How do you form a company?
Stationery, websites, emails and signage
There are legal requirements for certain details to be included in company stationery, websites, emails and signage, as follows.
Every company must display its registered name at its registered office and at any location, other than the registered office, at which it keeps company records available for inspection as required under the Companies Act. The registered name must also be displayed at any other location at which it carries on business, unless this is a location which is primarily used for living accommodation. Some very limited exceptions apply when special confidentiality arrangements are in place or an insolvency professional has been appointed.
The registered name must be positioned so that it may be easily seen by any visitor and in characters that can be read with the naked eye. The registered name must also be displayed continuously. However, if the location where business is carried on is shared by six or more companies, each company is only required to display its registered name for at least 15 continuous seconds every three minutes (e.g. on a changing electronic/scrolling notice board).
The registered name must also be disclosed in legible characters on all websites of the company and on all:
- its business letters, notices and other official publications;
- its bills of exchange, promissory notes, endorsements and order forms;
- cheques purporting to be signed by or on behalf of the company;
- orders for money, goods or services purporting to be signed by or on behalf of the company;
- its bills of parcels, invoices and other demands for payment, receipts and letters of credit;
- its applications for licences to carry on a trade or activity; and
- all other forms of its business correspondence and documentation.
These documents include documents in hard copy, electronic form or any other form.
Additional information in business letters, order forms and websites
In addition to the registered name, all business letters, order forms and all of a company's websites must clearly state details of the registered number, the part of the United Kingdom in which the company is registered and the address of the registered office.
If a company chooses to state the name of a director on any business letter (other than merely in the text of the letter or as a signatory to it), then the company must state the names of every director of that company.
In the case of an investment company (as defined by the Companies Act) the fact that it is such a company must be stated.
Where a company refers to its share capital on its business letters, order forms or websites, that reference must be to its paid-up share capital.
A company does not have to have a company seal and many nowadays do without. It can provide an additional option for executing certain formal documents but there is always an alternative.
The board of directors is responsible for the day to day running of the business. Unless the articles of association of the company provide otherwise, the directors can only exercise powers collectively by passing resolutions at board meetings. However, articles generally allow for unanimous written resolutions as well. For example, the Model Articles say thatif all the directors entitled to vote at a meeting indicate to each other by any means that they share a common view on a matter, that counts as a decision of the directors. This can be achieved by having copies of a written resolution signed by the eligible directors or by otherwise having their agreement in writing, for instance by email.
Notice of board meetings should be given to all the directors in reasonable time to enable them to attend. Unless the articles say otherwise, it need only specify when and where it is to be held; it is not necessary for the notice to specify the business which is to be transacted. Under the Model Articles, if it is anticipated that directors will participate in different places, it should say how it is proposed they communicate.
Unless the articles say otherwise, any director can call a board meeting. However, normally under the articles a board meeting cannot proceed unless a quorum of two directors is present. Under the Model Articles, the quorum is two unless the directors decide otherwise.
If the articles prevent a director from voting on a particular matter, perhaps because he has a personal interest in the matters to be addressed, he would not normally count towards the quorum.
If a director has a personal interest in any matter relating to the company, this should be considered carefully at the outset, to ensure that appropriate permissions and procedures are put in place. (For further information about directors’ duties and conflicts of interest, see the separate note Directors’ duties.)
Unless the company's articles provide otherwise, each director has one vote at a board meeting and a resolution is carried by a majority. It is usual for the articles to allow the directors to elect a chairman to preside at board meetings and the articles can confer a casting vote on the chairman in the event of a deadlock. It is important to consider whether this is preferable to deadlock.
Every company must keep minutes of all proceedings at board meetings for at least ten years. Also, the Model Articles require a record to be kept for at least ten years of all written and other resolutions of the directors.
If board minutes are signed by the chairman of the meeting they are evidence of the proceedings at the meeting and it is presumed until the contrary is proved that the meeting was properly convened and held and that all proceedings have duly taken place.
Whilst the board of directors is responsible for the day to day running of the business and subsequent decisions, more important decisions require the consent of the shareholders by the passing of resolutions. These include decisions such as altering the articles of association of the company, altering the company's share capital and the removal of a director from office.
Ordinary resolutions are passed by a simple majority. Special resolutions are passed by a majority of not less than 75%.
Private companies can pass resolutions:
- by a written resolution, which they must circulate to every eligible member electronically or by hard copy; or
- by taking a vote at a general meeting of shareholders.
Private companies can pass almost all resolutions as written resolutions. Exceptions to this are a resolution to remove a director and a resolution to remove an auditor. These resolutions need to be passed at a general meeting. Private companies no longer have to hold annual general meetings (AGMs).
The company must keep minutes of all proceedings at general meetings or decisions made by a sole shareholder. It must also keep copies of all resolutions of shareholders passed other than at general meetings. It must keep these records for 10 years and make them available for inspection by shareholders on request.
If a limited company is formed with only one shareholder or its shareholders fall to one in number, then this fact must be recorded in the register of members of the company, together with the name and address of the sole shareholder and, where the number of shareholders has fallen to one, the date on which such event occurred. If the membership increases from one to two or more shareholders, then this fact and date will similarly need to be noted.
When a limited company with only one shareholder enters into a contract with the sole shareholder of the company and the sole shareholder is also a director (or shadow director) of the company and the contract is not entered into in the ordinary course of business, the company is required (unless the contract is in writing) to ensure that the terms of the contract are set out in a written memorandum or are recorded in the minutes of the first meeting of the directors of the company after the contract has been made.
The quorum for meetings of a single member company is one regardless of any requirements to the contrary in the articles of association.
A sole shareholder can make decisions that could otherwise be resolved on in general meeting and have effect as if agreed by the company in general meeting. Unless the decision is by written resolution, a sole shareholder must provide details of his decision to the company. There is no express reference in the Companies Act to the filing of a print of a record of a sole shareholder's decision at Companies House but a decision of a sole shareholder is analagous to resolutions or agreements which have been agreed to by all the shareholders of the company so that the usual filing requirements apply.
A company must maintain the following registers and records, where relevant:
- register of directors and secretary if appointed);
- separate register of its directors' residential addresses, which will not be available for public inspection;
- copies of all directors' service contracts or memoranda of terms and of directors’ indemnities;
- register of members (shareholders);
- register of charges and instruments creating charges;
- records of resolutions and shareholder meetings;
- contracts or memoranda relating to purchase of own shares; and
- register of debenture holders.
These all need to be kept available for inspection. They can be kept at the company’s registered office or the company may choose an alternative location (in England and Wales if registered in England and Wales) to make these registers and records available for inspection.
Every company must keep accounting records.
Accounting records must in particular show all money received and expended by the company and a record of the assets and liabilities of the company.
Also, where the company’s business involves dealing in goods, the records must contain:
- statements of stock held by the company at the end of each financial year;
- all statements of stock takings used to prepare any statements of stock; and
- statement of all goods sold and purchased, other than by ordinary retail trade. This should list the goods, the buyers and sellers.
Parent companies must ensure that any subsidiary undertaking keeps sufficient accounting records so that the directors of the parent company can prepare accounts that comply with the Companies Act or International Accounting Standards.
A company must keep its accounting records at its registered office address or a place that the directors think appropriate. The records must be open to inspection by the company’s officers at all times.
The accounting reference date (or a date up to 7 days either side of it) is the date to which the company’s accounts will be prepared. By default, the accounting reference date of a new company is the last day of the month in which the anniversary of its incorporation falls.
The accounting reference date can be changed by giving notice to Companies House on Form AA01 but it cannot be extended so as to exceed eighteen months. Also, a company cannot normally extend it more than once in 5 years unless it is aligning its accounting reference date with that of a subsidiary or parent undertaking under the law of the UK or another state in the European Economic Area.
A financial year is usually a 12 month period. Every company must prepare accounts that report on the performance and activities of the company during the financial year. This starts on the day after the previous financial year ended or, in the case of a new company, on the day of incorporation.
The directors of every company must prepare accounts for each financial year. These are called individual accounts. A parent company must also prepare group accounts (but for parent companies defined as small this is optional).
Contents of accounts
Generally, accounts must include:
- a profit and loss account;
- a balance sheet signed by a director with his name also printed on it;
- notes to the accounts; and
- group accounts (if appropriate).
Accounts must generally be accompanied by:
- a directors' report that shows the printed name of the approving secretary or director (with a business review if the company does not qualify as small); and
- an auditors' report that includes the printed name of the registered auditor (unless the company is exempt from audit).
To qualify for audit exemption, a company must:
- qualify as small;
- have a turnover of not more than £6.5 million; and
- have a balance sheet total of not more than £3.26 million.
However, even if a small company meets these criteria, it must still have its accounts audited if a shareholder or shareholders holding at least 10% of the nominal value of issued share capital or holding 10% of any class of shares demands it.
Distribution of accounts
Every company must send a copy of its annual accounts for each financial year to:
- every shareholder;
- every holder of the company's debentures; and
- every person who is entitled to receive notice of general meetings.
The company's board of directors must approve the accounts before they send them out. There are requirements about signing particular pages (see above).
The accounts must also be filed at Companies House.
Small and medium-sized companies can file an abbreviated version of their accounts at Companies House if they wish.
If a company's first accounts cover a period of more than 12 months, they must be delivered to Companies House:
- within 21 months of the date of incorporation; or
- 3 months from the accounting reference date, whichever is longer.
For subsequent accounts (and first accounts covering a period of 12 months or less) the time normally allowed for delivering accounts to Companies House is 9 months from the accounting reference date.
The deadline for delivery to Companies House is calculated to the exact day. Failure to deliver accounts on time is a criminal offence. In addition, fines are payable by a company for late filing of accounts.
Small and medium-sized company limits
A small company must meet at least two of the following conditions:
- annual turnover must be not more than £6.5 million;
- the balance sheet total must be not more than £3.26 million;
- the average number of employees must be not more than 50.
Public companies and certain financial services companies cannot qualify as small companies. Similarly, companies which are part of a group which has shareholders who are public companies or financial services companies cannot qualify as small-sized for accounting purposes.
A medium-sized company must meet at least two of the following conditions:
- annual turnover must be no more than £25.9 million;
- the balance sheet total must be no more than £12.9 million;
- the average number of employees must be no more than 250.
Public companies and certain financial services companies cannot qualify as medium-sized companies.
Similarly, companies which are part of a group which has shareholders who are public companies or financial services companies cannot qualify as medium-sized for accounting purposes.
An annual return is a snapshot of general information about a company's directors, secretary (where one has been appointed), registered office address, shareholders and share capital.
Every company must deliver an annual return to Companies House at least once every 12 months. This must be within 28 days after the anniversary of incorporation of a company or of the anniversary of the date the last annual return was made up to.
All statutory forms are available, free of charge from Companies House. They can be obtained from their website or by telephoning 0303 1234 500.
Forms can be filed electronically using WebFiling or Software Filing (for which suitable software needs to be installed). They can also be filed in hard copy.
A company using WebFiling can register for the PROOF (PROtected On-line Filing) Scheme. This provides additional security relating to the delivery of directors’ details and registered office address for documents delivered electronically. It prevents unauthenticated paper filings.
Directors have a responsibility to prepare and deliver documents, on behalf of the company, to Companies House when required by the Companies Act. Common filings include:
- the annual return (see Annual return);
- the annual accounts (see Publishing accounts);
- notification of any change in the company’s officers or in their personal details (see Directors and Secretary);
- notification of a change to the company’s registered office (see Registered office);
- allotment of shares; and
- registration of charges.
A lot of useful information can be found at Businesslink.gov.uk - government's online resource for businesses. This includes a section on start-up.
Detailed guidance on administrative requirements is also available on the Companies House website.
"Every company must keep accounting records. Accounting records must in particular show all money received and expended by the company and a record of the assets and liabilities of the company."
"In addition to the registered name, all business letters, order forms and all of a company's websites much clearly state details of the registered number, the part of the United Kingdom in which the company is registered and the address of the registered office."