COMPANY FORMATION AND LINKED ISSUES
Company formation and linked issues
AIMS AND OBJECTIVES
After reading this chapter you should be able to:
Register a company
Understand the importance and usefulness of company registration numbers
Decide whether a proposed name for a company will be accepted by the registrar of companies
Understand when a company name may be challenged based on another’s goodwill
Advise on trading disclosures required by a company
Recognise a promoter and explain the legal obligations he owes in relation to the proposed company
Distinguish between a business and the company operating it
Recognise a pre-incorporation contract
Advise whether or not a person who signs a pre-incorporation contract on behalf of a company is liable under it or can enforce it
Work out whether or not a company is bound by a pre-incorporation contract
Re-register a private company as a public company and vice versa
registrar of companies
The registrar of companies for England and Wales, Scotland or Northern Ireland, as the case may require, to whom documents are sent to form a company and to whom the necessary returns are made during the lifetime of a company
This chapter describes how to register a UK company pursuant to the Companies Act 2006.
A ‘UK company’ is a company registered under the Companies Act 2006 (s 1183). Although reference is made throughout the Act, and in this book, to the registrar of companies, there are in fact three registrars (s 1060):
the registrar for England and Wales;
the registrar for Scotland;
the registrar for Northern Ireland.
The intended location of the registered office of a UK company determines to which registrar the registration documents must be delivered (s 9(6)). England and Wales, Scotland and Northern Ireland are three different legal systems with separate court systems. The law of the jurisdiction in which the company is registered will govern the internal affairs of the company.
The address of the office of a company to which formal notices and legal documents should be addressed and sent
4.1.2 Registration requirements: general
A UK company is formed by one or more persons (which may be companies) subscribing their names to a memorandum of association and complying with the registration requirements contained in ss 9–13 of the Companies Act 2006. If the registrar of companies is satisfied the registration requirements of the Act have been complied with he must register the documents delivered to him and must issue a certificate that the company is incorporated (ss 14 and 15). A refusal by the registrar to register a company is subject to judicial review.
memorandum of association
The document which under predecessor Companies Acts sets out the basic details of a company: name, place of incorporation, objects, liability of the members and authorised share capital but under the Companies Act 2006 is a shorter document containing the names of the initial subscribers for shares and their agreement to form a company
A company may not be formed for an unlawful purpose (s 7(2)), but as there is no longer a requirement to state the purpose or purposes for which a company is being incorporated (known as the company’s ‘objects’, s 31(1)), in any of the documents delivered to the registrar when applying to register a company, it is unlikely that the registrar will have information to be in a position to enforce this provision by refusing to register a company.
A notorious case involving a company registered to run a brothel (R v Registrar of Companies ex parte Attorney General Ltd  BCLC 476) established that even though s 15(4) states that a certificate of incorporation is conclusive evidence ‘that the requirements of this Act as to registration have been complied with’, a certificate of incorporation is not conclusive evidence that a company has been formed for a lawful purpose.
certificate of incorporation
The document issued by the registrar of companies on the registration of a company under the Companies Act 2006 or a predecessor statute
4.1.3 Registration requirements: submitting an application to register
The registration procedure is very simple and inexpensive. An application can be made electronically with the requisite forms and documents being ‘delivered’ to the registrar (Companies House) online and a certificate received within hours. An application to register a company must include the following (s 9):
1. Memorandum of association in prescribed form (ss 7 and 8):
only one subscriber is required and there is no maximum;
subscriber(s) agree to take at least one share (each);
subscribers express the wish to form a company and agree to become members.
2. Articles of association:
articles are the internal rules of the company;
if none are submitted, relevant model articles will apply;
may (not must) contain a statement of objects (s 31);
if the articles contain an entrenched provision, notice of this must be given by the company to the registrar (s 23(1)).
3. Application to register a company form (INO1), which states and includes:
the proposed company name;
whether the proposed registered office is to be in England and Wales, Scotland or Northern Ireland;
whether or not the liability of the members is to be limited and if so by shares or guarantee;
whether the company is to be private (Limited/Ltd) or public (plc).
4. Statement of capital and initial shareholdings (s 10) (unless the company is to be limited by guarantee, in which case a statement of guarantee is required, see s 11), which states:
number of shares to be taken on registration;
total nominal value of those shares;
for each class:
prescribed particulars of rights attached to those shares,
number of shares of that class,
total nominal value of shares of that class;
amount to be paid up and amount unpaid on each share (see below);
prescribed particulars to identify subscribers;
in relation to each subscriber:
number, nominal value and class of shares he is to take,
amount to be paid up and amount unpaid on each share;
the statement of capital must be updated each time the capital is altered, for example, if additional shares are allotted.
5. Statement of proposed registered address.
6. Statement of proposed officers (s 12):
proposed directors’ particulars including residential address;
proposed secretary’s particulars (if company is to have one).
7. Statement of compliance that the registration requirements have been complied with (s 13).
8. Fee (£13–£100 depending upon the mode of registration and whether or not same-day registration is required).
Once the Small Business, Enterprise and Employment Bill 2014 has been enacted, the statement of capital will have to state only the aggregate amount to be unpaid on the shares to be taken on registration, not the amount to be paid and the unpaid amount on each share (cl 85 and Sched 6). Also, the statement of proposed officers will have to include a statement (by the subscribers to the memorandum of association) that each of the persons named as a director or secretary has consented to act in that capacity.
4.2 Specialist company formation companies
Rather than dealing with Companies House directly, specialist company registration businesses can be found online offering to register companies on behalf of those seeking to set up a registered company (the incorporators). The key benefits of obtaining a company from a company registration business are simplicity and the saving of the time that would otherwise be taken familiarising oneself with the process and gathering together and completing the relevant information and forms.
The main shortcoming of companies obtained from a company registration business, and of self-registered companies, is that the constitution of the company, the articles of association will not be fully made to order or ‘bespoked’ to the needs of the incorporators. In many cases no attempt to reflect the wishes of the incorporators in the articles of association is made at all. Nonetheless, the Company Law Review Steering Committee Group estimated in 2000 that approximately 60 per cent of companies being registered were registered by specialist company formation companies and there is every likelihood that this percentage has increased in the last 15 years and will continue to increase in the future.
When a company is registered it is given a registered number, often called the company number (s 1066). This number appears on the certificate of incorporation and the register of companies. During its continued existence a company may change its name. A company’s registered number, however, never changes. When a company is registered, or a change of name is sought, the proposed name must comply with the Companies Act 2006. The company’s name appears on the certificate of incorporation.
It can be very difficult to know which company entered into an agreement if, after entering into the agreement, the company changes its name. It is particularly confusing where a company’s name is changed and its old name is given to a new company. An old agreement may appear to have been entered into by the new company when in fact it was entered into by the company that previously had that name. This is not an academic issue; it occurs frequently in practice and causes problems.
Identification difficulty can be avoided by including the company number as part of the identification of a company, rather than relying on referring to a company by its name. In the example given, if the old agreement stated the company number of the company that had entered into it, it would be clear that the new company, albeit having the same company name, is a different company because it has a different company number. Unfortunately, not all jurisdictions have this benefit. Companies registered in Delaware, the most popular state in which to incorporate in the USA, for example, do not have unique company numbers.
The law governing company names is contained in Pt 5 of the Companies Act 2006. A company sometimes trades using a business name different from its company name. A company with the company name Gas Appliances Limited, for example, may trade under the name ‘Flames For You’ which is its business name. Rules governing business names are contained in Pt 41 of the Companies Act 2006. The rules, which replace the Business Names Act 1985, apply not only to companies but to any person carrying on business in the UK.
The legal issues in relation to company names and company business names fall into four categories:
limits on choice of company name;
procedure for changing a company name;
regulation of business names (Pt 41).
In its response to consultation undertaken as part of the Red Tape Challenge, in October 2013, BIS agreed to draft regulations to simplify the law governing company and business names and trading disclosures. No draft regulations had been published at the time of writing but the announced changes will:
reduce the number of prohibited sensitive words by one-third;
remove most of the words that currently appear on the list of words that are disregarded when names of companies are being compared for the purposes of determining whether or not they are too similar (the ‘same as’ list);
facilitate name changes within corporate groups;
merge the regulations governing trading disclosures and company names to make the law easier to access.
Choosing a company name: limits on company names
The Companies Act 2006 provisions allow:
the registrar of companies to refuse to register certain company names;
the Secretary of State to direct that a company name be changed in certain circumstances;
a company names adjudicator to order that a company name be changed, on the successful application by a person with goodwill.
These provisions need to be taken into account when choosing a company name when both registering a company and changing the name of an existing company. The detailed rights of the registrar and the Secretary of State are contained in the Company and Business Names (Miscellaneous Provisions) Regulations 2009 (SI 2009/1085), referred to as the CBN(MP) Regulations 2009. The main points are summarised in Tables 4.1 and 4.2. The rights of a person with goodwill are considered in the paragraphs following the tables.
Registrar of companies’ rights to refuse to register a name
Prohibited names (s 53)
A company must not be registered by a name if, in the opinion of the Secretary of State, its use would constitute an offence or it is offensive.
Approval of names by the Secretary of State (SS) (ss 54 and 55)
A company will not be registered with a name that:
i would be likely to give the impression that the company is connected with Her Majesty’s Government, a local authority or any public authority specified in the Company, Limited Liability Partnership and Business names (Sensitive Words and Expressions) Regulations 2009 (SI 2009/2615); or
ii includes a sensitive word or expression listed in those regulations unless evidence is produced that the name has been approved by the SS.
‘NHS Pottery Services Limited’ will not be registered without the approval of the SS who will not consider the request for approval unless provided with the reply from the Department of Health to a request in writing seeking its views.
A company may not be registered by a name that includes any characters, signs, symbol or punctuation, or the placing or number thereof, that is not permitted by the CBN(MP) Regulations 2009 (see reg 2 and Sched 1).
‘*Burst Limited’ will not be registered because ‘*’ cannot be used as one of the first three characters.
Indications of company type or legal form by limited companies (ss 58–64)
A company name must indicate the type of company it is, in a manner provided for in the Act.
The name of a private limited company that is not a CIC, Welsh or exempt must end with ‘Limited’ or ‘Ltd’.
The name of a public limited company that is not a CIC or Welsh must end with ‘public limited company’ or ‘plc’.
Inappropriate use of indications of company type or form (s 65)
A company must not be registered by a name that includes specified words, expressions or other indications associated with a particular type of company or form of organisation or words similar thereto prohibited by the SS in the CBN(MP) Regulations 2009 (see regs 4–6).
An unlimited company must not have a name that ends with the word ‘limited’.
Names the same as the name of an existing company (s 66)
The registrar of companies will not register a company with a name that is the same as a name on the company register. The Companies Act 2006 and CBN(MP) Regulations 2009 contain guidance as to how the registrar will approach deciding whether or not one name is the same as another for these purposes and provisions to ensure that trivial difference between names will be ignored by the registrar of companies when deciding whether or not a name is ‘the same as’ a name on the company register (see reg 7 and Sched 3).
The proposed name ‘Sands Co Public Limited Company’ will not be registered if there is an existing company named ‘S and S plc’. This is because gaps are ignored for the purposes of comparison, so ‘S and S’ is regarded as the same as ‘sands’, ‘Co’ is ignored, and ‘plc’ is equivalent to ‘Public Limited Company’.
Note that reg 8 of the CBN(MP) Regulations 2009 allows for a company to be registered with a name that would otherwise be prohibited by s 66 if the existing company consents and is part of the same corporate group as the company whose name is being registered or changed.
Secretary of State’s rights to direct that a name be changed
Company ceasing to be entitled to an exemption from the requirement to end its name with ‘limited’ (s 64)
If it appears to the Secretary of State (SS) that a company whose name does not include 1 ‘limited’ or any of the permitted alternatives has ceased to be entitled to an exemption, he may direct the company to change its name so that it ends with ‘limited’ or one of the permitted alternatives.
Names the same as or similar to the name of an existing company (ss 67 and 68)
The SS may direct a company to change its name if it has been registered in a name that is the same as or, in the opinion of the SS, too like an existing company name. Such direction must be given within 12 months of registration by the name in question.
Misleading information given for the purposes of a company’s registration with a particular name (s 75)
If it appears to the SS that misleading information has been given for the purposes of a company’s registration by a particular name, or that an undertaking or assurance has been given for that purpose and has not been fulfilled, the SS may direct the company to change its name. Such a direction must be given within five years of the company’s registration by the name in question.
Misleading indication of activities (s 76)
If in the opinion of the SS the name by which a company is registered gives so misleading an indication of the nature of its activities as to be likely to cause harm to the public, the SS may direct the company to change its name.
In addition to company law considerations, it is important to choose a company name that will not leave the company open to challenge based on the argument that the conduct of business under that name infringes the intellectual property rights of another person. These rights include, though they may not be limited to, the right to bring an action for infringement of a registered trade mark and the right of a trader to bring a tort action for passing off.
A common law tort actionable by a claimant who is the owner of goodwill (sometimes referred to as an unregistered trade mark or reputation attached to a good or service) when another person has made a misrepresentation which leads or is likely to lead to its product or service being associated with the claimant thereby deceiving the public and resulting in damage to the goodwill of the claimant
A passing off action may be brought against any person who misrepresents to the public that the goods or services it, the misrepresenting person, is providing, are associated with the claimant trader, thereby causing damage to the claimant trader. The claimant trader must demonstrate that it has goodwill that has been damaged by the misrepresentation (see Erwen Warnick B V v J Townend & Sons (Hull) Ltd  AC 731, per Lord Fraser at 742 (HL)). Goodwill refers to all those attributes of a business that attract and retain customers that are not accounted for elsewhere. Goodwill is an intangible asset of a business that can be bought and sold (see section 4.5, transferring a business to a company). Merely calling a company a name can never amount to passing off.
Objection to a name, based on goodwill
The legal protection given to the owner of goodwill has been enhanced, on the recommendation of the Company Law Review, by the introduction of ss 69–74 of the Companies Act 2006 to deal with ‘opportunistic registration’. The Companies Act provisions are in addition to, and complement, the tort of passing off. They provide for a person with goodwill (s 69) to apply to a company names adjudicator for an order that a company name be changed (s 73). The details are contained in the Company Names Adjudicator Rules 2008 (SI 2008/1738).
The applicant must establish that the respondent company’s name is the same as a name associated with the applicant in which it has goodwill, or is so sufficiently similar to such a name that its use would be likely to mislead by suggesting a connection between the respondent company and the applicant. The concept of ‘goodwill’ is extended for the purposes of such an application, being defined in s 69(7) to include ‘reputation of any description’. There is no time limit on the making of an application which could but, as the following comments suggest, is unlikely to be made years after a company has been registered with a particular name.
The provisions are intended to catch only those cases in which the company name has been chosen to exploit another’s reputation or goodwill, in other words, to provide a remedy where there has been opportunistic registration. Consequently, the provisions have been drawn very narrowly and an objection cannot be upheld, and no order that a company name be changed can be made, if the respondent company establishes any one of the following five defences:
1. that the name was registered before the commencement of the activities on which the applicant relies to show goodwill;
2. that the respondent company:
is operating under the name, or
is proposing to do so and has incurred substantial start-up costs in preparation, or
was formerly operating under the name and is now dormant;
3. that the name was registered in the ordinary course of a company formation business and the company is available for sale to the applicant on the standard terms of that business;
4. that the name was adopted in good faith;
5. that the interests of the applicant are not adversely affected to any significant extent.
Any decision of a company names adjudicator may be appealed to the court (s 74).
Procedure to change a company name
A company may change its name by the following process (ss 77–81):
1. The company:
passes a special resolution;
forwards a copy of the resolution to the registrar of companies;
gives notice of change of name to the registrar of companies.
2. The registrar:
satisfies himself that:
the new name complies with the requirements of the Act, and
the other requirements of the Act have been complied with;
enters the new name on the register of companies in place of the old name;
issues a new certificate of incorporation.
The change of name has effect from the date on which the new certificate is issued (s 81). If the articles provide another means by which the company’s name can be changed, that means is substituted for the special resolution in the process above. There are special provisions to accommodate a change of name directed or ordered by the Secretary of State, a company names adjudicator or the court (s 77).
The trading disclosures required by regulations made pursuant to ss 82 and 84 of the Companies Act 2006 extend beyond the obligation under earlier companies legislation to disclose the company name in specified locations. Basically, a company is required by the Companies (Trading Disclosures) Regulations 2008 (SI 2008/495) (as amended) to:
1. Display its company name, so that the name may be easily seen by any visitor (regs 3–5), at:
its registered office;
any place where it keeps company records;
any place at which it carries on business.
2. Disclose its company name on (reg 6):
its business letters, notices and other official publications;
its bills of exchange, promissory notes, endorsements and order forms;
cheques purporting to be signed by or on behalf of the company:
orders for money, goods or services purporting to be signed by or on behalf of the company;
its bills of parcels, invoices and other demands for payment, receipts and letters of credit;
its applications for licences to carry on a trade or activity;
all other forms of its business correspondence and documentation.
3. Disclose the part of the UK in which the company is registered, the company’s registered number and the address of the company’s registered office and ensure that any share capital referred to (which is optional) is paid-up share capital (reg 7) on:
its business letters;
its order forms.
Additionally, where a company’s business letter includes the name of any director of that company, other than in the text or as a signatory, the letter must disclose the name of every director of that company (reg 8). All mandated information must be readable by the naked eye (reg 2).
Finally, a company must reply within five working days of a request from any person it deals with in the course of business, disclosing the address of its registered office and the place at which its records can be inspected (reg 9). If a company fails, without reasonable excuse, to comply with any of the above requirements, an offence is committed by both the company and every officer of the company in default. Any person guilty of an offence is liable on summary conviction to a fine and, for continued contravention, a daily default fine (reg 10).
Business names used by companies
A business name is a name used in the course of carrying on a business. Just as a sole trader may carry on business under his own name or a name different from his personal name and a partnership may trade under the names of the partners or a name different from the names of the partners, so a company may trade under its company name or a different name. Although business names are not registered with any government department, business name laws must be adhered to.
The Companies Act 2006 (Pt 41 (ss 1192–1208)) governs business names used both by registered companies and in relation to businesses not carried on by registered companies. The relevant provisions replace the Business Names Act 1985 and regulations made thereunder. For non-company businesses (only) these rules extend beyond regulating the choice of name to requiring certain trading disclosures (see ss 1200–1206).
Chapter 1 of Pt 41 of the 2006 Act (ss 1192–1199) applies to registered companies. Basically, a company may not, without the approval of the Secretary of State, use a business name:
suggesting connection with the government or a public authority (s 1193);
that includes a sensitive word as listed from time to time in regulations (s 1194);
inappropriately suggesting that the company is a particular type of company or has a particular legal form (s 1197); or
giving a misleading indication of the nature of the activities conducted so as to be likely to cause harm to the public (s 1198).
The first two bullet points mirror the requirement to obtain approval before a company could be registered with the name in question (see ss 54 and 55) and the third and fourth bullet points complement ss 58, 59 and 76 regulating registrable names. Sections 54, 55, 58, 59 and 76 are covered in Tables 4.1 and 4.2.
A new company formed with a name the same as or similar to that of a company that has gone into insolvent liquidation having the same director(s) as the failed company and running essentially the same business that had been run by the failed company the assets of which have been transferred to the second company