In order to properly establish a company as a separate legal entity for the purpose of carrying out business, there are a number of legal and procedural hurdles to clear. If a company is not properly formed, the owners of the company may no longer be shielded from personal liability and thereby subject to claims by creditors.
In order to effectively register a company and obtain certification, the company’s constitutional documents, principally its Articles of Association and Memorandum of Association must be drafted and registered at Companies House.
How is a company established as a separate legal entity?
A company is established upon filing of a company’s constitutional documents with Companies House, payment of a fee and certification by the Registrar of Companies.
The law requires the name of a company to be unique, and a thorough search of records at Companies House and the Trade Marks Register of the UK Intellectual Property Office must be carried out.
Articles of Association
In order to register a company, decisions have to be made about who the initial directors will be, the rights of shareholders and if any additional officers, such as a secretary, will be required in the course of business. The Articles of Association further establish the mechanism for attendance and voting at company meetings.
Control of the company’s day-to-day affairs vests in the company directors, and registration of a company requires the appointment of at least one director. The Articles of Association will determine the liability of directors as well as their powers and responsibilities.
The directors' appointment and authority to take action is ultimately in the hands of shareholders, who will have to give their consent by vote in relation to critical company matters. Ordinarily, the greater number of shares held by a shareholder, the greater voting power that shareholder will have. However, certain classes of shares can grant priorities, for example voting and payment of dividends. This will entail not only significant consequences for company decision making but also company financing, whether debt funding or equity funding is preferable.
A secretary’s function is to ensure statutory compliance with record keeping and filings, as well as oversee inspection requests from shareholders. The role is discretionary and not mandated by law, but if a secretary is considered necessary, they must be included in the initial registration with Companies House.
Memorandum of Association
The Memorandum of Association embodies the consent of all initial subscribers to purchase at least one share of the company upon completion of incorporation, and must follow a statutorily prescribed form.
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