Start-Ups - Incorporating a Company

Historically, many entrepreneurs who wished to carry on their new business through a limited company would acquire an existing, dormant “shelf company” from a company formation agent who, for a fee, would transfer the issued “subscriber” shares in the shelf company to the new owner and would arrange for new directors to be appointed in place of the formation agent’s representatives. It has, however, become increasingly easier and cheaper to incorporate a company from scratch by submitting the relevant form of application to Companies House.

This factsheet provides a checklist for the formation of a private company limited by shares. It assumes that you wish to form a company by submitting an incorporation application directly to Companies House rather than acquiring an existing shelf company. It also anticipates that the share capital of the new company will consist of ordinary £1 shares.

1: Collate the information required by Companies House

The following details will need to be obtained for the purpose of the application. Much of this information will hopefully
already have been collated in response to our INTEGRAL Document GR1 “Start-Up Checklist”.

Proposed company name: The name of a private company limited by shares must end with the word “limited”. A company cannot be incorporated with a name which is the same as that of an existing company, or is so similar that it is likely to confuse the public and is therefore deemed to be the same. The Companies House “Web Check” service allows you to search, free of charge, an alphabetical list of existing company names, in order to find out whether a company has already been registered with your preferred name. The Companies House guidance note “Incorporation and Names” explains which words will be disregarded in determining whether a proposed name is effectively “the same as” one on the register. Certain “sensitive” names require approval by Companies House on behalf of the Secretary of State before they can be used (for example the word “international”). Annexes A-C to the Companies House guidance note mentioned earlier list such words, and the evidence which needs to be provided to Companies House in order to use them. Chapter 10 of the guidance also summarises the information (including the company name and registered number) which a company must, by law, display at its registered office, places of business and on business stationery and websites.

Address of registered office: This is the address to which Companies House communications will be sent.

In respect of each director: Full name, service address, residential address, date of birth, nationality and occupation. Companies are legally required to have at least one director. A company’s constitution can also specify a maximum and minimum number of directors. An undischarged bankrupt and/or anyone who has been disqualified from acting as a director may not be appointed. All directors must be at least 16 years of age.

A director can file a service address for the public record which need not be the same as his residential address. If a separate service address is filed, the residential address will still need to be notified to Companies House, but will not appear on the public register and will only be disclosed in limited circumstances.

In respect of the company secretary (if you decide to have one, this is not compulsory for private companies): full name and service address.

Amount of share capital to be issued to and subscribed for by each shareholder on incorporation.

2: Decide what form of constitution to use

We find that the proposed shareholding structure of many start-up companies fall into one of the following categories:

Sole shareholder;
Two shareholders who are to have equal voting control at board and shareholder level (usually because they will each hold 50% of the shares) - a so called 50:50 deadlock company;
Two or more shareholders, at least one of whom will have a minority interest but may require a right to veto certain decisions.

If the shareholder profile is more complicated (for example, the company is seeking external investment from
third parties who will not be actively involved in running the business, or there are two distinct groups of shareholder, with the members of each group having broadly similar objectives) we recommend that specific advice is sought.

The ownership of the company will determine the form of constitutional rules (the “articles of association”) to be adopted, and may also influence the method of incorporation. There are two main alternative methods of forming a company by application to Companies House:

Incorporating online through the “Web Incorporation Service”: A standard fee of £15 applies. Companies can only be incorporated online with the standard default constitution prescribed by statute, known as the “Model Articles”, which can be found in the FAQ section of the Companies House website.
Application by submission of paper forms: The standard fee is £40. Companies can adopt their own preferred form of constitution on formation, rather than being forced to adopt the default Model Articles and amend the constitution following incorporation.

As the Web Incorporation Service is cheaper and provides step by step guidance on the Companies House website,
we suggest that it is preferable to use this wherever possible. We therefore recommend the following approach
for each type of company as listed above (please note that this is only a suggestion). We suggest that if any party is seeking specific tax treatment for their investment in the company, tax advice should be sought in order to ensure that the procedure for incorporation does not prejudice the desired tax treatment.

Sole Shareholder

Suggested method of incorporation: Web Incorporation Service

Suggested form of constitution: Default Model Articles to be adopted automatically on incorporation. These will usually be sufficient for use going forward.

Two Shareholder, deadlocked 50:50 company

Suggested method of incorporation: Paper incorporation. Usually the company will need to be formed with separate classes of shares, and bespoke articles will be required. Whilst a company can be formed online with multiple share classes, the Web Incorporation Service only permits the adoption of the standard Model Articles on formation. We suggest that it is preferable in this scenario to adopt bespoke articles on formation, which can only be done through paper incorporation.
(It is possible to form a company with one class of ordinary shares and to re-designate into separate classes, whilst simultaneously adopting appropriate articles, following incorporation. This is however more complex).

Suggested form of constitution: Document GR5 (articles of association of 50:50 deadlock company).

Company with two or more shareholders (other than a 50:50 deadlock)

Suggested method of incorporation: Web Incorporation Service.

Suggested form of constitution: Model Articles to be adopted by default on incorporation. Document GR4 (articles of association, private company with multiple individual shareholders) to be adopted by shareholder resolution shortly after
incorporation. We also recommend that Document GR3 (shareholders agreement) be entered into.

3: Online formation

If you decide to form your company online, the Web Incorporation Service can be accessed from the “Start a
Company” tab on the Companies House website home page. Provided you have collated properly the information set out in step 1 above, the procedure should be relatively self-explanatory. The Companies House information line (0303 123 4500) will provide additional guidance. If you need to adopt bespoke articles following incorporation, our INTEGRAL template documents GR6 and GR7 provide further guidance on this.

4: Paper incorporation

The documentation required for a paper incorporation is as follows:

Form IN01 (application to register a company): This can be downloaded from the “Start a Company” section of the Companies House website, which also provides guidance on completion of the form.

Perhaps the most difficult section to complete is the statement of capital. If the company is incorporated with separate
classes of A and B ordinary shares (usually if the company is a 50:50 deadlock company – see our comments on document GR5) the number of shares of each class will need to be listed. The “prescribed particulars” (the rights attaching to the shares) will also need to be described. The Growth Centre documents assume that the ordinary shares will have equal rights to dividend, voting and on a return of capital and that this will be the case even if a 50:50 deadlock company is formed with A and B ordinary shares, and the articles at document GR5 are adopted. (The A and B shares are treated as if they were the same class for dividend, voting and return of capital purposes – they do however have separate class rights to appoint directors in order to ensure a deadlock at board level.) Unless a more complex capital structure is envisaged, the following wording recommended by Companies House can therefore be used to set out the prescribed particulars for each class of shares: “Each share has full rights in the company with respect to voting, dividends and distributions”.

Memorandum of association: This contains the names and signatures of the subscribers (the first shareholders) and their commitment to take at least one share. The form of memorandum is prescribed by statue and cannot be departed from. The prescribed template can be downloaded from the “Start a Company” section of the Companies House website.

Articles of association: This isthe main constitutional document of the company. If the standard Model Articles are being used, these do not need to be filed with Companies House. It is assumed, however, that you are incorporating through a paper submission because you wish to adopt a bespoke form of articles. A copy of the appropriate form of articles will therefore need to be submitted to Companies House.

A cheque for the incorporation fee of £40 made payable to Companies House.

All documents should be A4 size and completed in black ink. The pack of documents should be sent to: New Companies Section, Companies House, Crown Way, Cardiff, CF14 3UZ.

Once the documents have been examined by Companies House, a certificate of incorporation will be issued. Please note that the company does not come into existence until the certificate is issued. Once the company has been formed, any remaining incorporation formalities should be addressed at the company’s first board meeting (see Document GR6).

Disclaimer: Whilst we use our best endeavours to maintain our online resources you should note that this document is not intended to constitute a definitive or complete statement of the law on any subject, nor is any part of it intended to constitute legal advice for any specific situation. We do not accept any responsibility for action taken as a result of online information provided by us. We recommend that you take specific advice when dealing with specific situations. Nothing in our online services nor any use of such services shall be construed or relied on as creating any solicitor-client relationship or providing any legal representation, advice or opinion whatsoever unless you subsequently instruct us on a specific matter and accept our terms of engagement.