giving 14 days to file a document that complies with the proper delivery requirements. Initially the registrar can write to the company inviting them to file a replacement or additional documents to correct the inconsistency. If the company does not comply, the registrar ultimately has the power to issue a formal inconsistency notice to the company requiring delivery of any replacement or additional documents. If the company fails to comply with the notice, the company and every officer is guilty of an offence and liable on conviction to a fine.

Annotation of the register

Companies sometimes by mistake submit more information than they need, e.g. internal tax computations that do not form part of the statutory accounts. Depending on when we notice the extra information, and whether we can readily separate it from the original document, the registrar can deal with this is different ways.

If we cannot readily separate the unnecessary material from the original document the registrar will normally reject the document.
If the material is obvious and easy to separate, e.g. an extra page, we will normally remove the unnecessary material and register the document.

If the material is not noticed and registered, it can be dealt with in the future by the administrative removal procedure.
The registrar may accept a document to replace one previously delivered only if it;

• did not meet the requirements of proper delivery or,
• contained unnecessary material

Only the person or the company that delivered the original document can deliver the replacement document, which must be accompanied by a replacement document form (yet to be defined), required to link the replacement document with the original.

The registrar has new powers to put notes on the register to inform searchers of changes. The annotation must record:

• the date a document was delivered
• the date of the replacement document and the fact it has been replaced
• the date material was removed, under what power and a description of the material.

The registrar can decide whether or not to remove the original document, and will judge each case on its individual merits.

Rectification of the register

Rectification is a new process to remove material from the register in certain circumstances, i.e.

• material that’s invalid or ineffective or that was produced without the authority of the company, or
• arose from something that was factually inaccurate or forged.

Rectification allows the registrar to deal with company hijacks and other false filings. There were no powers under the 1985 Act that enabled the registrar to remove documents, except via a court order.

The appointment, removal and change of particulars of directors and secretaries and change of registered office address is covered under the rectification process.

The registrar can administratively remove from the register unnecessary material or a document that has been replaced.
Before removing any material, the registrar must give notice to the person who delivered the material or the company that it relates to. The notice must be dated and state what material is to be, or has been, removed.

Material that can not be removed includes:

• incorporation documents
• change of company name
• re-registration
• becoming or ceasing to be a Community Interest Company
• reduction of share capital
• change of registered office
• registration of a charge
• dissolution

This process does not cover requests for rectification of the register.

The registrar must keep paper documents for 3 years, after this time they can be destroyed as long as there is a copy of the information contained in them. Previously under the Companies Act 1985 this was 10 years.

Once a company has been dissolved for 2 years the Registrar may direct that the records relating to it may be removed to the Public Record Office who are then responsible for keeping the documents in accordance with their own rules.

New forms

There are changes to all forms, where a new numbering system have been adopted. Change to company forms was introduced on 1st October 2009.

Statement of capital

Companies incorporating as limited by shares (whether private or public) on or after 1st October 2009 must complete a statement of capital and initial shareholdings as part of the application to incorporate and also as part of any annual return filing made up on or after 1st October 2009.

The statement of capital must show with regards to the issued capital:

• the total number of shares of the company,
• the aggregate nominal value of those shares,
• for each class of shares:
  • prescribed particulars of the rights attached to the shares (these will be determined in regulations and indicated on the appropriate forms,
  • the total number of shares of that class, and
  • the aggregate nominal value of shares of that class, and
  • the amount paid up and the amount (if any) unpaid on each share (whether on account of the nominal value of the share or by way of premium