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Stephen Downie
 

Corporate Insolvency and Governance Bill - wrongful trading

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The new Corporate Insolvency and Governance Bill enables a company to stay winding-up proceedings and further limits, in certain circumstances, the risk to directors personally that they may one day be accused of wrongful trading. While Rishi Sumak...

Corporate Insolvency and Governance Bill - penalties for abuse

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The new provisions provide a lot of opportunity for abuse by companies and their directors. Indeed, where an insolvency practitioner is appointed as a monitor (to satisfy the court’s concern as to such abuse), they may be liable for any wrongs they...

Corporate Insolvency and Governance Bill - monitoring by insolvency practitioners

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Where a moratorium, or suspension, of winding-up proceedings is sought by a company, relevant documents must be filed with the court which must support any such request. Included within these documents is the agreement from a ‘Proposed Monitor’...

Corporate Insolvency and Governance Bill subject to exploitation

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The Corporate Insolvency and Governance Bill currently progressing through Parliament provides that companies in the United Kingdom (with modifications for Northern Ireland) can now seek to stay winding-up proceedings upon making a request of the court...

Corporate Insolvency and Governance Bill to bring major insolvency reforms

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On Wednesday (20 May 2020) the government announced the Corporate Insolvency and Governance Bill being put before Parliament. It will have its second reading in the House of Commons on 3 June 2020. Curiously, the Bill...

Corporate Insolvency and Governance Bill - Relevant Period

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The Corporate Insolvency and Governance Bill is due for a second reading in the House of Commons on 3 June 2020. The Bill will commence from the date on which it passes and last for an initial period of one month. This is likely to be up until early July,...

SME businesses and government rescue packages

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For most companies the government rescue packages at first blush appear an extremely welcome relief – employees’ jobs are secured, directors are protected from any wrong decisions made in these times of uncertainty and creditors are prohibited...

Government measures updated to counter COVID-19

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Business is no longer “as usual” as further impacts of Coronavirus hit the leisure industry, with Boris Johnson today announcing measures, including: Cafes, restaurants and pubs to close tonight. When they will...

How does a business pay its staff and survive during what could be the many months of COVID-19?

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As with all businesses, certain variable costs are linked to the turnover they generate and can ebb and flow with changing demand. However, other fixed costs remain, regardless of the success of the business. It is these fixed costs that...

COVID-19: How is the Government supporting businesses?

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The UK government has very quickly identified the impact the Coronavirus may have on business and has provided key reliefs in the 11 March 2020 budget. This includes a package of measures to assist business, including: ...

Carillion liquidation: insolvency and where does my business go?

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Following the liquidation of Carillion and its five associated companies (although more may yet fold) there are undoubtedly similar insolvency risks for SMEs with large debts outstanding and unpaid, and individuals in similar circumstances. The prospect...

Carillion liquidation and pension concerns

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The Carillion pension scheme is a final salary/defined benefit scheme which provides a final salary to employees dependent on their period of service and contributions. This is a type of scheme which was traditionally used by large companies in the UK...

Carillion liquidation: recovery of your debts and losses

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The recent and well-publicised liquidation of Carillion Plc (and a number of connected companies) has left everyone surprised, including public commentators concerned as to why projects were given to Carillion, political commentators on the future of PFI, ...

Carillion liquidation: what does this mean?

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Carillion Plc and five associated companies have been placed into liquidation following a petition presented to Court. This is often referred to as a “compulsory liquidation” where a creditor forces the liquidation of a company, as opposed...

Who does a Director owe such Fiduciary Duties to?

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A Director’s fiduciary duties is primarily owed to the shareholders of the Company, which essentially comprises of the company in a global sense. Such fiduciary duties do not apply to specific shareholders or specific groups of shareholders, as...

Risks that Directors Face: Prosecution for failing to file Accounts or Returns

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Under the Companies Act 2006 all Directors of a Company can be subject to criminal proceedings for failing to file Annual Financial Accounts and/or Annual Returns in accordance with the statutory deadlines. The requirements in respect of Annual Returns...

The desire to prefer a Creditor

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For a preference to have taken place the insolvent company must, at the time of the making of the Preference, have been influenced by a desire to put the Recipient in a better position than the Recipient would be in the event of a later insolvency. ...

Compensation Orders/Undertakings can they be changed?

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The Small Business, Enterprise and Employment Act 2015 incorporates a new Section 15C into the Company Directors Disqualification Act 1986 which allows an application to court to vary the compensation payable under a Compensation Undertaking and even to seek...

Risks that Directors Face: Compensation Orders

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From 26 March 2015 the Small Business Enterprise and Employment Act 2015 introduced changes to legislation such that, when Directors are disqualified (either by Court Order or by way of a voluntary undertaking) there is a further two year limitation period...

Risks that Directors Face: Personal Liability Notices

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Section 121C of the Social Security Administration Act 1992 provides HMRC with the powers to recover unpaid National Insurance Contributions, plus any interest and penalties, from the Directors or other officers of the company. “Other officers”...

The consequences of a Preference

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A preference is a voidable transaction. This means that an appointed Liquidator or Administrator can apply to Court for an order to “set aside” any Preference transaction that they think has occurred. If the Court agrees that there has...

How do I avoid being personally liable for a Breach of my Fiduciary Duties?

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The first answer to this is obviously always going to be, don’t breach such fiduciary duties. Directors are expected to achieve a certain standard of behaviour in decision-making, and whether there is any doubt as to the validity of a decision made...

Risks that Directors Face: Disqualification for consecutive Prosecutions

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As described by the last point, a Director can be prosecuted in the criminal courts for a failure to deal with Companies House filings. If a Director does this in consecutive years, and is prosecuted on more than one occasion, then when bringing such...

What are Directors Duties?

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The word “fiduciary” is defined by common law as an individual or entity that acts for another in a particular matter in circumstances which give rise to a relationship of trust and confidence. A fiduciary should act exclusively in the...

Prosecution by Companies House: likely sentences

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Although the legislation (as it stands as of writing) does not provide for any prison sentence for failing to file annual accounts and/or returns, the Magistrates Court will fine the Director and this will be a criminal conviction and will mean a Director...

Risks that Directors Face: Liabilities arising in insolvency

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There are numerous types of transaction which may be subject to a claim by appointed Liquidators and Administrators over an insolvent company. Quite often the transactions will be conventional debts due as shown in the Company’s books and...

Risks that Directors Face: Statutory Derivative Claims

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A Statutory Derivative Claimant (or “Derivative Claim”) is brought by Shareholders under Part 11 of the Companies Act 2006 in respect of one of the following circumstances: In respect of a cause of action vested in the...

Risks that Directors Face: Director Disqualification

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Once the Company has been placed into an insolvency process, the Official Receiver or the nominated Administrator or Liquidator is required by law to make a report on the conduct of all Directors in the period leading up to the commencement of the insolvency...

How can I decide whether I am Associated to the Company?

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The legal complexities caused by differentiating between someone unconnected with the company and someone who is connected with the company is complicated further by including (in addition to Directors, by whatsoever name called) the definition of an...

Defences to a Preference Claim?

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Aside from the defence that a transaction may have preceded or fallen outside of the Relevant Time, the remaining defences can be summarized as follows: Insolvency – was the company insolvent or did it become insolvent as a...

Being CONNECTED with a company and being an associate

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There are various claims which can be made against directors, their spouses, friends or third parties under the Insolvency Act 1986 for recovery of assets or sums received as a result of transactions that occurred between them and the company before it was...

Prosecutions of Directors by Companies House

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There are certain requirements that a Company must abide by at law, to give effect to the transparency of corporate information and to ensure that the legal vehicle of the Company (especially its limited liability) is not abused. As Directors may...

Consequences of a Breach of a Directors Fiduciary Duties

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The consequences of a breach of a directors fiduciary duties can be quite severe. A shareholder, creditor or the company can bring proceedings against a director personally for a breach of such duties, provided loss or damage was caused as a result of...

How much will i have to pay under a Compensation Order or undertaking?

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This is specified by Section 15B of the Company Directors Disqualification Act 1986 which has been introduced by the Small Business Enterprise and Employment Act 2015. In summary, a Compensation Order or Undertaking will require a Director to pay an...

What do Companies House generally Prosecute Directors for?

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Part 15 of the Companies Act 2006 is the legal framework outlining what accounts and reports that must be filed at Companies House. These sections also deal with the consequences of failing to file such accounts and reports with the Registrar of...

Risks that Directors Face: Unfair Prejudice Claims

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Under Section 994 of the Companies Act 2006 a shareholder can bring a claim against a co-shareholder for any loss (i.e. prejudice) they have suffered as a result of the other shareholder’s actions. This is commonly used in small to medium-sized...

Risks that Directors Face: Guarantee liabilities

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It is not uncommon for a trading company, dependant on its business, to require financial support to promote growth into new areas or to expand its current business. This can come as funding in various forms, including straightforward loans, more...

Exceptions to such Fiduciary Duties

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There are of course circumstances where a Director’s fiduciary duties are different, perhaps by reason of the reasons the Company exists. Some companies are not incorporated or set up to provide profits and dividends to shareholders. The...

Compensation Orders: why give a Disqualification Undertaking?

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Compensation orders will be available to the Secretary of State regardless as to whether the original disqualification proceedings were contested or not. In England and Wales most directors are disqualified by way of a voluntary undertaking following...

Do Defences exist to a prosecution by Companies House?

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As with any claim, all subjective matters have to be taken into consideration before deciding whether a Defendant is guilty. There also exist some prescribed statutory defences in certaing circumstancs. For prosecutions on the basis of a failure to...

When should the Preference transaction have occurred?

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A preference has to take place within the “Relevant Time” as defined for all pre-insolvency Antecedent Transactions under the Insolvency Act 1986 (an associated legislation). If the transaction did not occur within this Relevant Time then...

Types of Preference?

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Anything that an insolvent party does, influences or allows to be done which puts a Recipient in a better financial position or improves the Recipient’s financial position in the period before an insolvency could be seen to be a preference. ...

What is a Preference?

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If a company does something or allows something to be done which puts a creditor , surety or guarantor (“the Recipient”) in a better position than it would otherwise have been in (in the event that the company is placed into an insolvent ...

Will the recovery not just reduce my Personal Guarantee of the Debenture?

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The answer to this question, which is often one raised by many Directors faced by insolvency proceedings, is no subject to certain exceptions. Recoveries into the Liquidation estate will not directly benefit Charge holders, as they are not considered...

What is the punishment for Wrongful Trading and Fraudulent Trading?

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Under the Insolvency Act 1986, the difference between damages awarded for Wrongful Trading as opposed to Fraudulent Trading is that the former is deemed compensatory whereas the latter is punitive. Accordingly, a Director may be liable for all or some of...

What Defences exist to a Wrongful Trading of Fraudulent Trading claim?

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Again, as with all litigation, the circumstances are subjective and a Defence may largely be by reference to that Director’s role and the Director’s fiduciary duties. The Burden of Proof for Fraudulent Trading claims is much higher and...

How do I protect against a Wrongful Trading claim?

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As stated above, and in reality, it is often difficult to look at justifying Company decisions at the time and in circumstances where the Company may be struggling or under pressure. Although there is no magic formula to preventing such potential claims, a...

How can I tell if I am trading in breach of the Wrongful or Fraudulent Trading provisions?

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Ultimately, these type of claims are determined at a much later stage when a Liquidator is appointed and some evidence may not have survived the Liquidation process. For Wrongful Trading, as a Director you have to consider whether any decision is:...

What is Fraudulent Trading?

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Fraudulent Trading is far more serious and overlaps with criminal law. Section 213 of the Insolvency Act 1986 enables a claim to be made by a Liquidator against a Director where the following is demonstrated to have occurred: ...

What is Wrongful Trading?

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Wrongful trading is a statutory term for the civil offence under Section 214 of the Insolvency Act 1986 which enables a claim to be made against the Company’s director(s) in the following circumstances: Where the Company has...

Can a Creditor sue a Liquidator or an Administrator for Misfeasance?

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It is possible under the legislation for a creditor to take such action against a Liquidator or an Administrator where s/he considers that they have made decisions on behalf of the Company which have caused losses and for which is can be shown that such...

What can be the extent of a Directors liability for Misfeasance?

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Misfeasance is a remedy for a claim made on behalf of the Company. The amount that can be repayable is defined by the legislation as follows: To repay, restore or account for the money or property or any part of it, with...

What are the Defences to Misfeasance?

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The answer to this question will often depend on the allegation that supports the remedy sought. Where an insolvency claim exists, for example preferring a creditor or causing or allowing the Company to be involved in a transaction at an undervalue,...

Can past Directors be liable for Misfeasance?

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This is a question that is obviously concerning to directors who retire or depart the Company and fear they may be later penalised personally for matters which have arose out of events or circumstances that preceded their departure. The simple answer to...

Who can bring a Misfeasance Claim?

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Misfeasance claims are generally brought by Liquidators. They are only available where the Company has been placed into liquidation and such a claim does not exist where the Company is placed into Administration (although that does not preclude a claim...

What sort of transactions can be subject to Misfeasance Claims?

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Any misconduct by a Director which leads to a loss to the Company or its creditors as a whole can form the basis of a claim for Misfeasance against that Director personally. The claim is one which lies with the Company and is brought by its appointed...

What is Misfeasance?

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In exchange for the protection of a limited liability, company law requires that Directors adhere to their fiduciary duties when directing a Company and do not act in breach of the public interest, do not prejudice a stakeholders’ interests (including...

What if I do not pay or write off the balance on my Directors Loan Account?

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A Director’s loan is ultimately a debt owed to the Company. It is generally repayable upon demand (unless there is an alternative agreement providing for repayment terms). Both the Company and the Director face risks personally if...

Can a Director lend money from the Company without approval by Shareholders?

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The answer to this question generally is no and the Directors loan account should not normally be debited with any such transactions. However, there are some exceptions which exist to manage the conflict between shareholders and Directors but balance this...

What are the Restrictions on a Directors Loan?

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A Director’s Loan will either be a loan to the Company or a loan from the Company. It is perfectly legitimate, subject to any amendment to the Company’s Constitution or otherwise, for a Director to loan money to a Company provided there are no...

Can my drawings be a Directors Loan?

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Money drawn from a company by Directors can be accounted for in several ways – as payments for expenses, as salary or remuneration payments, as dividends (where he Directors are also shareholders) or – if none of the above apply –...

Alternative Forms of Funding - Asset Based Lending

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This is becoming increasingly more common nowadays and covers all forms of funding that company’s can take advantage of based on the assets they own or purchase. A common example may be finance raised against plant and machinery or vehicles, either...

Property Issues

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Depending on the type of business the company operates, it may need industrial premises, a general commercial or office space upon commencement of trading or during its life (as part of any expansion plans). The premises you occupy for your business could be...

Trading Issues: Matters To Consider For All Companies

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Upon starting-up a company, the directors have to consider the company’s business and its trading relationship with customers and suppliers. In particular the directors should consider the following: The...

Buying/Selling Goods and Services

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The most important aspects of a contract for the purchase or supply of goods or services are that terms and conditions of the contract are properly on notice to both parties before the commencement of the contract (i.e. upon the purchase order being made) or...

Funding a Company

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Unless shareholders have cash resources or set-up a company as an investment, it is most likely that the first consideration, or as part of ongoing expansion or funding plans, will be the method of funding to be relied on by the company. The methods...

Shareholder's Agreements - Part 2: the uses of a shareholders agreement

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Each company is different. It has a different business, a different model as regards its intended objective, which could (but not always) include maximising sales, how it will be funded, who will benefit and what geographical areas or specific sectors...

Employees

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If a company is to engage employees, it will need an employment contract and advice on its obligations as an employer. There are a variety of other ways that a person could do work for your company: as a PAYE employee, as a self-employed person, via a...

Types of Funding

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As described in our previous blog, whilst funding is critical to a company’s business it is also vital to ensure the right product is obtained relevant to the company’s business needs. Whilst there are numerous financial products available out...

Shareholder's Agreements - Part 3: Drafting a shareholder's agreement

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The shareholder’s agreement should ideally be drafted with legal advice to prevent any risk of prejudice to any party. The agreement obviously need to reflect the intentions of all shareholders, who should have input into it and discuss its contents...

Is there any restriction on the choice of company name?

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There are rules set out as regards a private company’s name: It cannot contain any reference to a government department or any local or public authority; It may not include any sensitive words without the...

How are company decisions made?

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For an owner-managed company which has only one or two directors and no employees, decisions will often be made informally and the resulting action performed by the same individuals. Ideally such decisions should be recorded as a board minute but this is not...

Directors and their control of a company

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Once the company is set up and running, all of its trading activities are subject to the direction and management by its directors, which is commonly referred to as corporate governance and is subject to shareholders’ authority. Directors will...

What are the benefits of a limited company?

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A company is a separate legal person from the individuals who are involved with the company as director or shareholder. A company can own property and enter contracts in its own name and any liability attaching to those assets or arrangements will be that of...

Introduction

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This is part of a series of blogs that form the basis for a company toolkit, by providing guidance on how to set-up a company, the critical considerations to deal with at the start of your business, ongoing issues that all companies face and options to...

Shareholder's Agreements - Part 1: the need for a shareholders agreement

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The most common form of company business is a small owner-managed company, comprised of the same individuals who run the business, act as directors and who are also shareholders. This may be a business that is family-run and which has been going for some...

Shareholders' role in administering company affairs

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Shareholders have no right to be involved in the day-to-day running of the company unless they (as individuals) are also directors of the company (as often occurs in small owner-managed companies). It is a duty of directors to ensure a register of...

Company Memorandum and Articles of Association

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A Memorandum of Association is an agreement by the initial shareholder(s) that they wish to form a company and agree to become members and will take at least one share each in the company. An online version of the Memorandu of Association is available at; ...

Off the Shelf Companies

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A would-be director can purchase a company that has been formed by company formation agents but which has not traded (these are known as “shelf companies”). These companies come with the very basic constitutional requirements, but it is...

How do I form a company?

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A company is formed by the filing of certain forms at Companies House and the payment of a fee. The company is incorporated when the Registrar of Companies issues a certificate of incorporation. To incorporate a private company limited by shares the...

Requirements for appointing directors and a company secretary

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The officers of a company are its directors and company secretary. A private company limited by shares must have at least one director, who must be a natural person. It is possible to have more directors and the Articles may set a maximum number (although...

Company Formation - Setting Up a Business

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If you are new to running your own business you will have a great many things to consider at the outset. Amongst the issue of obtaining funding, the trading name, the design of logos, the finding and setting up of premises and, most importantly, finding...