Company Formations FAQ’s

Looking for some answers? Check out our helpful FAQ’s section.

Company Formations FAQ’s

Can I give my shares to my children?

It is possible to include in Shareholders Agreements what transfers will be permitted. For instance, if a Shareholder wanted an absolute right to be able to transfer their shares to a spouse, child or grandchild without having to first offer them to the existing Shareholders then this is something which could be included within the Agreement.

Can the majority shareholders sell up without me?

It is possible to ensure that a minority can join in an ‘exit’ on the same terms as the departing majority. These are known as “tag along” rights. If the majority shareholders wish to sell their shares to a third party, the majority must ensure that the buyer agrees to buy the remaining shares (i.e. those of the minority) on the same terms. This protects the minority from ending up in a company controlled by an unknown third party.

Can you force a shareholder to sell his shares?

It is possible to provide for a ‘forced’ exit for minority shareholders. These are known as “drag along” rights. They entitle the holders of a certain % of the Company’s shares to force a sale of all of the shares in the Company to a third party on equal terms.

This is a key provision which majority shareholders will rely on in the event that a buyer for the Company is found in the future. Any future buyer is unlikely to want to take a company with existing minority shareholders.

Do we need to have a Company Secretary?

This is no longer a requirement for private companies. Public companies must retain a Company Secretary.

Does a shareholders agreement last forever?

The drafting of a shareholders agreement is a crystal ball exercise. It is impossible to contemplate every possible situation that the shareholders might face at the outset. It is therefore vital that the shareholders agreement is reviewed regularly and updated as appropriate. The agreement can be varied with the consent of all of the parties.

How do I form a limited company?

A company can be formed by lodging the relevant documents with Companies House and by paying the respective fee. We are able to form a limited company for you very quickly and easily even same day if required. You can invest as little as one pound into a limited company.

How do I get money out of a limited company?

Shareholders can declare dividends on the shares they hold and the company will pay its shareholders the specified amount. Shareholders can also be directors or employees of the company and it may be that the company pays the shareholder as director/employee a wage.

How do we organise board meetings?

Meetings of the board of directors must be arranged if any director asks for one. All the directors must be given reasonable notice of the meeting. Formal minutes of the meeting will need to be taken and recorded in the minute books of the company.

How do we organise shareholder meetings?

The directors are responsible for calling general meetings. There are certain decisions which can only be taken by the shareholders of the company. For those decisions to be made, the directors will need to call a general meeting.

In addition, any shareholder or group of shareholders with at least 5% of the company’s voting shares can require the board of directors to call a general meeting.

All directors and shareholders must be given written notice of any general meeting well in advance of the meeting. The notice period is usually 14 days, although the articles of association can require a longer notice period, such as 21 days. In certain circumstances and depending on what decisions are to be made, it is possible for shorter notice to be given providing the holders of shares carrying 90% of the company’s voting rights agree to it.

How does decision making work?

Decisions at general meetings (meetings of the shareholders) are passed either as:,

ordinary resolutions (that can be passed by a simple majority of votes); or
special resolutions (that require a 75% majority of votes)

Copies of all special resolutions, and some ordinary resolutions, passed at a general meeting must be filed with Companies House within 15 days of the date of the meeting.

How is a limited company governed?

Limited companies as stated above are ran by a board of directors. The shareholders generally do not get involved in the running of the company however there are provisions in law that allow shareholders to effectively overrule certain actions of directors.

A company must have a minimum of one shareholder and one director. Shareholders may also be directors. You may wish to also appoint a company secretary to handle the companies filing however it is not mandatory to have a company secretary.

Limited companies are generally governed by “articles of association”, which are essentially the rules that the directors of the company need to observe and perform. We can draft and tailor articles of association to your specific needs.

Shareholders can also enter into a contract (a shareholder agreement) with one another which is a private document and can govern how the shareholders deal with certain matters including selling their shares to third parties, what happens if a shareholder dies, entering into contracts or incurring debts and liabilities. It is advisable to have a good shareholders agreement that reflects the needs of the shareholders. Please ask us about shareholder agreements for further information.

How much does it cost to form a company?

The cost of setting up a limited company can vary. A simple limited company is inexpensive to set up. A limited company with complex requirements, for example bespoke articles of association (see next paragraph), may be more expensive. We can provide a better idea for you when we know your full requirements.

What about unexpected events such as death, incapacity or bankruptcy?

In these circumstances the Agreement can provide for what happens to the individuals shares. For instance, it may be that the shares are to be transferred to the remaining shareholders.

What are the advantages of a limited company?

The primary advantage of a limited company is it offers its shareholders limited liability as shown above. Shareholders personal assets are therefore not at risk unlike a sole trader or a partner within a partnership. With good tax planning there may be tax advantages when trading as a limited company (limited companies are taxed separately to its shareholders). Third parties can invest in the company in return for shares, which avoids the need to raise finance by debt. If debt financing is required, debt can also be secured against the company as well as its assets.

What are the alternatives to a limited company, partnership or sole trader?

One of the more popular alternatives to a limited company is a limited liability partnership (LLP), which is effectively a hybrid of a partnership and a limited company. With an LLP you benefit from limited liability but are taxed individually as partners.

There are other business entities that may be more suitable for you which include: community interest companies, charitable incorporated organisations and unincorporated associations. We can advise you on the appropriate alternatives as may be necessary.

As well as business start ups, we can also provide you with ongoing assistance with your business. You may wish to move from one type of business entity to another for example from a sole trader to a limited company or from a partnership to an LLP.

What are the disadvantages of a limited company?

Limited companies are subject to more administrative paperwork than say a sole trader or partnership. Limited companies are required to submit an annual return to Companies House containing information including shareholders and directors for which a fee is payable. Accounts must be kept by the company and filed annually at Companies House, again a fee is payable. Both the annual return and accounts are public documents so anyone can gather information about the company and its financial performance.

What can I name my company?

You can name your company whatever you like subject to certain limitations, which include not being able to use an already existing or similar name to another company or using offensive words. Your company name will usually end with the word “limited” or “ltd”.

What information needs filing at Companies House?

There are various events which will trigger filing requirements at Companies House. These include new share issues, new director appointments, changes in the registered office address, etc. In addition, companies are required to file an annual return.

This contains specified information about the company and its officers. The annual return is made up to a ‘return date’ and must be sent to Companies House within 28 days of that date.

Failing to file documents on time can lead to severe penalties for the company and its officers. If you are in any doubt about the filing requirements for a particular event, you should seek legal advice.

What is a limited company?

A limited company is an entity that is owned by shareholders, run by a board of directors. A company is a separate legal entity which can, under the direction of its directors, do many things including enter into contracts, buy and sell assets, sue parties and also be sued by parties and employ people.

What is limited liability?

Shareholders who own a limited company will either invest money in return for shares or provide a guarantee in monetary terms.

The amount which has been invested or guaranteed is the amount for which the company may be liable for if, for example, sued by a third party. Essentially the shareholders liability is limited to the amount of their investment.

Example:
Shareholder A and Shareholder B invest £100 each into a new company; the maximum each shareholder may lose if things go wrong is £100.

Who is responsible for maintaining the company?

Under the Companies Act 2006, the directors of a company are responsible for ensuring that all the legally required information is filed with Companies House. They are also responsible for complying with various other laws which will be applicable on a business to business basis. Directors usually delegate the administrative burden to a Company Secretary.

Why should I have a Shareholder Agreement?

Nobody knows what the future holds. It is important to consider what will happen in the event of a dispute, if somebody wants to leave, if there is a sale to a large PLC or if somebody dies. A well drafted shareholders agreement can help in these situations.

Unlike Articles of Association, a shareholders agreement is a private agreement. It is not available to the public and it can therefore contain sensitive information without that being in the public domain.

Will I still be able to sell my shares?

There is no statutory control over the transfer of shares when it comes to the shares being made available to existing Shareholders. It is therefore for the Shareholders to agree and specify any transfer procedures in the Shareholders Agreement.

It is common for Shareholders Agreements to contain what is known as a ‘pre-emption’ right. This is a right of first refusal. This means that any Shareholder who wishes to transfer shares must first offer those share to existing Shareholders (on a pro rata basis). It is only if the other Shareholders do not want to purchase the shares that they can be sold to third parties (and even then, at no lower price than that previously offered).

Will the agreement specify who can make what decisions?

The Agreement can set out the matters which the Company is not permitted to do without all (or a majority of) Shareholders prior consent. As the Company is not a party to the Agreement it is not directly bound by it. Therefore, the agreement will oblige the Shareholders to exercise their rights and powers as Shareholders to ensure that the Company does not act without the necessary consent referred to.