Company formation - Incorporation process and requirements

Learning Outcomes

This article details the process of incorporating a private limited company in the UK by registration under the Companies Act 2006. It outlines the essential documentation, key decisions required before application, and the significance of the Certificate of Incorporation. For the SQE1 assessments, you will need to understand the procedural steps, the roles of Companies House and the applicant, and the immediate legal effects of incorporation, enabling you to apply this knowledge to practical scenarios presented in MCQs.

SQE1 Syllabus

For SQE1, you must understand the practical steps involved in forming a registered company. This includes knowing the necessary documentation, the information required by Companies House, and the consequences of incorporation. You will likely need to identify correct procedures or required information in client scenarios.

As you work through this article, remember to pay particular attention in your revision to:

  • The distinction between incorporation by registration and other methods.
  • The specific documents required for registration (Form IN01, Memorandum, Articles).
  • The key information needed to complete the application form (Form IN01).
  • The role and effect of the Certificate of Incorporation.
  • The nature and purpose of the Articles of Association, including Model Articles.
  • Basic post-incorporation compliance steps.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. Which document confirms a company legally exists and specifies its date of incorporation?
    1. Memorandum of Association
    2. Articles of Association
    3. Certificate of Incorporation
    4. Form IN01
  2. Which ONE of the following MUST be filed at Companies House to incorporate a private company limited by shares choosing to adopt the Model Articles in full?
    1. Bespoke Articles of Association
    2. The Model Articles
    3. A Statement of Capital
    4. An application form (Form IN01) and Memorandum of Association

  3. True or false? A private limited company must appoint a company secretary upon incorporation.

  4. What is the minimum number of directors required for a private limited company?
    1. One, provided they are a natural person.
    2. Two natural persons.
    3. One, who can be a corporate body.
    4. Two, one of whom must be a natural person.

Introduction

Incorporation is the legal process by which a new company is formed and comes into existence as a distinct legal entity, separate from its owners (shareholders) and managers (directors). This process grants the company ‘separate legal personality’ and usually allows its shareholders the benefit of ‘limited liability’ (these concepts were introduced in the article on business mediums). While historically companies could be formed by Royal Charter or Act of Parliament, the overwhelming majority today are incorporated by registration under the Companies Act 2006 (CA 2006). This article focuses on this registration process for private limited companies.

The Registration Process

Incorporation by registration involves submitting specific documents and information to the Registrar of Companies at Companies House. Once satisfied that the requirements of the CA 2006 have been met, the Registrar issues a certificate of incorporation, formally bringing the company into existence.

Methods of Application

Applications can be made electronically via the Companies House website, through approved third-party software (often used by company formation agents or solicitors), or by paper using the prescribed form. Electronic filing is generally faster and cheaper.

Key Term: Companies House
The UK government executive agency responsible for incorporating and dissolving companies, registering company information, and making it available to the public.

Key Term: Registrar of Companies
The official responsible for the registration process and maintenance of the company register at Companies House.

Key Documents

The core documents required for incorporating a private company limited by shares are:

  1. Application for registration (Form IN01): This form contains the essential details about the proposed company.
  2. Memorandum of Association: A statement by the subscribers confirming their intention to form a company and become members.
  3. Articles of Association: The company's internal rulebook. These only need to be filed if the company is not adopting the standard Model Articles in their entirety.

The appropriate fee must also accompany the application.

Key Term: Memorandum of Association
A document required for incorporation under CA 2006, stating the subscribers' intention to form a company and take at least one share each. Its constitutional significance was greatly reduced by the CA 2006.

Key Term: Articles of Association
The primary constitutional document of a company, setting out the internal rules governing its management, decision-making processes, and the rights and duties of directors and shareholders. Often referred to as the 'articles'.

Model Articles vs Bespoke Articles

Companies must have articles of association (s 18 CA 2006). Applicants can choose:

  • Model Articles: Standard default articles provided by regulations (The Companies (Model Articles) Regulations 2008). If no articles are submitted, the relevant Model Articles apply automatically (s 20 CA 2006). There are different sets for private companies limited by shares, private companies limited by guarantee, and public companies.
  • Amended Model Articles: Adopting the Model Articles but modifying or excluding certain provisions and potentially adding bespoke ones.
  • Bespoke Articles: Drafting a completely unique set of articles tailored to the company's specific requirements.

If amended or bespoke articles are used, a copy must be filed with the application. If the Model Articles are adopted in full, they do not need to be filed.

Key Term: Model Articles
Standard default sets of articles of association provided under the CA 2006 regulations for different company types. The Model Articles for private companies limited by shares (MAs) are commonly used.

Information Required on Form IN01

Form IN01 requires detailed information about the proposed company:

  • Company Name: Must be unique and end with "Limited" or "Ltd" (or Welsh equivalents). It cannot be offensive or include sensitive words without approval. A check should be made for existing names and potential trademark conflicts.
  • Registered Office: A physical address in the relevant part of the UK (England and Wales, Wales, Scotland, or Northern Ireland) where official documents will be served.
  • Directors: Details of the first director(s), including name, date of birth, nationality, occupation, service address, and residential address. Private companies need at least one director, who must be a natural person aged 16 or over (ss 154, 155, 157 CA 2006).
  • Company Secretary (optional for private companies): Details if one is appointed. Public companies must appoint a qualified secretary.
  • Statement of Capital and Initial Shareholdings: Details the number and type of shares the subscribers will take on incorporation, their nominal value, and the rights attached to them (s 10 CA 2006).
  • Statement of Guarantee (if applicable): For companies limited by guarantee.
  • People with Significant Control (PSC): Details of individuals or legal entities holding significant control (e.g., >25% shares or voting rights, right to appoint/remove majority of directors).

Key Term: People with Significant Control (PSC)
Individuals or relevant legal entities who meet specific conditions regarding ownership or control over a company, as defined in Part 21A CA 2006. Companies must maintain a PSC register.

  • Statement of Compliance: Confirmation that the CA 2006 registration requirements have been met (s 13 CA 2006).

The Certificate of Incorporation

Once the Registrar is satisfied, they issue the Certificate of Incorporation (s 15 CA 2006).

Key Term: Certificate of Incorporation
The official document issued by Companies House confirming the company's formation, its registration number, date of incorporation, and legal status. It is conclusive evidence of valid incorporation.

The certificate confirms:

  • Company name and registered number.
  • Date of incorporation (this is the date the company legally comes into existence).
  • Whether limited or unlimited, and if limited, by shares or guarantee.
  • Whether private or public.
  • Jurisdiction of registered office.

From the date on the certificate, the company is a separate legal entity, the subscribers become members, and the proposed directors and secretary (if any) take office (s 16 CA 2006). The company can now trade, enter contracts, and own property.

Pre-incorporation Contracts

Contracts made purportedly on behalf of a company before its incorporation cannot bind the company, as it did not legally exist. The person who made the contract (often the promoter) is generally personally liable under that contract, unless there is an agreement to the contrary (s 51 CA 2006).

Key Term: Pre-incorporation Contract
A contract entered into by a person (promoter) on behalf of a company before the company has been formally incorporated.

Worked Example 1.1

Joanne is setting up 'Innovate Solutions Ltd'. Before receiving the Certificate of Incorporation, she signs a 12-month lease for office space 'for and on behalf of Innovate Solutions Ltd'. The company is incorporated a week later. Who is liable under the lease?

Answer: Joanne is personally liable under the lease. The contract was made before Innovate Solutions Ltd legally existed, so the company could not be a party to it. Under s 51 CA 2006, Joanne is personally bound unless the lease specifically excluded her personal liability (which is unlikely). The company could choose to enter into a new lease (novation) after incorporation to take over the liability.

Post-Incorporation Steps

Once incorporated, several practical and administrative steps are typically taken, often addressed at the first board meeting:

  • Appoint Chairperson: Directors may appoint a chairperson for board meetings (MA 12).
  • Adopt Company Seal (optional): A company may choose to have an official seal (MA 49).
  • Appoint Bankers: Open a company bank account and agree mandates for operating it.
  • Appoint Auditors (if required): Small companies are often exempt (s 477 CA 2006).
  • Fix Accounting Reference Date (ARD): Decide the date to which annual accounts will be made up. If not chosen, it defaults to the end of the month of incorporation. Form AA01 is filed for changes.
  • Directors' Service Contracts: Formalise employment contracts for executive directors. Contracts longer than two years require shareholder approval (s 188 CA 2006).
  • Allot Shares: Issue initial shares to subscribers and potentially allot further shares.
  • Tax Registrations: Register with HMRC for Corporation Tax, PAYE (for employees), and potentially VAT.
  • Statutory Registers: Set up and maintain required registers (members, directors, PSCs, charges etc.) unless electing to keep them at Companies House.
  • Publicise Company Name: Ensure the name is displayed correctly at the registered office and on communications.

Exam Warning

Remember the distinction between the Memorandum of Association pre- and post-CA 2006. Before 2006, it was a key constitutional document containing the objects clause. Now, it's merely a statement of intent by the subscribers. Restrictions on company objects, if any, must now be in the Articles.

Revision Tip

Familiarise yourself with the structure and key information required on Form IN01. Understanding what details are needed helps solidify knowledge of the core elements defined at incorporation (directors, shareholders, capital, etc.). Check the Companies House website for the current form layout.

Key Point Checklist

This article has covered the following key knowledge points:

  • Incorporation by registration under the CA 2006 is the standard method for forming companies in the UK.
  • Key documents required are the application form (IN01), Memorandum of Association, and potentially Articles of Association.
  • Applicants must decide on the company name, registered office, first directors, initial share capital structure, and PSCs before applying.
  • Companies can adopt Model Articles, amended Model Articles, or bespoke Articles.
  • The Certificate of Incorporation legally establishes the company as a separate entity from its date of issue.
  • Promoters are generally personally liable for pre-incorporation contracts under s 51 CA 2006.
  • Numerous administrative steps are required immediately post-incorporation, often addressed at the first board meeting.

Key Terms and Concepts

  • Companies House
  • Registrar of Companies
  • Memorandum of Association
  • Articles of Association
  • Model Articles
  • People with Significant Control (PSC)
  • Certificate of Incorporation
  • Pre-incorporation Contract
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