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FREQUENTLY ASKED QUESTIONS (FAQs)
Q1. What rules cover
forming a Company
Q2. What rules cover
company secretaries
Q3. What is the
definition of a Company Director
Q4. What are
Director's Duties
Q5. Who is eligible to
be a Company Director
Q6. What employment
rights does a Company Director have
Q7. What are the rules
regarding the dismissal of a company
director
Q8. What are the rules
regarding the disqualification of a
Company Director
Q9. How do I draw up
Articles of Association
Q10. What rules cover
Meeting minutes
Q11. What rules
cover the notice of Meetings
Q12. What
constitutes a Quorum
Q13. What rules
govern the first Annual General
Meetings(AGM)
Q14. What rules
govern when and where I hold an
Annual General Meeting (AGM)
Q15. How can I
call an Extraordinary General Meeting
(EGM)
Q16. Do I have
to have share capital
Q17. What rules
govern shareholders nominees
Q18. Are there any
restrictions on nationality of
shareholders
Q19.
Pre-emption rights
Q20. Shares
Q21. What rules
govern Dividend Payment
Q22. Do I have
to have a Registered office address
Q23. How can I
access Accounting records
Q24. What rules
govern company stationery
Q25. Trustee
Law
Q26. Winding up
Q1. What rules
cover forming a Company?
Two or
more persons may form a company, or
one if it is a private company, and
this company may be limited by
shares, guarantee or an unlimited
company (section 1 of the Companies
Act 1985)
The
requirement is for persons and not
individuals and a body corporate
(including a limited company) will
suffice, subject to constraints in
section 23 (membership of holding
company) and section 375
(representation of corporations at
meetings)
Q2 What rules
cover Company Secretaries?
Every
company shall have a secretary who
may not also be a sole director
(section 283 of the Companies Act
1985)
Q3 What is the
definition of a Company Director?
The definition of
director given at section 741(1) of
the Companies Act 1985 ‘includes any
person occupying the position of
director by whatever name called.
This definition can also be found in
the Insolvency Act 1986 section 251
and the Company Directors
Disqualification Act 1986 section
22, where it is extended to include
shadow directors
Q4 What are a
Directors’ Duties?
There
is no single guidance on directors’
duties, which are set out in a range
of statutory, and common law
provisions.
Companies House
Website has guidance
booklets on filing other
responsibilities in relation to it.
You
may find it helpful to look on the
Institute of Directors’
website
as well as the Institute of
Chartered Secretaries and
Administrators for guidance and pointers to
reference books on the subject.
You
may also find some useful
information from the
Company Law Reform Bill White Paper
Q5 Who is
eligible to be a Company Director?
Check
companies house guidance notes.
Q6 What
employment rights does a Company
Director have?
An
executive director (unlike a
non-executive director who will not
normally be an employee) will be an
employee of a company like other
employees, there are no special
provision for directors in company
law in relation to employment
rights.
Separate provision may, however, be
found in individual directors’
service contracts as well as a
company’s articles of association.
For
related issues you may find it
helpful to look at:
1. The Institute of
Directors’ (IoD)
website
2. The Institute of
Chartered Secretaries and
Administrators (ICSA)
website
How
many directors must a company have?
Every
company shall at least two
directors, or at least one if it is
a private company (section282 of the
Companies Act 1985)
The
directors can be the same people who
are forming the company, or they can
be different.
Q7 What are the
rules regarding the dismissal of a Company Director?
A company’s
shareholders can remove a director
at any time before the end of their
period of office regardless of
anything to the contrary that there
may be in their articles of
association or service contract. To
propose such a resolution a
shareholder must give special notice
and the company is obliged to send
to the director a copy of the
proposed resolution. The director
is also entitled to make written
representations or reasonable length
that the company must send to every
shareholder who is sent notice of
the meeting. If the company
receives these too late for them to
be sent out to the shareholders,
then the director is entitled to
allow them to be read out at the
meeting.
Q8 What are
the rules regarding the
disqualification of a Company
Director?
Disqualification of Company
Directors is the responsibility of
the Insolvency Service – see
attached link to the relevant
guidance note which is on the
Insolvency Service website.
Q9 How do I
draw up Articles of Association?
The
Companies Act 1985 Table A (SI
1985/805, Schedule) prescribes model
articles for the management of a
company limited by shares.
Table A, however, may
be commonly modified, or even
excluded completely when a company’s
articles of association are drawn up
Q10 What rules
cover Meeting minutes?
Section 383 of the Companies Act
1985 requires every company to keep
minutes of the proceedings of
general meetings.
The
minutes are to be kept at the
company’s registered office and are
open to inspection by the company’s
members without charge (section 383
of the Act). Alternatively, am
member may request a copy of such
minutes, on payment of a fee.
Shareholders are, therefore,
entitled to write to the company
requesting a copy of the minutes of
the annual general meeting and
should, under section 383 (3), be
furnished with these within 7 days
of the request made. This section
of the Act is enforced by Companies
house.
Q11 What rules
cover the notice of Meetings?
The
basic principle is that every member
of the company is entitled to notice
of a meeting, but the articles of
association may take away this basic
right from certain classes of
members, eg from holders of
preference shares in certain
circumstances or from members who
have given no address within the
United kingdom.
Not
less than 21 days notice in writing
must be given (section 369(1)(a) of
the Companies Act 1985) in the case
of an annual general meeting, and
not less than 14 days in the case of
meetings other than the annual
general meeting (section 369(1)(b)
of the Act).
Q12 What
constitutes a Quorum?
The
Companies Act 1985 (sections 370 and
370A) provides that two members
personally present constitute a
quorum, but allows the articles to
lay down different requirements,
except that, in the case of a
private company having only one
member, that one member constitutes
the quorum, no matter what the
articles say.
Q13 What
rules govern the first Annual
General Meetings?
Under
section 366 of the Companies Act, an
AGM must be held, firstly, within 18
months of the company’s
incorporation and then not more than
15 months should elapse between the
date of the one AGM and that of the
next. If the company fails to hold
an AGM within the prescribed time
limits both it and the defaulting
directors can be fined. The Act is
silent on any provisions on AGMs
which may be in a company’s articles
of association; it the requirements
of section 366 cannot be overridden.
Private companies may, however, by
elective resolution, dispense with
the need to hold AGMs (Companies Act
1985, section 366A; an elective
resolution requires the agreement of
all the members entitled to attend
and vote).
Q14 What
rules govern when and where I hold
an Annual General Meetings?
The
provisions for the timing AGMs are
dealt with under section 366 of the
Companies Act 1985. In exercising
their power to call a meeting, the
directors must act in good faith
(Cannon v Trask (1875) LR 20 Eq 669)
which precludes calling the meeting
for unsuitable dates or locations.
The meeting must be called for a
reasonable time and what would be a
reasonable time would depend on the
circumstances. The best practice,
of course, is to hold the meeting on
a working day during normal business
hours.
Q15 How can I call an Extraordinary General Meeting?
Many of the provisions
regarding meetings will be found in the articles of association but section 369
of the Companies Act 1985 imposes certain minimum requirements as to the length
of notice for calling a meeting; in the cases of an EGM it is 14 days notice in
writing (there are now also provisions which allow for the notice to be by
electronic communication/on the website).
By agreement of a majority
in number of members having the right to attend and vote, being a majority
holding not less than 95% in nominal value of shares giving the right to attend
and vote, a valid meeting can be summoned by a lesser notice period (section 369
(3) and (4) and regulation 38 of table A).
Notice periods will vary
depending on the type of resolution (section 378 of the Companies Act 1985) to
put to the EGM. For an extraordinary resolution there is no prescribed notice
period, so at an EGM this will be 14 days. A special resolution will require 21
days notice, however, section 378(3) allows for a lesser notice period (similar
provisions to above paragraph).
There are certain
requirements regarding substantial acquisitions in both the Takeover Code
(responsibility of Takeover Panel) and the Listing Rules (responsibility of FSA),
which may be relevant.
Q16 Do I have
to have Share Capital?
Private companies do not have a
minimum share capital.
Public
companies must have a minimum share
capital of £50,000 (section 118 of
the Companies Act 1985).
A
company listing its hares on the
London Stock Exchange must have a
total market capitalisation of not
less than £700,000, and would
normally be expected to be much
larger – see the London Stock
Exchange Practical Guide to Listing,
available at the LSE’s
website
Q17 What rules
govern shareholders nominees?
Shareholders may hold their shares
directly and be named on the
company’s share register or they may
hold their shares through a
nominee. A nominee is an
institution or person under whose
name it has been agreed that an
investment will be held, for
example, shares may be held under
the name of a broker or investment
fund so that it is easier to settle
transactions. If this is the case,
it is the nominee who will be
entered onto the share register as
the owner and be entitled to voting
rights etc while the “real” or
beneficial owner will receive
dividends.
Q18 Are there
any restrictions on the nationality
of Shareholders?
There
are no restrictions in company law,
although there may be provisions in
a company’s articles, which are, or
relevance. It may be that there are
also relevant restrictions operating
in respect of those countries
against which the Government has
imposed sanctions.
Q19 Pre-emption Rights
Section 89(1) of the Act provides that a company proposing to allot equity
securities shall not allot them to any person unless it has first offered, on
the same or more favourable terms, to each person who holds shares, a proportion
of those equity securities.
Under section 95 of the Act (Disapplication of pre-emption rights), companies
may, in certain circumstances, resolve by special resolution that section 89(1)
shall not apply to future allotments or to a specified allotment of shares.
However, the resolution may not cover a period of longer than five years unless
renewed by a further special resolution. Section 95 also states that a special
resolution may not be proposed unless it has been recommended by the directors,
and there is circulated to members entitled to notice of the meeting a written
statement by the directors of their reasons for making the recommendation, the
amount to be paid to the company in respect of the proposed issue and the
directors’ justification of that amount.
In
respect of private companies, under section 91 of the Act, the provisions of
section 89(1) may be executed by provisions in the memorandum or articles of
association of the company.
If
you feel there has been a breach under of your pre-emption rights under section
89(1) of the Act, you may wish to take legal advice.
Q20 Shares
(classes and rights)
The
division of a company’s shares into
classes and the rights attached to
each class will normally be set out
in the company’s memorandum or
articles of association (generally
the latter) but this is not
compulsory, except as regards rights
of redemption. (if the classes and
rights of shares are not set out in
either the memorandum or articles
then this information will be
available in other of the company’s
documents which will be registered
at Companies House)
Q21 What rules
cover Dividends Payment?
Part
VIII of the Companies Act 1985
contains provisions for the amount
of a company’s profits available for
distribution, e.g as dividend. It
should, however, be borne in mind
that a company is not bound to
distribute its profits among its
members unless the Article of
Association so provide and profits
are frequently used for other
purposes.
Under
the Articles of Association of most
companies it is the directors who
normally recommend the amount of the
dividend, which is subject to the
approval of the company in general
meeting. The Articles usually
provide that the dividend shall not
exceed the amount recommended by the
directors so that, while the
shareholders cannot increase it,
they can reduce the amount of the
dividend. It is, however, important
to look at a company’s Memorandum
and Articles of Association in order
to establish the provisions, which
it has adopted in relation to
dividends.
Q22 Do I have
to have a Registered Office Address?
Every
company must have a registered
office; it is the ‘home’ of the
company to which all official
documents, notices and court papers
have to be sent by law (section 287
of the Companies Act 1985). The
address must be a physical location,
not just a post office box. This is
because people have the right to
visit the office to inspect certain
registers and documents, and to
deliver documents by hand.
Q23 How can
I access Accounting records?
There is no automatic
right under the Companies Act 1985
for shareholders to have access to a
company’s accounting records
although they should at all times be
open to inspection by the company’s
officers. However, section 239(1)
of the Act states that any member of
a company and any holder of a
company’s debentures is entitled to
be furnished, on a demand and
without any charge, with a copy of
the company’s last annual accounts
and directors’ report and c copy of
the auditors report on those
accounts. It is an offence under
section 239(3) of the Act if a
demand under this section is not
complied with within seven days
Q24 What rules
cover Company Stationery?
1.
The Companies Act 1985 requires a
company’s name to appear legibly in:
I. All its business letters
II. All its notice and other
official publications,
III. All bills of exchange,
promissory notes, endorsements,
cheques, orders for money or goods
purporting to be signed by or on
behalf of the company, and
IV. All bills of parcels,
invoices, receipts, letters or
credit
2. In addition, business letters
and order forms have to include
fuller particulars, that is:
I. The company’s place of
registration and the number, with
which it is registered,
II. The address of its
registered office
III. In the case of an
investment company (as defined in
s.266 of the Companies Act 1985),
the fact that it is such a company,
and
IV. In the case of a limited
company exempt from the obligation
to use the word “limited” as part of
its name, the fact that it is a
limited company.
V. A company’s business letters
must either include the names of all
it directors – individual, corporate
and shadow – or not include the
names of any of it directors other
than in text or as signatory.
VI. The act does not require
the company to state it share
capital but if it chooses to do so,
it must state its paid-up capital.
The
Act applies to companies
incorporated in Great Britain (it
does not apply to companies
incorporated in Northern Ireland).
However, oversea companies that
operate in Great Britain (including
companies incorporated in Northern
Ireland) are subject to similar
requirements including that relating
to directors’ names.
If
a company which has a place of
business in Great Britain carries on
business in Great Britain under a
name which is not its corporate
name, then the Business Names Act
1985 also applies (it also applies
to any individual whose trading name
is not simply their surname and to
partnerships where the name is not
simply their surname and to
partnerships where the name is not
the surnames of individual partners
and the corporate names of corporate
partners). The Business Names Act
requires the company to include its
corporate name and service address
(that is, the address at which
service of any document relating to
the business will be effective) in
all business letters, written orders
for goods or services, invoices and
receipts, and written demands for
payment.
Q25 Trustee Law
Trustee law is the
responsibility of the Department of Constitutional Affairs, see
website
If the company is also
registered charity, you may contact the
Charity Commission
Q26 Windup-up, strike-off and dissolution
More information can be
found at the Insolvency Service
website and the Companies House
website
Contact:
Enquiry
Unit: 020 7215 5000
Email address:
correspond@dti.gov.uk
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Last revised
14 December 2005
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