Company & Commercial

Company Law

Frequently Asked Questions on Company Law

Q Should I incorporate a company to carry on my business?

A There are a number of factors to consider, as incorporation has both advantages and disadvantages over carrying on your business as a sole trader or partnership.

Advantages

  • Limited liability protects your personal assets against insolvency of the business, but bear in mind that banks lending to companies often require personal guarantees
  • If you have partners in the business, a corporate structure provides a more flexible way to divide up and pass on ownership
  • Operating as a company can give your business more credibility, although the approach of creditors can vary

Disadvantages

  • There is additional bureaucracy and expense in dealing with corporate records and filing requirements
  • Accounts have to be prepared and made public, although an unincorporated business will still need to prepare accounts for management or tax purposes

You also now have the option of forming a Limited Liability Partnership. The UK model for this is based on a company, so most of the above points apply, though it does allow a more partnership-like structure to be adopted.

You should also take tax advice, as although the decision is more tax neutral nowadays, it is still often determined by personal tax planning. The decision to incorporate will always depend on your particular circumstances, and those of your business, although for larger businesses incorporation is often the only practical solution.

Q What details do I need to put on my company's notepaper?

A All business letters must state in legible characters:

  • The full name of the company, including "Limited" or "Ltd." - the registered name must also be specified where the company operates under a different trading name.
  • The country of registration - i.e. "England and Wales", "England" or "Wales" (this can be determined by the clause in the company's Memorandum of Association that says where the registered office is to be situated).
  • The registered number.
  • If you list the name of a director, you must list all the directors - but you can list none if you prefer.
  • If the company's share capital is stated, the reference must be to the paid up share capital - but it is not the practice in the United Kingdom to state company share capital on letterheads.
The minimum information is therefore e.g. "Newco Limited, registered in England and Wales Number 4567890, registered office 123 High Street, Anytown, Countyshire, AN1 2BC".

There are additional requirements for investment companies, charitable companies, companies exempt from using the word "Limited" in their name and overseas companies.

Q What other documents do these details need to appear on?

A The full requirements above apply only to business letters and order forms. However, the requirement to state the full name of the company applies to business letters, notices and other official publications, bills of exchange, promissory notes, endorsements, cheques and orders for money or goods purporting to be signed by or on behalf of the company, bills of parcels, invoices, receipts and letters of credit. If the full, correct name is not stated on a bill of exchange, promissory note, cheque or order for money or goods, the person who signed that document can be personally liable if the company does not pay. It is therefore particularly important to ensure your full, correct company name (including "Limited") appears on the company's cheques and purchase orders. The Companies Act was drafted before the days of web sites and email. However, it seems clear that emails can often be "business letters" and a web site is probably a "notice" or "other official publication".

Q What is the difference between a Limited company and a PLC?

A Limited company is registered as a private company. A PLC (or Public Limited Company) is registered as a public company. A public company is not necessarily listed on the Stock Exchange (though all listed companies are public companies). A PLC must have a minimum share capital of £50,000, of which at least £12,500 must be paid up, and many requirements of company law apply more strictly to PLCs. Some businesses which have the necessary capital and can cope with these additional restrictions re-register as public companies for the extra credibility it can give.

Q I'm going into business with a partner. We've formed a company, issued us both with shares and appointed ourselves as directors. Is there anything else we should consider?

A You should consider entering into a Shareholders' Agreement to govern your future business relationship. This can help resolve any dispute which may arise in the future and plan for succession to the company. Issues can be resolved now, whilst relations are good, which can be very difficult to resolve if things turn sour in the future.

Q I am discussing taking over another company. I've heard it's a complicated and expensive business. Is that correct?

A Yes it is. When you acquire the shares in a company, you take over ownership of a separate legal person, with all its existing assets and liabilities. The old legal rule of "let the buyer beware" applies in full force on a company purchase. It is therefore important to undertake due diligence on the company and seek full warranties and indemnities against undisclosed liabilities. For a seller, it is important to ensure that all material liabilities are disclosed to prevent future warranty claims, and to negotiate reasonable limitations on any such liability. Buying the assets of a business can help protect against undisclosed liabilities, but it is more complicated to purchase specified assets and liabilities then just the shares in a company. The commercial terms of such deals can also be complex, and negotiations can sometimes prove difficult. However, we are experienced in dealing with such transactions, and can help make the process as painless as possible.