Incorporation - forming a company

Author: Jim Riley Last updated: Sunday 23 September, 2012

Forming a company

Who can form a company?

The Companies Act generally allows one or more persons to form a company for any lawful purpose by subscribing to its memorandum of association. However, a public company or an unlimited company must have at least two subscribers.

What needs to be done?

Ready-made companies are available from company formation agents whose names and addresses appear in directories such as Yellow Pages. These are essentially "shell companies" where all the relevant documentation has been completed and the company assigned a generic name (e.g. "Newco 123345"). Company formation agents charge a fee (around £200 per company) for providing this service. Individuals can choose to complete the process themselves by using company formation documents provided by Companies House. These documents are summarised below:

Memorandum of Association

The Memorandum of Association is one of two official documents that describe the company's constitution (the other being the Articles of Association).

The Memorandum of Association sets out the details of a company's existence. It must be signed by the subscribers and contain the following information:

- The company's name: the last word of the name must be "limited" or "Ltd"

- Address of the Registered Office - this must be England, Wales or Scotland and means that the company operates under British law and pays British tax.

- The objects for which the company is formed (the "objects clause") - this sets out the objects for which the company is incorporated (usually a very general statement such as "to carry on its trade and business").

- A statement that the liability of the company members is limited. This means that if the company is insolvent, the shareholders are liable to creditors for only the amount of their shares

- The amount of the authorised shares capital and how it is divided. The amount of share capital subscribed in cash or assets is called the "issued share capital"

- The names of the subscribers

Articles of Association
This document governs the running of the company. For example, it describes the voting rights of shareholders , the conduct of shareholder and directors' meetings, and the other powers of management.

The articles constitute a contract between a company and its members, but this applies only to rights of the shareholders in their capacity as members of the company.

The contents of the articles include:

Classes of shares - the share capital can be divided into different types of shares which have different rights (for example, in relation to voting in meetings, or relating to the sharing of profits and payment of dividends)

Restrictions on the issue of shares - the existing shareholders have a statutory right of "preemption". This means that they have "first-refusal" over the issue of new shares.

Restrictions on share transfers - in order to retain control, directors of private companies usually want to restrict the transfer of shares

Purchase by a company of its own shares - subject to strict regulation, companies can now buy their own shares and assist anyone else to buy them.

Directors - the articles set out how and when directors are appointed. The operation of the Board of Directors is also set out by the articles

Form 10

Form 10 gives details of the first director(s), secretary and the intended address of the registered office. As well as their names and addresses, the company's directors must give their date of birth, occupation and details of other directorships they have held within the last five years. Each officer appointed and each subscriber (or their agent) must sign and date the form. The same person can be both a director and company secretary, provided there is another director. A sole director cannot also be the company secretary.

The registered office is the address of a company to which official documents are sent. The registered office can be anywhere in England and Wales (or Scotland if the company is registered there). The registered office must always be an effective address for delivering documents to the company, and to avoid delays it is important that all correspondence sent to this address is dealt with promptly.

Form 12

Form 12 is a statutory declaration of compliance with all the legal requirements relating to the incorporation of a company. It must be signed by a solicitor who is forming the company, or by one of the people named as a director or company secretary on Form 10. It must be signed in the presence of a commissioner for oaths, a notary public, a justice of the peace or a solicitor.
d makes them available for public inspection.

Choosing a Company Name
There are some restrictions on the choice of a company name. Briefly, the restrictions are that:

The name cannot be the same as another company (for obvious reasons!)
The use of certain words is restricted. These include names likely to cause offence, names that imply connections with the government or a local authority.