Causes for Thought

Having decided to proceed under the umbrella of a registered company, there are several issues to consider:

Type of Company

• Private, limited by shares – the members liability is limited to the amount paid up on their shares, or in certain circumstances, the amount unpaid, where the shares are partly paid shares. This is the most popular type of company;
• Private, limited by guarantee – members liability is limited to the amount they have agreed to contribute to the company's assets in the event of a winding up. This type of company is favoured by “not for profit” and charitable organisations;
• Private, unlimited – the members liability is unlimited;
• Public company – company shares may be offered for sale to the public generally. Members liability is limited to the amount paid up on their shares, or in certain circumstances, the amount unpaid, where the shares are partly paid shares;
• Community Interest Companies (CICs) – CICs are limited companies, with special additional features, created for the use of people who want to conduct a business for community benefit, and not purely for private advantage. This is achieved by a “community interest test” and “asset lock”, which ensures that the CIC is established for community purposes and the assets and profits are dedicated to those purposes.

Company name – the name must be unique. It should not be too similar to another company already trading, or a “passing off” action may result. There are certain words and expressions that are prohibited, except with the express consent of the Secretary of State. The name cannot be abusive or offensive.

Number of directors – a private company must have one director. There may be as many directors as the company's articles of association permit.

Directors – directors are responsible for the day to day management of the company. Their actions are regulated by the articles of association but generally they must act in the best interests of the company and not in their own self interest and they must not secretly profit from their position with the company. Directors are not expected to be experts in every field and can take external advice as necessary. Their duties are codified in the Companies Act 2006.

Not everyone can be a director, undischarged bankrupts and those disqualified by the courts for example, are prohibited from acting. There is also an age restriction. A director must be over the age of sixteen. In addition, the director has to be able to consent to their appointment. In a public company the consent of the members is required if a director is to remain in office after age 70.

Registered Office – every company must have a registered office notified to Companies House. A company registered in Scotland must have its registered office in Scotland and a company registered in England and Wales must have its registered office there. The registered office may be changed within its country of incorporation, but a company registered in Scotland cannot change its registered office to a location outside Scotland, for example. The location of the registered office does not limit where the company can trade.

The registered office is the usual place for service of documents etc and is where a company usually keeps its statutory records.

Memorandum of Association – this sets out what the company can do, its “objects”. It also states the company name and its share capital. A company cannot state as its objects any illegal activity or anything likely to promote an illegal activity.

Articles of Association – these set out how the company should be administered and is generally based on statutory, “model” rules. These model rules are tailored to meet the requirements of the particular company. Changes can be made to the Articles, with the consent of the members.

Share Capital – the amount of the company's share capital and the value of each share have to be decided. The authorised capital is the amount of capital available to be issued as shares. A recommended initial capital for a new company could be either £100 or £1,000 divided into £1.00 shares, meaning that up to 100, or 1,000, shares can be issued. The company could also have "penny" shares. The initial capital is decided at incorporation, though it can be increased as often and by as much, as the members consent to.

There are more specific share capital requirements for public companies. A public company must have a subscribed capital of at least £50,000.

Different types (classes) of shares can be created, either at incorporation or later with the consent of the members, in order to meet different purposes, eg non-voting shares, shares giving a preferential right to dividends or perhaps shares which carry weighted voting rights.

Once subscribed for, shares cannot normally be returned to the company, unless they are redeemable shares, or cancelled without the consent of the Court, so care should be taken on the amount, and type, of shares to be issued.

Disclosure of Information – a registered company must note on its stationery its full registered name, its registered office address, its registered number and place of registration, ie “England and Wales” or “Scotland”. It is not necessary to list the directors names on the stationery, but if one director is named then all directors should be named. “Stationery” includes letterhead, order forms, invoices and receipts, etc. The company must also display a name-plate outside its registered office.

VAT Registration – a VAT registered company has to charge VAT on all its taxable supplies but can also reclaim VAT on any purchases made. Once registered, regular returns have to be made, which can be quite onerous for smaller companies.