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Unit 12: �Financial Management �& �Business

Practices in Construction

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Group-assessment Task

To whom does a director owe his duties?
What is meant by ‘bona fide’ for the benefit of the company’?
Chan and Jemma are directors of Crown Ltd. The company relies on model articles. They become suspicious of the behaviour of Jenkins, the third director of the company. He has recently bought a Porsche and has taken several foreign holidays. Chan and Jemma know that his salary as director would not be sufficient to pay for these luxuries. Jemma discovers that Jenkins has been buying raw materials for Crown Ltd from a company in which he, Jenkins, owns all but one of the shares. The price of these materials appears to be excessive. Chan tells Jemma that she is better off knowing nothing about what is going on. She agrees. Chan then uses his powers under the articles to issue enough shares to friends to ensure that Jenkins is voted out of office. The company becomes insolvent. It has paid no VAT, PAYE or NIC for many months.

What breaches of duty have been committed?

Is it likely that any of the directors will be disqualified?

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��Aim:��Key Legal Characteristics of Registered Companies.

Describe memorandum of association and articles of association.

Apply model articles to a business case.

List matters that should be considered when choosing a company name.

Register a private limited company.

Objectives: At the end of the lesson, the students should be able to:

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Memorandum �of �Association

This is a legal statement signed by all initial shareholders or guarantors agreeing to form the company.

If you register by post, use the memorandum of association template.

If you register your company online, you do not need to write your own memorandum of association. It will be created automatically as part of your registration.

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Article �of Association

Articles of association are the internal rulebook of a company, chosen by its members. They set out how decisions are taken by the members and directors as well as various matters connected with the shares.

They are written rules about running the company agreed by the shareholders or guarantors, directors, and the company secretary.

Every company is required to have articles, which are legally binding on the company and all of its members.

On incorporation your company can adopt model articles in entirety, model articles with amendments or it can draft its own bespoke articles.

The articles cannot contain rules that are against the law. Obtain professional advice before proceeding, of bespoke articles are to be used.

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Registering a Company

When you complete the ‘application to register a company (form IN01)’, you need to specify if the proposed company is adopting:

model articles in their entirety (they should not be filed with application form IN01)
model articles with amendments (only the amended articles should be filed with the form IN01)
bespoke articles (copy of the articles must be filed with the form IN01)

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Registering a Company

Statement of Capital and Initial Shareholdings

Most limited companies are ‘limited by shares’. This means they’re owned by shareholders, who have certain rights. For example, directors may need shareholders to vote and agree changes to the company.
A company limited by shares must have at least one shareholder, who can be a director. If you are the only shareholder, you will own 100% of the company.
The price of an individual share can be any value. Shareholders will need to pay for their shares in full if the company has to shut down. You can choose a low share value (for example, £1) to limit the shareholders’ liability to a reasonable amount.

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Registering a Company

Issuing your initial shares

When you register a company, you need to provide information about the shares (known as a ‘statement of capital’). This includes:

the number of shares of each type the company has and their total value - known as the company’s ‘share capital’

the names and addresses of all shareholders - known as ‘subscribers’ or ‘members’

Example�A company that issues 500 ordinary shares at £1 each has a share capital of £500.

Note: Share capital is not linked to how much the company is worth.

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Registering a Company

Prescribed Particulars

You also need to include information about what rights each type of share (known as ‘class’) gives the shareholder. This information is known as ‘prescribed particulars’ and must include:

what share of dividends they get
whether they can exchange (‘redeem’) their shares for money
whether they can vote on certain company matters
how many votes they get

(Part 3 of form IN01)

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Registering a Company

Companies limited by guarantee

Companies limited by guarantee have guarantors and a ‘guaranteed amount’ instead of shareholders and shares.
You must have at least one guarantor and a ‘guaranteed amount’.

Guarantors:

are company members
control the company and make important decisions
do not usually take profit from the company - instead the money is kept within the company or used for other purposes

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Registering a Company

Guaranteed amount

Guarantors promise an agreed amount of money to the company if it cannot pay its debts. This is the ‘guaranteed amount’.
They must pay the company the full amount of their guarantee.
This payment covers guarantors for situations such as the company being closed down.
The guaranteed amount is not linked to how much the company is worth - you choose how much they pay.

(Part 4 of form IN01)

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Registering a Company

People with Significant Control (PSCs)

A person with significant control (PSC) is someone who owns or controls your company. They’re sometimes called ‘beneficial owners’.
Most PSCs are those who hold:
more than 25% of shares in the company
more than 25% of voting rights in the company
the right to appoint or remove the majority of the board of directors
the absolute right to veto over the company’s business plan

Video: How to identify people with significant control

(Part 5 of form IN01)

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Choosing a Company Name

Although the vast majority of applicants register their chosen name there are some restrictions that may affect a choice of name.
These restrictions are set out in the Companies Act 2006, the Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015 (SI 2015/17) and the Company, Limited Liability Partnership and Business (Sensitive Words and Expressions) Regulations 2014 (SI 2014/3140). These include:
The name of a private company limited by shares or guarantee must end with ‘limited’ or ‘Ltd’. However, if the registered office is stated as being situated in Wales (a “Welsh” company), its name may instead end with ‘cyfyngedig’ or ‘cyf’.

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Choosing a Company Name

The name of a public company must end with ‘public limited company’ or ‘p.l.c.’. However, if the registered office is stated as being situated in Wales (a ‘Welsh’ company), its name may instead end with ‘Cwmni Cyfyngedig Cyhoeddus’ or ‘CCC’.
Certain expressions and abbreviations which describe a particular form of company (including Welsh equivalents), can only be used at the end of a name, such as ‘Limited Liability Partnership’ or ‘Community Interest Company’.
A name that could suggest a connection with the UK government, a devolved administration, a local authority or a specified public authority.
A name that includes sensitive words or expressions included in regulations.
A name that includes words that would constitute an offence.
An offensive name.
A name which is the ‘same as’ an existing name on the index.
The use of certain characters, signs, symbols and punctuation in a company name.

Company name availability checker.

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Group-assessment Task

Use the company name availability checker to choose a name for your private limited company (Decide what services you want to provide [SIC codes])?
Register a private limited company using the link below.

https://www.gov.uk/limited-company-formation/register-your-company

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Bibliography

Dine, J. (1998) Company law. 3^rd edn. Hampshire: Macmillan.
Majaski, C. (2022) Private vs. public company: What's the difference?. Available at: https://www.investopedia.com/ask/answers/difference-between-publicly-and-privately-held-companies/#:~:text=Key%20Takeaways,via%20an%20initial%20public%20offering. (Accessed: 10 September 2023).
Quality Company Formation (2023) Can I sell shares in a private limited company?. Available at: https://www.qualitycompanyformations.co.uk/blog/sell-shares-in-private-limited-company/#:~:text=Small%20companies%20often%20adopt%20model,approve%20the%20allotment%20or%20transfer. (Accessed: 10 September 2023).