Like many things in life there is a certain amount of bureaucracy to be dealt with in starting a company. This chapter looks at some of the procedures to be gone through in order to get your company up and running. They include:

• understanding the Articles of Association
• appointing your directors and the company secretary
• getting a registered office
• displaying your certificate of incorporation
• holding meetings and passing resolutions
• dealing with Companies House.

UNDERSTANDING THE COMPANY’S ARTICLES OF ASSOCIATION

Mention has been made in the previous chapters of the company’s Articles of Association. It would be as well at this point to explain what these are. The articles are the detailed rules that determine the internal management of the company.

They will normally show amongst other things:

• which clauses of the Companies Act will not apply to the company
• 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 standard rules set out in the Companies Act will apply.

APPOINTING YOUR DIRECTORS AND SECRETARY

The directors

The law has given your company a personality but it is really fictitious. It cannot do anything on its own. It is, therefore, essential that it authorises someone to conduct its business for it. Those people authorised are called directors.

Officially directors are appointed to manage the affairs of a company in accordance with its Articles of Association and the law generally. In addition to this a director has responsibilities and these are outlined in Chapter 5.

Sometimes directors are appointed in the Articles of Association but these appointments are actually invalid.

Note: A director is not officially appointed until a Form 10 is submitted to the Registrar of Companies showing details of name, address, date of birth, nationality, occupation and details of any other directorships held (see Figure 2).

Most modern forms of Articles of Association allow any person to be a director. That is, they do not preclude anyone who is barred from being a director by the regulations set out in Table A in the Companies (Tables A to F) Regulations 1985. For example persons over 70 years of age are precluded from being appointed under the regulations in Table A.

These regulations are put in place by the Companies Act to apply if there is no clause in the company’s own articles to overrule them.

Directors will have an equal say in the running of the affairs of the company irrespective of the number of shares they may hold, if they hold any at all. It is not compulsory. Also a director may contract with a supplier of goods or services on behalf of the company or may enter into agreements on behalf of the company. It is, therefore, important to choose fellow directors wisely. They could cost the company a great deal of money.

Case study: Dean works from home

Dean has decided that his premises, which are mainly for holding his stock, are not suitable as an office. He therefore agreed with his parents to use their home as his office and registered his home address as the official Registered Office of the company. He completed Form 10 with himself as one director, his father as the other and his mother as company

secretary and sent these in to the Registrar via his company formation agent.

The company secretary

The secretary of a company is the legal guardian of the company. The company secretary sees that the rules and procedures of the company are being adhered to and records all the formal proceedings. A company secretary does not have to be a lawyer but should be someone who appreciates that the law 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. Firms of accountants or solicitors may offer to prepare the formal documents required with the secretary just signing them.

GETTING A REGISTERED OFFICE

Every company must have an official address. This is called the registered office.

The purpose of a registered office is so that there is an address to which notices and other communications can be sent. The Registrar is notified of the address of the first registered office when Form 10 is completed (see Figure 2) and submitted on the formation of the company. Any change in the address must be notified to the Registrar within 14 days of the change.

Remember that the ‘domicile’ (eg England or Scotland) must remain the same (see page 31).

Your registered office can be any address. It may be your business address or your home address or it may be the address of your accountant or solicitor. Their permission should, of course, be obtained first.

Any official document, like a writ, can be served on the company at its official registered office and will be deemed to have been delivered to the company. You cannot turn round and make the excuse that it was delivered to your accountant!

DISPLAYING YOUR CERTIFICATE OF INCORPORATION

When your Memorandum and Articles have been registered with the Registrar of Companies he will issue a signed certificate, known as the Certificate of Incorporation (see Figure 4) which is the conclusive evidence that your company is actually in existence in accordance with the Companies Act. You may now commence business.

Your Certificate of Incorporation must be displayed in a prominent position at your principal place of business. There are rules about companies displaying certain information for the benefit of the public at large. This is proof to them that the company is bona fide and that they are trading with a legitimate business.

Case study: Hannah and Usha set up shop

Hannah and Usha have rented a small workshop at the back of a retail store in the High Street. This is ideal for making their jewellery as well as getting their supplies from other traders. They seek permission from their landlord to use the workshop as their official business address and he agrees. On receipt of their Certificate of Incorporation they proudly put it up on the door of the workshop to show to anyone who comes in that Diamond Designs Ltd is officially in business.

HOLDING MEETINGS AND PASSING RESOLUTIONS

Holding meetings

You are now aware that the ultimate responsibility for the conduct of any company lies with the shareholders, even though the directors make most of the management decisions.

It is therefore necessary for a company to give its shareholders a platform from which to exercise their responsibility. This is usually in the form of a meeting and may be:

• 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 normally contained in the Articles of Association. These will cover:

• 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 a quorum)
• how much notice must be given to each member that such a meeting is going to take place.

The Chairman of a meeting will normally be the chairman of the company or the principal shareholder. However, it is customary that the Articles will allow for any member present at the meeting to be elected chairman.

In general there must be two people present to constitute a meeting unless the Articles provide for a different number. Directors may call general meetings, including the Annual General Meeting, by giving required notice. In addition members may, in accordance with the Companies Act 1985, require the directors to convene an extraordinary general meeting.

These formal meetings are held where important matters relating to the running of the company are discussed and, if necessary, voted upon.

The annual general meeting (AGM) is normally used as a reporting meeting to give the shareholders a résumé of the year’s events and results and to present the accounts for the preceding financial year.

An extraordinary meeting is usually called where there is a dispute to be settled, but in very small companies these are more likely to be personality clashes and will probably not be resolved by a formal meeting.

Passing resolutions

Decisions are taken at meetings by passing resolutions.

What is a resolution?

It is an agreement by those entitled to vote at a meeting on any lawful matter brought before it. A proposed resolution is called a motion. When a motion is passed the company is bound by it until circumstances alter or another motion is passed superceding it. If the necessary majority of votes is not obtained the motion fails.

There are a number of differing types of resolution.

Directors’ resolutions

These are used at directors’ board meetings and are used for normal management business. They are not normally required to be filed with the Registrar of Companies, but a record should be kept so that the content may be referred to at a later date in the event of a difference of opinion.

Ordinary resolutions

These are passed by a simple majority of the votes cast and are used for matters not requiring another type of resolution. Unless otherwise stated all resolutions are ordinary resolutions. A proxy (someone to vote on your behalf) may be allowed in some circumstances.

Private companies may resolve problems by written resolution without a meeting being held and without formal notice provided it is a matter which could be passed by the company in general meeting. However, the resolution can only be passed by the unanimous agreement of all those members who would be entitled to attend and vote at such a meeting. The date of this resolution would be the date the last person signed.

These resolutions must also be sent to the auditors.

Case study: Harry has a meeting

Harry has formed his company with the official address registered at his principal place of business together with his other companies. It is not his intention that this company should make a profit but rather that it should be used for the benefit of all the tenants. As Harry only has two tenants installed as owners so far he transfers a share to each of them and calls the first meeting. The tenants elect him as chairman and he proposes a resolution that there will be no further meetings until all the apartments have been sold. This is carried as he has nine of the shares but it is with the agreement of the other two as well. It is in everyone’s interest to set this company up properly and one of the apartment holders agrees to be company secretary temporarily until a full meeting can be held to formally elect directors and a secretary on a more permanent basis.

Extraordinary resolutions

These require a 75 per cent majority and are used for specific matters like winding up the company or changing the rights of shareholders. Members are entitled to 21 days’ notice of such a resolution unless at least 95 per cent of the shareholders agree to a shorter notice. The Articles may allow proxies.

Special resolutions

These also require a 75 per cent majority and normally 21 days’ notice to shareholders and are used for changes like an alteration to the Memorandum and Articles or a change of name.

Elective resolutions

These are a relatively new type of resolution brought in by the Companies Act 1989. They must be used in private companies only and must have unanimous support of the members. 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 reports before 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 cent but 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 the Registrar of Companies for filing. Those which do are specified by the Companies Acts and include all special, extraordinary and elective resolutions and must be filed within 15 days of them being passed.

Example of elective resolution

It was resolved that in accordance with the provisions of Section 366A of the Companies Act 1985 the company here-by dispenses with the holding of the Annual General Meeting for 200X and subsequent years.

DEALING WITH COMPANIES HOUSE

It will be apparent by now that the Registrar of Companies requires private companies to keep him/her informed on certain matters. Companies are to that extent public property and the files are available for public inspection.

It is the duty of the directors and the job of the company secretary to submit various forms and resolutions to Companies House within prescribed time limits. The penalty for not doing so is normally a hefty fine. In extreme circumstances the company will be struck off the register.

It is in your interest to fulfil your obligations as people who deal with you can easily lose confidence in you as a business person 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
• copies of extraordinary, elective and special resolutions
• details of any mortgages or charges on the company property
• resolutions to change the Memorandum and Articles
• notification that the company has gone into liquidation or receivership.

ACTION POINTS AND REMINDERS

• 1.Ask your company formation agent for a sight of the Articles of Association before he completes the registration.
• 2Decide who your directors will be.
• 3.Decide how many shares will you issue to each.
• 4.Ensure that your company secretary knows what obligations the post carries.
• 5.Do you have the address of your registered office organised?
• 6.Where will you display your certificate of incorporation?
• 7.Where will you hold official company meetings?
• 8.Will you insist on being chairman yourself?
• 9.You do realise that you are responsible for statutory information being sent to the Registrar.