15 The formation of a company

1 Registration

1.1 Certain documents must be sent to the Registrar of Companies:

(a) Memorandum signed by the subscribers to the memorandum;

(b) Form 10 setting out details of:

(i) registered office;

(ii) director(s) and secretary;

(c) Form 12 – a statutory declaration that all the requirements for registration have been met;

(d) a fee.

In addition the Company Articles or Statement of Intention to adopt Table A will be submitted to the Registrar.

Certificate of Incorporation

1.2 (a) If everything is in order the Registrar will issue a Certificate of Incorporation (and Gazettes it).

(b) The company's life dates from the date on the Certificate of Incorporation: Jubilee Cotton Mills v. Lewis. A private company can now trade.

1.3 (a) A public company must obtain an additional certificate (trading certificate) before they can commence trading (s.117)

(b) A public company must provide three extra details to the Registrar:

(i) share capital.

(ii) preliminary expenses.

(iii) amount due or paid to promoters.

If everything is in order the Registrar will issue a trading certificate under s.117 and publish notice of it in the London Gazette.

(c) If a public company starts trading without satisfying s.117 there are four consequences:

(i) The company is primarily liable.

(ii) If the company does not meet its liabilities within 21 days of demand being made, the directors have personal liability.

(iii) The company and its officers are liable to a fine.

(iv) If a s.117 certificate is not obtained within one year of incorporation it is grounds for winding?up under s.122 (1)(d) Insolvency Act 1986.

2 Promoters

Definition

2.1 Anyone who facilitates the formation of a company.

Duties

2.2 (a) A common law duty to exercise reasonable skill and care.

(b) A fiduciary duty to disclose to the company any interest in transactions with the company. Disclosure should be to an independent Board of Directors or all existing or potential shareholders. Failure to disclose will result in contract being voidable and company will be able to sue for loss suffered or to recover promoters profits.

3 Pre incorporation contracts

3.1 Definition

(a) A contract signed on behalf of a company before the date of incorporation.

3.2 Legal effect

(a) Contract takes effect between the person who signed and the third party s.36 CA85.

(b) Even if it was signed 'for and on behalf' of the company: Phonogram v Lane.

3.3 Remedy

(a) Use of Contracts (Rights of Third Parties) Act could prevent this problem arising. Note however that the company cannot simply ratify a pre-incorporation contract on incorporation but will have to agree a new contract with the third party. Disclaimer notice may protect person signing (usually the promoter) from personal liability.