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Companies Act 2006: Formation of a company

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12th Jul 2010
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David Duvall summarises what practitioners need to know about the regulations relations relating to forming a company in the Companies Act 2006.

NOTE: Although written in 2010 this article, with useful checklists remains relevant as at September 2015.

Summary of provisions

Incorporation (s.9-16, schedule  4)
Companies may be incorporated online.

A single person may form any sort of company, not just a private company (although such a person should note that the minimum issued share capital for a public company remains at £50,000).

Documents to be sent to the Registrar on application to form a company:

  • The company’s proposed name
  • The country and address of the registered office
  • Whether the members’ liability is to be limited, and if so how
  • Whether the company is to be private or public
  • A statement of the company’s share capital and initial shareholders (or a statement of guarantee), showing:
    * The total number of shares to be taken by the subscribers
    * The aggregate nominal value of those shares
    * The number of shares in each class and their rights
    * The amount paid and unpaid on each share
  • A statement of the company’s proposed officers
  • A copy of the proposed articles, unless they comply with the relevant model articles.

The statutory declaration to the Registrar is replaced by a statement of compliance, which may be in hard copy or electronic form.

Memorandum and articles (s.8, 18-28)
The new format memorandum consists only of what is currently known as the ‘association clause’ – where the subscribers declare their wish to form a company and agree to take the stated number of shares. Other clauses which have historically been in the memorandum may now be part of the articles. 

A company is not able to (nor will it need to) alter a new-format memorandum.

The Act allows a company to have unlimited objects unless they are specifically restricted by the articles. This means that companies that wish to restrict their objects, or are required to (e.g. charities), may continue to do so.

The Act abolishes subsections 2 and 3 of the old s.35 CA 1985 (members obtaining an injunction to stop an ultra vires act, and ratification by special resolution of directors’ acts which are beyond their powers). 

Officers (s.12, 240-246, 270)
The statement of proposed officers is similar to the existing statement but reflects two useful changes:

  • Although directors have to provide their home address, this will be kept if they wish in a separate record with restricted access.
  • A private company need no longer appoint a secretary.

2.2    Practical action
Incorporation

  • With the ability to incorporate a company online, and the availability of a simplified constitution, it is worth considering whether formation from scratch may be an easier option than buying an existing company ‘off the shelf’.

Memorandum and articles

  • New companies – these must start with the new format.  Consider if the model set of articles (available at www.companieshouse.gov.uk) is suitable as it stands or needs adapting to the company’s requirements.
     
  • Existing companies – may change to the new format if they wish.  This is an opportunity to review the existing documents, which in many cases date from long ago. (This also applies to companies bought ‘off the shelf’ instead of starting a company from scratch.)
     
  • Memorandum – if changed, should not need to consist of more than the association clause, as is the case with the new format.
     
  • Objects clause – many of these date from a time when, to avoid the risk of ultra vires, companies put every activity under the sun into the objects clause. The new model articles do not include such a clause, the presumption being that most companies will prefer the freedom given by unlimited objects. Consider if this is now appropriate.
     
  • If it is appropriate to limit the company’s objects (e.g. charitable companies), the objects clause must go into the articles in the new format.

Initial directors, secretary and auditors

  • Consider if the company needs a secretary, and if so whether (s)he should also be a director.
     
  • Decide whether to take advantage of the ability to have only directors’ business addresses disclosed by the Registrar and by the company’s own register of directors.
     
  • If a private company needs an audit, the first auditors can be appointed by the directors. However they will need to be appointed by the members at some point, if the company does not want to hold annual general meetings and thus allow the auditors to continue in office.

David Duvall MA FCA is training manager at Chantrey Vellacot.

Replies (1)

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By carnmores
04th Aug 2010 13:36

THANK YOU FOR THIS
very useful

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