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The future of company formation - proposed changes to the company legislation

The following text provide guidance on the exercise design to take views on the currently adopted company incorporation methods and procedures.

The incorporation and standing of companies formed using recently adopted company legislation and the clauses contained in it. Considered are the various suggestions relating to company formation and the protection of shareholders and creditors of companies and take in to account many of the views expressed when the first documents were released for consultation.

Single director UK companies

The main suggestion was that system should retain the existing kind of incorporation of companies for all of those currently being formed the the present time. These are private companies limited by shares or private companies limited by guarantee, unlimited private companies and public limited companies - limited by share capital.

It was suggested that the privilege afforded to private companies to form single member entities should also apply to public companies thereby doing away with the current distinction which currently applies.

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Shareholder liability

The suggestion was borne that the system should be clear as to the the exact exposure of members in the event that the company ceases to trade. Each kind of company would be dealt with so that it was clear what would happen in the event. Unless this was stated the suggestion was is that each and every member would be absolved of all liability towards the company and its creditors.

This is different from the present rules where liability is not quantified and assumed to be unlimited.

Combining memorandum of association and articles of association in to one document

The suggestion is that a combined memorandum and articles of association would apply to new companies. At present these documents are separate. Where the original company members submit an application to form a company they would have to provide all the required documentation as required by the new piece of legislation.

This would include extra information on the internal workings of the company, the chosen company name, the address of the registered office, the number and constitution of the shares, the own details, and the subscribers to the company. The normal information relating to the initial directors and company secretary would be stated . The Secretary of State could change the information requirements as to the process the of supplying the various documents to. As well as the departure from distinct articles of association and memorandum of association there would be a serious attempt to bring the various provisions of company legislation in to the 21st century.

The importance of a company's authorised share structure would be replaced by a stressing of the company's issued shares instead. Directors would therefore face increased pressure to check that the documents and information they are supplying with their application for a new company is correct and that the clauses of the company were in line with legal trading and not for illicit purposes. The current method of providing a legal statement would no longer be required.

Parties to the formation and the proposed officers of the company would provide appropriate consents to their future positions and state that they have read and understood all legal ramifications of their future positions. The Register of Companies would need to satisfy himself that the appropriate documents are in order and that all information has been received and is correct. The certificate of incorporation would be issued to the company when this has been achieved.

Public limited companies

Public companies would have extra measures introduced for their formation. Certificates of trading would need to be sought as well as a certificate of incorporation. The certificate of trading would be needed before the public entity could start any kind of trade of financing activities. The obtain such a document certain key share capital requirements would have to be met relating to the minimum amounts both issued and paid for.