Incorporation

How do you incorporate a company?

Fill in a INO1 form, look up companies house and establish a company name.

Companies Act 2006 s53-74

1. Ltd or Limited. This is necessary, so it is giving third parties notice there is limited liability.

2. Duplicate names - search companies house database. You cannot duplicate names, you need to do a company search before you submit your INO1 form.

3. Restrictions on names/ sensitive names, you cannot use certain names. Eg you cannot use the word Royal unless it’s linked to the Royal family.

Companies Act 2006 s86

Jurisdiction/ nationality. What laws are going to apply. If you are incorporating in Scotland then your registered office in Scotland, a lot of people use their home address as their company as a lot of people work from home. Some people may work with a firm of lawyers and use their address and their registered office. Mandatory you have a registered office.

Companies Act 2006 s12 (Officer)

1. Secretary, this is officers of the firm, post 2006 secretary’s have become optional, it is no longer mandatory. PLC’s it is still mandatory however, a Limited company it is optional.

2. Directors are not optional you have to have directors in the company. At least one of the directors need to be human, possible for company’s to be a director of another company.

3. Corporate secrecy/ corporate director. Is still possible for a company to be a secretary or director of another company, however there may be a law being passed that’s not been enforced for years to state that all directors need to be human, they are trying to push out corporate directors.

Companies Act 2006 s10.

You must have money in the company. You can set up a company with just a pound and a lot of people do, this is enough to fill in the INO1 form. However, it might make third parties rethink the shares as there is only a pound into the company money, they might rethink if they want to put their time into the company as they found only get the share of a pound, at least do some provisional diligence on its finances.

Option for class of shares, there can be different types of shares eg employee shares or preference shares. Prescriber particulars, attached them to the shares, when you look at the INO1 from look at the margin and it will give you examples, eg can the person have voting rights in the share? One share = 1 vote. Employee shares don’t have votes due to it being too difficult, there may be too many employees so too many votes and forms etc.

Companies Act 2006 s12 (Subscribers)

They are the first shareholders in the company. They must sign the INO1 form.

What is Article of Association?

The internal contract of a company. They form a contract between the members (shareholders) and the company. You must have them in order to corporate, there are three options in an INO1 form. The first is you need to take the default articles.

Companies Act 2006 s18

A company must have Articles. The Default Articles.

Companies Act 2006 s20

Default application of Model Articles. You then amend them to make it work for you. You are using it as a template and then changing it to make it suit your company.

Companies Act 2006 s33

Contract been the members and the company.

What was it like to start a company post 2006?

it has the company name, the subscribers and the date. It has the name and signature of the subscribers, showing who the members of the company are. This cannot be amended.

What happens in terms of fees?

This varies whether or not you are going to do same day incorporation or there is a standard fee.

What does it mean by off the shelf companies?

It is possible for anyone to go into a law firm and buy a company within 30 mins. This means it’s went through the whole process, it is a company on the company’s house. They will give the shares to you resign the shares from them and you will have the company

What is a company limited by guaratee?

If it’s limited by guarantee and not by shares then it does not have shares. It is rather limited by guarantee, so each members limits to guarantee a value.

An example is Charities.

It can be as low as a pound to gaurauntee but the less the value the company has.

When a member leaves they don’t sign a stock transfer form.

They simply resign and then they update the register of members.

What is an unlimited company?

There is personal liability, this would flow to the people behind the company. So if there is a person who hasn’t paid a debt they can go after those behind the company.

There is a registration process but there is no limited in the name.

They have the same attributes as a limited company, so they have shares. However, it doesn’t have to provide accounts to companys house.

No duty to provides accounts unless in limited circumstances (s448 CA 06).

The benefit is you have a separate legal entity but it has financial privacy.

Not the type of company you are going to trade through or enter into lots of contracts with third parties as there is not limited liability. So there is risks, this is more used to store assets and tends to be in a group.

What is Dormant companies?

They are registered in companies house, however they have no activities.

There’s no trading but you are holding an asset at arms length.

They are mostly used to keep the name, they incorporate the company but they want to keep the name. So they incorporate their name and similar companies that will form a type of group down the line when they need another company.

There are minimal accounts, you still need to lodge them but abbreviate it.

What is Subsidiary and Holding Companies?

Will be referred to as the Top Co and there are subsidiary companies that flow from it.

How to tell which is which is between the shares. Who owns the shares?

If the Top Company own all the shares in the Subsidiary company it’s a Wholly Owned Subsidiary, they on partly shares in the subsidiary company then it is a partially owned subsidiary company.

We have these companies for distancing the holding company from the commercial activities from the subsidiary company.

If these contracts they are entering into with third parties have a lot of money then all of the profit from the Sub Co and paid evidently to the Top Co. There’s no risk within the Top Co, if it all goes wrong financially in the Sub Co then they can get rid of it.

If it starts loosing money, you can get rid of the Sub Co, it protects the assets of the Top Co.

Be aware, there are many companies that have complex dynamics with subsidiary companies.

What is a Public Limited Company?

The legal requests are more owneress and far more excessive. Why as the PLCs are often security to the public, so people investing in this company.

There is a statutory requirement for the company has to be at minimum £50,000 that you have invested in the company. (S763). Most PLCs have more than £50,000. A quarter of that has to be paid up. You can a lot the £50,000

What is the Veil of Incorporation?

Once incorporated you have this corporate veil. The general principle is that of separate legal personality. Meaning the company is separate from the directors and shareholders. They’ve created this non human that can enter into contracts, it can sue it can be sued, it can hold property etc, it is a legal entity.

What are the facts of the case of Salomon v A. Salomon Co Ltd?

In this case, Mr Saloman owned a boot making business, essentially he was carrying on boot making as a sole trader. In 1892 he decided he wanted to incorporate, he was going to form a company and call it A. Salomon Company Limited. So, a Memorandum of association was signed by his wife, his daughter and his four sons, They all took one share in the company. Mr Salomon and his two sons were all appointed the directors of the company, they are running the company but all of the family own it as they have shares. Behind the corporate veil it’s Mr Salomon and his family. He sold his business he had been running to the company, selling it for £39,000. The company didn’t have this amount of money to pay Mr Salomon for the business, so they gave him £10,000 debenture, 20,000 shares of a pound and the remaining in cash. What happened within a year of the company being set up, it went into liquidation. A liquidator was appoint for this A Salomon Co Ltd, this is where the issued arise. If the debenture is valid, that means that Mr Salomon is a secured creditor. The assets within the company at the time the liquidator was appointed there was enough assets to pay the debenture but not to pay the unsecured creditors, they were just normal trade people entering into contract. If the company could pay the debenture it could not pay the unsecured creditors. They then argued that the remaining assets of the company were there’s in the grounds that the company was a mere alias for Salomon.

What was the judgment for the case of Salomon v A. Salomon Co Ltd?

The courts stated the company was a separate and distinct person. Then it can enter into contracts and it did and enter into contracts with Mr Salomon and the courts said that was valid. So the debenture was valid and Mr Salomon was entitled to the assets and secured debenture. This was fundamental in establishing that we don’t look behind the corporates veil. We aren’t looking who is owning or directing it, the veil comes down and protects the people behind it.

What are the facts of the case of Lee v Lee’s Air Farming Ltd?

The individual formed a company which was involved in croc spraying. He was the majority shareholder along with his wife. His wife had a small shareholder in it. When they set up the company they passed a resolution, so a decision made by the company that is approved by the shareholders. He appointed himself as the only pilot for the company. As a result of that, an employment contract had to be entered into. The company who is the employer and Lee who is the employee the pilot. He was paid as an employee. Lee was then killed out while croc spraying, issue arose in the case was relation to compensation, was his wife entitled to compensation as he died during the course of employment. Is the contract of employment legitimate?

What is the judgment of the case of Lee v Lee’s Air Farming Ltd?

The courts said yes she was entitled to compensation as he was killed while in employment, Salomon was applied in this case. Mr Lee was behind the veil.

What are the facts of the case of Macaura v Northern Assurance Company Ltd?

Macaura was the owner for a timbery estate. He formed an estate company, he then sold timber into the company as an individual. The company paid £42,000 out to him for the timber. The money was paid by way of 42,000 shares of a pound as he just set it up and had no value if shares. He also financed the company and an unsecured creditors for £19,000. The other debts to the company were minimal. The issue arose in relation to the insurance if the timber, he got an insurance policy on the timber. He got the insurance in his own name not in the name of the company and the company is now the owner of the timber. A fire had happened and all the timber was destroyed and already decided to claim under the insurance.

What is the judgment of the case of Macaura v Northern Assurance Company Ltd?

It was held he had no insurance interest and that the company did and they did not have an insurance policy. So it did not work out in those circumstances.

Insolvency Act 1986 s212-216.

this is where the company is insolvent and the liquidator is appointed and looks over what went wrong that led up to the liquidation. If the liquidator believes the directors fail to do something, then they can give a letter to the court stating the director has breached the legislation and they should compensate the company. Also s213-214.

What comes under the Company Directors Disqualification Act 1986?

The directors is disqualified between 2-15 years, depending on the breach of legislation they can be disqualified between these years. Usually through breach of insolvency or company act.

What are the facts of the case of Gilford Motor Co Ltd v Home?

It involved a salesman’s who was dismissed from his job, there was covenant in the employment contract, stating he could not solicits former clients after he leaves. The salesman’s deliberately former clients through a consent that was set up by his wife. This was an English case so they got an injunction (interdict). He claimed he was not personally soliciting, he wasn’t doing anything it was the company.

What is the judgment of the case of Gilford Motor Co Ltd?

Court of Appeal rejected this and that is applied to both him and the company and was abusing the corporate vehicle and trying to get around and that was unacceptable.

What are the facts of the case of DHN Food Distributors v Towers Hamlets London Borough Council?

DHN is the holding company and has two Sub Co companies. They group collected and distributed food to retail outlets.

Bronze owned the property at bow, in which the company conducted. They ran the transport side of the business. Tower Hamlets Council was seizing the property in bow thorugh compulsory purchase for houses. It was paid under the value of the land and disturbance of the business. They were prepared to pay £360,000 for both, but refused to pay under the second heading. As they said DHN had no business with the land. As a result, the group went into liquidation and they lost the premises at both, so all three companies went under.

They allowed the three companies to go under as they had no compensation.

What is the judgment on the case of DHN Food Distributors v Tower Hamlets London Borough Council?

Court of Appeal, Lord Denning lifted the corporate veil and treated DHN as the owners of the property. Stating DHN owned Bow. Therefore, Tower are liable to pay for disturbance to the business. The reasoning put forward was the company legislation allows for the submission of group accounts which are looked at all together as a group entity not three separate companies. He could’ve easily transferred Bow to DHN as they are interlinked. It established the group entity theory and stated where groups in the companies are close connected they seen as one.

What are the facts of the case of Woolfson v Strathclyde Regional Council?

It was a compulsory purchase order in Glasgow. The shop was owned by Mr Woodson and Solfred Holdings. They owned the property him and his wife, the shop premises was occupied by M and L Campbell (Glasgow) Ltd, both Mr Woodson and his wife were also behind this company. So two companies he’s incorporated. Woodson and Solfred holdings claimed compensation for the land and claimed for disturbance of the business. They argued the business being carried on was their business and that Campbell was their agent and therefore entitled to compensation.

What is the judgment on the case of Woolfson v Strathclyde Regional Council?

Courts were very clear here and that companies should be treated as separate within groups, the company veil should only be lifted in special circumstances and a there is a facade concealing the real truth. Should only be lifted in exceptions. The decision was later referred to in Adam’s with approval, not DHN.

What features does shares have?

We have shares for profit. They come with other features like ability to vote, not all shares, but some would come with vote.

How do you become a member of a company?

Possibly through subscription or being one of the first shareholders.

How can you get a transmission of shares?

This can be through death of someone else, you can get given their shares under certain circumstances.

What are Ordinary Shares?

They are the most common, every single class could have rights attached to them. You are given a share certificate with the category of shares and how many shares you have.

There has to be entered your name the shares and amount of shares in a register of members.

What is a PSCO1?

A form where you declare how many shares you have in the company.

What does it mean by Issuing of shares?

You can dish out your shares as long as you have the necessary authority to allot shares. If you don’t you can face criminal sanctions.

What is an exception when issuing shares that you have no authority to?

In relation to a private company having one share. The only way it can be dis applied is through the articles.

How can you use your authority to issue shares?

Through article of association, resolution or legislation.