Companies Act 2006 – PART 2

COMPANY FORMATION

28. This Part of the Act is about how companies are formed. It replaces or, as the case
may be, restates equivalent provisions in the 1985 Act.

Section 7: Method of forming company

29. This section replaces sections 1(1) of the 1985 Act. It retains the current requirement
that individuals who wish to form a company must subscribe their names to the memorandum
of association (“memorandum”). Subsection (1) introduces the new provisions about forming
a company. In line with the recommendations of the CLR, it is provided that a single person
is able to form any sort of company (not just a private company) (Final Report, paragraph
9.2).

30. Subsection (2) reproduces the existing requirement that a company may not be formed
for an unlawful purpose.

Section 8: Memorandum of association

31. This section replaces section 3(1) of the 1985 Act.

32. Under the Act, the memorandum serves a more limited, but nonetheless important,
purpose: it evidences the intention of the subscribers to the memorandum to form a company
and become members of that company on formation. In the case of a company that is to be
limited by shares, the memorandum will also provide evidence of the members’ agreement to
take at least one share each in the company.

33. The memorandum of a company formed under the Act will, therefore, look very
different from that of a company registered under the 1985 Act. In addition it will not be
possible to amend or update the memorandum of a company formed under the Act.

34. These changes to the memorandum are based on the CLR’s recommendation that
there should be a single constitution (Final Report, paragraph 9.4). In line with the principles
behind this recommendation, in future key information regarding the internal allocation of
powers between the directors and members of a company will be set out in one place: the
articles of association (“articles”).

35. By virtue of section 28, provisions in the memoranda of existing companies will be
treated as provisions in the articles if they are of a type that will not in be in the memoranda
of companies formed under the Act. Existing companies will, therefore, not be required to
amend their articles to reflect these changes, but they can do so if they wish. They will
however be able to alter or update provisions in their constitution which are now set out in
their memoranda by amending their articles, for example to reflect changes to the law made
by the Act.

Section 9: Registration documents

36. This section replaces various provisions in sections 2 and 10 of the 1985 Act. It
prescribes the types of information or “documents” that must be delivered to the registrar
when an application for registration is made and the registrar to whom the information must
be delivered.

37. The changes to the way in which certain information is delivered to the registrar are
required as a result of the changes that have been made to the memorandum. In future,
information which is currently set out in the memorandum will be provided to the registrar in
accordance with the provisions of this section, which prescribes, amongst other things, the
contents of the application for registration. In all cases this application must state:

• the company’s proposed name;

• whether the company’s registered office is to be situated in England and Wales (or
Wales), in Scotland or in Northern Ireland;

• whether the liability of the company’s members is to be limited and if so whether it is
to be limited by shares or by guarantee;

• whether the company is to be a private or a public company.

38. In the case of a company that is to have a share capital, the application must also
contain a statement of capital and initial shareholdings (see section 10). In the case of a
company that is to be limited by guarantee the application must also contain a statement of
guarantee (see section 11).

39. In all cases the application must also contain a statement of the company’s proposed
officers (see section 12) and a statement of the intended address of the company’s registered
office (that is, the postal address of the company’s registered office as opposed to a statement
confirming the jurisdiction in which the company’s registered office is to be situated – which
is also required).

40. The application for registration must also contain a copy of any proposed articles (to
the extent that the company does not intend to use the model articles (see sections 19 and 20)
and must be accompanied by the memorandum (see subsection (1)) of this section and a
statement of compliance (see section 13).

41. In future it will be possible to form a company on-line and the various types of
information referred to in the section are, therefore, capable of being delivered as a series of
data entries as well as in paper or such other form as the registrar may permit or prescribe.
The registrar has power under section 1068 to prescribe the form and manner in which
documents are to be delivered to her.

Section 10: Statement of capital and initial shareholdings

42. This section is a new provision. It sets out the contents of the statement of capital and
initial shareholdings.

43. Currently, in the case of a limited company with a share capital the memorandum is
required to state the amount of the share capital with which the company proposes to be
registered and the nominal amount of each of its shares. This is known as the “authorised
share capital” and acts as a ceiling on the amount of capital which can be issued (although
this limit can be increased by ordinary resolution). The CLR recommended that the
requirement for a company to have an authorised share capital should be abolished (Final
Report, paragraph 10.6).

44. The Act gives effect to this recommendation and in future, information about the
shares subscribed for by the subscribers to the memorandum, which is currently set out in the
memorandum itself, will be provided to the registrar in the statement of capital and initial
shareholdings.

45. Like the statement of guarantee (see section 11), the statement of capital and initial
shareholdings must contain such information as may be prescribed by the Secretary of State,
in regulations made under the Act, for the purpose of identifying the subscribers to the
memorandum (i.e. the founder members of the company).

46. The statement of capital and initial shareholdings is essentially a “snapshot” of a
company’s share capital at the point of registration. For public companies, this requirement is
linked to the abolition of authorised share capital (see above). It implements (as far as public
companies are concerned) Article 2 of the Second Company Law Directive (77/91/EC) (the
“Second Directive”) which states:

“the statutes or instruments of incorporation of the company shall always give at least the following
information…(c) when the company has no authorized capital, the amount of the subscribed capital….”.

47. The statement of capital and initial shareholdings must contain the following
information:

• the total number of shares of the company to be taken on formation by the subscribers
to the memorandum;

• the aggregate nominal value of those shares;

• for each class of shares: prescribed particulars of the rights attached to those shares,
the total number of shares of that class and the aggregate nominal value of shares of
that class; and

• the amount to be paid up and the amount (if any) to be unpaid on each share (whether
on account of the nominal value of the shares or by way of premium).

48. The reference to “prescribed particulars of the rights attached to the shares” in this
section (and elsewhere in the Act where a statement of capital is called for), refers to such
particulars as may be prescribed by the Secretary of State by statutory instrument (see section
1167).

49. Whilst the Second Directive only applies to public companies it is important that the
information on the public register is up-to-date for both public and private companies. A
statement of capital will, therefore, be required where it is proposed that a company formed
under the Act will have a share capital on formation and, with limited exceptions (in
particular, where there has been a variation of class rights which does not affect the
company’s aggregate subscribed capital) whenever a limited company having a share capital
makes an alteration to its share capital (and in certain cases where an unlimited company
makes a return to the registrar).

Section 11: Statement of guarantee

50. This section replaces section 2(4) of the 1985 Act. It sets out the contents of the
statement of guarantee that must accompany the application for registration where it is
proposed that a company will be limited by guarantee on formation.

51. The statement of guarantee is essentially an undertaking, given by the founder
members of the company, to contribute to the assets of the company up to a specified amount
in the event of it being wound up. New members must also agree to make the same
contribution.

52. A member of a company limited by guarantee is only liable to contribute to the assets
of a company if it is wound up during the time that he is a member or within one year of him
ceasing to be a member.

53. Like the statement of capital and initial shareholdings the statement of guarantee must
contain such information as may be prescribed by the Secretary of State, in regulations made under the Act, for the purposes of identifying the subscribers to the memorandum (i.e. the
founder members of the company).

Section 12: Statement of proposed officers

54. This section replaces section 10(2) and (3) of the 1985 Act and contains a new
provision. Under section 10, details of the first director(s) and the secretary or joint
secretaries must be given to the registrar at the time of application for registration. That requirement is carried forward but there are two changes:

• firstly, to the required particulars. These are specified in relation to directors in
sections 163 to 166. The main change is that a service address must be provided for
each director who is a natural person. This is in addition to the requirement for the
usual residential address;

• secondly, as recommended by the CLR (Final Report, paragraph 4.7), there is no
requirement for a private company to have a company secretary but it may do so if it
wishes (see section 270(1)). As now, a company which proposes to be registered as a
public company must have a company secretary (see section 271).

Section 13: Statement of compliance

55. This section replaces section 12(3) and (3A) of the 1985 Act. At present, where an
application for registration of a company is made in paper form, the application must be
accompanied by a statutory declaration (made before a solicitor or commissioner of oaths)
confirming that the requirements of the 1985 Act in respect of registration, and of matters
precedent and incidental to it, have been complied with (see section 12(1) of that Act). This
statutory declaration must be made by one of the persons whom it is proposed will be a
founder director or secretary of the company (that is, on registration) or a solicitor engaged in
the formation of the company.

56. Where the application for registration is made in electronic form, in place of the
statutory declaration required under section 12(3) of the 1985 Act, the same persons may,
alternatively, deliver an “electronic statement” to the registrar. This statement must confirm
that the requirements referred to in section 12(1) have been met.

57. Based on the recommendations of the CLR (Final Report, paragraph 9.5), the current
requirement for a statutory declaration or electronic statement, here and elsewhere in the Act,
is replaced by a requirement to make a statement of compliance. This statement does not need
to be witnessed and may be made in paper or electronic form. It will be for the registrar’s
rules under section 1068 to specify who may make this statement (and the form of it). As
with all documents delivered to, or statements made to, the registrar, it is an offence to make
a false statement of compliance – see section 1112.

Section 14: Registration

58. This section restates section 12(1) and (2) of the 1985 Act. As now, where the
registrar is satisfied that all of the requirements of the Act as to registration have been met
she will register the documents delivered to her and issue a certificate of incorporation under
section 15.

Section 15: Issue of certificate of incorporation

59. This section restates section 13(1)(2) and (7)(a) of the 1985 Act and contains a new provision in subsection (2), which prescribes the contents of the certificate of incorporation
issued by the registrar on registration of a company. The certificate of incorporation is
conclusive evidence that the requirements of the Act as to registration have been met, that the
company has been registered, and (where relevant) that the company has been registered as a
limited company or a public company.

60. There is one change to what the certificate of incorporation is required to state: in
future this will include details of whether the company’s registered office is situated in
England and Wales (or in Wales), in Scotland or in Northern Ireland. The certificate will also
state, where the company is limited, whether it is limited by shares or by guarantee.

Section 16: Effect of registration

61. This section replaces section 13(3) to (5) of the 1985 Act. It provides, amongst other
things, that the subscribers to the memorandum, together with such other persons as may
from time to time become members of a company, are a body corporate by the name stated in
the certificate of incorporation and, in the case of a company having a share capital, that the
subscribers to the memorandum become holders of the shares specified in the statement of
capital and initial shareholdings. This means that on registration a company becomes a legal
person in its own right, which is distinct from the people who own it (the members) and the
people who manage it (the directors).