C05 (08) Company Formation

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Those who set out to form a company are called ___________________

They include those who:

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its promoters.

> arrange for the documents to be

drafted and filed.
> buy for or transfer property to the new company.
> nominate the first directors.
> choose the company's

accountants and solicitors.
> open its bank accounts.
> arrange finance and shareholding.

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Responsibilities of promoters:

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The main legal task of the promoters is to

file the necessary documents with the

Registrar of Companies in Cardiff.

These documents are: (five)

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> The Memorandum of Association
> The Articles of Association
> (Form G.10) The details of
the registered office;
the first directors; and
the company secretary
> (Form 12) A statutory declaration that
the requirements of the Companies Acts have been complied with
> A small registration fee (currently £20)

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The main legal task of the promoters is to file the necessary documents with the Registrar of Companies in Cardiff.

These documents are: (pic)

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The Memorandum of Association

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describes
the company's characteristics
and affects its
relationship with the outside world.

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The Memorandum of Association's form
is governed by regulations under
the Companies Act.

There are five compulsory clauses:

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1. Name
2. Registered office
3. Objects
4. Liability of members
5. Nominal/authorised capital

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The Articles of Association

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regulate
the internal affairs of the company
and the position of the members.

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Articles of Association
cover such matters as:

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> Meetings
> Voting and other rights of shareholders
> Transfer of shares
> Dividends

> The position of directors
and their powers of management

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Articles must be

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printed and signed
by the subscribers of the Memorandum,
and the signatures must be witnessed.

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The Articles may later be

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altered

at a general meeting of shareholders
by special resolution of 75% of votes cast

or by a written resolution agreed to
by 75% of all the members in a private company.

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Form G.10 must be signed by the

subscribers of the Memorandum
and filed with it.

It must: 1.

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> give particulars of the first director/s,
with their consent to act.
Particulars include information about any other directorships which they have.

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Form G.10 must be signed by the subscribers of the Memorandum and filed with it.
It must: 2.

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> include the nomination of the first company secretary, with consent to act.
A director can serve as company secretary but only if there is at least one more director.
The company must have at least two officers.

The secretary is, in effect, responsible for administering the requirements of the
Companies Acts, particularly as regards the registers, information and documents which must be kept and made available.

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Form G.10 must be signed by the subscribers of the Memorandum and filed with it.
It must: 3.

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> include the address of the registered office.

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Those named and consenting to act on
Form G.10 form

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automatically become
the first directors and secretary.

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A person named as

a director

or the company secretary

or a solicitor engaged in forming the company,

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must complete a statutory declaration that the registration requirements of the Companies Acts have been complied with.
The Registrar can accept this declaration
as sufficient evidence.

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The current registration fee is

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£20.

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On receipt of the documents and the fee,

the Registrar will

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satisfy himself that the statutory requirements have been met and then will issue the
certificate of incorporation.
A certificate of incorporation is conclusive
evidence of the matters which it states.

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The dealers in formation services offer
'off-the-shelf' or 'ready-made' companies.

These companies:

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> have non-descriptive names.
> have authorised share capital
of a specified amount.
> have the dealer's staff as the subscribers of the Memorandum and Articles and as the first directors and secretary.
> are available for immediate trading once ownership of the shares has been transferred and the new officers have been appointed.

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Some advantages that have been claimed

(often unjustifiably)

for buying ready-made companies include:

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Speed

Cost

Administration

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By the Companies Act 2006, s.33,
the Memorandum and Articles,
when registered,

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bind the company and its members
as a contract between them
but not between the members and each other except through the company,
nor between the company and the members acting in a different capacity.

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The Memorandum of Association
and the Articles of Association

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can be altered.

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A contract made on behalf of a company

before it is formed

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is void.
The company cannot make contracts

because it simply does not exist yet.
Therefore, the company

cannot sue the other party on it,
nor can the other side sue the company.

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The legal status of pre-incorporation contracts

can cause difficulty.

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There are various possible solutions
that can be used to solve the problems
of pre-incorporation contracts.

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The powers of a company are, in theory,
limited to those set out in the

objects clause of its Memorandum.
Anything done outside of these powers is void.

But there have been both practical and legal changes.

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Objects clauses are often widely drafted
so that things are much less likely to be
ultra vires.

By Section 35 CA 1985 and Section 39 CA 2006,

'The validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company's memorandum.'

(In the CA 2006 the word 'memorandum' is replaced with the word 'constitution'.)

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When the CA 2006 is fully in force,

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any restrictions on a company's objects contained in its Memorandum of Association will be treated as if they are contained in the company's Articles of Association (Section 28 CA 2006).

If the company wishes to alter those restrictions, it will need to pass a special or written resolution to alter the Articles. Until that time the objects remain in the Memorandum of Association which again can be altered by special or written resolution.

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The main advantages
of companies limited by shares include:

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Limited liability
Perpetual succession
Agreement to the transfer of interests
Number of members permitted
Borrowing money

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The disadvantages of
companies limited by shares include:

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On formation,
the detailed documents
and admin procedures required on registration can deter a small business
from forming a company.

Disclosure and administrative requirements are imposed on companies.

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The other features of companies include

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taxation and management systems.