EURESEAU
 

United Kingdom

1. Types of entities.
a) Which are the different types of entities according to the domestic corporate law? (e.g. partnerships vs. companies vs. other legal entities). Please describe the main features of each of those types of entities. Which type/s of entities – if any – is/are more often used in corporate law practice in your country?

The main entities that exist are (1) private limited companies, (2) public limited companies, (3) partnerships and (4) limited liability partnerships (LLPs).  (As an aside many small to medium businesses also operate as “sole traders”, i.e. the owner’s business affairs are not separated from their personal affairs).

The essential difference between companies and partnerships is that companies have legal personality and partnerships do not.  As a result, the partners themselves have responsibility for all the liabilities of the partnership whereas shareholders of a private limited company are limited to the amount unpaid on their shares.

LLPs (a relatively new concept in English law) are different to partnerships in that they limit the liability of each partner to their agreed contribution because the LLP itself is a separate legal identity.

The different corporate entities are explained further below.  Details of companies can (and LLPs) be found at Companies House, which is publically accessible.

Typically, the main entity that a corporate law practice will deal with is companies although many of the law firms themselves are LLPs.

b) Which are the different types of companies? Please describe the main features of each of those types of companies: capital, transfer of shares or stakes, contributions in kind, management, etc. Which type/s of companies – if any – is/are more often used in corporate law practice in your country?

There are four main types of company which can be incorporated:
• private company limited by shares – the liability of members (shareholders)
   of the company is limited to the equity they have invested or agreed to invest
   (i.e. unpaid amounts on issued shares).  These Companies must use the word
   “Limited” or “Ltd” after the Name;
• private company limited by guarantee – the members of the company make
   no equity contribution to the capital of the company, but provide an undertaking
   to provide a nominal amount in the event that the company is wound up.  These
   Companies must use the word “Limited” or “Ltd” after the Name;
• private unlimited company – the members of the company have a joint,
   several and unlimited obligation to meet any insufficiency in the assets of the
   company in the event that the company is wound up.  (These types of Company
   are rare); and
• public limited company – the liability of the members of the company is
   limited to the equity they have invested or agreed to invest (i.e. unpaid amounts
   on issued shares).  Only public companies can offer their shares to the public
   and be quoted on the stock exchange.  These companies must use the word
   “plc” or “PLC” after its Name.

Private Company
The majority of companies in the England are private companies (especially those which are subsidiaries of other UK or overseas companies).  They are subject to far less regulation than public limited companies and are therefore often the preferred entity when starting a business in the UK.

A private company must have at least:
  • at least one member/shareholder; and
  • at least one director (who must be a natural person).

There are no requirements as to the amount of share capital or value of each share and the appointment of additional directors or a company secretary is optional.
Once incorporated, a private company can commence trading without requiring the issue of a trading certificate.

Public Companies
Unlike private companies, public companies are permitted to raise capital by offering shares to the public.  In addition, a public company may have its shares listed on the UK's public markets.  

A public limited company must have at least:
  • at least one member;
  • at least two directors (one of which must a natural person); and
  • a company secretary (who is suitably qualified by holding recognised  
     professional qualifications or having relevant experience).

In addition, a public company's share capital must be not less than £50,000 (or €57,100) of which at least 25% must be paid up at all times.  A public limited company cannot commence trading without obtaining a trading certificate from Companies House that it has satisfied the minimum share capital requirements.

In general, shares can only be transferred pursuant to the regulations set out in the articles.  For instance, shares may be freely transferred or subject to pre-emption rights or only be transferred with the agreement of the directors: it all depends on the articles.  Publically listed companies’ shares are often more easily transferable.  As always the shareholders are the owners of the company and have limited rights exercisable in general meeting, for instance to appoint and dismiss directors.  There are two types of resolution: an ordinary resolution, requiring a majority over 50% and a special resolution, requiring a majority of 75% or over.  A special resolution is need to amend the articles.  There are also some different procedural requirements including giving special notice

Types of Partnership
There are three different types of partnership under UK law:
  • general partnerships which are unincorporated partnerships where the
    partners have unlimited liability for the debts of the partnership.  General
    partnerships are governed by the Partnership Act 1890.
  • limited partnerships which are unincorporated partnerships where at least
     one partner has unlimited liability (the "general partners") but the other
     partners can have limited liability (the "limited partners").  Limited partnerships
     are governed by the Limited Partnership Act 1907.
  • LLPs which are incorporated partnerships where each partner's liability is
    limited to his agreed contribution.  LLPs are governed by the Limited Liability
    Partnership Act 2000.

Common characteristics of partnerships
Despite the various forms of partnerships available in the UK, there are a number of common characteristics:
  • there is no minimum capital requirement;
  • subject to a firm's governing body (like the solicitors regulation authority) there
     are generally no restrictions on who can become a Partner;
  • partners can be natural or corporate persons;
  • if there is no written agreement governing the partnership, the relevant act will
    apply;
  • UK partnerships are tax transparent.  Accordingly, a partner's income and gains
     will be seen as accruing to, and will be taxed on, that individual Partner
     directly.

2. Limited liability companies and stock companies: incorporation steps.

An English company does not exist and cannot operate/commence trading until a certificate of incorporation has been issued by Companies House.  A public limited company must also receive a trading certificate.

To incorporate an English company, the following items must be filed at Companies House:
  • memorandum of association – this is a simple document in prescribed form
     which simply sets out the subscriber(s) of the company and a statement of
     intention that such subscriber(s) wish to take at least one share.  The purpose
     of the memorandum is to provide evidence of the intention of the
     subscriber (s);
  • articles of association – these are the constitutional rules of the company
    which regulate the internal management and running of the company.  They
    typically deal with the transfer of shares, alteration of share capital, procedures
    for general meetings, voting, appointment and removal of directors, etc.  The
    Companies Act 2006 provides a model set of articles for both private and public
    companies.  Unless a bespoke set of articles are submitted on incorporation, the
    model articles are deemed adopted by a newly formed company; 
  • form IN0S – this is a simple form setting out the names of the first directors,
     the company's registered office and other administrative particulars; and
  • fee – all companies can now be incorporated online for a charge of £15.  For
     guaranteed same-day incorporation the fee is £30 and this rises to £100 if the
     application of incorporation is submitted in hardcopy.

There are organisations that specialise in selling “off the shelf companies” for a charge of as little as £50.

UK Company Names
There are a number of restrictions on the names which can be used to incorporate a UK company.  A proposed name will not be registered if:
• its use would be offensive or would constitute an offence;
• it suggests a connection with the UK government, a devolved administration, a
   local authority or certain specified public authorities;
• it includes a sensitive word or expression unless certain tests are satisfied (e.g.
   "group" or "international") and a supporting statement is submitted with the
   application form;
• it is the same or similar to another name on the register; or
• it is longer than 160 characters or uses certain prohibited characters, signs,
   symbols or punctuation in the Name.

The successful registration of a company name does not mean that name does not infringe other UK laws – i.e. trade mark law.  It is advisable to check the trade mark register of the UK Intellectual Property Office before registering a name.It should be noted that a UK company can use a different "business" name from the one registered at Companies House and there are separate rules and requirements in relation to the use of such names.

3. Limited liability companies and stock companies: steps for appointment of directors and By-laws modification. What steps are required to appoint a new director and to modify the By-laws of a limited liability company and a stock company?

The shareholders of the company have the power to appoint and remove the directors of the company by a simple majority (in the form of an ordinary resolution i.e. over 50%).  However, following the first appointments, future dismissals and appointments are usually handled by the directors themselves with the shareholders only stepping in if there is a particular concern.
If a director is to be dismissed by the shareholders in general meeting he must be given special notice of the meeting and the proposed resolution to dismiss him).
After an appointment or resignation of a director, the company’s own register of directors must be amended and the relevant forms must be filed with Companies House.
A modification or amendment to the articles of association requires a special resolution. This means that at least 75% of the shareholders must approve of the change.  This special resolution and the new articles must be filed at Companies House.

4. Limited liability companies and stock companies: management alternatives.
a) Which are the main alternatives for the management of those companies? For example: Sole Director, Joint Directors, Joint and Several Directors, Board of Directors, etc.

As mentioned, there must be at least one director for private companies and two directors for public companies.  It is common practice in England for companies to have a board of directors but smaller companies will commonly have a sole director.

b) In each alternative which is the power/authority of the director/s to act on behalf of the company? For example: Sole Director has full authority; Board of Directors can empower one (or more) of them with specific or general authority, etc.

It is the directors, acting together through the Board, who take all the business decisions for the company and enter into contracts on the company's behalf.  Technically speaking unless authorised by the Board an individual director has no power to bind a company.
The directors of a company have the power to manage the company's affairs in accordance with the company's articles of association.  In doing so they must adhere to their statutory and common law duties.  These include:
• acting within their powers;
• promoting the success of the company;
• exercising independent judgement;
• exercising reasonable care, skill and diligence;
• avoiding conflicts of interest;
• not accepting benefits from third parties; and
• declaring an interest in a proposed transaction or arrangement.

A breach of a director's duties can give rise to personal civil and criminal liability.  It is therefore important that directors fully understand their legal obligations to the company. 
The articles of association of a company can limit the decision making power of directors including by making their decisions subject to majority approval.  Typically the articles of association shall state that decisions are subject to majority approval.

c) Do you have a one or a two-tier board system in your country? Are you able to choose a one or two-tier board systems? Please describe the main features of each system in your country.

In England there is generally a one-tier board system with all the directors of the company compromising the single board of directors.  A company’s articles of association can provide the board of directors with the ability to delegate their powers to a “committee of the board”.  The creation of a committee of the board is typical when a company is undertaking specific projects or transactions.  In such circumstances, a small number of directors shall be granted a limited authority to make decisions which will bind the company in respect of such projects or transactions.

5. Limited liability companies and stock companies: liquidation steps.What steps are required to liquidate a limited liability company and a stock company?

There are solvent and insolvent liquidations.  As a general point in insolvent liquidations company procedure varies from personal liquidations and seasoned practitioners sometimes confuse the two processes.  As with all other European insolvent liquidations proceedings it must be shown that the company’s Centre of Main Interest (COMI) is in England and that no other primary insolvency proceedings are in existence in any other jurisdiction.  There are measures that can be taken short of an insolvent winding up of a company, including a company voluntary arrangement and administration (which can lead to insolvent liquidation).

There are effectively two types of liquidation:
• Compulsory Liquidation.  This is by order of the court.  It is commenced by
   petition, often by a creditor on the grounds that the company is unable to pay ist
   debts (i.e. an insolvent liquidation); and
• Voluntary Liquidation.  By resolution of the company: this could be a solvent
   or insolvent Liquidation.

Dealing first with the voluntary liquidation, there are two forms of voluntary liquidation: a Members' voluntary liquidation, where the directors are willing to give a statutory declaration of solvency.  A members' voluntary winding up is started by the members passing a special resolution to that effect (i.e. a 75% majority vote in favour) within five weeks of the declaration of solvency.  A liquidator must then be appointed by the members by ordinary resolution.  The liquidator will then control the company in place of the directors and wind it up.  Distributions are made by the liquidator to the creditors and then to the shareholders.
Then there is a Creditors' voluntary liquidation, where the directors are not willing to give a statutory declaration of solvency.  A creditors' voluntary winding up is started by the members passing a special resolution.  Creditors are then given more control over the process, including over the appointment of the liquidator.
In a compulsory liquidation the process is usually started by the creditor serving a Statutory Demand upon the company.  This is a written demand for payment of a debt in the prescribed form.  A statutory Demand is not considered a court process.  If unanswered within 21 days the Statutory Demand may be used in evidence that the company is unable to pay its debts.  The creditor can then present a Petition to the Court (setting out the name of the company, the reasons for the insolvency etc) requesting that the company be wound up.  A court fee of £280, together with additional fees of £1,250 for the Government Official responsible for insolvency (called the Official Receiver) and a search fee of £10 are required.  The Court issues the Petition and sets a hearing date (usually in approximately 2 months’ time).  The Petition must then be served on the company’s registered office, preferably by hand.  A certificate of service of the Petition must then be filed at the Court and an advertisement placed in the London Gazette at least seven days before the hearing regarding the insolvency.  After that a certificate of compliance must be filed with the court.  The hearing then takes place.

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This information was compiled by Bircham Dyson Bell.