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