Setting up a company _000691_ NB

Transcription

1 Setting up a company

2 Contents Overview Who forms the company Shares and shareholders Directors Secretary Auditors Name of company Articles of association and memorandum of association Registered office Statements of initial shareholdings and statement of capital Documentation for incorporation Certificate of incorporation Matters to be dealt with immediately on incorporation Documents to file after first board meeting Business name Stationery, website, s and signage Company seal Board meetings Shareholders resolutions Single member companies Registers Accounting records Accounting reference date Publishing accounts Annual return Companies House filings Public sources of information... 17

3 03 Overview A company is a legal entity with a separate identity from those who own or run it. This note explains what is needed to form a new English private limited company and the main points of administration required after that to comply with legal requirements. Getting the legal formalities right at the outset and getting into good habits of administration can prevent difficult questions arising later on, for example on a fund raising, bringing in new partners or realising value. It is worth bearing in mind that businesses can also be run as a sole trader or a partnership. Those approaches do not allow the business to be owned by a separate legal entity or provide limitation of exposure to the debts and other liabilities of the business in the way that a limited liability company does. Other possibilities include a limited liability partnership (LLP) which is similar to a limited company in providing limitation of liability and a separate legal entity. A LLP is not viewed as an entity in its own right in the same way as a company for tax purposes. In any collaboration where ownership of a business is shared, we recommend taking early legal advice to make sure things are set up on the right footing between the owners. Matters such as who owns which IP rights, how an owner can sell out and how major decisions are made can become a big issue later on, if not agreed and formalised at the start. Who forms the company A company is registered by filing the necessary documents (including Form IN01) and paying the required fee at Companies House. The company is brought into existence when the Registrar of Companies issues the certificate of incorporation. (See Documentation for incorporation.) The prospective owners of the company can either register a new company with documents that are specifically tailored to their requirements (a tailor-made company) or buy a company that has already been incorporated but has not yet traded (a shelf company) and modify its constitutional documents to meet their needs. Law firms, law stationers and company formation agents register shelf companies with standard provisions in their constitutions for this purpose. It is possible to proceed without legal advice or the support of a company formation agent at this stage. Where any complexity in ownership of the company or the make-up of its business is involved, we recommend that legal advice should be obtained. Shares and shareholders A fundamental question is who will own the company (that is to say its shares). Related to this is working out if the company should have different types of shares in addition to an initial class of ordinary shares, for example additional classes of ordinary shares or preference shares. This means considering economic rights (income and capital), voting rights and other matters such as transferability, ability to redeem and ability to convert into other classes of shares at particular times. Questions may also arise as to the extent of equity and debt funding and the issue of options and warrants to subscribe for shares. Often it will make sense to set out rights and obligations of shareholders in an investment agreement or shareholders agreement, to supplement what is in the company s articles of association.

4 04 Multiple share ownership can be a complex area with potentially far-reaching consequences later in the life of a company. We therefore recommend that legal advice is obtained on this at the earliest opportunity if ownership of a company is to be shared. Directors An early decision to make is who will be the initial director(s) of the company. The board of directors is responsible for the day to day running of the business. A private company needs to have at least one director. The company s articles of association can impose a higher minimum requirement. At least one director must be an individual and all directors must be at least 16 years of age. Each director to be appointed must consent to act as a director and that consent must be provided to Companies House either in written form or electronically, together with certain other details. For initial directors this consent is required in Form IN01, which also sets out the following particulars that must be provided: full name and title including any former names; date of birth; country or state of residence; nationality; occupation (if any); and service and usual residential addresses. Directors must give a service address and their usual residential address if different from the service address. A director does not have to disclose his residential address on the public register at Companies House. A different address, for example the address of the company s registered office, can be used as their service address. Every company must keep a register of directors residential addresses but it will not be on the public register unless the director specifies his residential address as his service address. Companies House will only provide residential address information to credit reference agencies and specified public authorities. For a director to supply consent to act electronically, the electronic equivalent of a signature is needed. This can either be a pre-arranged six digit personal authentication code for each director or the provision of three items from a list of seven items of personal information (place of birth, telephone number, national insurance number, passport number, mother s maiden name, eye colour or father s first forename). Secretary A private company does not need to have a secretary (unless the company s articles of association require it). It can be useful to appoint a company secretary, to have one person who takes care of the legal administrative requirements. Some law firms and other service providers can provide people to act as company secretary or provide support of a company secretarial nature. As with directors, the secretary must consent to act by signing the Form IN01 where indicated. Particulars to be stated are the full name, title and any former names and the service address for the secretary (which does not have to be their residential address). The role of a company secretary is not specifically set out in legislation but would typically include matters such as:

5 05 maintaining the statutory registers and other legal records; ensuring that statutory filing requirements are met; providing shareholders and directors with notice of meetings; providing shareholders with proposed written resolutions and auditors with any resolutions passed; supplying a copy of the accounts to every shareholder and others entitled to receive them; facilitating inspection of company records by those entitled; execution of certain documents (together with a director) by a company; and signing or otherwise authenticating forms for submission to Companies House. Auditors An auditor must be appointed for each financial year, unless the directors reasonably resolve otherwise on the ground that audited accounts are unlikely to be required. A company s auditor is required to make a report to the company s shareholders on all annual accounts of the company of which copies are, during his tenure of office, to be sent out to shareholders in accordance with the Companies Act 2006 ( Companies Act ). The auditor s report must state clearly whether, in the auditor s opinion, the annual accounts: give a true and fair view of the state of affairs of the company as at the end of the financial year and the profit and loss of the company for the financial year; have been prepared in accordance with the relevant financial reporting framework used to prepare the accounts; and have been prepared in accordance with the requirements of the Companies Act (and, where applicable, the International Accounting Standards regulations). The auditor of the company has a right of access at all times to the company s books and accounts and is entitled to require from the company s officers such information and explanations as he thinks necessary in order to perform his duties as auditor. A company s auditor is entitled to receive all communications relating to written resolutions of shareholders and notice (and related communications) of all general meetings. An auditor has a right to attend and to be heard at any general meeting on any matter which concerns him as auditor. However this does not give the auditor a right to vote at such general meetings. Auditors may also be employed by the company for purposes in addition to reporting on the annual accounts, such as keeping the books or compiling the tax return, provided they do not take part in the management of the company. The directors generally appoint the first auditor of the company. The shareholders can then appoint or re-appoint an auditor each year at a meeting of the company s shareholders, or by written resolution, within 28 days of the directors sending the accounts to the shareholders. If they do not do so for a particular year, however, the appointed auditor remains in office until the shareholders pass a resolution to reappoint him or to remove him as auditor. However, an auditor does not stay in office if the most recent appointment was by the directors or the company s articles require annual appointment or there is a shareholders notice or resolution to the contrary.

6 06 Name of the company The company s name must end with limited or Ltd. Before finalising a company name, checks should be run by searching at Companies House (using their WebCHeck service) for names the same as an existing name on the index of company names. The Trade Marks Register of the UK Intellectual Property Office should also be checked. This is because: no two English companies can have the same name; if the name includes the registered trade mark of a third party, the use of that name will automatically breach the registered mark if the intended use is in the same class; and if there is confusion in the market place between the corporate names and both companies are in a similar trade, a passing off action may be brought by the first company which has built up goodwill in the name, against the second. Note that in determining whether one name is the same as another, Companies House applies a number of rules. These include disregarding, for example: a blank space between or after a word, expression, character, sign or symbol; punctuation including a full stop, comma, colon, bracket, apostrophe; characters *, =, #, % and + when used as one of the first three characters in a name; s at the end of a name (irrespective of whether it is a plural) ; and the and www at the beginning of a name. Also, for example, the following are treated as being the same: and and &, plus and +, 1 and one. There are further restrictions under the Companies Act 2006 in relation to: names that suggest a connection with Her Majesty s Government, a devolved government or administration or a specified public authority; names that include sensitive words and expressions included in regulations; names that include words that would constitute an offence; and offensive names. Even after incorporation a company can be required to change its name in the first year if: the name is too like an existing name on the index; misleading information was provided at the time of registration; the company s activities are misleading; or the name is too similar to a name in which someone else has goodwill. In general a name is too like an existing name if the differences are so trivial that the public are likely to be confused by the simultaneous appearance of both names on the index; and/or the names look and sound the same. The too like rules apply to any name which appears on the index of company names which includes companies, LLPs and other bodies such as Limited Partnerships, overseas companies and Industrial Provident Societies. In addition to the basic searches referred to above, to start off on a sound footing other searches can be performed in relation to trading names and trade marks in the UK and abroad and on such other matters as URLs and patents.

7 07 Articles of association and memorandum of association The company must have articles of association. The articles are the document which governs the company s internal workings and will set out a range of procedures to deal with various matters including dividend and capital rights attaching to shares, directors powers, proceedings at shareholder meetings and voting rights. Usually the articles are not contentious; however, in the event of an investment by an independent third party, the articles will often be one of the main focuses for negotiation in respect of liquidation and dividend rights. The articles need to be registered at Companies House unless the company simply relies on the Model Articles, which apply by default if no others are registered by the company. The Model Articles for Private Companies Limited by Shares ( Model Articles ) are set out in Schedule 1 to the Companies (Model Articles) Regulations 2008 (SI 2008 No 3229). The Model Articles may not be suitable for every company and will generally require alteration to meet the needs of the company, especially (as referred to above) if there are any third party investors. There are no compulsory clauses which must be contained in the articles although they should always contain an express limitation of the liability of shareholders. It is good practice for a company to have its articles reviewed by its professional advisers every few years. The articles can be altered by special resolution. Form IN01 allows a new company to indicate whether it is adopting Model Articles in their entirety or with amendment or whether it is adopting entirely bespoke articles. Where the company intends to amend the Model Articles in some way or is adopting bespoke articles, a copy of the amendments or bespoke articles (as applicable) must accompany the application for registration. A separate document, the memorandum of association, must also be submitted. This simply states that the subscribers wish to form a company under the Companies Act and have agreed to become members (shareholders) and to take at least one share each. Registered office A company is required at all times to have a registered office to which all communications and notices may be addressed. Service of a document on a company is effective if it is sent to the company s registered office. A company may change its registered office by giving notice to Companies House. The change takes effect when the notice is registered. There is a 14-day period after the date of registration of the notice where a person may validly serve documents at the company s previous registered office. Statements of initial shareholdings and capital The statement of initial shareholdings in Form IN01 must state the total shares taken by the subscribers on formation including the number, class and the aggregate nominal value of those shares as well as the amount paid up or the amount to be unpaid on each of the subscriber s shares. A statement of capital is also required, which sets out each class of shares in the company, the number of shares in each class, the aggregate nominal value of the class and the amount paid up or unpaid on each share. The statement must also contain details of the rights attaching to each class of shares of the company, namely the voting rights, rights to dividend, rights on a capital distribution (including on a winding up of the company) and any redemption rights.

8 08 Documentation for incorporation To incorporate the company the following documents must be filed with Companies House: application to register a company (Form IN01) and the fee; memorandum of association; articles of association (unless Model Articles are adopted in their entirety); and additional information if the application includes a sensitive word or expression (see Name of company). Form IN01 requires the following information: the proposed company name; the situation of the company s registered office i.e. whether it is in England and Wales, Wales, Scotland or Northern Ireland; the address of the registered office; whether the company will be private, public or unlimited; choice of articles of association; details of the proposed director(s), and the secretary if it has one; directors service and residential addresses; a statement of capital and initial shareholdings; if the proposed name contains a sensitive word and, of so, details of confirmation requested of the views of a government department or other body; and a statement of compliance with the requirements for setting up a company. These items can be filed in paper form by sending them to Companies House in Cardiff (for companies to be incorporated in England and Wales). Hand delivery is also possible during office hours, for which the branch of Companies House in London may also be used. Registration normally takes seven days if the application for registration is made using the normal service for which the fee is 40. An expedited service of incorporation within 24 hours is available and costs 100. They can also be filed electronically if an electronic filing service account is set up. The fee is currently 14 ( 30 for the same day). Alternatively, the Companies House web incorporation service can be used. This allows people to set up a simple private limited company, using Model Articles, for a fee of 18. Customers access the service via the Business Link website ( Certificate of incorporation The company is brought into existence when the Registrar of Companies issues the certificate of incorporation. This is evidence that the company is properly constituted and that the requirements under the Companies Act in respect of registration have been complied with. On incorporation, the subscriber(s) to the memorandum are deemed member(s) (i.e. shareholder(s)) of the company. The director(s) and secretary (if any) named in Form IN01 are deemed appointed respectively as director(s) and secretary of the company. The subscribers can exercise all the functions of an incorporated company from the date of incorporation. It is important that the prospective owners or directors of the company do not trade on behalf of the company before the certificate of incorporation is issued because any person who purports to act for, or as agent of, a company before the company has been formed

9 09 will be personally liable for any contract they make on behalf of the company. Matters to be dealt with immediately on incorporation The incorporation formalities should be completed at a meeting of the board of directors as soon as possible after receipt of the certificate of incorporation. This should include making various appointments and approving arrangements needed for the business to function. Matters that should be dealt with at the first board meeting therefore include the following: Completion of incorporation formalities Report on incorporation of the company. Adoption of company seal, if the company is to have one (see Company seal). Adoption of accounting reference date (see Accounting reference date). Adoption of a business name (see Business name). Arrangements for company stationery and statutory books (see Stationery, websites, s and signage). Directors Appointment of chairman of the board (see Board meetings). Appointment of further directors. Approval of directors service contracts. (Also, shareholder approval is required for a service contract for a term of longer than two years.) Other appointments Appointment of auditors (if required) (see Auditors). Appointment of solicitors. Appointment of bankers and approval of signatories to cheques. Shares Approval of registration of subscribers to the memorandum as shareholders on receipt of payment for the shares. Approval of applications for shares and allotment of further shares. Authorisation of the issue and, if a seal has been adopted, the sealing of share certificates and entry of shareholders names in the company s register of members. If the company is a private company and only has one class of shares, the directors will not need to seek authority from the company to allot shares unless the articles of association otherwise restrict this power to allot. If the company has more than one class of shares or the articles require further authorisation to allot shares, authorisation from the company to allot shares will be required. In the case of shares issued for cash consideration, suspension of the statutory pre-emption rights requires shareholder approval unless the authority to do so is contained in the articles of association or the articles exclude the statutory pre-emption rights. A letter of application for shares should be used for persons wishing to subscribe for shares. A private company must ensure that distribution of any such letter is not regarded as an invitation to the public to subscribe for shares. Contracts Where the company is to carry on an existing business, it will need to acquire the business from the shareholders/directors. If this is the case, we recommend that legal advice is obtained so

10 10 that this is documented correctly. The acquisition agreement and its execution by the directors on behalf of the company will require approval. Also, this is likely to be a substantial property transaction involving a director or directors for the purposes of the Companies Act, requiring shareholder approval. There may be business contracts to approve, subject to the requirement for shareholder approval of substantial property transactions involving directors. Other A number of other registrations and arrangements may need to be approved, depending on the nature of the business, for example: arrangements for registration for VAT and PAYE purposes; arrangements for registration of trade marks, registered design or patents; and arrangements for insurance. Shareholder approval A general meeting or written resolutions of shareholders of the company will be necessary if shareholder approval of any of the proposed resolutions is required, in which case the board meeting should be adjourned to obtain that approval before completing certain transactions. Documents to file after first board meeting After the first board meeting and first general meeting or shareholders written resolutions where appropriate, the following forms and resolutions should be filed at Companies House: copies of any special resolutions of shareholders (within 15 days); copies of any resolutions of shareholders to allot shares (within 15 days); Form SH01 (return of allotment of shares) if shares are allotted, with a statement of capital (within a month of allotment). In addition, the allotment of shares must be registered in the register of members as soon as practicable and in any event within two months of the date of allotment; Form AA01 (change of accounting reference date), if needed. This must be filed before expiry of the period for laying and delivering accounts and reports under the previous accounting reference date; Forms AP01 (appointment of director) and AP02 (appointment of a corporate director), if needed (within 14 days); and Forms AD02 (notification of single alternative inspection location) and AD03 (change of location of the company records to single alternative inspection location) must be filed within 14 days if the company records and registers are to be located anywhere other than the registered office. Business name As with company names, when choosing a business name, checks should be made in internet search engines, domain name registries, local phone books, relevant trade journals or magazines, and trade marks registry to see if any other business is already using the name. However, there is no central register of business names and accordingly, no requirement to register a business name. The rules on company names concerning too like and same as names do not apply to business names.

11 11 Names that would be likely to give the impression that the business is connected with HM Government or a local authority or a public authority (specified in regulations) must be approved by the Secretary of State. The approval of the Secretary of State is also required for certain other sensitive words or expressions. There is a general prohibition on the use of business names that give so misleading an indication of the nature of the business s activities as to be likely to cause harm to the public. Stationery, websites, s and signage There are legal requirements for certain details to be included in company stationery, websites, s and signage, as follows. Registered name Every company must display its registered name at its registered office and at any location, other than the registered office, at which it keeps company records available for inspection as required under the Companies Act. The registered name must also be displayed at any other location at which it carries on business, unless this is a location which is primarily used for living accommodation. Some very limited exceptions apply when special confidentiality arrangements are in place or an insolvency professional has been appointed. The registered name must be positioned so that it may be easily seen by any visitor and in characters that can be read with the naked eye. The registered name must also be displayed continuously. However, if the location where business is carried on is shared by six or more companies, each company is only required to display its registered name for at least 15 continuous seconds every three minutes (e.g. on a changing electronic/scrolling notice board). The registered name must also be disclosed in legible characters on all websites of the company and on all: its business letters, notices and other official publications; its bills of exchange, promissory notes, endorsements and order forms; cheques purporting to be signed by or on behalf of the company; orders for money, goods or services purporting to be signed by or on behalf of the company; its bills of parcels, invoices and other demands for payment, receipts and letters of credit; its applications for licences to carry on a trade or activity; and all other forms of its business correspondence and documentation. These documents include documents in hard copy, electronic form or any other form. Additional information in business letters, order forms and websites In addition to the registered name, all business letters, order forms and all of a company s websites must clearly state details of the registered number, the part of the United Kingdom in which the company is registered and the address of the registered office. If a company chooses to state the name of a director on any business letter (other than merely in the text of the letter or as a signatory to it), then the company must state the names of every director of that company. In the case of an investment company (as defined by the Companies Act) the fact that it is such a company must be stated. Where a company refers to its share capital on its business letters, order forms or websites, that reference must be to its paid-up share capital.

12 12 Company seal A company does not have to have a company seal and many nowadays do without. It can provide an additional option for executing certain formal documents but there is always an alternative. Board meetings The board of directors is responsible for the day to day running of the business. Unless the articles of association of the company provide otherwise, the directors can only exercise powers collectively by passing resolutions at board meetings. However, articles generally allow for unanimous written resolutions as well. For example, the Model Articles say that if all the directors entitled to vote at a meeting indicate to each other by any means that they share a common view on a matter, that counts as a decision of the directors. This can be achieved by having copies of a written resolution signed by the eligible directors or by otherwise having their agreement in writing, for instance by . Notice of board meetings should be given to all the directors in reasonable time to enable them to attend. Unless the articles say otherwise, it need only specify when and where it is to be held; it is not necessary for the notice to specify the business which is to be transacted. Under the Model Articles, if it is anticipated that directors will participate in different places, it should say how it is proposed they communicate. Unless the articles say otherwise, any director can call a board meeting. However, normally under the articles a board meeting cannot proceed unless a quorum of two directors is present. Under the Model Articles, the quorum is two unless the directors decide otherwise. If the articles prevent a director from voting on a particular matter, perhaps because he has a personal interest in the matters to be addressed, he would not normally count towards the quorum. If a director has a personal interest in any matter relating to the company, this should be considered carefully at the outset, to ensure that appropriate permissions and procedures are put in place. (For further information about directors duties and conflicts of interest, see the separate note Directors duties.) Unless the company s articles provide otherwise, each director has one vote at a board meeting and a resolution is carried by a majority. It is usual for the articles to allow the directors to elect a chairman to preside at board meetings and the articles can confer a casting vote on the chairman in the event of a deadlock. It is important to consider whether this is preferable to deadlock. Every company must keep minutes of all proceedings at board meetings for at least ten years. Also, the Model Articles require a record to be kept for at least ten years of all written and other resolutions of the directors. If board minutes are signed by the chairman of the meeting they are evidence of the proceedings at the meeting and it is presumed until the contrary is proved that the meeting was properly convened and held and that all proceedings have duly taken place.

13 13 Shareholders resolutions Whilst the board of directors is responsible for the day to day running of the business and subsequent decisions, more important decisions require the consent of the shareholders by the passing of resolutions. These include decisions such as altering the articles of association of the company, altering the company s share capital and the removal of a director from office. Ordinary resolutions are passed by a simple majority. Special resolutions are passed by a majority of not less than 75%. Private companies can pass resolutions: by a written resolution, which they must circulate to every eligible member electronically or by hard copy; or by taking a vote at a general meeting of shareholders. Private companies can pass almost all resolutions as written resolutions. Exceptions to this are a resolution to remove a director and a resolution to remove an auditor. These resolutions need to be passed at a general meeting. Private companies no longer have to hold annual general meetings (AGMs). The company must keep minutes of all proceedings at general meetings or decisions made by a sole shareholder. It must also keep copies of all resolutions of shareholders passed other than at general meetings. It must keep these records for 10 years and make them available for inspection by shareholders on request. Single member companies If a limited company is formed with only one shareholder or its shareholders fall to one in number, then this fact must be recorded in the register of members of the company, together with the name and address of the sole shareholder and, where the number of shareholders has fallen to one, the date on which such event occurred. If the membership increases from one to two or more shareholders, then this fact and date will similarly need to be noted. When a limited company with only one shareholder enters into a contract with the sole shareholder of the company and the sole shareholder is also a director (or shadow director) of the company and the contract is not entered into in the ordinary course of business, the company is required (unless the contract is in writing) to ensure that the terms of the contract are set out in a written memorandum or are recorded in the minutes of the first meeting of the directors of the company after the contract has been made. The quorum for meetings of a single member company is one regardless of any requirements to the contrary in the articles of association. A sole shareholder can make decisions that could otherwise be resolved on in general meeting and have effect as if agreed by the company in general meeting. Unless the decision is by written resolution, a sole shareholder must provide details of his decision to the company. There is no express reference in the Companies Act to the filing of a print of a record of a sole shareholder s decision at Companies House but a decision of a sole shareholder is analagous to resolutions or agreements which have been agreed to by all the shareholders of the company so that the usual filing requirements apply.

14 14 Registers A company must maintain the following registers and records, where relevant: register of directors and secretary (if appointed); separate register of its directors residential addresses, which will not be available for public inspection; copies of all directors service contracts or memoranda of terms and of directors indemnities; register of members (shareholders); register of charges and instruments creating charges; records of resolutions and shareholder meetings; contracts or memoranda relating to purchase of own shares; and register of debenture holders. These all need to be kept available for inspection. They can be kept at the company s registered office or the company may choose an alternative location (in England and Wales if registered in England and Wales) to make these registers and records available for inspection. Accounting records Every company must keep accounting records. Accounting records must in particular show all money received and expended by the company and a record of the assets and liabilities of the company. Also, where the company s business involves dealing in goods, the records must contain: statements of stock held by the company at the end of each financial year; all statements of stock takings used to prepare any statements of stock; and statement of all goods sold and purchased, other than by ordinary retail trade. This should list the goods, the buyers and sellers. Parent companies must ensure that any subsidiary undertaking keeps sufficient accounting records so that the directors of the parent company can prepare accounts that comply with the Companies Act or International Accounting Standards. A company must keep its accounting records at its registered office address or a place that the directors think appropriate. The records must be open to inspection by the company s officers at all times. Accounting reference date The accounting reference date (or a date up to 7 days either side of it) is the date to which the company s accounts will be prepared. By default, the accounting reference date of a new company is the last day of the month in which the anniversary of its incorporation falls. The accounting reference date can be changed by giving notice to Companies House on Form AA01 but it cannot be extended so as to exceed eighteen months. Also, a company cannot normally extend it more than once in 5 years unless it is aligning its accounting reference date with that of a subsidiary or parent undertaking under the law of the UK or another state in the European Economic Area.

15 15 A financial year is usually a 12 month period. Every company must prepare accounts that report on the performance and activities of the company during the financial year. This starts on the day after the previous financial year ended or, in the case of a new company, on the day of incorporation. Publishing accounts The directors of every company must prepare accounts for each financial year. These are called individual accounts. A parent company must also prepare group accounts (but for parent companies defined as small this is optional). Contents of accounts Generally, accounts must include: a profit and loss account; a balance sheet signed by a director with his name also printed on it; notes to the accounts; and group accounts (if appropriate). Accounts must generally be accompanied by: a directors report that shows the printed name of the approving secretary or director (with a business review if the company does not qualify as small); and an auditors report that includes the printed name of the registered auditor (unless the company is exempt from audit). To qualify for audit exemption, a company must qualify as small; have a turnover of not more than 6.5 million; and have a balance sheet total of not more than 3.26 million. However, even if a small company meets these criteria, it must still have its accounts audited if a shareholder or shareholders holding at least 10% of the nominal value of issued share capital or holding 10% of any class of shares demands it. Distribution of accounts Every company must send a copy of its annual accounts for each financial year to: every shareholder; every holder of the company s debentures; and every person who is entitled to receive notice of general meetings. The company s board of directors must approve the accounts before they send them out. There are requirements about signing particular pages (see above). Filing accounts The accounts must also be filed at Companies House. Small and medium-sized companies can file an abbreviated version of their accounts at Companies House if they wish.. If a company s first accounts cover a period of more than 12 months, they must be delivered to Companies House: within 21 months of the date of incorporation; or 3 months from the accounting reference date, whichever is longer.

16 16 For subsequent accounts (and first accounts covering a period of 12 months or less) the time normally allowed for delivering accounts to Companies House is 9 months from the accounting reference date. The deadline for delivery to Companies House is calculated to the exact day. Failure to deliver accounts on time is a criminal offence. In addition, fines are payable by a company for late filing of accounts. Small and medium-sized company limits A small company must meet at least two of the following conditions: annual turnover must be not more than 6.5 million; the balance sheet total must be not more than 3.26 million; the average number of employees must be not more than 50. Public companies and certain financial services companies cannot qualify as small companies. Similarly, companies which are part of a group which has shareholders who are public companies or financial services companies cannot qualify as small-sized for accounting purposes. A medium-sized company must meet at least two of the following conditions: annual turnover must be no more than 25.9 million; the balance sheet total must be no more than 12.9 million; the average number of employees must be no more than 250. Public companies and certain financial services companies cannot qualify as medium-sized companies. Similarly, companies which are part of a group which has shareholders who are public companies or financial services companies cannot qualify as medium-sized for accounting purposes. Annual return An annual return is a snapshot of general information about a company s directors, secretary (where one has been appointed), registered office address, shareholders and share capital. Every company must deliver an annual return to Companies House at least once every 12 months. This must be within 28 days after the anniversary of incorporation of a company or of the anniversary of the date the last annual return was made up to. Companies House filings All statutory forms are available, free of charge from Companies House. They can be obtained from their website or by telephoning Forms can be filed electronically using WebFiling or Software Filing (for which suitable software needs to be installed). They can also be filed in hard copy. A company using WebFiling can register for the PROOF (PROtected On-line Filing) Scheme. This provides additional security relating to the delivery of directors details and registered office address for documents delivered electronically. It prevents unauthenticated paper filings. Directors have a responsibility to prepare and deliver documents, on behalf of the company, to Companies House when required by the Companies Act. Common filings include:

17 17 the annual return (see Annual return); the annual accounts (see Publishing accounts); notification of any change in the company s officers or in their personal details (see Directors and Secretary); notification of a change to the company s registered office (see Registered office); allotment of shares; and registration of charges. Public sources of information A lot of useful information can be found at Businesslink.gov.uk - government s online resource for businesses. This includes a section on start-up at Detailed guidance on administrative requirements is also available on the Companies House website at Taylor Wessing LLP October 2011

18 Berlin Brussels Cambridge Dubai Düsseldorf Frankfurt Hamburg London Munich Paris Beijing Ω Shanghai Ω Warsaw Δ Taylor Wessing 2011 This publication is intended for general public guidance and to highlight issues. It is not intended to apply to specific circumstances or to constitute legal advice. Taylor Wessing s international offices operate as one firm but are established as distinct legal entities. For further information about our offices and the regulatory regimes that apply to them, please refer to: Ω Representative offices Δ Associated office NB_000691_10.11