Company compliance

Question 1

What are the 4 types of companies that can be incorporated?

What is the difference between formation, incorporation or registration of a CA2006 company?

How is a company formed under the CA2006?

How is registration effected?

What are the 3 ways registration can be undertaken?

Answer 1

1. Public company limited by shares
2. Private company limited by shares
3. Private company limited by guarantee
4. Private unlimited company (with or without share capital)

Companies Act companies are formed under the Act, incorporated in the United Kingdom, and registered in England & Wales, Scotland or Northern Ireland

s.7 CA2006 = formed by 1 or more persons subscribing their names to the memorandum and complying with the registration requirements of the CA2006

Registration is effected by delivering the relevant documentation to the Registrar

A. Electronic software filing
B. Paper filing
C. Web Incorporation service (only for companies limited by shares, adopting MA without amendment, and a name that does not require approval)

Question 2

What are the 2 steps to registering a company?

What are the 5 rules for the proposed name of a company?

When does the Registrar have the power to order a name change? (3)

Answer 2

A. Find a suitable name
B. Complete, duly execute, and send the required documents to the Registrar

1. Must have correct suffix (Ltd or Plc)
2. Cannot be the same name as an existing company listed on CH index
3. Cannot be offensive
4. SoS must grant permission if name contains sensitive words/expressions e.g., suggests a particular status or connection with a governmental body
5. Cannot be prohibited name under s.216 IA1986 =
   A. a name a liquidating company was known by during previous 12 months or;
   B. a name which is similar and suggests an association with that company

Registrar can order a name change:
i. within 12 months of registration if the name is same/too similar (67)
ii. within 5 years if misleading information was given on registration (75)
iii. at any time if use of name is misleading and likely to cause harm to public (80)

Question 3

What are the 5 things required to register a company?

What happens when these are sent to the Registrar?

Can a company commence business or exercise its borrowing powers straight away?

What is the authorised minimum share capital that must be subscribed for on incorporation of a plc?

What are the 3 consequences if a plc trades without a trading certificate?

Answer 3

1. Memorandum of Association = must be at least 1 subscriber, who must agree to take at least 1 share or agree to be a member if no share capital
2. Articles of Association = 3 options:
   i. adopt relevant MA
   ii. adopt relevant MA with modification
   iii. adopt bespoke Articles
3. Form IN01 = details include company name, RO, director details, share capital etc.
4. Name approval (if required)
5. Registration fee

Registrar will issue a certificate of incorporation bearing date of incorporation, company’s registered number and company type

Private company = yes
Plc = not without also delivering Form SH50 to CH (for a borrowing certificate) and being issued a trading certificate (which confirms authorised minimum share capital has been subscribed)

S.761 CA2006 = each share issued is paid up to a minimum of 25% of its nominal value and 100% of any premium
(£50,000 of which 25% is paid up)

A. Company and any officer in default may be liable to criminal penalties and
B. are jointly and severally liable to indemnify any affected 3rd for any loss or damage suffered as a result of the failure to comply with s. 761
C. Transactions themselves are not affected by failure to comply with s.761

Question 4

What is a CIC?

What are the 5 requirements for their registration?

Answer 4

= Community Interest Company = company limited by shares or guarantee that combine a commercial purpose with social, charitable, or community-focused activities

1. Memorandum and Articles must comply with Community Interest Company Regulations 2005 e.g. have an asset lock provision (assets cannot be disposed of without the consent of the Registrar to ensure asset(s) benefits community)
2. Name must suffix ‘CIC’ if private company, or ‘Community Interest plc’ if public
3. CIC must clearly demonstrate how it will meet the community interest test using Form CIC36
   (CIC Regulator will only allow incorporation if a reasonable person would consider the business’s activities are for the benefit of the community)
4. File the Excluded Company Declaration to confirm company is not excluded from being eligible to be a CIC
5. Incorporation documents sent to CH

Question 5

What is a RTM company?

There are no registration requirements, but in order to be an RTM company the company must meet what 5 criteria?

When does a RTM cease to be a RTM?

Answer 5

= Right to Manage company = gives leaseholders the statutory right to take over the management of their property from the landlord

1. be a private company limited by guarantee;
2. ensure its Articles comply with the provisions for RTM Companies;
3. hold a freehold or leasehold interest in a qualifying premises;
4. not be a commonhold association; and
5. its members be the tenants of flats in the premises or landlords under leases of those premises

= if it no longer continues to fulfil any of these conditions.

Question 6

RE-REGISTRATION
What are the 2 cases when it is not possible to change a company’s type?

What are the 5 changes permitted by the CA2006 and how are they done?

What 2 things should a company ensure following re-registration?

Answer 6

A. To or from a company limited by guarantee
B. From being a CIC

1. S.90 private to public = pass a special resolution, deliver copy of resolution and From RR01 to CH within 15 days
2. S.97 public to private limited = pass a special resolution and deliver copy of resolution and Form RR02 to CH.
   50 members or those representing 5% in nominal value can apply to court to within 28 days to cancel resolution
3. S.102 private limited to unlimited = unanimous shareholder consent
4. S.105 unlimited to limited = pass a special resolution
5. S.109 public to unlimited with a share cap = unanimous shareholder consent

i. Review and amend Articles as appropriate
ii. Compy with any company type requirements e.g. minimum share capital for plc

Question 7

When does the Registrar have the power to reject documents?

Paper filing is available for all statutory forms and documents, but what other methods of filing these documents are there? (3)

What are the 5 advantages of these alternatives?

Does it matter to which Companies House office documents are delivered?

Answer 7

The Registrar has the power to reject documents if they are incorrectly completed, not signed, received late or are illegible

A. Online filing
B. WebFiling
C. Software filing

1. quicker;
2. cheaper (online filing fees are usually lower than the paper-based equivalent filing);
3. rejection rates are lower due to inbuilt checks, pre-population of data;
4. automatic confirmation of filing; and
5. provides an environmentally friendly alternative

No, as any documents filed at one registry that relate to a company registered at another will be forwarded

Question 8

Name 5 criminal offences under CA2006.

What is the general principle on who is liable?

What are the penalties on conviction for a breach of the Companies Act?

Answer 8

1. failing to file accounts on time
2. failing to enter a director’s details in the register of directors or failing to update those details within the prescribed timescale
3. failing to file an amended copy of the Articles following an amendment;
4. failing to respond to a request for confirmation that the details on the central register are up to date
5. failing to show registered office and registered number on emails

Where:
* the only victims of the breach(es) are the company itself or its members, the officers are liable
* the victims are persons other than the company or its members, company is liable

The penalties range from fines to imprisonment
e.g. companies may be fined by CH for late submission of their financial statements

Question 9

What regime does the 2018 UK CG Code operate under?

Which companies does the UK CG Code apply to?

What are the 5 sections of the UK CG Code?

What regime does The Stewardship Code operate on and why?

Who does the Stewardship Code apply to and how is it split?

What are UK authorised asset managers required to do by the FCA’s conduct of business rules?

Answer 9

Compy or explain = companies should apply the principles and explain the reasons for any non-compliances with the provisions

Applies to companies with a preimum listing

1. Board Leadership and Company Purpose
2. Division of Responsibilities
3. Composition, Succession, and Evaluation
4. Audit, Risk, and Internal Control
5. Remuneration

Stewardship Code = comply or explain (must publish on website statement of how applied principles or reasons for non-compliance) = recognises that what constitutes best practice for most institutions may not be appropriate for all

12 principles for asset managers and asset owners, and 6 principles for service provides

Required to publish a statement of commitment to the Stewardship Code or explain why it is not appropriate to their business

Question 10

RECONSTRUCTION - MERGERS
What is a merger by absorption?

What is a merger by formation?

What sections in the CA2006 cover the minimum set of disclosure documents that must be made available for mergers?

Where must these documents be available and for how long?

How is a merger approved?

The directors of each merging company must report (i) to their members at the meeting(s) considering the merger arrangements and (ii) to the directors of the other merging companies what piece of information?

Answer 10

Merger ‘by absorption’ = a situation where the undertaking, property and liabilities of 1 or more plcs are to be transferred to another existing public company

Merger ‘by formation’= a situation where the undertaking, property and liabilities of 2 or more plcs is transferred to a newly incorporated company, whether public or private

S.905-911 CA2006

Available at RO or on a website for at least 1 month and given to Registrar for posting in the gazette

The members of each class of shares of the merging companies must approve the terms of the scheme by special resolution (75%)

CA2006 = any material changes to the property and liabilities of their company between the date the draft terms were approved and the date of the member(s) meetings

Question 11

RECONSTRUCTIONS - DIVISIONS
What is a division?

What sections in the CA2006 cover the minimum set of disclosure documents that must be made available for divisions?

Where must these documents be available and for how long?

How is a division approved?

The directors of each company involved in the division must report (i) to their members at the meeting(s) considering the division arrangements and (ii) to the directors of the other companies involved in the division what piece of information?

Answer 11

Division = a scheme where the undertaking, property and liabilities of a company are to be divided among and transferred to 2 or more companies each of which is either an existing public company or a newly incorporated company, whether public or private

S.920-925 CA2006

Available at RO or on a website for at least 1 month and given to Registrar for posting in the gazette.

The members of each class of shares of the companies involved in the division must approve the terms of the scheme by special resolution (75%)

CA2006 = any material changes to the property and liabilities of their company between the date the draft terms were approved and the date of the member(s) meetings

Question 12

ARRANGEMENTS
What are the 2 scenarios when an acquisition of one company by another may be effected?

When would a scheme of arrangement be useful?

What is the downside to a scheme of arrangement?

Any notice convening a meeting of the members or creditors must be accompanied by what?

Following approval of a scheme of arrangement, what 2 steps should be taken by company/share registrar?

Answer 12

A. By a liquidation under S.110 IA1986 (if company is insolvent)
B. By a scheme of arrangement under s.895-901 CA2006 (if company is solvent)

Where it is desired to acquire 100% of the offeree company but it would not be possible to obtain the required 90% level of acceptances that would enable the offeror company to effect compulsory acquisition

Burdensome procedure involving 3-stage process and 2 court applications:
1. Apply to court to summon a meeting(s) to discuss scheme of arrangement
2. Approve the scheme by special resolution
3. Apply to court to sanction the scheme

CA2006 = A statement explaining the effects of the arrangement and any material interests of the directors and impact of those interests on the scheme

A. Members’ entitlements calculated at record date and a schedule of entitlements forwarded to company
B. Directors hold meeting to formally approve issue of shares, ROM updated, new share certificates issued, and existing share certificates cancelled

Question 13

TAKEOVERS
What is the object of a takeover transaction?

Under such transactions, what is the consideration?

What are the 4 main types of takeover transactions?

Answer 13

= to acquire the whole or a majority of the issued share capital of a target company (offeree)

Maybe the issue of shares/securities, or payment of cash, transfer of other assets, or combination of these 2

1. Share sale agreement = a formal agreement made with shareholders of target (usually used where small no. of shareholders e.g. private company)
2. Public purchase = purchase blocks of shares on public market to build up a sizeable holding and launch a bid for the remainder of the issued capital (must ensure compliance with City Code on Takeovers)
3. Takeover offer = make a public offer to target company shareholders to acquire their shares on stated terms
4. Scheme of arrangement = a takeover may be effected under a scheme of arrangement

Question 14

TAKEOVERS
What are the 3 ways shares can be acquired for a takeover?

When must compliance with the City Code on Takeovers and Mergers apply? (2)

When does an offer for a takeover become unconditional?

When can the offer be extended indefinitely?

What is the significance of a share offer being conditional on reaching acceptance of 50%, 75% or 90% of the issued shares?

Answer 14

1. Agreements with individual members = share transfers in exchange for consideration (usual form for takeover of private companies)
2. Purchases in the market = buy company’s shares on the market
3. Public offer = make an offer to all shareholders to acquire all of a proportion of their shareholding (usual form for takeover of plc)

A. Purchases in the market = following confirmation of a potential takeover bid or if a shareholder reaches 30% ownership of company’s shares
B. Public offer = where target is a plc

Unconditional = when the minimum number of acceptances has been reached (usually set at 75% or 90%)

If the offer is declared unconditional by the 60th day after posting the offer

These thresholds provide different degrees of control:
50% = allows the holder to pass all ordinary resolutions

75% = permits the passing of special resolutions as well as ordinary resolutions

90% = the level at which the acquirer can compulsorily acquire the remaining shares

Question 15

TAKEOVERS
What are the 3 functions of the Panel on Takeovers and Mergers?

Does the Panel have statutory functions?

The City Code applies to what type of company?

Answer 15

A. Issue and administer the City Code
B. to supervise and regulate takeovers in accordance with the Rules in the City Code
C. to ensure shareholders are treated fairly

Yes in CA2006

All public companies or companies that have been public in the previous 10 years

Question 16

What is a key building block for ensuring good corporate governance practices within a company?

Corporate culture, although delivered through actions and deeds, must be underpinned through what?

Name 4 policies that can help influence a positive culture?

Answer 16

Tone from the top = boards and senior executive team set standards of good behaviour and act in accordance with those standards = being role models and lead by example

Relevant and appropriate policies together with implementation and refresher training

1. Diversity & Inclusion = promote equality and respect and have zero tolerance for discrimination
2. Whistleblowing = allow employees to unanimously raise concerns about illicit behaviours
3. Remuneration = UK CG Code recognises a rem co should set the remuneration of EDs to promote long-term success of the company via performance-related pay
4. Employment handbook = allows changes to policies to be made without having to obtain consent to alter each employee’s individual contract

Question 17

VOLUNTARY WINDING UP

What is a members’ voluntary winding up?

What are the directors’ obligations following this?

What sanctions can a director face if made without reasonable grounds?

When does a company become insolvent? (4)

What is a creditors’ voluntary winding up?

In either case, what must be delivered tot he Registrar and when?

Answer 17

S.91 1986 = Where company is solvent, but members pass a resolution to wind up the company by appointing a liquidator

S.89 IA1986 = Directors’ must make a statutory declaration of solvency within 5 weeks of members’ resolution to confirm they believe the company will be able to pay its debts in full within 12 months

Making such statement without reasonable ground = liable to fine and/or imprisonment

When it is deemed to be unable to pay its debts i.e., if courts are statisfied, or company fails to comply with statutory demand for a debt of £750+, or satisfy an enforcement of a judgement debt, or the court is satisfied liabilities exceed assets

S.95 and 96 IA1985 = Where declaration of solvency cannot be made and the members pass a resolution to wind up the company = meeting of the creditors must be called and held within 14 days (of members’ resolution) at which resolution to wind up is passed

Send copy of resolution to wind up to CH for positing in Gazette within 14 days

Question 18

COMPULSORY WINDING UP
Name 5 instances when a company may be wound up by the court.

Answer 18

If:
1. the company resolves to be wound up by court by a special resolution;
2. a creditor petitions to the court where £750+ has not been paid following written demand for payment
3. It is just and equitable to wind the company up
4. company fails to comply with certain statutory requirements e.g. plc not issued with a trading certificate after a year
5. when company is unable to pay its debts

Question 19

Name 5 things the liquidator should do in a winding up.

What else must they do under S.7(3) CDDA1986?

What is the consequence of a conviction for the director?

What is the rule for directors regarding phoenix companies?

Answer 19

1. take over responsibility for company’s assets, books and records;
2. take other necessary steps to protect and realise the assets
3. disclaim any onerous property or unprofitable contracts
4. ensure the winding up order halts any proceedings against the company, except by leave of the court; and
5. provide the Official Receiver with information, access to books, or such other assistance as they may reasonably require

Make a report to the secretary of state if it appears to them that the conduct of a director renders them unfit for management of a limited company

On conviction, the court may impose a disqualification order of up to 15 years.

Directors of an insolvent company cannot be appointed as directors of a company with a prohibited name
Prohibited name = one that is the same as that of the insolvent company, or so similar as to suggest an association with that company.

Question 20

Can the Registrar remove companies from the register?

How can a private company voluntarily be struck off and dissolved?

Which form is required to do this?

How can a public company be voluntarily struck off and dissolved?

Who must be notified of the company’s intention to be struck off and dissolved?

How can someone object to the strike-off?

When is the company dissolved?

What happens to the property or rights held by a company immediately prior to its striking off and dissolution?

What happens if it is later discovered that a dissolved company still held assets?

Answer 20

Yes, under S.1000 CA2006 if they believe the company is defunct e.g. failed to file accounts/CS and no response is received to letters sent to RO (company must file all statutory returns on time and maintain a postal address for receipt of documentation)

Directors can pass an ordinary resolution under S.1003 CA2006, but only if company in past 3 months has not traded, changed its name, or disposed of property (recommended obtain member consent too)

Form DS01 must be submitted to Companies House

Re-register as ltd then use s.1003 procedure

All interested parties (including creditors, shareholders, any employees) (= opportunity to object)

Any person may object by contacting the Registrar and giving reasons why the company should not be struck off. Directors can halt a strike-off using Form DS02

No less than 2 months after the intention to strike off is published in The Gazette (provided there are no objections/withdrawals)

Property or rights automatically pass to the Crown as bona vacantia

usually necessary to have the company restored in order to deal properly with those assets

Question 21

What is an administrative restoration procedure?

If a company was struck off and dissolved on application by the directors, or as a result of formal winding-up proceedings, how can the company be restored? /how can company be restored if Registrar rejects the administrative restoration application?

Who pays the cost of restoration in either situation?

When is a company deemed to have been restored?

Upon restoration, what must a company do?

Answer 21

Ss. 1024-8 CA2006 = A former director or member may make an application to the Registrar to restore a company that was dissolved under ss.1000 or 1001 CA2006 within 6 years from the date of dissolution (or at any time for the purpose of bringing proceedings against the company for personal injury)
(usually used when company was dissolved for not complying with filing requirements, but continued to trade at time of strike-off)

Ss. 1029-32 CA2006 = apply to the court for a restoration order within 28 days

All costs of restoration are met by the applicant (including late filing fees and costs to transfer assets back)

When a copy of the court order is delivered to the Registrar

File all accounts, confirmation statements, and other changes for the period when the company was dissolved so that there is a continuous record as if the company had never been dissolved

Question 22

What is a dormant company?

What are significant accounting transactions?

Which 3 transactions are disregarded for the purposes of assessing a company’s dormant status?

Why might a dormant company be required? (4)

Answer 22

= one that has had no significant accounting transactions as defined in CA2006 s.1169 CA2006 since the end of its previous financial year/since its incorporation

= transactions required to be entered in the company’s accoutning records

1. Payment for shares taken by subscriber(s) to Memorandum and Articles
2. Fees paid to Registrar of Companies
3. Civil penalties imposed by Registrar (e.g. late filing penalties)

A. to protect a brand name or trademark
B. hold assets or intellectual property
C. incorporation agents set them up and sell them as ‘off the shelf’ companies
D. Exempt from corporation tax

Question 23

What are the 4 factors to consider when incorporating a company?

Answer 23

1. Profit (Plc, Ltd, Unltd) or not-for-profit (Guarantee)
2. Limited liability of members (Plc, Ltd, Guarantee) or unlimited liability (Unltd)
3. Financial information public (Plc, Ltd, Guarantee) or financial information confidential (Unltd)
4. Shares to be offered to the public > 100 persons (Plc) or shares to be offered to a defined restricted membership (Ltd, Unltd, Guarantee)

Question 24

CAPITAL EVENTS AND ROLE OF SHARE REGISTRAR - TAKEOVER

The share registration work to issue the takeover offer documentation and receive acceptance is often undertaken by the share registrar acting for the offeror company rather than that of the target company.

What are the 8 steps required?

Answer 24

1. Calculate the consideration to be offered to each target member
2. Send acceptance form to members
3. Check forms signed and have share certificates for cancellation attached (return any incomplete applications for completion)
4. Keep track of acceptances with a running total of the number of shares and consideration
5. Issue a statement that the offer is unconditional = minimum level of accepance reached
6. At closing date of offer, forward details of acceptances to company
7. Directors of offeror hold meeting to formally approve the acquisition of shares and payment of consideration
8. Bulk STF and schedule of individual amounts will be stamped by HMRC then sent to share registrar of target company so target’s ROM can be updated

Question 25

COMPANY NAME COMPLAINTS

What is opportunistic registration?

Who can object to a company name?

Who deals with these complaints?

What power does it have?

Answer 25

Under s.69-74 CA2006 = complaints can be made where company name has been registered with intention if extracting money from complaining person or preventing the registration of a company name in which a person or business has some goodwill

any person or company may object to a company name

Company Names Tribunal

Tribunal has power to order a name change and if company doesn’t, Tribunal can select new name for company

Question 26

TAKEOVERS - MANDATORY OFFERS EXEMPTIONS

Is it possible for a major shareholder to gain an exemption from having to make a mandatory offer once their shareholding reaches 30%+? (3)

Answer 26

In certain circumstances:
1. Need consent of the Panel; and
2. Need consent of the independent shareholders; and
3. Must be obtained before their holding reaches 30% or more

Question 27

ESG

Name 3 examples of ESG that are usually on board’s agendas.

What did the United Nations (UK) establish in 2015 and what do companies need to do?

Answer 27

Environmental = climate change
Social = diversity
Governance = board composition

17 Sustainable Development Goals = companies need to demonstrate how their business strategies and corporate culture are aligned to these

Question 28

TAKEOVERS

What are the 4 ways the City Code and CA2006 protects the rights of minority shareholders via compulsory acquisition?

Answer 28

1. Mandatory Offer = Rule 9 City Code = shareholder(s) who obtain 30%+ of total voting rights must make a takeover offer to purchase all the shares in the company
2. S.979 CA2006 = Squeeze out rights = if acquired 90%+ of shares and voting rights, offeror can ‘squeeze-out’ the remaining shareholders by compelling them to sell their shares to the offeror (Send Form 984 to shareholders 3 months after the acceptance of the offer but within 6 months from offer commencement)

(If offeror does not want to exercise squeeze-out rights, must give notice within 1 month of acquiring 90% so shareholders can exercise…)

3. S.983 CA2006 = Sell out rights = if acquired 90%+ of shares and voting rights, oferee’s shareholders can exit the company by compelling the offeror to purchase their shares if they give notice within 3 months of the end of the period for acceptance
4. CA2006 allows minority holders to resist a compulsory acquisition if they have reasonable grounds to do so = ensure that they are treated no less fairly than the other shareholders who have accepted the offer

Question 29

COMPANY NAME

What are sensitive word or phrases? (4)

Answer 29

• imply a particular status or function;
• imply a connection to UK government, local authority or public body;
• represent regulated activities; and
• whose use could be an offence.