Part 4 Incorporation of a company
June 2011
A company is a separate legal entity which is formed when the registrar of companies issues a certificate of incorporation. In order to obtain a certificate of incorporation one or more persons needs to have supplied the registrar of companies with a memorandum of association and all other necessary documents (see paragraphs 75.28 to 75.30) [Note 1]. It should be noted that a company may not be formed for an unlawful purpose [Note 2].
75.28 Memorandum of association
Since 1 October 2009 companies have been incorporated with a simplified memorandum of association. The document confirms the subscribers’ intention to form a limited company and to become members on incorporation. In a company limited by shares the memorandum of association includes the subscribers’ agreement to be allotted, at least, one share [Note 3]. When a certificate of incorporation has been issued the memorandum of association becomes an historical document which cannot be amended. The memorandum of association must be in the prescribed form as set out in schedule 1 or schedule 2 of The Companies (Registration) Regulations 2008 [Note 4]. For details of what was formerly contained in a memorandum of association see paragraph 75.53.
Every company must have articles of association [Note 5], which are its internal rules and are legally binding on the company and all its members. The articles of association should allow the company’s business to run smoothly and efficiently. Members have complete freedom to choose the rules to be included in the articles of association, although most companies adopt model articles of association. The Companies (Model Articles) Regulations 2008 provide model articles for private companies limited by shares [Note 6], private companies limited by guarantee [Note 7] and public companies [Note 8]. A description of the contents of a company’s articles of association can be found in Part 6.
In addition to the memorandum and articles of association, an application to incorporate a company must include a completed form IN01. The form provides, amongst other things, details of the registered office, company secretary, company directors, a statement of capital and whether the company name contains sensitive and/or restricted words.
Every company must have a registered office, which must be a real address (i.e. not a post office box number), where the company is able to accept the service of communications and notices [Note 9]. The registered office does not have to be the trading address but may be the company’s accountants or solicitors office. Form IN01 requires the address and the country the registered office is situated in to be given. A company can change its registered office by giving notice to the registrar of companies [Note 10].
A private company does not need a company secretary unless specified in its articles of association [Note 11]. A public company must have at least one company secretary [Note 12]. The qualifications required by a secretary of a public company are clearly stated in section 273 of the Companies Act 2006. In completing form IN01 the subscribers would, where appropriate, name the company secretary (or secretaries) together with the secretary’s service address. The secretary’s service address will be published in the public register and may be different from his/her residential address. If the company’s registered office is used then “The Company’s Registered Office” should be entered.
A private company requires at least one director [Note 13], who must be a natural person [Note 14]. A public company must have at least two directors [Note 15], one of whom must be a natural person [Note 16]. A company may set a higher limit for the number of directors in its articles of association. Whilst it is up to the members to appoint the people they believe will run the company successfully on their behalf, there are a number of restrictions as to who may act as a director. To be appointed a director, a person must not be disqualified from acting as a director unless they have obtained the leave of court [Note 17]. A person must not be appointed if they are an undischarged bankrupt, unless they have the leave of court [Note 18]. A person must not be appointed if they are subject to a bankruptcy restriction order, a bankruptcy restrictions undertaking or an interim bankruptcy restriction order unless they have the leave of court [Note 19]. A person under 16 years of age may not be appointed a company director unless the appointment takes effect once they have attained that age [Note 20].
75.34 Form IN01 and company directors
In completing the form IN01 the subscribers must list the names, nationality, date of birth, business occupation and a service address for each director. The service address may be stated as “The company’s registered office”. The company is required to keep a register of directors which also contains this information [Note 21]. Form IN01 also contains the director’s usual residential address, although this information will not be kept on the public register [Note 22] unless disclosed as the service address. The registrar of companies may disclose the director’s residential address to a credit reference agency or a public authority [Note 23]. The Insolvency Service is included within the definition of a specified public authority [Note 24].
75.35 Registrar of companies and a director’s residential address
The registrar of companies may place a director’s residential address on the public register if communications requiring a reply within a specified period remain unanswered or there is evidence that sending documents to a director’s service address is not effective [Note 25]. The registrar of companies must give notice of his/her intentions to the director and to every company of which the individual is a director [Note 26]. The registrar of companies must take into account any representations made by the director before putting his/her residential address on the public register [Note 27]. The legislation does not specify time limits for the issue of the notice and receipt of representations from the director.
75.36 Publication of a director’s address
If the registrar of companies decides to publish the director’s residential address on the public register he/she must state that address as the director’s service address and that the usual residential address is the same as the service address. The registrar of companies must give notice to the director and to the company. The company must enter the residential address as the service address in the register of directors. If the director notifies the company of a more recent residential address, it must enter that address in the register of directors as the director’s service address and notify the registrar of companies of the change. Failure to comply is a criminal offence and the company and every officer in default is liable on summary conviction to a fine and a daily default fine for continued contravention. If a director’s residential address has been put on the public record by the registrar, he/she cannot register a service address, other than his/her usual residential address, for a period of 5 years [Note 28].
75.37 Register of directors’ residential addresses
A company is required to keep a register of individual directors’ residential addresses. Failure to comply is a criminal offence and the company and every officer in default is liable on summary conviction to a fine and a daily default fine for continued contravention [Note 29].
A company’s name should not be the same as, or “too like”, an existing registered company [Note 30], it should not be identical or similar to an existing trade mark, it should not suggest a connection with a government or public authority [Note 31], its use should not constitute a criminal offence nor should it be offensive [Note 32], and generally it should not contain any sensitive word or expression [Note 33] without certain conditions being satisfied. Comprehensive guidance on how to chose a company name can be found here.
75.39 Objections to a company name
The registrar of companies can only reject names that are the same. Within 12 months of incorporation or adoption of a new name, any person or company can object that the company’s name is “too like” another company’s name by writing to the registrar of companies [Note 34]. If the Secretary of State upholds the objection the company must change its name within the period specified (currently within 12 weeks of the direction) [Note 35]. Failure to comply with the Secretary of State’s direction is a criminal offence and the company and every officer in default is liable on summary conviction to a fine and a daily default fine for continued contravention [Note 36].
75.40 Provision of misleading information
The Secretary of State can direct a company to change its name at any time within 5 years of the adoption of the name if misleading information has been provided for the purposes of registration, for example to obtain approval for a sensitive name, or if an undertaking or assurance given at registration has not been complied with [Note 37]. Failure to comply with the Secretary of State’s direction is a criminal offence and the company and every officer in default is liable on summary conviction to a fine and a daily default fine for continued contravention [Note 38]. The Secretary of State can direct a company to change its name at any time within 5 years of the adoption of the name if the name gives a misleading indication of the company’s activities so as to cause harm to the public [Note 39]. Failure to comply with the Secretary of State’s direction is a criminal offence and the company and every officer in default is liable on summary conviction to a fine and a daily default fine for continued contravention [Note 40].
75.41 Company Names Adjudicator
A person may object to a company name on the grounds that it is the same or sufficiently similar to a name associated with that person in which he/she has good will [Note 41]. The application must be made to a company names adjudicator [Note 42] who is appointed by the Secretary of State [Note 43]. A company names adjudicator must, within 90 days, make public his/her decision together with his/her reasons [Note 44]. The company names adjudicator may issue an order that the company changes its name and provide a date by which this must be done. If the company does not change its name by this date the company names adjudicator may rename the company. In this instance, he/she must give notice to the applicant, the respondents and the registrar of companies. The company is renamed on the issue of a new certificate of incorporation [Note 45]. An appeal against the company names adjudicator’s decision can be made to the court. Whilst the appeal is being heard the decision is suspended. The court can affirm the decision, reverse the decision or remit the decision to the company names adjudicator. If the court agrees a new name for the company it must give notice to the parties to the appeal and the registrar of companies [Note 46].
When completing the form IN01 the subscribers of companies limited by shares (both private or public) must include a statement of capital and initial shareholdings. The statement of capital must show with regards to the issued capital: the total number of shares of the company, the aggregate nominal value of those shares, and for each class of shares, the rights attached to the shares, the total number of shares of that class, and the aggregate nominal value of shares of that class, and the amount paid up on each share (whether on account of the nominal value of the share or by way of premium).
The next section to be completed in form IN01 is entitled “Initial shareholdings”. The form asks for the name and address of each subscriber to be listed in alphabetical order. For each subscriber details are required: of the number of shares held, the currency of the shares, the nominal value of each share, the amount unpaid, if any, and the amount paid. The addresses will appear on the Companies House register and need not be the subscriber’s usual residential address.
75.44 Company limited by guarantee
Where a company limited by guarantee is being incorporated a section, on form IN01, which asks for the name and address of the subscribers together with details of the amount guaranteed must be completed.
The final section is a statement, either by the subscribers of their agents, that the requirements of the Companies Act 2006 have been complied with. If the subscribers themselves are submitting the form, everyone who signed the memorandum of association must sign the declaration. If an agent signs on their behalf, only the agent will need to sign the declaration.
The majority of companies administered by the official receiver will have been purchased “off the shelf” from registration agents. Registration agents are businesses who register a large number of companies and then sell them to people wishing to trade under limited liability. The prospective company owners thereby avoid the work necessary to complete all the forms. However a number of companies will be incorporated by the eventual owners, either in person or via their solicitor.
75.47 Processing the application
On receiving the IN01 and supporting documents, the registrar of companies will perform a number of checks to ensure that all the necessary information has been provided. If the application satisfies all the checks then the registrar will incorporate the company and enter its details on the register [Note 47]. The company’s name will be placed on the index of company names and be issued with a unique number. The number will remain with the company throughout its “life”. The registrar of companies will then issue a certificate of incorporation.
75.48 Certificate of incorporation
The certificate of incorporation is conclusive evidence that the registration requirements of the Companies Act 2006 have been complied with. The certificate of incorporation shows: the name and registered number of the company, the date of its incorporation, whether it is limited by shares, limited by guarantee or is an unlimited company, whether it a private or public company and whether the registered office is in England and Wales (or Scotland or Northern Ireland). The certificate must be signed by the registrar of companies or authenticated by his/her’s official seal [Note 48]. The certificate of incorporation evidences the existence of the company from the date of incorporation.
Once a certificate of incorporation has been issued a number of consequences follow. Firstly, the subscribers to the memorandum of association, together with any future members, become a body corporate by the name stated in the certificate of incorporation, which is capable of exercising all the functions of an incorporated company. The subscribers to the memorandum of association become holders of any shares mentioned in the statement of capital and initial shareholdings. Finally the persons named as directors and secretary, if applicable, are appointed to those offices [Note 49].
A public company after acquiring its certificate of incorporation is not allowed to trade or exercise any borrowing powers until it has obtained a “trading certificate“. The registrar of companies will not issue a “trading certificate” unless he/she is satisfied that the company’s allotted share capital is £50,000 or more [Note 50].
75.51 Failure to obtain “trading certificate”
If a public company commences to trade, or exercises any of its borrowing powers, without first obtaining a “trading certificate” then an offence is committed by the company and every officer who is in default. The failure to obtain a “trading certificate” does not affect the validity of a transaction entered into by the company. However, if the company fails to comply with its obligations 21 days after being called upon to do so, the directors become jointly and severally liable to indemnify any other party to the transaction for any loss or damage suffered by him/her by the failure of the company to comply with its obligations [Note 51].
[Back to Part 3 Types of companies] [On to Part 5 Memorandum of association]