Incorporation

As you would imagine, there are substantial differences in the legal procedures involved in becoming a company depending on which UK nation you are based in, and the situation is different again in Ireland.

However, all four legal systems share an idea of what a company is. Their various companies acts make provision for people to come together and form a company which then takes on a legal status separate from that of its members. This process is called Incorporation. As a result of this the company can buy property, enter into contracts and bring and defend court prosecutions in its own name, and the members are not generally liable for any debts incurred.

Most companies in the UK and Ireland are limited by shares but while this structure is well suited to the needs of industry and commerce it does not suit non-profit making organisations which are more likely to become a Company Limited by Guarantee. In this type of company there are no shares and members undertake to guarantee to pay a certain, usually nominal, amount if the company is wound up. This Information Sheet concentrates on becoming a Company Limited by Guarantee in England and Wales.

Becoming a Company Limited by Guarantee
Companies can be constituted as a Company Limited by Guarantee by having a group of Members and a minimum of two Directors who can be paid or employed by the company. Such a company will be regarded as having a
non-profit distributing structure and this is often sufficient for funders and sponsors. Adopting a company structure will also enhance your organisation's credibility and will encourage it to grow and develop.
In order for your organisation to become a company, two groups of people will need to be formed.

1. Members.

A Company Limited by Guarantee has no shareholders but it does have members who guarantee to pay the sum of £1 - £5 if the company winds up owing money. These members have voting rights at General meetings (Annual and Extraordinary), are involved in the election of, and serving notice on, removing Directors and in changes to the company. Members can be paid staff. There is no legal minimum or maximum of the number of members required. Members must be entered in the Register of Members. This is kept in the Statutory Records held at the Registered Office but not filed with Companies House.

2. Board of Directors

Directors are elected from the group of members. If you are becoming a charity, the Directors will be unpaid. On the whole, the Board should be made up of responsible people who have an interest in and understanding of what the company is trying to do. It is often a good idea to have an accountant or solicitor on the Board but, like all Board members, these people also need to be fully committed to the organisation and understand what you are trying to achieve.

The Board is financially and legally responsible for the company but members are still protected by the limited liability inherent in the legal structure. Board members can be held personally liable for debts if deemed to have acted imprudently or irresponsibly.

The legal term for this is wrongful trading. The Board should meet four times a year and should receive up to date financial information; making sure that the company is acting legally (ie not trading outside its object) and that funds are being properly applied.

Remember, the Board is a resource for your company. Consider the skills and strengths of your Directors and give them focused tasks. The Administrator and Artistic Director (if they are not already on the Board) can attend meetings to provide information and report on the day-to-day management of the company. They can participate in the discussion but cannot vote and should not have their contributions minuted.

Other points:

A limited company is a legal person in its own right. It can sue and be sued, enter into contracts, own property, employ people in its own name.

Information about the company is kept at Companies House and the public have access to this information. It is essential that the company sends new information (changes of names, address, Directors and their details) to Companies House as they occur. Every year the company must file its Annual Returns. There are fines and penalties payable for not filing changes or submitting accounts on time.

The company must have a Registered Office. This does not have to be the premises from where the company operates, it can be a private home but if you use your home for business purposes this can mean incurring a liability for Capital Gains tax on selling the property. Some companies use a solicitor or accountant as their registered office but there is usually a charge for this. Companies House must also be informed of changes to the Registered Office address.

The company will need to register a Company Secretary/Administrator who carries out the legal and administrative aspects of being a company.
A Company Secretary can be, but does not have to be, a Director. This person is responsible for:

calling and arranging meetings
sending out agendas in advance
filing information about changes at Companies Hous
making sure accounts are sent
keeping the Statutory Records up to date.

Accounts do not legally have to be audited, however, for funding purposes this may still be advisable. Some funders require an audited set of accounts to accompany any applications.

The process:

Once Companies House receive the completed application forms and a copy of the Memorandum and Articles/Constitution the company wishes to adopt, a company is registered within fourteen days. There is a fee involved.

For application forms and further information contact:

Companies House
Crown Way
Cardiff CF4 3UZ
Telephone: 01222 380 801
www.companieshouse.gov.uk

Other Related Information Sheets

Constitutions and Legal Status
Community Interest Companies