Company Law - The Formation of a Company (Part 1)

Registration of a Company

The Companies Act 2006, sections 7-13 deal with the registration of a company. In order to form a company, the following must be sent to the registrar at Companies House:

1) Memorandum of association;  
2) Articles of association; 
3) Form 10 - details of the people who will be the first directors and first secretary;  
4) Form 12 - statutory declaration that all the requirements of the Companies Act with regard to formation of the company have been complied with;  
5) The requisite fee – presently the standard registration fee is £20. There is also a Same Day Incorporation service, which costs £50.00.

The Certificate of Incorporation

The registrar will examine the documents and provided they are in order he will issue a certificate of incorporation stating that the company is incorporated under the Companies Act 2006, section 15.

The company will be allocated a company number by the registrar. From then on this number must appear on all company documentation.

The Company’s Constitution

The constitution of the company is found in a number of places. Collectively, this will set down rules as to how the company is to be run. The sources are:

1) Legislation and case law (in particular, the Companies Act 2006 and the Companies Act 1985);
2) Memorandum of association;
3) Articles of association;
3) Shareholders’ agreements.

The Memorandum of Association

The memorandum of association is a basic, but fundamental, part of the company’s constitution. It deals with how the company relates to outsiders (i.e. not members or directors). It should contain five clauses: name, objects, registered office, liability and capital.

Name Clause

Every company must have a company name and this must be stated in the memorandum. Whilst those involved in forming a company may have definite views on the name they choose for their business, there are various restrictions on their choice of company name.

The final word of the company name must be “Limited” or the abbreviation “Ltd”. This warns outsiders dealing with the company that the liability of the shareholders is limited.

A company cannot be registered with a same name as that of an existing company. It is therefore important to search the index of names at Companies House to ensure that the desired name is not already in use.

It is also advisable to search the Trade Mark Index to make sure that the proposed name is not already registered as a trade mark.

The registrar will also not accept a company name if it is offensive, or suggests criminal activity (e.g. Hookers Ltd would almost certainly be refused).

The written approval of the Secretary of State is required if the proposed name contains any word which suggests a connection with the royal family or the government or a government department (local or central).

Although a company must always have a company name, it may decide to trade under a business name. The business name need not contain the words “Limited” but, if a business name is used, the company name must also appear on all company stationery so that outsiders are warned about the limited liability of its members.

Registered Office Clause

This clause states the country in which the registered office is situated. The full address of the registered office appears on the Form 10.

Objects Clause

The objects clause should set out the purpose for which the company is in business and what it has power to do. In the past this was very important as a company could not do anything which was outside the scope of its objects. Breach of this “ultra vires” doctrine could result in contracts with third parties being set aside. However, the law has now changed as a result of s.35 of the Companies Act which states that the fact the act is outside the company’s objects clause will not invalidate the contract. A member of the company can however still challenge a proposed ultra vires act on the basis that the company does not have the power to enter into the agreement.

Limited Liability Clause

The clause will merely state that the liability of the members is limited.

Capital Clause

The figure stated in this clause is the amount of nominal or authorised capital of the company which is the maximum amount of shares the company can issue e.g. £1,000 divided into 1000 shares of £1 each. This means that the company can issue a maximum of 1,000 shares which have a nominal value of £1 each. Once the company has issued all its shares, it may not issue any further shares until the nominal capital figure has been increased. This will be done by the members voting in general meeting.

See also textbooks.
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