Setting Up a Limited Company PostScript Picture (CP logo+1 line.eps) PostScript Picture www b/w.eps This book is supported by a Companion Website, created to keep titles in the Pocket Lawyer series up to date and to provide enhanced resources for readers Key features include: ◆ forms and letters, in a ready-to-use Word format Access all the material you need at the click of a button ◆ updates on key developments Your book won’t become out of date ◆ links to useful websites No more fruitless internet searches www.cavendishpublishing.com/pocketlawyer Setting Up a Limited Company Mark Fairweather & Rosy Border PostScript Picture (CP logo+1 line.eps) Second edition first published in Great Britain 2004 by Cavendish Publishing Limited, The Glass House, Wharton Street, London WC1X 9PX, United Kingdom Telephone: + 44 (0)20 7278 8000 Facsimile: + 44 (0)20 7278 8080 Email: info@cavendishpublishing.com Website: www.cavendishpublishing.com Published in the United States by Cavendish Publishing c/o International Specialized Book Services, 5824 NE Hassalo Street, Portland, Oregon 97213-3644, USA Published in Australia by Cavendish Publishing (Australia) Pty Ltd 45 Beach Street, Coogee, NSW 2034, Australia Email: info@cavendishpublishing.com.au Website: www.cavendishpublishing.com.au © Fairweather, Mark and Border, Rosy 2004 The first edition of this title was originally published by The Stationery Office All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, without the prior permission in writing of Cavendish Publishing Limited, or as expressly permitted by law, or under the terms agreed with the appropriate reprographics rights organisation Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Cavendish Publishing Limited, at the address above You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer British Library Cataloguing in Publication Data Fairweather, Mark Setting up a limited company – 2nd ed – (Pocket lawyer) Private companies – Great Britain New business enterprises – Law and legislation – Great Britain I Title II Border, Rosy 346.4’10668 Library of Congress Cataloguing in Publication Data Data available ISBN 1-85941-857-0 10 Printed and bound in Great Britain Contents Welcome Buzzwords Frequently asked questions ix xv xxv Explore your options Do you want to be a director? 15 What does the company secretary do? 23 I name this company … 27 Setting up your company 31 Sample letters, minutes and resolutions 43 Companies House guidance booklets Useful contacts Appendix: Table A Index CONTENTS 69 73 79 105 v Disclaimer This book puts you in control This is an excellent thing, but it also makes you responsible for using it properly Few washing machine manufacturers will honour their guarantee if you don’t follow their ‘instructions for use’ In the same way, we are unable to accept liability for any loss arising from mistakes or misunderstandings on your part So take time to read this book carefully Although this book points you in the right direction, reading one small book will not make you an expert, and there are times when you may need to take advice from professionals This book is not a definitive statement of the law, although we believe it to be accurate as at December 2003 The authors and publisher cannot accept liability for any advice or material that becomes obsolete due to subsequent changes in the law after publication, although every effort will be made to show any changes in the law that take place after the publication date on the companion website About the authors Mark Fairweather is a practising solicitor and is one of the founding partners of the legal firm Fairweather Stephenson & Co He and Rosy Border have written 14 titles together, including five in Cavendish Publishing’s Pocket Lawyer series He has two children and lives in Suffolk Rosy Border, co-author of this title and series editor of the Pocket Lawyer series, has a first class honours degree in French and has worked in publishing, lecturing, journalism and the law A prolific author and adapter, she stopped counting after 150 titles Rosy and her husband, John Rabson, live in rural Suffolk and have a grown up family Rosy enjoys DIY, entertaining and retail therapy in French markets vii Acknowledgments A glance at the ‘Useful contacts’ will show the many sources we dipped into while writing this book Thank you, everybody We would especially like to thank Nigel Pratt, Chartered Accountant, for his helpful advice, and John Rabson, Chartered Engineer, for his IT support and refreshments viii SETTING UP A LIMITED COMPANY Welcome Welcome to Pocket Lawyer Let’s face it, the law is a maze and you are likely to get lost unless you have a map This book is your map through the part of the maze that deals with setting up your own limited company If you follow our advice you should end up with a limited company which ❍ ❍ ❍ does what you want it to do; is legally sound; and you as a non-lawyer can control We put you in control This book empowers you This is a good thing, but being in control means responsibility as well as power, so use this book properly Read it with care and don’t be afraid to make notes – we have left wide margins for you to just that Take your time – not skip anything: ❍ ❍ everything is there for a purpose; if anything were unimportant, we would have left it out Think of yourself as a driver using a road map The map tells you the route, but it is up to you to drive carefully along it Sometimes you are in danger of getting out of your depth and you will need to take professional advice Watch out for the hazard sign Sometimes we pause to explain something: the origin of a word, perhaps, or why a particular piece of legislation was passed You not need to know these things to make use of this book, but we hope you find them interesting WELCOME ix amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid; but, if any share is issued on terms providing that it shall rank for dividend as from a particular date that share shall rank for dividend accordingly 105 A general meeting declaring a dividend may upon the recommendation of the directors direct that it shall be satisfied wholly or partly by the distribution of assets and where any difficulty arises in regard to the distribution the directors may settle the same and in particular may issue fractional certificates and fix the value for distribution of any assets and may determine that cash shall be paid to any member upon the footing of the value so fixed in order to adjust the rights of members and may vest any assets in trustees 106 Any dividend or other moneys payable in respect of a share may be paid by cheque sent by post to the registered address of the person entitled or if two or more persons are the holders of the share or are jointly entitled to it by reason of the death or bankruptcy of the holder to the registered address of that one of those persons who is first named in the register of members or to such person and to such address as the person or persons entitled may in writing direct Every cheque shall be made payable to the order of the person or persons entitled or to such other person as the person or persons entitled may in writing direct and payment of the cheque shall be a good discharge to the company Any joint holder or other person jointly entitled to a share as aforesaid may give receipts for any dividend or other moneys payable in respect of the share 107 No dividend or other moneys payable in respect of a share shall bear interest against the company unless otherwise provided by the rights attached to the share 108 Any dividend which has remained unclaimed for twelve years from the date when it became due for payment shall if the directors so resolve be forfeited and cease to remain owing by the company ACCOUNTS 109 No member shall (as such) have any right of inspecting any accounting records or other book or document of the company except as conferred by statute or authorised by the directors or by ordinary resolution of the company APPENDIX: TABLE A 101 CAPITALISATION OF PROFITS 110 The directors may with the authority of an ordinary resolution of the company:(a) subject as hereinafter provided resolve to capitalise any undivided profits of the company not required for paying any preferential dividend (whether or not they are available for distribution) or any sum standing to the credit of the company’s share premium account or capital redemption reserve; (b) appropriate the sum resolved to be capitalised to the members who would have been entitled to it if it were distributed by way of dividend and in the same proportions and apply such sum on their behalf either in or towards paying up the amounts if any for the time being unpaid on any shares held by them respectively or in paying up in full unissued shares or debentures of the company of a nominal amount equal to that sum and allot the shares or debentures credited as fully paid to those members or as they may direct in those proportions or partly in one way and partly in the other: but the share premium account the capital redemption reserve and any profits which are not available for distribution may for the purposes of this regulation only be applied in paying up unissued shares to be allotted to members credited as fully paid; (c) make such provision by the issue of fractional certificates or by payment in cash or otherwise as they determine in the case of shares or debentures becoming distributable under this regulation in fractions; and (d) authorise any person to enter on behalf of all the members concerned into an agreement with the company providing for the allotment to them respectively credited as fully paid of any shares or debentures to which they are entitled upon such capitalisation any agreement made under such authority being binding on all such members NOTICES 111 Any notice to be given to or by any person pursuant to the articles shall be in writing except that a notice calling a meeting of the directors need not be in writing 112 The company may give any notice to a member either personally or by sending it by post in a prepaid envelope addressed to the member at his registered address or by leaving it at that address In the case of joint holders of a share all notices shall be given to the joint holder whose name stands first in the register of members in respect of the joint holding and notice so given shall be sufficient notice to all the joint holders A member 102 SETTING UP A LIMITED COMPANY whose registered address is not within the United Kingdom and who gives to the company an address within the United Kingdom at which notices may be given to him shall be entitled to have notices given to him at that address but otherwise no such member shall be entitled to receive any notice from the company 113 A member present either in person or by proxy at any meeting of the company or of the holders of any class of shares in the company shall be deemed to have received notice of the meeting and where requisite of the purposes for which it was called 114 Every person who becomes entitled to a share shall be bound by any notice in respect of that share which before his name is entered in the register of members has been duly given to a person from whom he derives his title 115 Proof that an envelope containing a notice was properly addressed, prepaid and posted shall be conclusive evidence that the notice was given A notice shall be deemed to be given at the expiration of 48 hours after the envelope containing it was posted 116 A notice may be given by the company to the persons entitled to a share in consequence of the death or bankruptcy of a member by sending or delivering it in any manner authorised by the articles for the giving of notice to a member addressed to them by name or by the title of representatives of the deceased or trustee of the bankrupt or by any like description at the address if any within the United Kingdom supplied for that purpose by the persons claiming to be so entitled Until such an address has been supplied, a notice may be given in any manner in which it might have been given if the death or bankruptcy had not occurred WINDING UP 117 If the company is wound up the liquidator may with the sanction of an extraordinary resolution of the company and any other sanction required by the Act divide among the members in specie the whole or any part of the assets of the company and may for that purpose value any assets and determine how the division shall be carried out as between the members or different classes of members The liquidator may with the like sanction vest the whole or any part of the assets in trustees upon such trusts for the benefit of the members as he with the like sanction determines but no member shall be compelled to accept any assets upon which there is liability APPENDIX: TABLE A 103 INDEMNITY 118 Subject to the provisions of the Act but without prejudice to any indemnity to which a director may otherwise be entitled every director or other officer or auditor of the company shall be indemnified out of the assets of the company against any liability incurred by him in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or in connection with any application in which relief is granted to him by the court from liability for negligence, default, breach of duty or breach of trust in relation to the affairs of the company 104 SETTING UP A LIMITED COMPANY Index accountants xxviii benefits in kind 41 accounting reference date xv, 24, 39 board of directors 18–19 Accounting WEB Newswire 75 Business Link 75 accounts audits xxxiii filing xxx, xxxiv liability of director for 17 allotment filing xxx meaning xv setting up company 39 annual accounts see accounts borrowing Buy to Let company 11–12 capital see share capital capital gains tax residential property 11–12 certificate of incorporation xvii, 38 name of company xxxiv chairman of company xxxi Annual General Meeting (AGM) xv removal of director xxviii shareholders xxxi charges floating xix, xxxvi register of xxiii annual report 18 charities 12–13 annual return xvi, filing xxx Charity Commission website 76 articles of association xvi changing xxxv, charities 12–13 customised 76 sample 57–68 setting up company 31–33, 35 Table A xxiv, 32, 79–104 auditor xvi, xxxiv appointment 39 company secretary duties 23 audits xxxiii INDEX choice of business medium franchises limited company 4–9 limited liability partnership 3–4 partnership sole trader 1–2 workers’ co-operatives clear day xvii Companies House xvii addresses 73–74 Company Starter Pack xxv, 33–34 105 electronic filing xix, xxvi, xxx, 70, 74 guidance booklets 69–70 name search 28 setting up fee 37 The Register 76 website 70 company name see name of company company number xvii company seal xxxv company secretary xvii–xviii criminal liability 24–25 distribution of accounts 23 duties 18, 23–24 filing xxx, 24 first 33 meetings 23 minutes 23 qualifications xxix registers 24 resolutions 23, 24 Company Starter Pack xxv, 33–34 corporation tax 4–5 first 33 first meeting 38, 45–47 loans to 8–9, 41 management of company xxvii managing director xxviii, 18 mental capacity xxvii names on stationery xxxiv non-executive xx, 19, 21 numbers xxviii personal liability 19–20 qualifications xxvii removal xxviii remuneration xxix share holding xxvii sole director xxviii statutory duties 17–18 whistleblowing 19 disqualification of directors 20–21, 74 dividend xviii, 40–41 domain names 29–30, 76 duties of directors accounts 17 annual report 18 duty of care 17 fiduciary 16 statutory duties 17–18 debenture xviii decision-making xxxvi, directors addition of xxviii age limits xxvii authority in articles 18 board 18–19 collective actions 18–19 details to Companies House xxx, 74 disqualification 20–21, 74 duty of care 17 fiduciary duty 16 filing xxx, 74 106 elective resolution xviii, xxii, 23, 24 dispensing with formalities 39, 47–49 electronic filing xix, xxvi, xxx, 70, 74 employee shareholders xxxii expenses 41–42 SETTING UP A LIMITED COMPANY Extraordinary General Meeting (EGM) xviii sample minutes 51–52 sample notice 49–50 filing company secretary duties 24 costs of directors’ details 74 documents to be filed xxx electronic xix, xxvi, xxx, 70, 74 meaning of file xviii–xix financial advisers xxviii first company secretary 33 first directors 33 flat management 9–10 floating charge xix, xxxvi Form 10 33, 35–36 Form 12 33, 36–37 forms, statutory xxiii, 24 franchises general meetings Annual xv, xxviii, xxxi Extraordinary xviii, 49–52 meaning xx same-day 38, 71 see also setting up company inheritance tax Inland Revenue website 75 Insolvency Service 74 investment xxxvi issued share capital xx law, proposed changes xii, 75 limited company advantages 4–9 borrowing continuity costs decision-making disadvantages 8–9 disclosure requirements liability loans to directors 8–9, 41 national insurance paperwork rules see articles of association taxation 4, 5–7, transferability winding up limited liability 19–20 limited liability partnerships 3–4 loans to directors 8–9, 41 HM Customs and Excise 75 income tax 4–5 incorporate, meaning xx incorporation certificate of xvii, xxxiv, 38 electronic xxvi INDEX management of company xxvii accountants xxviii decision-making xxxvi, financial advisers xxviii managing director xxviii, 18 107 meetings Annual General Meeting xv, xxviii, xxxi decision-making xxxvi Extraordinary General Meeting xviii sample minutes 51–52 sample notice 49–50 first meeting of directors 38 sample minutes 45–47 minutes xx, 45–47, 51–52 sole member xxxvi memorandum of association xx charities 12–13 customised 76 objects xxxv sample 55–56 setting up company 31, 34–35 mental capacity, directors xxvii minutes xx company secretary duties 23 elective resolutions 47–49 Extraordinary General Meeting 51–52 first meeting of directors 38, 45–47 inspection at registered office xxix record keeping xxix, samples 45–49, 51–52 mortgages, filing xxx name of company changing xxvi choice of name 27–28 Companies House search 28 108 displayed at registered office xxxv, 30 domain name 29–30, 76 misleading 27 offensive 27 on stationery xxxiv–xxxv, 30 registered name xxvi sensitive words 27 trade marks index 28–29 trading name xxvi national insurance nominal share capital xx, 39 non-executive directors xx, 19, 21 objects of association, changing xxxv off-the-shelf company xxv ordinary resolution xxii partnerships limited liability 3–4 Patent Office Central Enquiry Unit 77 website 76 pre-incorporation contracts, liability for xxv–xxvi prospectus xxxi proxy xxi proxy notice xxi, 23 qualifications company secretary xxix directors xxvii quorum xxi record keeping, minutes xxix, SETTING UP A LIMITED COMPANY register of charges xxiii register of directors and company secretary xxiii register of directors’ interests xxiii register of members xxiii registered office xxi–xxii company name displayed at xxxv, 30 minutes kept at xxix notification of change xxx setting up company 33 registers company secretary duties 24 statutory xxiii, removal of director xxviii remuneration of director xxix report on xxix residential property buy to let company 11–12 capital gains tax 11–12 flat management company 9–10 resolutions company secretary duties 23 elective xviii, xxii, 23, 24, 39, 47–49 filing xxx, 24 meaning xxii–xxiii meetings to pass xxxi ordinary xxii removal of director xxviii sample written resolution of directors 53 of shareholders 52 special xxii, 8, 23, 24 INDEX Right to Manage (RTM) company 10 same-day incorporation 38, 71 seal xxxv Search and Advisory Service website 77 secretary see company secretary separate legal entity setting up company accounting reference date 39 accounts advice 40–42 allotment of shares 39 articles of association 31–33, 35 auditor appointment 39 certificate of incorporation 38 choice of bank 39 covering letter to Companies House 44 document checklist 31–33 fee 37 filling in forms 34 first company secretary 33 first directors 33 first meeting of directors 38 Form 10 33, 35–36 Form 12 33, 36–37 memorandum of association 31, 34–35 photocopies of all forms 37 registered office address 33 same-day incorporation 38, 71 109 starter pack xxv, 33–34 taxation 39–42 subscriber xxiii share capital issued xx nominal xx, 39 Table A xxiii–xxiv, 32 text 79–104 share certificate, sample 54 share premium xxiii, shareholders advertisement for xxxi Annual General Meeting xxxi employees xxxii major shareholder xxxi–xxxii minority shareholder xxxi–xxxii numbers xxx–xxxi shareholders’ agreement xxxii shares majority ownership xxxi–xxxii setting up company 39 transferability sole director xxviii sole trader 1–2 special resolution xxii, 8, 23, 24 Start in Business website 75 stationery mandatory information xxxiv–xxxv name of company 30 statutory forms xxiii company secretary duties 24 statutory registers xxiii company secretary duties 24 costs of keeping 110 tax returns Tax Zone Digest 6, 75 taxation 4, 5–7, benefits in kind 41 capital gains tax 7, 11–12 corporation tax 4–5 dividends 40–41 expenses 41–42 HM Customs and Excise 75 husband and wife companies 42 income tax 4–5 inheritance tax Inland Revenue website 75 setting up company 39–42 VAT 40 websites trade marks index search 28–29, 77 registration of 29 Trade Marks Index, website 77 trading name xxvi UK Online 76–77 VAT 40, 75 voting proxy xxi, 23 quorum xxi whistleblowing 19 winding up workers’ co-operatives SETTING UP A LIMITED COMPANY Notes Notes Notes Notes Notes