Companies Objects and Names: Setting-Up of a New Limited Company in United Kingdom

COMPANY FORMATION IN GREAT BRITAIN, UK COMPANIES FORMATIONS

There are four main types of company: private company limited by shares - members' liability is limited to the amount unpaid on shares they hold. Private company limited by guarantee - members' liability is limited to the amount they have agreed to contribute to the company's assets if it is wound up. Private unlimited company - there is no limit to the members' liability. Public limited company (PLC) - the company's shares may be offered for sale to the general public and members' liability is limited to the amount unpaid on shares held by them. Limited Liability Partnerships - a separate entity that has the flexibility of a partnership, however the security of a Limited Company, in the respect that the LLP will be liable to all the assets the partners liability will be limited. There are two main ways of obtaining a Company, creating one from scratch, or purchasing an existing dormant Company.

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The secretary is the chief administrator for the company. He or she normally takes charge of ensuring that any documents which need to be sent to Companies House are sent on time. The secretary can also be a director, and therefore have the same responsibilities as the other directors. If the secretary isn't a director, he or she is still is an officer of the company and is responsible for it's actions (with the exception of the companies accounts, which are the personal responsibility of the directors). Secretaries are not generally required to own share's in the companies that they manage, but there is nothing to prevent them from doing so, and they often do.

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The Registered Office of a Company is the address that governmental boards such as Companies House and the Inland Revenue, and the general public will be able to associate the Company to. The registered office can be anywhere in England and Wales (or Scotland if your company is registered there). The registered office must always be an effective address for delivering documents to the company, and to avoid delays it is important that all correspondence sent to this address is dealt with promptly. If a company changes its registered office address after incorporation, the new address must be notified to Companies House on Form 287.

Every company must have formally appointed company officers at all times. A private company must have at least: one director - but the company's articles of association may require more than one. One secretary - formal qualifications are not required. A company's sole director cannot also be the company secretary. A public company must have at least: two directors and one secretary - formally qualified. All company officers have wide responsibilities in law.

Share Capital - This is the unpaid share capital that the directors agree to pay in the event of the company being wound up. It can be any figure, any number of shares, and value of shares as long as they are whole numbers and add up. Most solicitors recommend a capital of £10 or £100, although this figure does not divide into three equal parts, so if there are three company directors it is not ideal.

A recent addition to our services is a complete online company formation and registration process for our clients in the United Kingdom. Our customers can directly search the availability of a suitable name for their business and then proceed to register it for their own purposes. Alternatively, any name may be selected from the pool of shelf companies that have already been registered by us. You can also apply for our supplementary low cost services as you proceed for registration. You will also be asked to fill a form for the appointment of board of directors, company secretary and the founding shareholders, which may be skipped if you wish to appoint yourself as the sole director and shareholder of the company. On the issue of your business license, you may commence operations and seek investments from external sources, as you will be able to furnish appropriate documentation proving yourself in the capacity to engage into contracts.

On registration, you will receive a package consisting of the essentials of a business consisting of a Memorandum and Articles of Association drafted according to the information given while filling the form. You will also receive company registers and other documentation pertaining to your registration with Companies House. Furthermore, as you are filling in your details online, you will not be required to submit any physical documentation to Companies House. These will be dispatched directly to process your application. If you want to become familiar with the description and the contents of British companies registration packages, offered by Coddan CPM LTD and to find above, what kind of service is included in this or that companies incorporation package, to get an idea about the price of annual renewal of the service, and about the general legal requirements to the company incorporation within United Kingdom, please, select the package you need from the list, situated below the banner. The information in the banner will be renewed according to the package you've chosen.

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WHAT ARE A COMPANY'S OBJECTS?

A company's objects are set out in its memorandum of association. They are a statement of what the company is set up to do. Companies incorporated before 1989 usually had very long objects clauses, setting out in detail all the possible types of business the company may want to engage in, followed by supplementary objects or powers covering all the standard activities of a company such as taking interests in land, borrowing money, lending money, employing people, etc. Such prolixity was an attempt to avoid the effects of the ultra vires rule.

At common law a company is limited to acting within the objects set out in its memorandum of association. Anything purported to be done by a company which is beyond those objects would be 'ultra vires' and void at common law, and the directors could be personally liable for such acts. The common law rule is now subject to Companies Act 1985, sec. 35: The validity of an act by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company's memorandum.

It is still possible for the directors of a company to be liable for ultra vires acts. This is a complex area, detailed consideration of which is beyond the scope of this database. In practice, the problem can be avoided by specifying in the memorandum that the company is a 'general commercial company' which, by Companies Act 1985, sec. 3A, can carry on any trade or business and has power to do all such things as are incidental or conducive thereto. Nearly all modern trading companies are set up with general commercial company objects, and many older companies have now had their objects changed to this provision.

WHAT ARE MEMORANDUM AND ARTICLES?

The memorandum and articles are a company's constitution. They are two separate documents (the memorandum of association and the articles of association) but they are usually printed and bound together as one.

Companies Act 1985, sec. 1 states that every company must have a memorandum of association. The memorandum of a private company limited by shares must contain the following clauses: company name; the country of situation of the registered office; the objects; a statement that the liability of the members is limited; the amount of authorised share capital; an association and subscription clause which states that the subscribers (i.e. those signing) wish to be formed into a company and that they agree to take a specified number of shares in the company. The subscribers are the founder members of the company.

The memorandum must be signed by at least one subscriber who signs in the presence of a witness and who agrees to take at least one share. The memorandum of a public company is only slightly different. There is an additional clause stating that it is a public company, and there must be at least two subscribers.

A company limited by guarantee also has a similar memorandum. There is, however, no authorised capital clause (a company limited by guarantee does not have a share capital), but there is an additional clause stating the terms of the members' guarantee. Many such companies also have clauses preventing the distribution of profits or assets to the members, though these are not essential.

The articles contain the detailed rules for the running of the company. Many companies have articles based on Table A, a standard set of articles for a company limited by shares. Many provisions in Table A suit the majority of companies, but most companies have some provisions in their articles which are different from those of Table A. Articles are commonly set out in short form, that is by stating that the articles are those of Table A except for a list of amendments. If many of the terms of Table A are varied, or if the company is a PLC, then long form articles setting out every provision may be used.

Companies Act 1985, sec. 8 provides that the terms of Table A apply to every company except insofar as they are not excluded, and it is possible to register a company without articles in which case the company has all of Table A as its articles.

Table C provides a version of Table A for use by companies limited by guarantee. Companies Act 1985, sec. 14 provides that the memorandum and articles, once registered, bind the company and its members to the same extent as if they were a contract under seal entered into by the company and all the members (whether they were parties to the original subscription of the company or not). This gives the memorandum and articles their legal effect, allowing the parties to enforce the terms of the articles. There are, however, limitations to the enforceability of the memorandum and articles under the complex rule in Foss v. Harbottle. The terms of this complex rule are presently outside the scope of this database.

WHAT IS TABLE A?

Table A is a specimen set of articles for a company limited by shares. It is used as the basis for most companies' articles. The current version of Table A is to be found in a Statutory Instrument, the Companies (Tables A to F) Regulations 1985 SI 1985/805 as amended by the Companies (Tables A to F) (Amendment) Regulations 1985) (SI 1985/1052).

There have been new versions of Table A enacted by the Companies Acts or by Statutory Instrument from time to time. A company which adopts Table A as its articles (either wholly or in part) will acquire the version of Table A in force at the date when those articles are adopted. It is obviously important when dealing with an older company to check which version of Table A applies. Note, in particular, that there are substantial differences between the 1948 version of Table (which applied, with some subsequent amendment until 1985) and the current version.

Many provisions in Table A suit the majority of companies, but most companies have some clauses in their articles which are different from those of Table A. Articles are commonly set out in short form, that is by stating that the articles are those of Table A except for a following list of amendments. If many of the terms of Table A are varied, or if the company is a PLC, then long form articles, setting out every provision may be used.

Companies Act 1985, sec. 8 provides that the terms of Table A insofar as they are not excluded, and it is possible to register a company without articles in which case the company has all of Table A as its articles.

CAN A COMPANY DO EVERYTHING?

At common law a company is limited to acting within the objects set out in its memorandum of association. Anything purported to be done by a company which is beyond those objects would be 'ultra vires' and void at common law, and the directors could be personally liable for such acts.

The common law rule is now subject to Companies Act 1985, sec. 35: The validity of an act by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company's memorandum. It is still possible for the directors of a company to be liable for ultra vires acts. This is a complex area, detailed consideration of which is beyond the scope of this database.

In practice, the problem can be avoided by specifying in the memorandum that the company is a 'general commercial company' which, by Companies Act 1985, sec. 3A, can carry on any trade or business and has power to do all such things as are incidental or conducive thereto. Nearly all modern trading companies are set up with general commercial company objects, and many older companies have now had their objects changed to this provision.

WHAT NAME MAY BE USED FOR A COMPANY?

Great care must be taken when setting up a new company, or changing a company's name, to ensure that the proposed name meets all the statutory requirements, does not infringe the rights of others (who may bring legal proceedings involving both cost and disruption to the new business) and which is adequately protected against others who may seek to use the name in the future. Companies Acts requirements (Companies Act 1985, sec. 26-34). The following restrictions apply to the registration of a company name:

It must not be the same as a name already registered. There are over 1.2 million companies already registered, and each company must have a different name. For these purposes, certain things are ignored when determining whether one name is the same as another, these include: "Limited" and "PLC" (or public limited company) at the end of the name. The words "Company" and "and Company". "The" at the beginning of the name. The use of capital or lower case letters and punctuation (and note that "and" is the same as "&" for these purposes.

So, if ABC Makers PLC is already registered, none of the following names would be available: ABC Makers Limited; The ABC Makers Company Limited; ABC-makers public limited company, etc. If a name is only very slightly different from one already registered, it will be accepted for registration but there could still be potentially serious problems if the name is too like one already in use.

It must end in 'Limited' or 'PLC'. If it is a limited company, the name must end with 'Limited' (if a private company) or 'public limited company' or 'plc' if a public company. This is intended as a warning to those dealing with the company that the members' liability is limited. Must not include 'limited', 'unlimited, public limited company or abbreviations of these, except at the end of the name.

Sensitive words. The following words can be used only with permission from Companies House or some other body:

Abortion
Anzac
Apothecary
Architect
Association
Assurance (and assurance broker and assurer)
Authority
Bank (and banker and banking)
Benevolent
Board
British
Building Society
Chamber of Commerce (or Chamber of Industry or Chamber of Trade)
Charity (and charitable)
Charter (and chartered)
Chemist (and chemistry)
Contact lens
Co-operative
Council
Credit Union
Dental (and dentist and dentistry)
Deposit
District Nurse
Drug (and druggist)
Duke
England (and English)
European
Federation
Foundation
Friendly Society
Fund
Giro
Great Britain
Group
Health Centre
Health Service
Health Visitor
Her (and His) Majesty
Holding
Industrial and Provident Society
Institute (and Institution)
Insurance (and insurance broker and insurer)
International
Ireland (and Irish)
King
Midwife (and midwifery)
National
Nurse (and nursing)
Occupational therapist
Optician
Optometrist
Patent (and patentee, Patent Office, Patent Agent)
Pharmacist (and pharmaceutist, pharmaceutical, pharmacy)
Police
Polytechnic
Post Office
Pregnancy termination
Prince (and princess)
Queen
Red Cross
Re-assurance (and reassurance broker)
Register (and registered)
Re-insurance and re-insurer)
Royal (and Royale and Royalty)
Scotland (Scottish)
Sheffield
Society
Special school
Stock Exchange
Trade Union
Trust
United Kingdom (and UK)
University
Veterinary (and vet and veterinary surgeon)
Wales (and Welsh)
Windsor

Permission is quite easily obtained for some of these words, but can be very difficult for others. Coddan CPM LTD can advise on the criteria used for determining applications for the use of sensitive words, or can make the application.

Government connection. The name must not suggest connection with the government or a local authority. For example 'Home Office Supplies Limited' or 'Lambeth Housing Services Limited' could be objected to on these grounds.

Companies House order to change the name. Such an order can be made by Companies House (on behalf of the Secretary of State) if a company has been registered in a name which is 'too like' one which was already on the register: Companies Act 1985, sec28(2). The order can be made only within 12 months after registration of the offending name. In practice, the order is usually made only after complaint to Companies House by the pre-existing company. Notice the trap that can beset those registering a new company: Companies House will allow a name to be registered that is very similar to that of an existing company (provided it is not the same), but subsequently order the new company to change its name because it is too like the one already there.

So, for anyone setting up a new company, it is important that the name check is done thoroughly. Alternative spellings of all the words should be checked, and names which are too similar should be avoided, or used only after careful consideration. Being threatened with litigation and having to change the company's name after stationery has been printed and business commenced in the original name can be disruptive and expensive.

Trade mark infringement. Care must be taken to avoid setting up a company which will infringe a registered trade mark. In many cases a trademark search should be undertaken before registering a company name, and trademark registration should also be considered.

Domain names. A domain name is the name by which a business is registered on the Internet. Internet business is increasing day by day and, whether the directors of the new company have any immediate plans to trade in this way or not, they should consider having their domain name registered to stop others using it.

Use of other names (business names). A company can use a name other than its registered name, subject to the Business Names Act 1985. Such a name is not registered at Companies House. It is quite common to see companies which were bought as ready made companies trading under another name in this way. Note that the company's full registered name must appear on all notepaper, etc. and the registered office and every place of business: Companies Act 1985, sec. 348-349. Such a business name must not end in 'Limited' or 'PLC' and must not use any of the sensitive words listed above without consent.

WHAT IS PASSING OFF?

The main restriction on the use of a name (for any business whether sole trader, partnership or company) is that the name used for the business, or a very similar name, may already be in use by an existing business. The other business (which could be a sole trader, a partnership, a UK company or a foreign company conducting business here) may be able to sue for the tort of passing off. This is a common law action with no statutory basis.

For a successful passing off action the complainant company must show: That it is established in business under that name or has some other right to its use; that the company being sued is conducting business in such a way as to infringe the complainant's right to the use of the name; that this is likely to cause damage to the complainant's business. Unless the plaintiff is a very well known person or company, the action is only usually available where the two companies are in a broadly similar line of business and the same or overlapping geographical areas. If the complainants action is successful it will obtain an injunction to stop the new company using the name. Damages may be available if infringement persists and there is, of course, the risk of legal costs.

As an alternative to bringing an action for passing off, if the established business is a UK registered company, it may be able to persuade Companies House to exercise its powers to order the new company to change its name. Such an order can be made under Companies Act 1985, sec28 (2) if the new company has been registered in a name which is 'too like' one which was already on the register. If available, this is a much cheaper and less risky alternative to suing for passing off.

CAN A COMPANY CHANGE ITS NAME?

A company can change its name by passing a special resolution in general meeting (CA 1985, sec. 28(1)). A copy of the resolution must be sent to Companies House with the registration fee.

The choice of name is subject to the same restrictions as when a new company is registered. On receiving the special resolution and payment the registrar enters the new name on the register of companies in the place of the old name and issues a certificate of incorporation on change of name. The time period of a change of name is the same as that of an incorporation, currently 7-10 days. Companies House also provides a same day change of name service, at the cost of £100. Provided the name does not contain sensitive words, etc.

The change of name takes effect on the date of the issue of the altered certificate. The company retains the same company number even after the change of name. The company with the altered name is the same company it was before the name change. No rights or liabilities of the company are affected by the change: Companies Act 1985, sec. 28(7).

Within 15 days after the certificate is issued a copy of the company's memorandum and articles printed with the new name must be sent to Companies House: Companies Act 1985, sec18(2). It will also be necessary to change the company's notepaper to show the new name and it must be remembered that the company's correct name must be displayed at the registered office, outside every place of business, and on the company's seal, if it uses one:(Companies Act 1985, sec. 348-350).

HOW CAN A COMPANY'S NAME BE PROTECTED?

Distinctive company names and brand names are valuable business assets. They may be protected by actions at common law for passing off (see related topics, below) and, if registered, by suing for trade mark infringement. Such litigation is expensive, time consuming and the results can be uncertain. Steps should be taken to ensure that, as far as possible, the names are protected by simpler and cheaper means.

Registering each name as a company name. Registration as a company serves to stop the identical name being registered by anybody else and also serves as a warning which may discourage the registration of similar names. As Companies House will accept for registration a name which is very similar, even though not identical, it may be sensible to register alternative spellings or versions of the name as separate companies. Such companies may be kept on the register indefinitely as dormant companies, blocking registration by others at very modest cost. A dormant company will have to file an annual return and dormant accounts each year, paying the annual account fee.

Registering appropriate names and logos as trade marks. Registration as a trade mark confers legal protection within the categories of goods or services within which the mark is registered. Registering all versions of key words as Domain names. Even if the business is not presently trading on the Internet or planning to do so, appropriate domain names should be reserved now to block registration by others.

Swift response to infringement. It is essential that action is taken quickly once the company becomes aware of any actual or potential infringement of its name. Both practical advantage and common law rights can be lost by allowing another business to become established under a disputed name.

Any infringement should be noted and all details recorded. In many cases infringement will be inadvertent and a warning letter will be effective to stop the use of the name. Potential actions may lie for passing off or trade mark infringement. The powers of the Registrar of Companies to order a change of name may provide an effective remedy without the expense or hazards of court action.