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The formation of a company requires the provision of information to Companies House regarding the directors and shareholders of the proposed new company, its business activities and registered office address and also its governing documents. Once Companies House are satisfied with the information and documents have been provided, a company can be formed very quickly.
The questions asked and guidance supplied by Companies House can be confusing, and the standard documentation supplied by Companies House is not always suitable for every company. Dixcart has been forming companies for our clients for many years and we can guide you through the process to ensure that your new company is incorporated smoothly and quickly. We can also help you to decide on the right variations to the standard governing documents or even provide completely bespoke documents, tailored to suit the needs of your new company.
Forming a company is quick and easy.
All you need to start a company is an address within England & Wales for the registered office, at least one shareholder and at least one director (these two may be the same person). There is no minimum initial cash investment and the company can be formed in a matter of hours.
What is company formation?
Company formation is the creation of a new limited company in England with the Registrar of Companies (commonly called Companies House).
What are the stages of formation of a company?
A form is completed and submitted to Companies House detailing the directors and shareholders of the proposed new company, its name and the location of its registered office. In addition, the company’s governing documents (called Articles of Association) must be submitted. This can take the form of a standard document, but very often the standard is not entirely suitable and many companies use variations on the standard model, or completely bespoke Articles of Association. Once the form and documents have been submitted, and a small registration fee paid, Companies House reviews the application. If approved, the company can be formed in a little as a few hours.
What are the different types of companies?
The most common types of companies are public limited companies (whose names end in “Plc”) and private companies limited by shares (whose names end in Limited or Ltd). There are other types of companies but the most business operate through private companies limited by shares.
There are also Limited Liability Partnerships (LLPs). While these are not technically companies, they share many of the same characteristics and are also registered via Companies House.
Why use a Limited Company?
The main benefit of a limited company is the limited liability of the company’s officers and shareholders. This means that unlike with a sole trade or partnership, personal assets are not at risk in the event of a failure of the business.
Other considerations are:
- The company has a legal existence separate from its management and its members (the shareholders).
- Members have limited liability.
- The company’s name is protected.
- The company continues despite the death, resignation or bankruptcy of management and members.
- The interests and obligations of management are defined.
- Appointment, retirement or removal of directors is straightforward.
- It is easy to procure new shareholders and investors.
- Employees can acquire shares.
- Companies are often perceived as more robust and more business like than sole traders.
- Companies can provide tax advantages such as lower tax rates, R&D incentives, extraction of profits via dividends.
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What we do
- Clients outsource the entire formation process to us, making it as straightforward and seamless as possible.
- Our professional team will advise you on the right structure for your business.
- We deal with everything from start to finish, including forming of the company and related corporate governance.
- Fixed fees for company formation, bespoke Articles of Association and Shareholders agreements.
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Articles of association
All companies are governed by a constitutional document, the articles of association (which determines matters such as the proceedings of directors), shareholder rights and voting powers and the transfer of shares. Companies will have standard articles (‘Model Articles’), unless they choose to have their own, bespoke articles. Bespoke articles may contain variations of the model articles, or may be completely different. A company might opt for bespoke articles for many reasons. Common ones being because the shareholders want rights of first refusal on share transfers, the majority shareholder wants to prevent minorities from blocking any future share sale, or because different shareholders are to have different voting rights.
A shareholders agreement is a contract between the shareholders (and usually the company), which sets out how the shareholders will act in their relationships between each other and the company. It is a private contract and does not appear on the public record. It may deal with issues such as a policy on paying dividends, matters on which the company may not take action without shareholder approval or restrictions on the shareholders to prevent them from entering into business which competes with the company.
Barnacle Limited (‘Barnacle’) creates and sells analytic software in the aviation sector. Barnacle is wholly owned by James who is approaching retirement and no longer has the drive for developing new lines of business for Barnacle.
Three of Barnacle’s senior managers have come up with an idea for specialist large-scale mechanical engineering project management software but they do not have the financial wherewithal to develop the idea into a new business.
James is willing to release his three managers on a part-time basis so that they can work on it. He is also willing to put up some funding, but he does not wish to be involved on a day to day basis.
The four individuals therefore incorporate a new company, Barnacle Projects Limited (‘BPL’). James has put up all the money, split between a loan and share capital. He is taking 40% of the shares, with each of the three managers taking 20%.
BPL has been incorporated with each individual holding a different class of shares, with weighted voting rights, so that no shareholder vote can be passed unless James and at least one manager votes in favour.
The parties have also signed a shareholders agreement. It’s key terms are:
- dividends may be paid until James’s loan has been paid off;
- no major contracts may be signed unless all the individuals agree;
- each of the individuals has the right to be a director (but does not have the right to appoint anyone else in their place);
- once James’s loan has been paid off, the three managers have an option to buy him out. There is a mechanism for valuing James’s shares at that time;
- if shareholders holding in total not less than 60% of the shares (but which must always include at least two of the three managers) wish to sell the company in a bona fide sale for true value, then they can force the remaining shareholders to sell on the same terms;
- all shareholders are restricted from being interested in any competing business while they are shareholders and for one year afterwards.