Georgie Clayton 2022©
Company incorporation + procedure
1. Company Incorporation
A. Pre-incorporation contracts
s. 51(1) CA 2006: contracts (inc. deeds) entered into by or on behalf of Co before it is formed do not bind the Co; indeed, subject to the contrary the person purporting to act as the Co’s agent will be liable on the contract.
The common law of agency, i.e., an agent acts on behalf of a principal, does not help us here as there is no principal, i.e., no company as not incorporated.
However, a pre-incorporation contract can be resolved by:
Termination: terminate the existing contract and new Co entering a new contract
Assignment: !/! this doesn’t transfer the burden as it is a contract between 2 parties
Novation: legal agreement between the person purporting to act as the Co’s agent, the Co and the service provider to agree that the Co will take the person’s place in the pre-incorporation contract thereby transferring the burden and
benefit from person to Co. !/! = it might be difficult to get the service provider’s consent or they might want to negotiate different terms.
B. Company name:
Name must not constitute an offence or be offensive (s. 53 CA 2006)
SoS approval needed for name giving impression of connection w/government / LA / public authority (s. 54 CA 2006)
SoS approval needed where sensitive words used, as defined by SoS (s. 55 CA 2006)
Bank
University
etc.
Name may not include characters, signs or symbols prohibited by SoS (s. 57 CA 2006)
Name must end in:
p.l.c. (or public limited company), or Welsh (s. 58 CA 2006)
ltd. (or limited), or Welsh (s.59 CA 2006)
Name cannot be the same as another in registrar’s index (s. 66 CA 2006)
SoS may direct a company to change name if same or in opinion of SoS too like a name in (or that should appear) in the index (s. 67 CA 2006)
How can a Co change its name?
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1. Special resolution (s. 77(1)(a) CA 2006)
o Must forward copy of resolution to registrar (part of constitution) + give notice of change of name (s. 78 CA 2006)
o Registrar must check compliance with CA and issue new incorp certificate (s. 80 CA 2006)
o Change of name takes effect from issuance of new certificate (s. 81(1) CA 2006)
2. Other means in Articles (s. 77(1)(b) CA 2006)
o The Co must give notice to the Registrar s. 79(1)(a) CA 2006.
o The notice must be accompanied by a statement that the change has been made by means provided in the AA: s. 79(1)(b) CA 2006.
3. By directors where SoS order to change (s. 77(2)(a) CA 2006)
Companies House checks:
http://wck2.companieshouse.gov.uk
https://find-and-update.company-information.service.gov.uk/company-name-availability
Information about existing companies: - this is the best way of checking.
https://find-and-update.company-information.service.gov.uk
Companies house guidance on Names:
https://www.gov.uk/government/publications/incorporation-and-names/incorporation-and-names#objections
Establishment Method
Incorporation from Scratch = incorporate the Co yourself online at CH or file the paper versions of the forms Shelf Company = already incorporated Co that has not traded and is tailored to the client’s
at CH requirements
Set up by registration agents/ law stationers
!/!: Generally, 1 year old as if too old could come with liabilities.
Formalities s. 7 CA 2006: A Co is formed under CA 2006 by one or more persons: To tailor a shelf company, a BM and, if necessary, a GM should be held ASAP to complete registration
formalities and make the necessary changes to the shelf company’s AA (see resolutions frequently
encountered below for how to effect these changes)
Subscribing to the Memorandum of Association: s. 8 CA 2006.
o Subscribers must state that they wish to form a Co (1)(a), agree to become members
of the Co and agree, if the Co has shares, to take at least one share each (1)(b). Changing the Co name
o Memorandum of Association must be in a prescribed form (2). Adopt new AA
Complying with the registration requirements: s.9-13 CA 2006. To register a private Ltd, Form IN01 and Change the address of the registered office
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the MAA must be lodged with the Registrar. Form IN01:
o Name, office address, ltd by shares/ guarantee, ltd/plc: s.9(2) CA 2006
Change the accounting reference date
o Statement of capital and initial shareholdings: s. 9(4)(a) CA 2006.
Appointment of a chairperson
o Statement of proposed officers: s. 9(4)(b) CA 2006
Appointment and resignation of directors and the company secretary (if there is one)
o Statement of initial significant control: s. 9(4)(c) CA 2006.
o !/!: appoint the new directors before resigning the others as you will need them to make
the appointments.
o AA if not Model articles
Transfer of subscribers’ shares:
o Type of Co + principal business activities: s. 9(5)(c) CA 2006.
Appointment of auditors: s. 485 CA 2006.
o Fee for incorporation:
Once a Co is registered, it is issued with a certificate of incorporation, which constitutes conclusive evidence
that a Co is registered = can start trading once incorporated.
Certificate of incorporation includes:
Name of Co (which may change) and CRN
Date of incorporation =
o date a Co becomes a legal entity s. 15(2)(b) CA 2006 and from which the body corporate is
capable of exercising functions: s. 16(3) CA 2006.
o date subscribers to the MAA become SH per statement of capital (s. 16(5) CA 2006) and
members: s. 112(1) CA 2006
Advantages:
Can enter contracts immediately without the need to wait for registration.
o date directors and secretaries appointed: s. 16(6) CA 2006.
Disadvantage:
Ltd by shares/ Ltd by guarantee/ Unlimited Could need a lot of changes to be made
Private/ public
Registered office in England & Wales, Scotland, NI
!/!: a contract/ deed purporting to be made by or on behalf of a Co prior to formation date has effect as one
made with the person purporting to act for or as agent of Co and he is personally liable on the contract: s.
51(1) CA 2006.
SH cannot ratify contracts entered into pre-incorporation.
,Georgie Clayton 2022©
Advantages:
Disadvantages:
Timing Advantages: Advantages:
Roughly 48 hours (using the Companies House online web filing service) and 1 to 2 business days (via Slightly quicker than incorporation from scratch as (i) there is no need to prepare all the
post). documents required for registration, (ii) available 24/7
!/!: can pay premium for a same day service. Disadvantages
Time required to effect the changes.
No further alterations as already set up to instructions
Disadvantages:
Slightly slower than purchasing a shelf Co as (i) you have to prepare all of the documents required for
registration, (ii) can only be done during CH opening hours, (iii) need specific software.
Costs Advantages: Advantages
Traditionally cheaper as no incorporation fee.
Disadvantages:
Disadvantages: Fees for CH filings as set out in formalities can add up.
Traditionally more costly as incorporation fee (£12 online/ £40 in paper) + potentially legal fees (i.e., if
tailor made AA)
Company Constitution (CC)
A company’s constitution (CC) s. 17 CA 2006 = AA + certain resolutions/ agreements affecting CC set out at Ch 3 Part 3 CA 2006.
AA must be contained in a single document (s. 18(3)(a)) and divided into § numbered consecutively (s. 18(3)(b)).
The relevant Model Articles (i.e., for us Model Articles for Private Co limited by shares) will apply by default to any Co formed and registered under the CA 2006, unless the Co chooses otherwise, i.e. tailor-made AA or adaptations to MA: s. 9(5)(b)
and s. 20 CA 2006
How are AA modified? By special resolution of SH: s. 20(1) CA 2006.
What do they do and what is their effect?
Set out rules that SH must comply with, procedures which govern the relationship between the SH (GMs, voting, share transfer, etc)
o Contract of membership between the SH themselves
SH can enforce rights contained in AA against other SH provided the right is founded in a personal obligation to another SH through the articles.
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Otherwise, can only enforce rights through the company or the company’s liquidator (Welton v Saffery). As such, if a member is likely to wish to enforce rights against a SH, a SH Agreement is best.
o Contract of membership between the Co and SH
SH can enforce rights contained in AA against the Co provided they relate to their capacity as SH i.e., right to vote, right to receive a final dividend once declared: s. 33 CA 2006.
o What if SH don’t comply with AA? Breach of Contract.
Set out rules that directors must comply with (powers of directors, numbers of directors, method of appointment, etc) contract of membership between the Co and directors
o What if the directors don’t comply with AA? No Breach of Contract but Breach of Statutory duty under s. 171 CA 2006.
What is the relationship between the AA and the CA 2006?
AA must be interpreted in light of CA 2006 and any provisions must pass the ‘legality test’ = must be consistent with the CA 2006 = controls and protections.
How to apply the legality test: how to determine whether an article is incompatible with CA 2006?
Apply relevant section of the CA 2006 to the matter at hand, i.e., MA 11(2) for quorum at board meeting
Compare this section with the proposed article in the AA:
o If Act silent = amend as see fit.
o Complete freedom = amend as see fit.
o Min/max threshold in Act = amend must comply with min/max.
o Act as default where AA are silent.
o Outright prohibition = no amend.
If the proposed article is incompatible with the CA 2006, the Act prevails and the amend isn’t accounted for.
Amended AA must also pass the ‘commercial test’ = alteration must be suitable to the needs of the client.
!/!: lawyers do not advise on commercial matters, i.e., the spending threshold is a commercial decision for the Co, not a legal decision.
What can be altered in the AA, i.e., what changes to the AA are considered consistent with the CA 2006, thus passing legality test?
Event/ matter What the CA 2006/ common law says What this means legally for the AA What this means commercially
Notice for Board Meeting Browne v La Trinidad = reasonable notice Can include a set notice period. !/!: If the set notice period is too long, it could produce issues
if a Board Meeting needs to be called in an emergency.
CA 2006 is silent as to the notice period for Board
Meetings.
Quorum for Board Meeting MA 11(2): quorum for BM may be fixed from time to Can be more than 2 but not less than 2.
time by a decision of the directors but must never be less
than 2 and unless otherwise fixed is 2.
Quorum for General Meeting s. 318(2) CA 2006: Subject to the Co’s AA, 2 unless one Can be fixed by the members in a Co with more
member and then one. than one member, but can only be one in a
single member Co so would need to incorporate
s. 318(1) CA 2006.
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Notice for General Meetings s. 307(3) CA 2006: the Co’s articles may require a longer Can be made longer but cannot be made
period of notice than the 14 days’ (private ltd/ public) or shorter in the AA.
21 days (only for AGM in public)
!/!: can be called at short notice in accordance
with CA 2006 procedure at s. 307(4).
Chairman’s casting vote CA 2006 is silent as to casting vote at a Board Meeting. Can be removed. Consider how many directors there are
i.e., if there are 2 directors, then a casting vote to one
director might demotivate the other director as the director
with a casting vote would always have the final say and could
overrule the other, who therefore becomes a sounding
board.
i.e., if there are 5 directors, the prospect of deadlock is
lessened so having a casting vote isn’t, prima facie, essential.
However, no casting vote could cause problems if 1 of the 5
directors abstains.
Consider how many SH there are
i.e., if there is a deadlock, the SH could always intervene to
resolve the issue, but if the SH of the Co are the same as the
directors of the Co, deadlock would just be replicated at
shareholder level.
Consider whether the Co is a family Co
i.e., casting vote could lead to disputes when used.
Change to directors’ powers to enter into CA 2006 is silent on this matter. Can be modified. Spending cap reduces the risk of uncontrolled spending by
transactions with value > £X without consent of directors that the SH of the Co has little oversight of,
SH and directors
That said, it could potentially slow down the decision-making
process as the board of the SH would need to decide whether
or not can spend above the limit.
!/!: if the directors are the same as the SH, a spending limit
and approval process would introduce a layer of procedural
complexity.
Think: could a spending cap not be imposed by passing a
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board resolution vs. in articles, thus making it easier to
amend down the line?
!/!: not a lawyer’s decision as to whether the amount of the
CAP is unreasonable = commercial decision.
Limits on directors’ spending + consent of
members if > £Y
CA 2006 is silent on this matter. Can be modified.
Change of name s. 77(1)(b): Co name can be changed by other means Can be changed but regard must be had to
provided for in the AA. other provisions, i.e., s.79 CA 2006.
What cannot be altered in the AA, i.e., what changes to the AA are considered not consistent with the CA 2006, thus not passing legality test?
Event/ matter What the CA 2006/ common law says What this means legally for the AA
Amends to AA s. 21(1) CA 2006: Articles can only be amended by special resolution Cannot be changed in AA; must be a SR.
of SH.
Passing written resolutions s. 300 CA 2006: Co cannot exclude the use of written resolutions in Cannot be changed in AA.
their AA
Notice for GM s. 307(3) CA 2006: the Co’s articles may require a longer period of Can be made longer but cannot be made shorter in the AA.
notice than the 14 days’ (private ltd/ public) or 21 days (only for
AGM in public)
!/!: can be called at short notice in accordance with CA 2006 procedure at s. 307(4).
Removal of director s. 168(1) CA 2006: Director may be removed from office before end Cannot be changed in AA, but SH Agreement may stipulate otherwise, i.e., removal upon unanimity.
of term by ordinary resolution of SH.
The SH Agreement would not override the statutory right provided for in the AA but if the SH
Agreement did state unanimity, then there would be a claim if the removal took place at not
unanimity.
!/!:
SH Agreement = contract between all or some of the SH in which they can agree between themselves how to regulate the affairs of the Co in their personal capacity (i.e., not as SH).
o Not subject to the CA 2006 so can include any provision the SH want but it will not remove SH statutory rights under CA 2006. So, if e.,g, the SH Agreement stated that directors could only be removed at unanimity, the
SH can still remove at majority under CA 2006. The claim would be one for BoC by the SH against the other SH.
o Generally, contains veto rights, i.e., unanimity for increases in ASC, changes to the Co’s name, changes to the AA, entering into borrowing. Etc.
o To ensure it is binding on the participating SH, a deed of adherence should be entered into.
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SH Agreement AA
A contract between some or all of the SH in which they can agree between A contract between the SH and the Co in their capacity as SH.
themselves how to regulate the affairs of their Co in their personal They do not deal with personal rights and obligations of the SH.
capacity. These are personal rights and obligations of the SH.
Not subject to the CA 2006 so…. Subject to the CA 2006 so…
Can include any provision in the SH but does not remove SH Cannot include any provision that would require the Co to fetter its statutory powers
statutory rights under the CA.
So, if a SH agreement required directors to be removed upon
consent of all of the SH, the director could still be removed
under s. 168 CA 2006 at a majority of SH. Those other SH
could bring an action for BoC. Russell v Northern Bank
Development Corp Ltd [1992].
SH can enforce rights and obligations directly against another SH through a SH can only enforce rights against the Co that are relevant to their capacity as SH, e.g., right to vote,
SH Agreement. right to declare dividend.
SH can only enforce rights against another SH through the Co or a liquidator representing the Co.
Private. Public record as published at Co House upon incorporation.
Unanimous agreement to amend the SH Agreement. Special resolution to amend the AA: s. 21(1) CA 2006.
MoA:
Pre-CA 2006:
o MoA was a constitutional document, inc. two restrictive clauses regarding authorised share capital and objects.
Post-CA 2006:
o MoA is not a constitutional document, but merely a declaration by subscribers that they have agreed to become members of a Co and if the Co is limited by shares, agree to take at least one share each: s. 17 CA 2006.
o Provisions of the MAA are now treated as forming part of its AA so if there were any objects clauses or authorised share capital clauses in pre-1985 companies, these will have been transferred and can only be removed by the
SH: s. 28(1) CA 2006.
o Authorised share capital clause has been abolished Co can allot as many shares as they want, subject to AA restrictions.
o Objects clause has been removed Objects are unrestricted, subject to AA (s. 31 CA 2006).
