setting up and running a limited company

8/9/2019 Setting Up and Running a Limited Company

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Setting up and Runninga Limited Company


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I f you w ant to know how . . .Writing a Report

How to prepare, w rite and present powerful reportsGoing for Self-Employment

Enjoy the sense of achievement and satisfaction that com esfrom being your own boss

Turning a Business AroundHow to spot the warning signs and ensure a business

stays healthyMaking Management Simple

A practical han dbook for dealing w ith everydaymanagement challenges

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Setting up andRunning aLimitedCompany

A comprehensive guide to forming andoperating a company as a director andshareholder

ROBERT BROWNING4th edition

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Published by How To Content,

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the publisher in writing.

The right of Robert Browning to be identified as the author of this work has been

asserted by him in accordance with the Copyright, Designs and Patents Act 1988.

Copyr ight 2003 Robert Browning

First published in second edition paperback 1999

Reprinted 1999

Third edition 2001

Fourth edition 2003

Reprinted 2004

Reprinted 2005Reprinted 2006 (twice)

First published in electronic form 2007

ISBN: 978 1 84803 158 6

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Contents

List of illustrations 9Preface 111 Deciding W hat You want to do 13

Starting in business 13Being a sole trader or going into partnership 15Buying a business 16Getting professional help 19Having a company or not 22Case studies 25Action points and reminders 27

2 Setting up and Forming Your Company 28Creating a separate entity 28Deciding your objects 29Acquiring you r com pany 38Deciding y our share capital requirem ents 46Issuing shares 48Action points and reminders 57

3 Dealing with the Formalities 58Understanding the com pany 's Articles

of Association 58A ppo inting yo ur directors and secretary 59

5


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6 / S E T T I N G U P A N D R U N N I N G A L I M I T E D C O M P A N Y

Getting a registered office 66Displaying yo ur c ertific ate o f incorporation 67Holding meetings and passing resolutions 68Dealing with Co mpanies Ho use 73Action points and reminders 73

4 Being a Shareholder 75Paying yourself 75Using yo ur voting pow er 79Exercising yo ur rights 81Paying dividends 82Limiting yo ur liability 83Action points and reminders 85

5 Being a Director 86Fulfilling your responsibilities 86Wrongful trading 89Co mpleting your A nnual R eturn 90Filing your accounts 93Notifying changes in yo ur co mpany set up 98Ac tion po ints and reminders 99

6 Preparing for Business 101Choosing yo ur name 101Opening your bank account 102Employing yo ur staff 105Equipping your business 109Getting yo ur message across 111Action points and reminders 114


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C O N T E N T S / 7

7 Producing Accounts 115Keeping your booksWatching your moneyHaving an auditMaking lossesJudging your businessAction points and reminders

8 Raising M oney 128Preparing your business plan 128Dealing with your bank 131Finding your sources 134Borrowing money 135Issuing more shares 137Action points and reminders 139

9 Using the W eb 140Using the web for info rm ation 140Designing your web pages 142Marketing and trading on the w eb 143E-mailing 144Action points and reminders 146

10 Troubleshooting 148Paying your taxman 148Dealing with your creditors 152Getting your money in 153Insuring your problems 156Training for yo ur business 158Action points and reminders 160

115118120123125126


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8 / S E T T I N G U P A N D R U N N I N G A L I M I T E D C O M P A N Y

11 Closing Down 162Ceasing to trade 162Disposing of your business 163Planning your retirement 165Going into voluntary liquidation 168Suffering compulsory liquidation 170Action points and reminders 172

Glossary 174Useful reading 179

Possible suitable businesses 183Index 187


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List of Illustrations1. Sample M emorandum of Association 322. Statement of first directors and secretary

and intended situation of registered office(Form 10) 40

3. Change of particulars of director or secretary(Form 288c) 444. Certificate of Incorporation 455. Return of allotment of shares (Form 88(2)) 506. Share certificate 537. Stock transfer form 54

8. Sam ple Articles of Association 619. A nnu al return to Companies House (page 1)

(Form 363a) 9110. Notice of accounting reference d ate

(Form 224) 9411. Example of a bank mandate 106

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Prefacet o the f o u r t h e d i t i o n

Businesses are all around you. Every time you go to theshops, the pub, the dentist or the petrol service station youare dealing with a business.While all those businesses serveyou with the goods and services you want , it is normally oflittle consequence to you how each business is run.Things are very different if it is your business. It is as well toknow what you are getting yourself into when you start. Mostlessons in life are learned the hard way. This is how you getyour experience but this book is intended to help youunderstand the mechanics of running a business through alimited company. The aim is also to save you from as manymistakes as possible.Remember good judgement comes from experience butexperience comes from poor judge m ent!You may have already started your enterprise or you may justbe embarking on it but everyone can learn from others. Thereare many pitfalls in business life and if you can cut down oreliminate them your worries will be far less.All businesses need a framework within which to operate butthe formation of a limited company must be done for the rightreasons. A lot of businesses are run through companies but thereare many legal implications attached to this.

1 1


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1 2 / S E T T I N G U P A N D R U N N I N G A L I M I T E D C O M P A N Y

New businesses and old sometimes fail but the existence of acompany will not necessarily help in those circumstances.Limited liability is not a panacea for all ills. It represents aresponsibility to the general public and gives business dealingsa public face. Directors, too, have onerous responsibilities.A s a chartered accountant formerly in public practice withmany years' experience of small businesses, I have tried to setout simply how to decide whether a company is right for youand, if so, how to go about it.

Apart from a detailed explanation of how to form and operate acompany this book covers the filing of statutory information,your rights and responsibilities, the opening of bank accounts,keeping records, taxation, wages and salaries, marketing andauditing.I would like to thank Alpha Searches Ltd., The Registrar ofCompanies, th e Inland Revenue and Barclays Bank pic for theuse of their forms and documentation and Messrs Baker Tilly,Chartered A ccountants, for help in the original research of thisbook.The text contains case studies and any names used in these orthe rest of the book are purely fictitious. A ny similarity betweenthe names and those of real persons is purely coincidental.Good luck with your enterprise. As you know, your countryneeds you.

Robert Browning


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Deciding What Y ouWant to Do

This book is about running your business through a limitedcompany but first you must be clear about what you need todo. This initial chapter will help you decide this. It covers:4 starting in business4 being a sole trader or going into partnership* buying a business4 getting professional help4 having a company or not.STARTING IN BUSINESSSo yo u're going into business. You are going to become oneof those entrepreneurs with a Rolls Royce and an expenseaccount.If only it were that easy. You have many decisions to takebefore you take the plunge into business.Being in businessIf you are engaged in an occupation, work or trade, whethercommercial, industrial or professional, which includes thebuying and selling of services then you are in business. Notethat there is no mention of the word profit. Of course you

13

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14/ S E T T I N G U P A N D R U N N I N G A L I M I T E D C O M P A N Y

would not be in business if you were not going to make aprofit but it is not compulsory, just advisable.This book is not intended to help you set up a business. Itassumes you already have a product or service that you w ishto sell or trade in . This book is designed to help you admin-ister the business you have set up.Owning your businessAsking w ho owns your business may seem a silly questionbut there can easily be other people involved. Your spouse orpartner or son or daughter may w ork in the business or some-one may have lent you some money to start it up. Y ou mustmake sure that you know precisely the relationship any ofthese people have with you in your enterprise so that theirinterest can be properly taken into account.Problems in business invariably arise through sloppyarrangements about money, so be advised to clarify these atthe start.Naming your businessThere are a number of factors to take into account whendeciding w hat to call yo ur business. These are more fully dis-cussed in Chapter 6, but you m ust choose a suitable name asthis is what the public will refer to when talking about you rbusiness.Defining your businessIt is as well to define precisely what product or service yourbusiness is going to supply. Not only must you be able toinform your potential customers what you do but you mustalso be able to market and advertise your wares simply but


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D E C I D I N G W H A T Y O U W A N T T O D O / 1 5

succinctly. You must make it easy for your customer to dealwith you.BEING A SOLE TRADER OR GOING INTOPARTNERSHIPCreating your set-upYou have established that you have a business with a nameand a product or service to sell. You know who the owner is .You must now consider th e implications of this. You haveto decide what legal form your business will take. You canbe a:* sole trader4 partnership.Being a sole traderThe word sole in this context means alone or the one andonly. In business terms a sole trader is where th e proprietoris the sole owner of a business although he or she may haveemployees.Being a partnershipA partnership is defined by law in the Partnership Act 1890.It is the relationsh ip w hich subsists betw een persons ca rryingon a business in common with a view to profit.Put another way it is the relationship between people w hohave agreed to share the profits of a business carried on byall or any of them on behalf of all of them.It might be advantageous to examine a little history. In theMiddle Ages, when trading w as growing fast, th e individual


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traders found considerable advantage in combining witheach other to carry on their business. The advan tage was thatit enabled them to command greater amounts of capitalmoney they could not individually bring together and ithelped them to combine and share their common experienceand their profits. This was the beginning of partnerships.Now if you have an arrangement to share the profits of yourbusiness w ith ano ther person , the chances are that you are inpartnership, sometimes known as a ' f irm'. This may be aclose friend with whom you have a rapport and wo uld workwell or someone who may have put money into your busi-ness. There is no w, under the Limited Liability PartnershipsAct 2000 the opportunity to form a partnership with limitedliability. It mus t be registered with the Registrar ofCompanies and two of the partners called 'designated mem-bers' must accept responsibility for sending information toCompanies House. This form of partnership is treated for taxpurposes like any other.BUYING A BUSINESSWhile thinking of going into business it may have occurredto you that it might be simpler to buy a ready made business.After all, the hard slog of building up your customer basewould be eliminated. The premises would already exist.There may be some staff and the stock may already be in thewarehouse.

Don ' t be misled.Why is the owner selling? Have you the money to compen-sate the owner for building it up? Suppose you pay too much.


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If you are thinking of buying a business to make life easy,think again. Being in business is about responsibility.There is no easy way to establishing your own business.Seven steps to making your decisionHere is a simple guide to what you should consider whenbuying a business.1. If you are already in business what are you looking to

add?- Have youmoney to invest?- Have you expertise that can be employed in the addi-

tional business?2. Define the business profile you would like to acquire.

- Whywill yoube successful?- What size business are you looking for?- Where should it be located?

3. Learn about you r market and do the research.- What are the growth areas?- What are the products you expect to sell?

4. What are the sources of businesses for sale?- Where will you find businesses advertised for sale?- What are the newspapers, magazines, business trans-

fer agents and trade organisations which can help?- Sift through them carefully and investigate the onesthat match your profile.- Consider suitable businesses which fityou r profile but

where the owner m ay not have decided to sell.


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5. What effect will you have on the business if you buy it?- Will you be able to run it?- Have you the necessary knowledge of the business or

the management skills?- Will youincrease the profitability?- W hat changes w ill youmake?

6. W hat is the maximum price you are prepared to pay ?- Have you got up to date copies of the accounts of the

business?- What are theprofits?- Howmuch money is invested in the business and isthe return on capital good enough?- What are the debts and liabilities and have any been

outstanding for a long time?7. Are you ready to negotiate?

- Have you gotyour facts prepared?- Are youready tomake a decision?

These questions are by no means exhaustive but they giveyou an idea of the things you should be considering beforeyou put you r money into a new venture.Summary1. Don' t be tempted to pay too much for the business

because you think it will give you a flying start.2. Make sure you are entering a marketplace you can

compete in.3. Clarify the business you want to be in including its size,

location and potential.


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4. Be realistic about the effect of a change of ownership.5. Question everything.6. Crystallise your negotiating position. Know your top

price and the one you are prepared to start at and stick tothem. There is no such thing as a right price.

7. Obtain all the help you can from independent pro-fessional advisers (accountants, bankers, solicitors,surveyors, etc).

GETTING PROFESSIONAL HELPToo many people either th ink they know it all or trust to luckwhen it comes to business matters. But even the most suc-cessful entrepreneur will tell you that they are always readyto listen to sound advice. The problem is how do you knowit is sound. That comes with experience.It is best to seek out the right professional advisers as earlyin your planning as possible. They may come up with advicewhich can materially affect the way your business operatesand you can incorporate it before the process gets too far. Itis important to avoid errors and misjudgments before theyhappen and unless this is done you may start your businesswith a permanent handicap.Business advice can be obtained from:* accountants4 bankers4 designers+ financial planners


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+ solicitors* surveyors and estate agents.

Here are some points to watch.AccountantsThe term accountant does not necessarily mean they haveany formal qualification. But you would be well advised tofind an accountant who is a member of a recognised associ-ation as you will have some guarantee that he has followed acourse of training and passed examinations in the skillsrequired. The main bodies are:* The Institute of Chartered Accountants in England &

Wales (with FCA or ACA after their name)* The Institute of Chartered Accountants of Scotland (CA)4 The Chartered Association of Certified Accountants

(FCCA or AC CA )4 The Institute of Management Consultants (FIMA orAIMA) who deal mainly in management consultancywork as their name implies.

The cost should be discussed and agreed before any work iscarried out.BankersBanks offer a wide range of services including currentaccounts, loans and assistance with imports and exports. Aparticular bank can be chosen for a number of reasons, forexample convenience, know ledge of the staff or even to sep-arate your business accounts from your personal affairs.Larger branches have more discretionary powers as they do


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not have to pass decisions up to regional managers forapproval but these would only be used when substantialfunds are required.Shop around to find what it will cost to run your account.DesignersA good designer may be worth more than appears on the sur-face. The image of your product or the fitting out of yourpremises are important in giving your customers a feel foryour business. This also applies to what your employeeswear or what your stationery looks like. An impressive cor-porate im age w ill always stand you in good stead.Financial plannersThey may help you in your marketing strategy, you r budgetprojections, your organisation or the amount of money youmay need to get you r business off the ground. It is difficultto choose o ne but most large accountancy practices h ave spe-cialist sections. You will norm ally be charged a flat fee basedon your requirements.SolicitorsA solicitor will be particularly useful in advising on the legalform of you r business, the formation of your company, anycontracts you may enter into and registration of patents andproduct protection. Costs vary but a solicitor will normallygive you an estimate and some may give you a package deal.Fees m ust be 'fair and reasonable' by law.Solicitors also specialise so make sure you get one who candeal with yo ur needs. The larger the firm the bigger the rangeof activities they are likely to cover.


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Surveyors and estate agentsAny transactions involving land or buildings will need theexpertise of a surveyor to assure you that you are not enteringinto a contract unwisely. M atters covered include:4 surveys of premises4 planning permissions or change of the use of premises4 rates and rateable values4 whether the title is leasehold or freehold4 repairs and maintenance clauses in agreements.The recognised body is The Royal Institution of CharteredSurveyors (FRICS or ARICS) and if you are involved in thevaluations you could use the services of a member of theIncorporated Society of Valuers and Auctioneers.

Costs are again a matter of negotiation and agreement.With all the above professional advisers do not hesitate totake out references or seek advice from people you knowwho use them. Personal recommendations from friends andcolleagues are usually sound.HAVING A COMPANY OR NOTYou now have to decide whether you want to trade througha company or not. Like life itself there are advantages anddisadvantages in everything but the decision has to be taken.Nothing is irrevocable but remember there is always a cost.It is far better to weigh up the pros and cons first.How the company was bornLook at a little history again.


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When trade increased dramatically in the 19th centurytraders began to get together and run their businesses join tly.However, the increased activity also increased the burdenson individual partners. The property and debts of the firmwere considered to be the property and debts of the individ-ual partners. Therefore partnerships had no legal existenceapart from the individual partners.Then in 1844 an Act of Parliament was passed for theRegistration of Joint Stock Companies and such an incorpo-rated company could now hold property, incur debts and sueand be sued in its own name. The members (o r partners)were no longer responsible for such matters individually.This was known as limited liability.Differences between a company and a partnershipor sole traderSome of the differences are:

Partnershipor sole trader

M em bers' liability U nlimitedNumber of members Limited

Company

LimitedUnlimited

Transfer of interest Only with consent of Shares may beother partners transferred

Capital introduced By arrangement Fixed bywith other partners com pany rules

Profit sharing -ditto- -ditto-


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Advantages of a company and of a partnershipAdvantages of a company1. A company has limited liability and it does not extend to

the separate assets of each member whereas a partner'sliabilities are not limited and extend, if necessary, to thewhole of their individual estates.

2. The shares of a company are easily transferred but thevalue of the interest of a partner is m uch more difficultto determine.

3. The death of a company member does not affect the exis-tence of a company. If a partner dies, however, the part-nership ceases to exist.

4. Profits of a company are distributed by way of dividendwhich are unearned for tax purposes whereas profits of apartnership are earned income. How ever, the tax changeswhich continually take place w ith the Budget and subse-quent Finance Acts can drastically alter how each ofthese is treated and should be checked at the time.

Advantages of a partnership1. A partnership may tend to give a more personal aspect to

dealings.2. There are no heavy setting-up expenses to a partnership.3. The activities of the partnership are not subject to restric-

tion as with a company which is limited by the Objects


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clause in its Memorandum of Association. CurrentlyObjects clauses allow almost anything that is legal.4. Partners m ay override the Partnership Act by agreement

amongst themselves whereas companies have to abideby the Companies Acts.

5. All partners can take part in the management of the busi-ness and no change in the constitution can take placewithout the consent of all the partners. In a company thewill of the m ajority operates but the company is normal-ly run day to day by the board of directors.

6. Partnerships have no registration formalities.You should by now have considered all aspects of your busi-ness and have m ade up your mind you would like to run you rbusiness through a company. The rest of this book explainsin detail how to go about it .CASE STUDIESIntroductionImagine the following three fictitious businesses haveformed their own companies. The progress of these compa-nies will be traced in the case studies throughout the suc-ceeding chapters and this should help you understand th evarious facets of running a company.Dean Chapman is a young man in his late 20s with anawareness of the growing incidence of vandalism and theft inhis local town. He had seen it firsthand at the engineeringfactory where he worked. As an entrepreneur, however, herealised that this m eant there m ust be an increasing demand


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for security both at home and in the factory and office. Hetherefore decided that he w o uld quit his job and set himselfup to provide solutions to vandalism and theft by securitymeasures geared to the customer. He called his companyChapman Security Ltd.Hannah Phillips had alw ays been artistic, particularly w herejewellery was concerned. Her children were now off herhands and she joined a further education class in jewellerydesign. It was there she met Usha Patel, who was clearly atalented designer concentrating on Asian designs. Theybecame firm friends and learned techniques from one anoth-er. It became clear, as they both obtained more and moreorders for their unique designs, that this could not continueas a hobby. They decided to set up shop together and withadvice from an accountant formed their company DiamondDesigns Ltd.Harry Burgess was a successful businessman in the build-ing industry, who had bought some property over the yearswhich he considered to be his 'pension' . One of these prop-erties was a mansion which he had converted into apart-ments. He wished to convert some of this 'pension' into cashand, finding it was difficult to sell as a who le pro perty withtenants, he was advised to sell each apartment separately.However, this caused some complications as there werecommunal parts of the property, such as car parks, gardensand stairways, used by all the tenants. The solution was toform a management company to deal with these and hecalled it Smiths Towers Management Co Ltd.


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ACTION POINTS AND REMINDERS1. Who are the people directly involved in your business

and what do they contribute to it?2. Consider all the possible names you might wish to call

your business.3. Are you sure of all the products or services you intend to

supply from your bu siness?4. Will you be a sole trader or do you need a partner?5. Are you contemplating purchasing a 'ready made' busi-

ness? If so where from?6. Name, if applicable, your possible accountant, banker,

designer, financial planner, solicitor and surveyor.Now read the case studies again.If, as a result of completing these answers, you are convincedthat you wish to form a company proceed to Chapter 2.


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Setting up and FormingYour Company

Now that you have made up your mind that you are going torun your business through a company this chapter tells youwhat to think about and how to plan it and includes:+ creating a separate entity4 deciding your objects+ acquiring your company4 deciding your share capital requirements+ issuing shares.C REATING A S EPARA TE ENTITYThis is fundamental.W h a t is a c o m p a n y ?In Chapter 1 you read how the concept of partnership cameabout and how as trade increased there was more and moreof a burden on the individual partners. The property and thedebts of the firm were considered to be the property anddebts of the individual partners. In the nature of things part-ners died and, as they were no longer partners, the partner-ship ceased to exist.By the mid 19th century a more permanent form of partner-ship evolved, know n as the joint stock company.

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S E T T I N G U P A N D F O R M I N G Y O U R C O M P A N Y / 2 9

This meant that a company could hold property, incur debtsand sue and be sued in its own name. This was known as'limited liability' and meant that the members (partners)were no longer personally liable for the debts of thecompany.

As a result of this the company exists permanently and is ineffect an 'artificial' person, quite separate from the individ-ual members of the company.

This is an important principle to be grasped:In your business dealingsit is not you that is dealing

but you on behalf of your company.

From now on whenever the word ' company' is used pleaseremember this important principle. All detailed legislationrelating to limited companies is contained in the CompaniesAct 1985, with amendements in the Companies Act 1989.This is now the main statutory framew ork for UK companylaw.DECIDING YOUR OBJECTSAny company must define what it is and what it is for.Thisis done in a document known as the Memorandum ofAssociation.The Memorandum, in a form specified by regulations, mustbe submitted to the Registrar of Companies and will state,amongst other things:


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4 the company's name* the place of the registered office of the company+ the objects of the company4 that the liability of the members is limited4 the amount of the share capital and its division into

shares.Let us briefly deal with each of these in turn.Choosing the nameYou can choose any name you wish, subject to a few obvi-ous conditions. You may not choose a name if :(a) It is already registered by someone else.(b) It requires the approval of the Secretary of State because

it is 'sensitive'. This could be so if, for example, it con-tains the words, International, British, European, etc.(c) It contains words which other relevant bodies might

object to: for example, Police, Royal, Charity, etc.This list is by no means exhaustive but you can see the diffi-culties that may arise if your intended name is too similar tothat of another company or gives the impression that it issomething which it is not. Watch this carefully as that othercompany could object and your company be directed tochange its name with the additional expense that entails.


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Be careful to clear your intended name with theRegistrar of Companies first.

ExampleAcceptable - Chapman Security Ltd.Not acceptable - Police Security Systems Ltd.Locating the registered officeThis is the 'official' address of the company where anyonecan get in touch and where certain statutory information isheld. The Memorandum only asks you to state whether it isin England and Wales, or in Wales, or in Scotland. Once this'domicile', as it is known, is established the actual addresscan be moved within that domicile but not outside it. Forexample, if the domicile is England the address can bechanged from Liverpool to London but not Liverpool toGlasgow.ExampleThe Registered Office of the company will be situate inEngland.

Defining the objectsAlthough a company can, as a separate legal person, acquirerights and incur liabilities, its powers are slightly less exten-sive than a real person. A real person can do anything notprohibited by law but a company can only do what is autho-rised by the objects clause in its Memorandum.It is not, however, necessary to go into great detail here as itis generally recognised that th e main object of the businesscan be defined by a very general trading clause which will


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THE COMPANIES ACTS 1985-1989COMPANY LIMITED BY SHARES

MEMORANDUMOF ASSOCIATION

SINCLAIR BROOK LIMITED

PRIVATE LIMITED COMPANY NUMBER: 2958141INCORPORATED : 12th August 200X

ALPHA SEARCHES AND FORMA TIONS LIMITED54-58 Caledonian Road,London Nl 9RN

Fig. 1. Sample M emorandum of Association.


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THE COMPANIES ACTS 1985-1989COM PANY LIMITED BY SHARESMEMORANDUM OF ASSOCIATION OFSINCLAIR BROOK LIMITED1. The name of the Company is: SINCLAIR BROOK LIMITED.2. The registered office of the Company will be situate in England.3. The objects for which the Company is established are:(a) To carry on business as a general comm ercial company.(b) To carry on any other business of any description whatsoeverwhich may seem to the Company or in the opinion of the Boardof Directors thereof to be advantageously carried on in connec-tion with or ancillary to the objects of the Company or any of

them and calculated directly or indirectly to render more prof-itable the Company's business.(c ) To purchase or by any other means acquire, sell, lease, rent,

license, surrender, accept surrenders of, mortgage, charge orotherwise deal in any freehold, leasehold or other propertywheresoever situate.(d)To erect, construct, pull down, dismantle, remove or replace,repair and maintain, alter, hire, enlarge and adapt any buildings

both portable and otherwise and use the same for the Company'sbusinesses or any of them.(e) To purchase or by any other means acquire, take over and under-take all or any part of the business, property, liabilities and assetsof any person, firm or company carrying on or formed to carry onany business for which this Com pany is authorised to carry on orpossessed of property suitable to the purposes of this Companyand which is calculated to advance the interests of this Company

and make more profitable the Company's business and to paycash or to issue shares, stock, debentures or debenture stock ofthis Company as the consideration for such purpose of acquisi-tion and to undertake any liabilities or obligations relating to thebusiness or property so purchased or acquired.(f) To buy, sell, export, import, manufacture, exchange or partexchange, let on hire, build, construct, install, erect, enlarge,improve, adapt, dismantle, remodel, repair and maintain any

engine, machinery, plant and material of any description capa-ble of being conveniently made, used or sold in any of the busi-nesses or trades aforesaid.

Fig. 1. (continued).


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(g) To enter into partnership or any arrangement of any kind withany person, persons, firm or company having for its objects sim-ilar objects to those of this Company or any of them with a viewto increasing the business of the Company.

(h) To purchase, subscribe for or otherwise acquire shares, stock orother interests in any company or corporation.

(i) To act as agents or brokers for any person, firm or company andto undertake and perform sub-contracts for any person, persons,firms or companies and also to appoint such agents, sub-contractors and brokers and to act in any of the businesses of theCompany through them.

(j ) To apply for, register, purchase or by any means acquire andprotect and prolong and renew any trade marks, patents,licences, concessions and designs which may be capable ofbeing dealt with by the Company or likely to benefit theCompany and to grant licences or privileges thereout.

(k) To sell, let, license, develop, improve or otherwise deal with theundertaking of all or any part of the property or assets of theCompany, upon such terms as the Company may approve withpower to accept shares, debentures or securities of, or interestsin, any other company.

(1) To borrow and raise money in such manner as the Companyshall think fit and in particular by the issue of debentures ordebenture stock charged upon all or any of the Company's prop-erty both present and future including its uncalled capital and tore-issue any debentures at any time paid off.

(m)To draw, make, accept, endorse, discount, negotiate, executeand issue promissory notes, bills of exchange, bills of lading,warrants, debentures and other negotiable instruments.(n) To guarantee the payment of any debentures, debenture stock,

mortgages, charges, bonds, obligations, interests, dividends,securities, monies or shares or the performance of contracts orengagements of any other company or person and to give indem-nities and guarantees of all kinds whenever considered desirableand to guarantee either by personal obligation or by mortgagingor charging all or any part of the undertaking property and assetsboth present and future and uncalled capital of the Company orby both such methods, the performance of any contract or obli-gation of any person, firm or company whatsoever.

(o) To invest and deal with the monies of the Company not imme-diately required in such shares or upon such securities and insuch manner and on such conditions as may from time to timebe determined.



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(p) To lend and advance money and give credit to any persons, firmsor companies on such terms and conditions as the Company maydecide.

(q) To make advances to customers and others and allow them cred-it without security to enable them to purchase the goods, pro-duce and products of the Company or use its services and forany other purpose calculated to enhance the Company's busi-ness.(r) To promote the Company's interests by advertising its products,works or services in any manner and to take part in competi-tions, displays and exhibitions and offer prizes, gifts and con-cessions to customers or prospective customers as might seemdesirable.

(s) To remunerate any person, firm or company rendering servicesto this Company in any manner whatsoever.(t) To grant pensions to employees and ex-employees and Directorsand ex-Directors or other Officers of the Company, their wid-

ows, children and dependants and to subscribe to benevolentand other funds for the benefit of any such persons and to sub-scribe to and assist any charitable association and assist in thepromotion thereof.

(u)To pay all and any expenses incurred in connection with thepromotion, formation and incorporation of this Company and topromote or aid in the promotion of any other companies.

(v) To distribute any property of the Company in specie among theMembers of the Company.(w)To procure the Company to be registered or recognised in anypart of the world.(x) To do all such other things as are incidental or conductive to theattainment of the above objects or any of them.It is declared that the foregoing sub-clauses or any of them shall beconstrued independently of each other and none of the objects here-in mentioned shall be deemed to be merely subsidiary to the objectscontained in any other sub-clauses.4. The liability of the Members is limited.5. The Share Capital of the Company is 1,000 divided into 1,000Ordinary Shares of 1 each, each with power to increase or to dividethe shares in the capital for the time being into different classes hav-ing such rights, privileges and advantages as to voting or otherwiseas the Articles of Association may from time to time prescribe.WE, the persons whose names and addresses are subscribed are



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desirous of being formed into a Company in pursuance of theMemorandum of Association and we respectively agree to take thenumber of shares in the capital of the Company set opposite ourrespective names.Names, addresses and Shares takendescription of subscribers by each subscriberALPHA SECRETARIAL ONE54/58 Caledonian RoadLondonN19RNLimited Company

ALPHA DIRECT LIMITED ONE54/58 Caledonian RoadLondonN19RNLimited Company

Dated: 1st August 200XWitness to the above signatures:ALPHAWIT LIMITED54/58 Caledonian RoadLondonN19RN

Fig. 1. (continued)not inhibit the company from carrying out any of the objectsit wishes.In other words, for all intents and purposes, you will be ableto do anythingyou wish within reason and within the law.ExampleThe objects for which the Company is established are:(a) To carry on business as a general commercial company.


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(b) To carry on any other business of any description what-soever which may seem to the company or in the opin-ion of the Board of Directors thereof to be advanta-geously carried on in connection with or ancillary to theobjects of the company or any of them and calculateddirectly or indirectly to render more profitable thecom pany's business.

(c) . . . to ... (x) Clauses . . . To cover all those normal busi-ness transactions and dealings carried out by the major-ity of companies.

Limiting your liabilityThe fourth clause of a Memorandum provides that the liabil-ity of the members shall be limited. What does this actuallymean?

In simple terms it states that no member, meaning a share-holder, is liable to contribute any more than the nominalvalue of his shares. Once you have paid for your shares thatis the extent of your liability. This is obviously a comfortingthought if anything goes wrong.ExampleThe liability of the members is limited.Calculating your capitalThe Memorandum must state the amount of the authorisedcapital, sometimes known as the nominal capital, and thedivision of that capital into shares show ing the value of each.There can be different classes of shares but for this purposewe will assum e there is only one.


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ExampleThe Share Capital of the company is 1,000 divided into1,000 Ordinary Shares of 1 each.ACQUIRING YOUR COMPANYThere are two ways of setting yourself up in business. You cando this by:+ starting a business on your own or in partnership* buying an existing business.

Either of these can be put into a company and, indeed, thelatter may already exist as a company.Starting your own businessIf you are setting up your business on your own you maywish to start with a brand new company. This can be done intwo ways.1. Buy a new or custom made company with your own

choice of name. Various forms will have to be signed.2. Buy a ready made company which has never traded. This

is known as buying a company off the shelf.Both of these methods can most easily be done through acompany formation orregistration agent. A telephone callto one of them will set the ball rolling but you must haveyour company name and address ready. Alternatively theagent will have a bank of ready made companies alreadynamed for you to choose from if you wish.The agent will then send you the details of the company withyour chosen name. He or she will probably arrange for them-


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selves to be company secretary and for the original sub-scriber shares to be issued. There are usually two subscribershares, but a company may exist with only one. The sharesare normally put in the agent's and a colleague's name forconvenience as it saves having to get your signature everytime something needs to be done.Once he or she is satisfied that the company is properlyformed you w ill be sent:+ Form 10 which you will complete with names of the first

directors and the intended address of the registered office(see Figure 2).+ Form 288c which will change the particulars of the secre-

tary from the agent to your chosen name (see Figure 3).What about the cost?You will at this stage have to pay an amount between roughly100 and 300 depending on the amount contained in theagent's package. This may be an economy package containingthe basic legal requirements with a simple register of the com-pany's history at say 110. It may be a regular package withadditional copies of your M emorandum and Articles and a bet-ter register at say 140 or it may be a de luxe package with abrass name plate and your Certificate of Incorporation in aframe. It will be your choice but you should have m ore, ratherthan fewer, copies of the Memorandum and Articles as thesemay become useful when dealing with banks and otherfunders who may wish to see or retain a copy.Once all the form s have been signed and sent to the Registrarof Companies and you have received your Certificate ofIncorporation (see Figure 4) you are ready to trade.


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Fig. 2. (continued).41


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Fig. 2. (continued) .

42


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Notes1. Show for an individual the full

forenames) NOT NITIALS andsurname together with anyprevious forename(s) orsumamef.*).If thedirector or secretary is acorporation or Scottish firm -snow the corporateor firmnameon the surname fine.Give previous forename(s) orsumame(s) except that:

for a married woman,thename by which she wasknown before marriage neednot be given,

namesnot used since the ageof 18 or for at least 20 yearsneednot begiven.

A peer, or an individual knownbya title, mayslate the title insteadof or in addition to theforename(s) andsurname andneednot give the namebywhichthat person wasknownbeforeheor she adoptedthe title orsucceeded to it.Address:Give the usual residentialaddress.In the case of acorporationorScottish firmgive the registeredor principal office.Subscribers:The formmust be signedpersonally either by thesubscribers)or by a person orpersons authorisedto sign onbehalf of the subscribers).

2. Directors known by anotherdescription:- A director includesany personwho occupies that position evenif calledby adifferent name, forexample, governor, member ofcouncil.

3 Directors details:- Show (or each individualdirector the director'sdateofbirth, business occupation andnationality.The date of birth mutt begiven for every Individualdirector.

4. Other directorships:

- Give the nameof everycompany of which the personconcerned is adirector or hasbeen adirector at any time inthepast 5 years. You mayexclude a company which eitherla or atall time* duringthepast 5years, whenthepersonwasadirector, was:

-dormant,- aparent company which whollyowned the company making thereturn,

- a wholly owned subsidiary ofthe company making thereturn, or

- another wholly ownedsubsidiaryof the same parentcompany.

If there is insufficient space on theformfor other directorships youmay use a separate sheet of paper,which should include thecompany's number and the fullname of the director.

5. Use Form10continuation sheetsor photocopies of page 2 toprovide detailsof joint secretariesor additionaldirectors and includethe company's number.


43


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Fig. 3. Change of particulars of director or secretary (Form 288c).44


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CERTIFICATE OF INCORPORATIONOF A PRIVATE LIMITED COMPANY

Company No. 2958141

The Registrar of Companies for England and Wales hereby certifies thatSINCLAIR BROOK LIMITED

is this day incorporated under the Companies Act 1985 as a privatecompany and that the company is limited.

Given at Companies House, Cardiff, the 12th August xxxx

For the Registrar of Companies

C O M P A N I E S H O U S E

Fig. 4. Certificate of Incorporation.45

HC007A


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4 6 / S E T T I N G U P A N D R U N N I N G A L I M I T ED C O M P A N Y

Buying an existing businessThe purchase of an existing company has many facets to beconsidered:* What are youbuying?4 Is it what you want?+ Do you only want the assets of the business?* Is there any goodwill?4 How much are the shares?Remember the company is a legal entity on its own so whenyou buy it you buy all its debts and liabilities as well as itsassets. Now note the legal requirements of purchasing anexisting company.If you buy an existing business which is in a company youwill not have to go through as much formality. The companyis already in existence with an acceptable name. All you haveto do from a legal viewpoint, therefore, is to transfer theshares into the names of your intended shareholders and sub-mit to the Registrar of Companies the changes in directors,secretary and registered office.You are now ready to commence trading with your newlyacquired company.DECIDING YOUR SHARE CAPITALREQUIREMENTSYou will recall from earlier in the chapter that the CapitalClause forms part of your Memorandum. In it you state theamount of your authorised capital ornominal capital. Thisis the maximum amount of shares you can issue to yourshareholders.


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ExampleYour authorised capital is 1,000 ordinary shares of 1 each.Two are normally issued to start with and these are trans-ferred from the agent to yourself and your other shareholder.(It is possible, but not unusual, for a company to be formedwith only one shareholder.) This leaves a further 998 sharesto be issued. You may decide to issue 498 of those, splitbetween yourself and the other shareholder so that you finishup with 400 and he holds 100. This is known as issued orpaid up capital. This gives you control of the company(more fully described in Chapter 4).

You OtherSubscriber shares 1 1Allotment 399 99Final shareholding 400 100Authorised capital still to be issued 500 sharesNote that the authorised capital of a company can only bechanged or increased in accordance with the Articles of thecompany.The Articles of AssociationThe Articles of Association have not been defined yet, bu t:+ the Memorandum defines the powers and objectives of the

company+ the Articles describe the procedure by which the powers

are to be exercised or the objects of the companyachieved.This is necessary because of the company's artificial


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existence and it is necessary to define the powers of theshareholders and the directors and the manner in which theycan be exercised.ISSUING SHARESThe concept of issuing shares is simple. Shares have a nom-inal value of, say, 1 each and when they are issued to aprospective shareholder he pays 1 for them. That is the limitof his liability towards the debts and obligations of the com-pany.

Example1. You buy 500 shares of 1 each for 500 and the money

goes into the company's bank account as part of its assets.2. You will not have to buy any more if you do not wish but

the implications of doing so are discussed in Chapter 8under raising money.3. This capital will remain fixed within the company and

will be repayable to you as a shareholder only when thecompany is closed down (when you will receive, for eachof your shares, the value of the company's assets dividedby the number of shares issued) or in certain circum-stances, when the company may wish to buy back theshares from you.

4. You are, of course, at liberty to sell the shares to anotherperson and this can be at any price you negotiate betweenyou and not necessarily at the 1 you originally purchasedthem for.


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Be careful how you issue your shares.

ControlThe control of the company, which is the power to decidewho are the directors and what the business does, rests withthe shareholders. Each share they hold gives them a vote orsay in the affairs of the company and therefore the more youhold the greater the say . It follows that if you hold m ore thanhalf the shares you will have more than half the say and 51per cent of the shares in a company gives you effective con-trol of it.In practice the shareholders normally elect the directors andit is they who decide on the day to day running of the com-pany. Only in exceptional circumstances will the sharehold-ers exercise their right to overturn a decision of the directors.There are some decisions that require 75 per cent of the vot-ing members, but these are rare and fundamental to theorganisation of the company.It is therefore important to issue your shares with thesethoughts in mind. If you want complete control of your com-pany you m ust have m ore than 75 per cent of the shares.The issue of shares in a new company is done by means ofan allotment of the shares to the first shareholders. A Form88(2) showing how they have been allotted must be submit-ted to the Registrar of Companies (see Figure 5). This showsthe total number of shares allotted, the names and addressesof the shareholders and must be signed and submitted by a


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Fig. 5. Return of allotment of shares (Form 88(2)).50


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director or the secretary within 21 days of the allotment.There is no limit to the number of shareholders except thatthere cannot be more than the number of shares in issue.However, joint shareholders are permitted.The receipt of the shareholder's money is acknowledgedby the preparation of a 'share certificate' (see Figure 6).This gives ownership or title to the shares which must bepassed back to the company for re-issue if the shareschange hands.

When shares change hands it is done by means of a stocktransfer form (see Figure 7) which is lodged with the com-pany secretary, who will then issue the certificate to thenew shareholder.Case study: Dean wants it allDean wanted to trade through a company because he wouldhave to hold quite a bit of stock in his security business andwas worried about the liability he might have if it did notmove quickly enough. He has been in touch with a compa-ny registration agent and has decided to call his companyChapman Security Ltd. The name has been cleared by theRegistrar as there is no similar name on the files. He hasdiscussed shareholdings with his accountant and beingunmarried has decided to hold most of the shares himself.He has persuaded his father to hold one share and be a direc-tor and his mother to hold the post of Secretary to the com-pany. He will have the rest of the shares, namely 999 shares,which gives him complete control of the company andensures that his statutory obligations have been met. Hepays in his 1,000 (he is paying 1 for his father's share aswell) and he's ready to go.


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Fig. 6 Share certificate


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Fig. 7. Stock transfer form.

54


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Fig. 7. (continued).55


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Case study: Hannah and Usha share itHannah and Usha felt they had not known each other longenough to form an ordinary partnership with the prospect ofbeing responsible for each other's debts. On advice theydecided to form a company, having half the shares each andtaking out money, when available, and sharing it equally.The company was set up with 2,000 of ordinary shares of1 each and they each put in 1,000 to purchase their half ofthe share capital. Hannah has agreed to be company secretaryas well as a director.

Case study: Harry learns how to spread the loadHarry has always been his own master and controlled thefinances of his own enterprises. But he had to come to termswith the concept of forming a company in which each of thebuyers of his apartments had one share each in the company.Like all property transactions the sales took some time andhe had to hold some of the shares himself until the sales actu-ally took place. There were eleven apartments and so thecompany was formed with an authorised capital of 100 butonly eleven shares were issued. As the sale of each apartmentwas completed part of the deal was that the owners pur-chased one share and became part of the management com-mittee whose responsibility was to manage the communalareas of the whole property. These were the outside paintingand decoration of the building and perhaps more important-ly the roof. It also included the hallways, the stairs, the gar-dens and the parking area. A form of annual subscriptionwould be devised by the committee to cover all these costs.There would therefore be eleven directors and one of themwould become Secretary when the committee agreed.


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ACTION POINTS AND REMINDERS1. List three possible names you could choose for yourcompany.

2. Decide who you will ask to be shareholders.3. Consider who you would choose as co-directors.4. Decide who you would like to be company secretary

bearing in mind the legal obligations of that office. Youmay like to do it yourself.

5. Decide how much capital the company will need.6. Have you decided how m any shares do you intend to

hold yourself?7. Where do you intend your registered office to be? (It can

be your home address, your business premises, youraccountant's address (with his/her permission) or anyother address which you feel would be convenient.)

8. You must now find a company agent who can help youform your company.


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Dealing with theFormalities

Like many things in life there is a certain amount of bureau-cracy to be dealt with in starting a company. This chapterlooks at some of the procedures to be gone through in orderto get your company up and running. They include:+ understanding the Articles of Association4 appointing your directors and the company secretary+ getting a registered office4 displaying your certificate of incorporation+ holding meetings and passing resolutions* dealing with Companies House.UNDERSTANDING THE COMPANY'S ARTICLES OFASSOCIATIONMention has been made in the previous chapters of the com-pany's Articles of Association. It would be as well at thispoint to explain what these are. The articles are the detailedrules that determine the internal management of thecompany.They will normally show amongst other things:+ which clauses of the Companies Act will not apply to the

company

58


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D E A L I N G W I T H T H E F O R M A L I T I E S / 5 9

4 details of how shares are allotted, issued and repurchased+ how share certificates are issued+ how shares are transferred and how the price will be

arrived at+ what general meetings are required and for what purpose+ how resolutions and decisions at meetings are to be

effected+ the rules governing directors and the secretary* the limits of the borrowing powers of directors the rules for disqualifying directors from holding office+ the extent of indemnity for officials in executing their

duties on behalf of the company.If you do not decide on these for yourself then the standardrules set out in the Companies Act will apply.APPOINTING YOUR DIRECTORS AND SECR ETARYThe directorsThe law has given your company a personality but it is real-ly fictitious. It cannot do anything on its own. It is, therefore,essential that it authorises someone to conduct its businessfor it. Those people authorised are called directors.Officially directors are appointed to manage the affairs of acompany in accordance with its Articles of Association andthe law generally. In addition to this a director has responsi-bilities and these are outlined in Chapter 5.Sometimes directors are appointed in the Articles ofAssociation but these appointments are actually invalid.Note: A director is not officially appointed until a Form


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10 is submitted to the Registrar of Companies showingdetails of name, address, date of birth, nationality, occu-pation and details of any other directorships held (seeFigure 2).

Most modern forms of Articles of Association allow any per-son to be a director. That is , they do not preclude anyone whois barred from being a director by the regulations set out inTable A in the Companies (Tables A to F) Regulations 1985.For example persons over 70 years of age are precluded frombeing appointed under the regulations in Table A.These regulations are put in place by the Companies Act toapply if there is no clause in the company's own articles tooverrule them.

Directors will have an equal say in the running of the affairsof the company irrespective of the number of shares theymay hold, if they hold any at all. It is not compulsory. Alsoa director m ay contract with a supplier of goods or serviceson behalf of the company or may enter into agreements onbehalf of the company. It is, therefore, important to choosefellow directors wisely. They could cost the company a greatdeal of money.Case study: Dean works from homeDean has decided that his premises, which are mainly forholding his stock, are not suitable as an office. He thereforeagreed with his parents to use their home as his office and reg-istered his home address as the official Registered Office ofthe company. He completed Form 10 with himself as onedirector, his father as the other and his mother as company


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THE COM PANIES ACTS 1985-1989COMPANY LIMITED BY SHARESARTICLES OF ASSOCIATION OFSINCLAIR BR OOK LIMITEDPRELIMINARY1. The Company is a Private Company within the meaning of Section

1 ( 3 ) of the Companies Act 1985. Accordingly the Company shallnot offer to the public (whether for cash or otherwise) any shares inor debentures of the Company or allot or agree to allot (whether forcash or otherwise) any shares in or debentures of the Company witha view to all or any of the shares or debentures being offered for saleto the public. Subject as hereinafter provided the Regulations set outin Table "A" in the Companies (Tables A to F) Regulations 1985shall apply to this Company.

2. The following Articles of Table "A" shall not apply to thisCompany, videlicet:- 24, 37, 40, 46, 50, 53, 73, 74, 75, 81, 94 andthe last sentence of Article 79.SHARE CAPITAL

3. The Directors of the Company shall within a period of five yearsfrom the date of incorporation of the Company be entitled to exer-cise the Company's power to allot, grant options over or otherwisedispose of the entire amount of the original share capital of theCompany. The Members of the Company shall have power fromtime to time by Ordinary Resolution to renew or revoke theDirectors' exercise of the Company's power to allot, grant optionsover or otherwise dispose of any snares in the capital of theCompany.

4 . ( a ) Sections 89(1), 90(1) to (5) and Section 90(6) of the Companies Act1985 shall not apply in relation to the issue of any equity securitiesby the Company but in substitution therefor the provisions of sub-paragraph (b) of this Article shall apply,(b) Save as otherwise directed by the Company in General Meeting, anynew shares from time to time to be created shall before they areissued be offered to the Members in proportion as nearly as possi-ble to the numbers of shares held by them. Any such offer shall bemade by notice specifying the number of shares offered and limit-ing a time within wh ich the offer, if not accepted, will be deemed tobe declined and after the expiration of such time any shares not

accepted and any shares which, by reason of the ratio which theshares to be issued bear to the shares held by persons entitled to anoffer thereof, cannot, in the opinion of the Directors, convenientlybe offered under this Article, shall be at the disposal of the Directorswho may allot, g rant options over, or otherwise dispose of the same

Fig. 8. Sample Articles of Association.


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to such persons at such time and on such terms as they thinkproper.5. Subject to the provisions of the Companies Act 1985 including

Sections 159 and 171 thereof, the Company shall have power toissue shares w hich are to be redeemed or are liable to be redeemedat the option of the Company or the shareholder on such terms andin such man ner as may be prescribed by these A rticles.6. Subject to the provisions of the Com panies Act 1985 includingSections 162 and 171 to 175 thereof, the Company may purchase itsown shares including any redeemable shares.

SHARE CERTIFICATES7. Every share certificate may, if the Company has a seal, be sealedwith the seal, and shall otherwise be signed by a Director and theSecretary, or by two Directors and be expressed to be executed bythe Company and shall specify the number, class and distinguishing

numbers (if any) of the shares to which it relates and the amount orrespective am oun ts paid up thereon, and A rticle 6 of Table A shallbe modified accordingly.LIEN

8. The lien co nferred by Article 8 in Table A shall also attach to fullypaid up shares and dividends and to all shares registered in the nameof any person indebted or und er liability to the Company w hether heshall be the sole registered holder thereof or one of two or more jointholders thereof.TRANSFER OF SHARES

9. A Member desiring to transfer shares other than to the Companypursuant to Article 6 hereof shall give notice in writing handed per-sonally or sent by registered or recorded delivery post to their cor-rect and last kno wn address of such intention to the Company, theDirectors and all the shareholders of the Com pany giving particularsof the shares in question. The Directors as agent for the Membergiving such notice may dispose of such shares or any of them toMembers of the Company in a direct and pro rata proportion to theirexisting holdings at a price to be agreed between the Transferor andthe Directors, or failing agreement at a price fixed by the Auditorsof the Company as a fair value thereof.If within twenty-eight days of the date of the said notice theDirectors are unable to find a Member or Members willing to pur-chase all such shares on such conditions the Transferor may disposeof so many of such shares as shall rem ain undisposed of in any man-ner he may think fit within three m onths from the date of the saidnotice but the Directors may in their absolute discretion and withoutassigning any reason therefor decline to register any such transferwhether or not it is in respect of a fully paid up share or shares.



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GENERAL MEETINGS10. The Directors may call General Meetings and, on the requisition ofMembers pursuant to the provision of the Companies Act 1985,

shall forthwith proceed to convene an Extraordinary GeneralMeeting for a date not more than twenty-eight days after the date ofthe notice convening the M eeting. If there are not w ithin the UnitedKingdom sufficient Directors to call a General Meeting, anyDirector or any Member of the Company may call a GeneralMeeting.

11. Article 38 of Table A shall be read and construed as if the words"ninety-five per cent" were followed by the words "(or such lesserpercentage, not being less than ninety per cent, as may be deter-mined by Resolution of the Company in General Meeting in accor-dance with Section 379A of the Companies Act 1985)".PROCEEDING AT GENERAL MEETINGS

12. At any General Meeting a Resolution put to the vote of the Meetingshall be decided on a show of hands unless a poll is (before or onthe declaration of the result of the show of hands) demanded by theChairman or any Mem ber in person or by pro xy. Unless a poll is sodemanded, a declaration by the Chairman that a Resolution has ona show of hands been carried or carried unanimously, or by a par-ticular majority, or lost, or not carried by a particular majority, andan entry to that effect in the book containing the minutes of the pro-ceedings of the Company shall be conclusive evidence of the factwithout proof of the number or proportion of the votes recorded infavour of or against such Resolution. The demand for a poll may bewithdrawn. In the event of an equality of votes, the Chairman shallnot have a second or casting vote.DIRECTORS

13. Article 64 of Table A shall apply, with the exception of the words"but shall not be less than two", and accordingly there may be a soleDirector. If and so long as there is a sole Director, such Directormay act alone in exercising all the powers and authorities by TableA or those Articles vested in the Directors generally. The firstDirectors of the Company shall be the person or persons named inthe Statement delivered to the Registrar of Companies prior to theformation of the Company pursuant to Section 10(2) of theCompanies Act 1985 and deemed to be appointed Directors accord-ingly. No Director shall be subject to retirement by rotation.

14. The Company shall not be subject to Section 293 of the CompaniesAct 1985 and accordingly any person may be appointed or electedas a Director whatever his age and no Director shall be requ ired tovacate his office of Director by reason of his attaining or havingattained the age of seventy years or any other age.



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15. In the case of any equality of votes at any Director's Meeting, theChairman of the Meeting shall not have a second or casting vote andArticle 88 of Table A shall be modified accordingly.16. Subject to the provisions of Section 317 of the Com panies Act 1985,a Director may contract with the Company and participate in theprofits of any contracts or arrangements as if he were not a Director.A Director shall also be capable of voting in respect of such con-tracts or arrangements, where he has previously disclosed his inter-est to the Com pany, or in respect of his appointment to any office orplace of profit under the Company, or in respect of the terms thereof and may be counted in the quorum at any Meeting at which anysuch matter is considered.

SECRETARY17. The first Secretary of the Company shall be the person or personsnamed as Secretary in the Statem ent delivered under Section 10(2)of the Companies Act 1985 and deemed to be appointed according-i y -BORROWING POWERS OF THE DIRECTORS18. The Directors of the Com pany may exercise all the pow ers of theCompany to borrow money whether in excess of the nominalamount of the share capital of the Company for the time beingissued or not and to mortgage or charge its undertaking, property or

uncalled capital, or any part thereof, and, subject to Section 80 ofthe Companies Act 1985, to issue debentures, debenture stock andother securities whether outright or as security for any debt, liabili-ty or obligation of the Company or of any third party.ALTERNATE DIRECTORS

19. Any Director may in writing appoint any person to be his alternateto act in his place at any meeting of the Directors at which he isunable to be present. Every such alternate shall be entitled to noticeof meetings of the Directors and to attend and vote thereat as aDirector when the person appointing him is not personally presentand where he is a Director to have a separate vote on behalf of theDirector he is representing in addition to his own vote. A Directormay at any time in writing revoke the appointment of an alternateappointed by him. Every such alternate shall be an officer of theCompany and shall not be deemed to be the agent of the Directorappointing him. The remuneration of such an alternate shall bepayable out of the remuneration payable to the Director appointinghim and the proportion thereof shall be agreed between them. Analternate need not hold any share qualification.THE SEAL

20. Article 101 of Table A shall be read and construed as if the words"The Seal" were followed by the words "if any".



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D E A L I N G W I T H T HE F O R M A L I T I E S / 6 5

INDEMNITY21. Subject to Section 310 of the Companies Act 1985 and in addi-tion to such indemnity as is contained in Clause 118 of TableA, every Director, Officer or Official of the Company shall beindemnified out of the funds of the Com pany against all costs,charges, losses, expenses and liabilities incurred by him in theexecution and discharge of his duties or in relation thereto.

DISQUALIFICATION O F DIRECTORS22. The office of a Director shall be vacated:(1 ) If by notice in writing to the Company he resigns the officeof Director.(2) If he ceases to be a Director by virtue of Section 291 of theCompanies Act 1985.(3 ) If he becomes bankrupt or insolvent or enters into anyarrangements with his creditors.

(4 ) If he becomes of unsound mind.(5) If he is prohibited from being a Director by an order madeunder the Company Directors Disqualification Act 1986.(6) If he is removed from office by a Resolution duly passedunder Section 303 of the Com panies Act 1985.Names, addresses and description of subscribers.ALPHA SECRETARIAL LIMITED54/58 Caledonian RoadLondonNl 9RNLimited CompanyALPHA DIRECT LIMITED54/58 Caledonian RoadLondonNl 9RNLimited CompanyDated: 1 st August 200XWitness to the above signatures:ALPHAWIT LIMITED54/58 Caledonian RoadLondon Nl 9RN



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secretary and sent these in to the Registrar via his companyformation agent.The company secretaryThe secretary of a company is the legal guardian of the com-pany. The company secretary sees that the rules and proce-dures of the company are being adhered to and records all theformal proceedings. A company secretary does not have tobe a lawyer but should be someone who appreciates that thelaw is important and carries out formalities diligently.

The responsibilities of the company secretary include:1. Recording minutes of meetings.2. Maintaining a register of shareholders.3. Dealing with the formalities of any share dealings.The company secretary is responsible to the directors. Firmsof accountants or solicitors may offer to prepare the formaldocuments required with the secretary just signing them.GETTING A REGISTERED OFFICEEvery company must have an official address. This is calledthe registered office.The purpose of a registered office is so that there is anaddress to which notices and other communications can besent. The Registrar is notified of the address of the first reg-istered office when Form 10 is completed (see Figure 2) andsubmitted on the formation of the company. Any change inthe address must be notified to the Registrar within 14 daysof the change.


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Remember that the 'domicile' (eg England or Scotland) mustremain the same (see page 31).Your registered office can be any address. It may be yourbusiness address or your home address or it may be theaddress of your accountant or solicitor. Their permissionshould, of course, be obtained first.Any official document, like a writ, can be served on the com-pany at its official registered office and will be deemed tohave been delivered to the company. You cannot turn roundand make the excuse that it was delivered to your accountant!DISPLAYING YOUR CERTIFICATE OFINCORPORATIONWhen your Memorandum and Articles have been registeredwith the Registrar of Companies he will issue a signed cer-tificate, know n as the Certificate of Incorporation (see Figure4) which is the conclusive evidence that your company isactually in existence in accordance with the Companies Act.You may now comm ence business.Your Certificate of Incorporation must be displayed in aprominent position at your principal place of business. Thereare rules about companies displaying certain information forthe benefit of the public at large. This is proof to them thatthe company is bona fide and that they are trading with alegitimate business.Case study: Hannah and Usha set up shopHannah and Usha have rented a small workshop at the backof a retail store in the High Street. This is ideal for makingtheir jewellery as well as getting their supplies from other


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traders. They seek permission from their landlord to use theworkshop as their official business address and he agrees. Onreceipt of their Certificate of Incorporation they proudly putit up on the door of the workshop to show to anyone whocomes in that Diamond Designs Ltd is officially in business.

HOLDING MEETINGS AND PASSINGRESOLUTIONSHolding meetingsYou are now aware that the ultimate responsibility for theconduct of any company lies with the shareholders, eventhough the directors make most of the management deci-sions.

It is therefore necessary for a company to give its sharehold-ers a platform from which to exercise their responsibility.This is usually in the form of a meeting and may be:4 the company's annual general meeting+ an extraordinary general meeting+ any general meeting called for a specific purpose.There are strict rules governing meetings and these are nor-mally contained in the Articles of Association. These willcover:+ how the Chairman of the meeting will be appointed+ how many members (shareholders) must be present for

the meeting to transact any business (this is known as aquorum)4 how much notice must be given to each member that

such a meeting is going to take place.


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The Chairman of a meeting will normally be the chairman ofthe company or the principal shareholder. However, it is cus-tomary that the Articles will allow for any member present atthe meeting to be elected chairman.In general there must be two people present to constitute ameeting unless the Articles provide for a different number.Directors may call general meetings, including the AnnualGeneral Meeting, by giving required notice. In additionmembers may, in accordance with the Companies Act 1985,require the directors to convene an extraordinary generalmeeting.These formal meetings are held where important mattersrelating to the running of the company are discussed and, ifnecessary, voted upon.The annual general meeting (AGM) is normally used as areporting meeting to give the shareholders a resume of theyear's events and results and to present the accounts for thepreceding financial year.An extraordinary meeting is usually called where there is adispute to be settled, but in very small companies these aremore likely to be personality clashes and will probably not beresolved by a formal meeting.Passing resolutionsDecisions are taken at meetings by passing resolutions.What is a resolution!It is an agreement by those entitled to vote at a meeting on


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707 S E T T I N G U P A N D R U N N I N G A L I M I T E D C O M P A N Y

any lawful matter brought before it. A proposed resolution iscalled a motion. When a motion is passed the company isbound by it until circumstances alter or another motion ispassed superceding it. If the necessary majority of votes isnot obtained the motion fails.There are a number of differing types of resolution.Directors' resolutionsThese are used at directors' board meetings and are used fornormal management business. They are not normallyrequired to be filed with the Registrar of Companies, but arecord should be kept so that the content may be referred toat a later date in the event of a difference of opinion.Ordinary resolutionsThese are passed by a simple majority of the votes cast andare used for m atters not requiring another type of resolu tion.Unless otherwise stated all resolutions are ordinary resolu-tions. A proxy (someone to vote on your behalf) may beallowed in some circumstances.Private companies may resolve problems by written resolu-tion without a meeting being held and without formal noticeprovided it is a matter w hich could be passed by the compa-ny in general meeting. However, the resolution can only bepassed by the unanimous agreement of all those membersw ho would be entitled to attend and vote at such a meeting.The date of this resolution would be the date the last personsigned.These resolutions must also be sent to the auditors.


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Case study: Harry has a meetingHarry has formed his company with the official address reg-istered at his principal place of business together with hisother companies. It is not his intention that this companyshould make a profit but rather that it should be used for thebenefit of all the tenants. As Harry only has two tenantsinstalled as owners so far he transfers a share to each of themand calls the first meeting. The tenants elect him as chairmanand he proposes a resolution that there will be no furthermeetings until all the apartments have been sold. This is car-ried as he has nine of the shares but it is with the agreementof the other two as well. It is in everyone's interest to set thiscompany up properly and one of the apartment holders agreesto be company secretary temporarily until a full meeting canbe held to formally elect directors and a secretary on a morepermanent basis.Extraordinary resolutionsThese require a 75 per cent majority and are used for specif-ic matters like winding up the company or changing therights of shareholders. Members are entitled to 21 days 'notice of such a resolution unless at least 95 per cent of theshareholders agree to a shorter notice. The Articles mayallow proxies.Special resolutionsThese also require a 75 per cent majority and normally 21da ys ' notice to shareholders and are used for changes like analteration to the Memorandum and Articles or a change ofname.


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Elective resolutionsThese are a relatively new type of resolution brought in bythe Companies Act 1989. They must be used in private com-panies only and must have unanimous support of the mem-bers. They are used for five specific purposes:1. To alter the duration of the authority of directors to allot

securities.2. To dispense with the holding of annual general meetings.

3. To dispense with the laying of accounts and reportsbefore the members in general meeting.4. To reduce the majority required to authorise short notice

of a meeting and notice of a resolution from 95 per centbut not lower than 90 per cent.

5. To dispense with the annual appointment of auditors.Very few private company resolutions have to be sent to theRegistrar of Companies for filing. Those which do are spec-ified by the Companies Acts and include all special, extraor-dinary and elective resolutions and must be filed within 15days of them being passed.Example of elective resolutionIt was resolved that in accordance with the provisions ofSection 366A of the Companies Act 1985 the company here-by dispenses with the holding of the Annual General Meetingfor 200X and subsequent years.


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DEALINGWITH COMPANIES HOUSEIt will be apparent by now that the Registrar of Companiesrequires private companies to keep him/her informed on cer-tain matters. Companies are to that extent public propertyand the files are available for public inspection.It is the duty of the directors and the job of the company sec-retary to submit various forms and resolutions to CompaniesHouse within prescribed time limits. The penalty for notdoing so is normally a hefty fine. In extreme circumstancesthe company will be struck off the register.It is in your interest to fulfil your obligations as people whodeal with you can easily lose confidence in you as a businessperson if you do not.Statutory information to be sent to the Registrar includes+ changes of the registered office+ changes of directors and secretary or their particulars* annual returns+

setting up and running a limited company

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