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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 is a memorandum of association?
This document sets out:
- The company's name,
- Where the registered office of the company is situated (in England, Wales or Scotland); and
- What it will do (its objects). The object of a company may simply be to carry on business as a general commercial company.
Other clauses to be included in the memorandum depend on the type of company being incorporated. The form of memorandum for each type of company is set out in a set of tables called The Companies Regulations, 1985.
The memoranda and articles of association of the community interest companies must comply with the requirements of the Community Interest Company Regulations 2005. Sample CIC memoranda and articles can be found on the CIC website at www.cicregulator.gov.uk/
These tables do not apply to RTM companies or commonhold associations. The memorandum and articles for these types of companies are set out in:
- For RTM companies: ‘The RTM Companies (Memorandum and Articles of Association (England) Regulations 2003’ or ‘The RTM Companies (Memorandum and Articles of Association (Wales) Regulations 2004’
- For commonhold associations: ‘The Commonhold Regulations 2004’.
The company's memorandum delivered to the Registrar must be signed by each subscriber in front of a witness who must attest the signature.
What are articles of association?
This document sets out the rules for the running of the company's internal affairs. Model articles are provided in the Tables mentioned above.
All companies that are limited by guarantee or unlimited, and all community interest companies (whether limited by shares or by guarantee) must register articles. These should be in accordance with, or as near to that form as circumstances permit, the following tables:
In addition, the articles for community interest companies must comply with the requirements of the Community Interest Company Regulations 2005. Sample CIC memoranda and articles can be found on the CICs website at www.cicregulator.gov.uk.
The company's articles delivered to the Registrar must be signed by each subscriber in front of a witness who must attest the signature.
What is a registered office?
It is the address of a company to which Companies House letters and reminders will be sent. The registered office can be anywhere in England and Wales (or Scotland if your 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. If a company changes its registered office address after incorporation, the new address must be notified to Companies House.
What is the minimum number of officers a company requires?
Every company must have formally appointed company officers at all times.
A private company must have at least:
- One director - but the company's articles of association may require more than one.
- One secretary - formal qualifications are not required. A company's sole director cannot also be the company secretary.
A public company must have at least:
- Two directors;
- One secretary - formally qualified
All company officers have wide responsibilities in law.
After incorporation, you must tell Companies House about:
- The appointment of a new officer
- An officer's resignation from the company
- Changes in an officer's name or address or any of the other details
Can anyone be a company director?
In general terms, yes, but there are some rules. You can't be a company director if:
- You are an undischarged bankrupt or disqualified by a court from holding a directorship, unless given leave to act in respect of a particular company or companies
There is no minimum age limit in the Companies Act for a director to be appointed in England and Wales. However, he or she must be able to consent to their own appointment. You should seek legal advice if you intend to have a very young person as a director of your company.
In Scotland the Registrar will not register for any company the appointment of a director under the age of 16 years old. A child below that age does not have the legal capacity to accept a directorship - Age of Legal Capacity (Scotland) Act 1991. If you need more information, contact Companies House, Edinburgh.
Some people not of British nationality are restricted as to what work they may do while in this country. If you need more information about whether such a person can become a director of a UK-registered company, contact:
Home Office Immigration and Nationality Department
Lunar House
Wellesley Road
Croydon
CR9 2BY (Tel: 0870 606 7766)
What happens to the documents sent to the Registrar?
All company formation documents are subject to certain checks including checks of prospective officers against the Disqualified Directors' Register.
The Registrar then keeps the documents and makes them available for public inspection.
Public limited companies
What is a public limited company?
A public limited company is a company which is registered as such and complies with the following:
- It must state that it is a public limited company both in its memorandum and in its name. The memorandum must contain a clause stating that it is a public limited company and the name must end with 'Public Limited Company' or 'PLC' (or if it is a Welsh company, the Welsh equivalents 'Cwmni Cyfyngedig Cyhoeddus' or 'CCC').
- 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.' (or if it is a Welsh company, the Welsh equivalents 'cwmni buddiant cymunedol cyhoeddus cyfyngedig' or 'cwmni buddiant cymunedol c.c.c').
- The memorandum must be in the form specified in Table F of the Tables (see question 4, chapter 1) or as near to that form as circumstances permit. (A sample memorandum for community interest companies can be found on the CICs website at www. cicregulator.gov.uk).
- It must have an authorised share capital of at least £50,000.
- Before it can start business, it must have allotted shares to the value of at least £50,000. A quarter of them, £12,500, must be paid up. Each allotted share must be paid up to at least one quarter of its nominal value together with the whole of any premium.
For example, if a share with a nominal value of £1 is sold for £6, then it is said to have a premium of £5. This premium must be paid to the company, together with a minimum of a quarter of the nominal value of each share. That is £0.25p plus £5, making a total payment of £5.25.
Can a PLC issue shares in another currency?
Yes, if it has passed the necessary resolutions to adopt that currency as part of its authorised capital and given the directors the authority to allot that capital. However, it must always have at least the authorised minimum of £50,000 sterling in issued capital, irrespective of what other currency it uses.
A company may use as many currencies as it wishes for its share capital provided that they are true currencies.
When can a PLC start business?
A newly formed PLC must not begin business or exercise any borrowing powers until it has a certificate issued under section 117 of the Companies Act 1985 confirming that the company has issued share capital of at least the statutory minimum. You can get this certificate from Companies House. Once issued, the certificate is proof that the company is entitled to do business and borrow.
Are there any other restrictions on a PLC?
Yes. There are four main restrictions:
- A PLC must have at least two members and at least two company directors. The secretary (or each joint secretary) must also be a person who appears to the directors to have the necessary knowledge and ability to fulfill the functions and who:
(a) held the office of secretary or assistant or deputy secretary on 22 December 1980; or
(b) for at least three of the five years before their appointment, held the office of secretary of a non-private company; or
(c) is a barrister, advocate or solicitor called or admitted in any part of the United Kingdom; or
(d) is a person who, by virtue of his or her previous experience or membership of another body, appears to the directors to be capable of discharging the functions of secretary; or
(e) is a member of any of the following bodies:
- the Institute of Chartered Accountants in England and Wales;
- the Institute of Chartered Accountants of Scotland;
- the Institute of Chartered Accountants in Ireland;
- the Institute of Chartered Secretaries and Administrators;
- the Chartered Association of Certified Accountants;
- the Chartered Institute of Management Accountants (formerly known as the Institute of Cost and Management Accountants); or
- the Chartered Institute of Public Finance and Accountancy.
- A PLC normally has only seven months after the end of its accounting reference period to deliver its accounts to the Registrar. A civil penalty will be incurred if it delivers accounts to Companies House after the statutory time allowed for filing.
- A PLC cannot take advantage of many of the provisions and exceptions applying to private companies under the Act, such as audit exemptions for small private companies.
- A PLC cannot apply for voluntary strike-off under section 652A, Companies Act 1985. Further information about this is available in our booklet 'Strike-Off, Dissolution and Restoration'.
What then is the advantage of a public company?
A PLC has access to capital markets and can offer its shares for sale to the public through a recognised stock exchange. It can also issue advertisements offering any of its securities for sale to the public. In contrast, a private company may not offer to the public any shares in itself.
Do these rules apply to an oversea plc?
Most of the above rules do not apply to a public company formed abroad. On establishing a branch or place of business in Great Britain, such a company is governed by Part XXIII of the Companies Act 1985, just as any other oversea company is. However, besides Part XXIII of the Act, they are also governed by regulations in their country of incorporation, by certain parts of the Financial Services and Markets Act 2000, and by the City Code on Take-overs and Mergers.
Single member companies
What is a single member company?
A single member company is a private company, limited by shares or by guarantee, which is incorporated with one member, or whose membership is reduced to one person.
Can a single member run the company?
No. The company must still have at least one director and a secretary who cannot also be the sole director.
How should a company record an unwritten contract with a sole member?
If the company enters into an unwritten contract with the sole member who is also a director of the company (and the contract is not in the ordinary course of the company's business), the company must ensure that the terms of the contract are set out in a memorandum or are recorded in the minutes of the next directors' meeting.
What about the register of members?
A company's register of members must accurately record its members. If a company is incorporated with one member, then the register must reflect this. If the company originally had more than one member and the membership reduces, then the register must show when this happened. Similarly, the appropriate entries must be made in the register of members if the number of members later increases.
Re-registration of a company and also conversion of a company to a CIC
Can a private company convert to a PLC?
Yes. Both a private company limited by shares and an unlimited company with a share capital may re-register as a PLC, but a company without a share capital cannot do so.
A private company must pass a special resolution that it be so re-registered and deliver a copy of the resolution together with an application form to the Registrar. The resolution must also:
- Alter the company's memorandum so that it states that the company is to be a public limited company;
- Make any other alterations to the memorandum so that it conforms to that required for a public limited company;
- Make any required alterations to the articles of association of the company.
Further information about resolutions is available in our booklet, 'Resolutions'.
The application must be signed by a director or secretary of the company, and be accompanied by the following documents:
- A copy of the memorandum and articles of association of the company altered in accordance with the resolution above;
- A copy of a balance sheet prepared not more than seven months before the application date and containing an unqualified report by the company's auditors;
- A special report by the auditors regarding the net assets of the company at the balance sheet date in relation to the company's called-up share capital and its undistributable reserves;
- A valuation report on any shares issued as fully or partly paid up except in cash after the balance sheet date;
- A statutory declaration confirming that the resolution has been passed, and that there has been no change in the company's financial position causing its net assets to be reduced to less than its called-up share capital and undistributable reserves.
An unlimited company, in addition to the above, must:
- Include a statement in the resolution that the liability of the members is limited and what the company's share capital is to be;
- Make such alterations to the memorandum and articles of association as are necessary for them to conform to those of a company limited by shares.
The company must also satisfy the statutory minimum share capital requirements referred to in question 1 of chapter 2 before the special resolution is passed.
Can a PLC convert to a private company?
Yes. A public company limited by shares or by guarantee may re-register as a private company limited by shares or by guarantee by passing a special resolution to do so. However, if enough members object, under section 54 of the Companies Act 1985 they may apply to the court to cancel the resolution within 28 days of its being passed.
A Court may also order a public company to re-register as private on approving a 'minute of reduction' of share capital which results in the issued share capital falling below the statutory minimum. In such a case the Court will also specify alterations to the company's memorandum and articles. A special resolution to re-register is not required.
Similarly, a public company may be required to re-register as private if its issued share capital falls below the statutory minimum by other means. These include redemption, forfeiture or repurchase of shares. In these cases a special resolution to re-register is required.
In all cases (except where a court has specified in an order the alterations to be made) a resolution must also be passed to alter the memorandum and articles of association to those required for a private company.
The application for re-registration must be accompanied by copies of the resolutions and copies of the memorandum and articles as modified to meet the company's new circumstances.
Can an existing company convert to a CIC?
Yes, an existing company can apply to the Regulator of community interest companies to convert to a CIC. For further details, please refer to the CIC website on www.cicregulator.gov.uk.
Publication of company name and details to be shown on company stationery
Under the Companies Act 1985 each company must state its name (as it appears in its memorandum of association) in certain places and on its business stationery. Each company must also give certain information on all its business letters and order forms.
Where must the company name be displayed?
Every company must paint or affix its name on the outside of every office or place in which its business is carried on - even if it is a director's home. The name must be kept painted or affixed and it must be both conspicuous and legible.
On which documents must the company name be shown?
As from 1 st January 2007 whether in hard copy, electronic or any other form - The company must state its name, in legible lettering, on the following:
- All the company's business letters, order forms;
- All its notices and other official publications;
- All bills of exchange, promissory notes, endorsements, cheques and orders for money or goods purporting to besigned by, or on behalf of, the company;
- All its bills of parcels, invoices, receipts and letters of credit
- On all its websites
Must the company show any other details?
Yes. On all its business letters and order forms (whether in hard copy, electronic or any other form) or any of the company's websites, the company must show in legible lettering:
- Its place of registration and its registered number. The place of registration must be one of the following, as appropriate:
For companies registered
in England and Wales: |
For companies registered
in Scotland: |
Registered in Cardiff |
Registered in Scotland |
Registered in England and Wales |
Registered in Edinburgh |
Registered in England |
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Registered in London |
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Registered in Wales |
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Must directors' names be shown?
A company does not have to state the directors' names on its business letters but, if it chooses to do so it must state the names of all its directors. In other words a company cannot be selective about which directors' names it shows - it must show all of them or none of them.
Must anything else be shown?
Certain categories of company must also state the following additional information on their business letters and order forms:
- For an investment company (as defined by section 266 of the Companies Act 1985), that it is such a company.
- For a company exempt from using the word 'limited' in its name, the fact that it is a limited company.
For a company with share capital, it is not necessary to state the share capital on stationery but, if the company chooses to do so, it must state its paid-up share capital, not its authorised capital.
Are there special rules for charitable companies?
Under section 68 of the Charities Act 1993, a charitable company whose name does not include the word 'charity' or 'charitable' must state the fact that it is a charity on all the documents listed on all bills it sends and on any conveyances it executes.
Section 68 does not require a charitable company to include the word 'charity' or 'charitable' in its name.
The Charities Act 1993 does not apply to charitable companies registered in Scotland but the same rule applies to Scottish companies under section 112(6) of the Companies Act 1989.
Do the rules apply to oversea companies?
A company incorporated outside Great Britain which opens a branch or place of business in Great Britain must be registered and must give similar details to those stated in this chapter. Full details are listed in our booklet, 'Oversea Companies'.
What if the company is being wound up?
If the company is being wound up, every invoice, order for goods, business letter or order form (whether in hard copy, electronic or any other form) must contain a statement that the company is being wound up.
The new company - looking forward
What information must companies provide?
Company directors have a personal responsibility for making information about the capital structure, management and activities of their companies available both to the members of the company and to the general public.
For companies with limited liability, this will include accounts. If your company is unlimited, accounts must be delivered to the Registrar if:
- It is a subsidiary undertaking or parent of a limited company; or
- It has been a banking or insurance company or operated a trading stamp scheme during the period covered by the accounts.
What period should the accounts cover?
A company's first accounts must start on the day of incorporation. The first financial year must end on the 'accounting reference date' or a date up to seven days either side of this date. Subsequent accounts start on the day following the year-end date of the previous accounts. They end on the next 'accounting reference date' or a date up to seven days either side.
How is the accounting reference date set?
The accounting reference date is the date in each year to which accounts will be drawn up. The date depends on the date of incorporation as it is the last day of the month in which the anniversary of incorporation falls. For example, if your company is incorporated on 2 July this year, the accounting reference date will be 31 July, and its first financial year must end on 31 July next year (or within seven days of that date).
Can the accounting reference date be changed?
Yes. The company must do this during the accounting period affected by the change or during the period allowed for delivering the associated accounts to Companies House. For more information, see our booklet, 'Accounts & Accounting Reference Dates'.
How long do companies have to deliver accounts?
The first accounts of a private company must be delivered:
- Within 10 months of the end of the accounting reference period; or
- If the accounting reference period is more than 12 months, within 22 months of the date of incorporation, or three months from the end of the accounting reference period, whichever is longer.
The first accounts of a public company (PLC) must be delivered:
- Within seven months of the end of the accounting reference period; or
- If the accounting reference period is more than 12 months, within 19 months of the date of incorporation, or three months from the end of the accounting reference period, whichever is longer.
What about annual returns?
Every company must deliver an annual return to Companies House at least once every 12 months. It has 28 days from the date to which the return is made up to do this.
To help companies meet this filing requirement, Companies House send a pre-printed 'shuttle' form to the companies registered office a few weeks before the anniversary of incorporation. This will show the information that the company has already provided.
All Companies have to do is:
- Check that the details are still correct;
- Amend any that are not; and
- Send the form back, signed and dated, within 28 days of the date of the return which is shown on the front of the form.
There is an annual document-processing fee of £30 (or £15 for users of Companies House Software Filing or WebFiling services), which must be sent to Companies House with the annual return.
What does Companies House do with the information about companies?
Companies House must make the information they hold about registered companies available to anyone who wants to see it. So the information provided by all companies will be available for public inspection.
What happens if companies don’t provide Companies House with up to date information?
If a companies accounts are delivered late, there is an automatic penalty. This is between £100 and £1,000 for a private company and between £500 and £5,000 for a PLC.
In addition, directors may be prosecuted for not filing certain documents. If convicted, they will have a criminal record and be liable for a fine of up to £5,000 for each offence. In some cases, they could also be disqualified from being a company director or taking part in the management of a company for up to five years.
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