The Limited Liability Company’s Formation Process
For the company’s formation, Luke, David, Marcia, and Rosie need to undergo the registration of the company process, which entails the provision of crucial documents with the registrar of companies at Companies House. The company formation process is referred to as the incorporation process. Therefore, the four will have to fill in the application for a registration form and develop a memorandum of association and articles of association. These documents are mandatory for the company to be registered under the Companies Act of 2006.
The application for registration, commonly referred to as form IN01, entails the company’s basic details. The leading information filled in the form includes the type of the company, the proposed name, address of the registered office, share the capital statement and initial shareholdings, proposed directors, and the compliance statement (Lecture 3). After drafting the statement of compliance and the statement of share capital, they will then be required to develop the memorandum of association (Petrin and Choudhury, 2018, p 788). The memorandum of association is formed under section 31 of the CA 2006, which provides the statement of company objects. Stakeholders to change the articles by a 75% vote in favor of the proposed article. In addition, the four will have to develop articles of association that will act as the company’s constitution or rule book (Companies Act 2006). The article is the binding contract between the new company and its stakeholders.
After preparing and filing the required documents, Luke, David, Marcia, and Rosie will have to pay the incorporation fee to be granted the license to run the organization. The fee for incorporating a company depends on the stakeholders’ chosen process (Routing, 2019). For hardcopy submission, the four will pay £40 for submission. If they want the company to be incorporated the same day, they will pay £100 and submit the documents by 3 pm to be incorporated the next working day (Lecture 3). The four can also opt to submit their documents electronically through a company formation agent. The electronic or company formation agent submission costs £10 and £30, respectively (Lecture 3). Another method available for submitting company registration documents is through the web, where the stakeholders will pay a fee of £12.
After all the documents have been filed with the registrar of companies and the information approved, a certificate of incorporation is issued. The certificate entails details of the company’s birth or incorporation, name, and unique registration number. According to the common law, the company’s name can be changed in the future, but the registration number cannot be changed (Routing, 2019). The certificate acts as proof of incorporation and can be used as evidence of registration. After registration, the company can start operating immediately. The company directors will therefore need to register to tax, get a bank account, update the books of accounts, and know the tax requirements the company needs to follow when operating its business.
Decision-Making in Director Positions
After the company’s incorporation, Luke, David, Marcia, and Rosie will become the directors of the limited liability company. Together they will form the board of directors, which will participate in the company’s decision-making process. Since the company is small and private, the four are still the only shareholders (Shekshnia12, 2021). The primary roles of the directors in the company will be directing the business on behalf of the shareholders. In the case of Luke, David, Marcia, and Rosie, they are also the principal shareholders. Therefore, they will be responsible for taking care of the finances, accounting, and procurement of goods and services used in the company (García and Herrero, 2018, p.1015). The four will take part in the decision-making process in the company, and they will collectively pass resolutions on the various activities to enhance the operations (Companies Act 2006, 2022). In most cases, the significant decisions in the organization will be made during the board of meetings.
Model Article 9 states that no minimum period is required for a board meeting. Also, the resolutions can only be passed through a simple majority where one director votes only once, as stipulated in Article 7. In the case of a deadlock, Model Article 13 states that an individual who acts as a chairman can make an additional vote to solve the matter (Lecture 5). The directors can also hold a quorum where if a director has a direct interest in the matter is not allowed to vote, as stated in Model Article 14. Model article 8 suggests that the directors can also make decisions or resolutions in writing. Written boards are considered an alternative to meetings, but they are only applied when passed anonymously (Shekshnia, 2021, Lecture 5). Since the board meetings are always private and in the company’s comfort, the resolutions passed do not need to be filed with the Companies House (García and Herrero, 2018, p.1017). However, section 248 of the Companies Act of 2006 and Model Article 15 requires that the company’s written records of resolutions or decisions be made and maintained for ten years.
How the Clients Would Make Decisions in their Capacity as Shareholders
The shareholders of a company have a direct influence on the decision-making process through their voting rights. This aspect means that the decisions making process in the company can either be the responsibility of the directors or the shareholders. Section 112 of the Companies Act 2006 defines shareholders as subscribers of a company’s memorandum who are deemed to become company members. Since shareholders are company members, they have the right to make decisions in most of the events undertaken by the organization (Petrin and Choudhury, 2018, p 788). Shareholders can make decisions in either general meetings or through written resolutions (Companies Act 2006, 2022). General meetings apply to public and private companies, while written resolutions are mainly used only by private companies.
The companies Act classifies shareholder resolutions into two main categories, which entail ordinary and special resolutions. Section 282(1) CA 2006 defines an ordinary resolution of members as decisions made through a simple majority vote. Such decisions are made when more than half of the shareholders vote for a specific action to be undertaken by the management. On the other hand, special resolutions are provided under Section 283(1) of the Companies Act 2006. They are perceived as resolutions passed by a majority that is not less than 75% of the total shareholders (Toms, 2022). Unlike board meetings which do not have a minimum number of days’ notice, general meetings require at least 14 days’ notice, as provided under section 307 (1) of the Companies Act 2006 (Lecture 4). The votes in such meetings are taken by the show of hands where one person has one vote. Written resolutions are only available for the shareholders in a private company. Such resolutions are only undertaken after approval is made by a requisite majority.
The main resolutions that shareholders can execute are altering articles provided under section 21 CA 2006 and changing the company’s name as provided under SR, section 77. Further, they can employ a director for more than two years and approve specific transactions between directors and their company. Shareholders can also raise a petition under section 994 CA 2006 if they believe that the company’s affairs are unfairly executed (Lecture 4). They may also apply for a company’s insolvency and push for its winding up in a court of law under section 122(1) (g) Insolvency Act 1986 (Insolvency Act 1986, 2022). This aspect is evidence as portrayed in the lawsuit case titled Ebrahimi v Westbourne Galleries Ltd [1972] 2 WLR 1289 (Smith, 2018). The judge granted the winding up of Westbourne Galleries Ltd because it was just and equitable to close the business. Shareholders also have the right to take part in resolutions related to derivative claims as they are given the opportunity in section 260 CA 2006 to take action against the company’s director on behalf of the company.
Legal Advice on Trademark Issues
Trademark issues in the United Kingdom are solved under the Trademark act 1994. The Act requires that only one company be registered under a given name within the state to attain trademark rights (Sáiz and Castro, 2018, p.1110). Since the client company started operating before the new company was formed, it owns the trademark right to operate under the name and can sue for damage caused by the new company (Trademark act 1994, 2022). Two companies with almost identical names and undertaking the same activities in the same state raise trademark infringement issues. In addition, the two companies operate in the same industry, provide similar services, and have the same name leading to confusion among clients. The company that was formed first owns the trademark rights for the name in the state. Therefore, the company formed six months ago has the right to sue for infringement of a registered trademark (Press, 2019). In this case, they have the right to file for damages experienced after the infringement of the trademark rights.
Reference List
Companies Act (UK Public General Acts) 2006 (2022), c. 45. Web.
Ebrahimi v Westbourne Galleries Ltd [1972] 2 WLR 1289
García, M, C. and Herrero, B. (2018) ‘Boards of directors: composition and effects on the performance of the firm’, Economic Research, 31(1), pp.1015-1041.
Insolvency Act (UK Public General Acts) (1986) (2022), c. 45. Web.
Lecture 3 – SU 3 Types of Companies, Limited Liability and Company Formation
Lecture 4-SU 4 Companies – Constitution and Shareholders v5
Lecture 5: Study Unit 5: Officers; Company Directors, Company Finance & Company Insolvency
Petrin, M. and Choudhury, B. (2018) ‘Group company liability’, European Business Organization Law Review, 19(4), pp.771-796.
Press, T. (2019) Intellectual property concentrate: law revision and study guide. Oxford University Press.
Routing, J. (2019) Limited liability companies for dummies. Hoboken: For Dummies.
Sáiz, P. and Castro, R. (2018) ‘Trademarks in branding: legal issues and commercial practices’, Business History, 60(8), pp.1103-1124.
Shekshnia, S., (2021) Leading a Board of Directors in the United Kingdom: indirect Leadership. Web.
Smith, D. (2018) Company law. Routledge.
Toms, S. (2022) ‘The rise and fall of “Shareholder Supremacy”: a business history perspective. Oxford Research Encyclopedia of Business and Management, 31(1), pp.1015-1041.
Trade mark Act (UK Public General Acts) 1994 (2022), c. 26. Web.