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?
How do I get money out of a limited company?
How do we organise board meetings?
How do we organise shareholder meetings?
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?
- 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?
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?
What about unexpected events such as death, incapacity or bankruptcy?
What are the advantages of a limited company?
What are the alternatives to a limited company, partnership or sole trader?
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?
What can I name my company?
What information needs filing at Companies House?
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?
What is limited liability?
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.
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?
Why should I have a Shareholder Agreement?
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?
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.