Free Company Law Guide for English & Welsh Companies

The principal governing legislation for all English & Welsh companies can be found in the Companies Acts' of 1985 (the principal Act) and 1989, which although similar to the legislation employed in jurisdictions within the British Isles is generally interpreted in a more liberal manner. The principal features of UK companies are:

1. Directors can be either individuals or corporate entities.

2. There need be only one director.

3. There are no residency or nationality restrictions for directors.

4. A company secretary can be either an individual or company and may or may not be resident in the UK.

5. All companies must have at least one subscriber/shareholder at the time of incorporation although as with the other positions mentioned above initially these will be taken by your company registration agent who upon registration will resign and appoint the permanent officers.

6. All companies must have a registered office address within the English & Welsh jurisdiction.

7. A company submitting its annual return must be very specific about its objects and chose from a list provided from the Standard Industrial Classification (SIC) Code.

8. Both own-name and ready-made/shelf companies are widely available.

9. Companies House can provide a same day expedited service similar to that offered by many states in the USA. The cost however is considerably higher than that for an ordinary non-expedited company, which normally takes 7-10 working days to register.

10. Since 1989 English & Welsh companies have not legally required a seal to give effect to their contracts and legal documents etc. However, seals are still very popular since their use is clear evidence that a company intends to bind itself.

11. England & Wales do not impose any duty on initially issued or allotted share capital although subsequent transfers should be verified by a stock transfer form (CF40) and stamped by the Stamping Office.

12. Shares should ideally be denominated in Pounds Sterling but technically can be denominated in any legal tender currency.

Duties, Responsibilities & Common Terms Explained

Directors: English & Welsh companies require at least one individual over the age of 18 to act in the capacity of a director. In simple terms, the director/s constitute the decision making body of a company commonly known as the board of directors (even when there is only one) and is/are liable at law for a company's actions. The director/s have a duty of care to the shareholder(s) of the company to act in the company's best interests even where doing so might come into conflict with their own personal interests. The concept of a company being a fully separate legal entity to the director/s is accepted in English & Welsh law save where they have acted in a fraudulent and/or reckless manner which could not be deemed reasonable by normal standards - In which case, the corporate "veil" can be lifted fully exposing the individuals behind a company to the full rigors of both civil and criminal law. However, in the vast majority of cases this will not occur provided the board of directors have acted in good faith even if their decisions have negative consequences for the company.

The Secretary: A company secretary occupies a pivotal position in an English & Welsh company and has direct legal responsibility to maintain company records, file annual returns and/or carry out any other functions that may be elucidated within the Memorandum & Articles of Association. Like a Director a Company Secretary has a duty of care to the shareholders/subscribers.

Shareholder(s)/Subscriber(s): Under English & Welsh law there need only be one initial shareholder/subscriber although it is common to have two or more after the registration of a company by the company registration agents

Nominal, issued, transferred and allotted share capital: The nominal share capital of a company is the potential amount of shares that a company has available for future distribution. The issued share capital is literally the amount of shares that a company has issued out of its potential nominal share capital. In the case of most domestic English & Welsh companies the company registration agent will initially issue the minimum number of shares, normally one or two, with an individual nominal value of normally £1.00 each. After the receipt of the company documentation the permanent company secretary will normally lodge the stock transfer form(s) to officially transfer the shares issued by the company registration agent to the permanent shareholders. This being done, at a nominal charge, by submitting a stock transfer form for stamping with the Stamping Office. Allotted shares are literally those shares that the permanent board of directors has decided to issue over and above those initially issued by the company registration agent. They are referred to as allotted because they are being issued for the first time and therefore are not being transferred from one party to another.

The value of shares: The term "nominal" value is used for a company's shares since the true value will depend on how much a third party or even an existing shareholder is willing to pay for shares in the company at any given point in time. Thus, the value of a company's shares will depend on market forces in exactly the same way as witnessed with the stock market. It is therefore possible that someone could pay 1 penny for a share with a nominal value of UK£1.00 or UK£100.00 depending on a company's viability. Nevertheless, it must be remembered that all shares with a particular nominal value must have had at least that nominal value paid into the company coffers no matter any future valuation. If required, an individual/company may partly pay for a share issue but this is done simply to allow for flexibility, eventually the full amount must be paid up within a certain period of generally no more than 5 years or as laid down in the company's Memorandum & Articles of Association (see below).

The types of shares: In general there are two types of shares "ordinary" and "preference". Preference shares as the name suggests provide a benefit over and above those available to those holding ordinary shares. In most cases, the preference will relate to either voting rights and/or payment of company dividends depending on the provisions of the Articles of Association.

Memorandum & Articles of Association: The Memorandum of Association of a company aims to set out what the company may do which traditionally was very extensive to allow for future flexibility. However, with the recent introduction of Standard Industrial Classification (SIC) Codes it now seems that the flexibility hitherto enjoyed by English & Welsh companies may be indirectly compromised. The Articles of Association literally lay down how a company is to be governed normally by choosing a standard set of Articles provided within the Companies Act 1985 with appropriate amendments/alterations. Most English & Welsh private limited companies are governed by Table "A" Articles there being a choice between "A-F".

Annual & Extraordinary General Meetings: These are meetings held by the shareholders to either review the performance of the board of directors (if different from themselves) or assist them take major decisions. In simple terms, all companies have Annual General Meetings (AGM's) to review such things as a company's annual accounts and related matters. Extraordinary General Meetings (EGM's) as the name suggests, can be called at any time of the year when there is a matter of sufficient gravity. It should be remembered that at all times the ultimate control will vest in the shareholders but unless they/it is/are the same as the directors day to day executive decisions remain the domain of the board of directors.

"Special" and "Ordinary" resolutions: As stated above, all companies are bound by their Memorandum and Articles of Association. However, where it is deemed desirable changes can be made and/or meetings called by the shareholder(s) provided the applicable majority exists. In the case, of "ordinary" resolutions, which generally deal with day to day and/or matters of lesser importance, a simple majority is all that is normally required. In the case of "special" resolutions, which tend to deal with structural and matters of greater importance, majorities of either two thirds or three quarters are the norm depending on the particular Memorandum and Articles of Association used.

The Registered Office Address (ROA): This is the address where a company is officially located and where all service of process/official documents arrive. It does not have to be the address where the business is actually carried out and in is fact very often the address of a company's solicitor/accountant or company registration agent. Who provides your registered office address is very important since they will receive all documents from the Inland Revenue, Customs & Excise and Companies House in Cardiff and should be capable of advising and or dealing with such official correspondence. In addition, a copy of a company's official books must always be kept at the ROA for the benefit of both shareholders and other interested parties. Finally, the ROA is where all documents relating to a legal action should first be submitted.

Powers of attorney (POA): Powers of attorney are documents granted by the board of directors in favour of third parties, known as attorneys-in-fact, in order to allow them to carry out functions deemed desirable by the board of directors. In general terms there are two main types of attorney, a General Power of Attorney (GP0A) and a Special Power of Attorney (SPOA). The first can give a wide range of powers to an attorney-in-fact whilst the second, tends to be very specific and time delimited. When looking at any POA it must always be remembered that no matter what terminology may be used in the document (i.e. such as irrevocable) all POA's General or Specific can be cancelled/abrogated at any point in time by the grantors, the board of directors.