So your client has decided they want a company - great choice for limited liability! But how do you actually CREATE one? And once it exists, what rules govern how it operates? That's what this topic is all about. Think of it like this: formation is the BIRTH of the company, and the constitution is its DNA - the fundamental rules that shape everything it does.
Three key documents to remember: (1) Form IN01 - the application to Companies House, (2) Memorandum - the founders' intention to form a company, (3) Articles - the rulebook for how the company operates. Master these three, and you've got company formation covered!
Incorporation is the legal process of creating a company - bringing it to life as a separate legal person. Before incorporation, you just have people with a business idea. After incorporation, you have a company that can own property, enter contracts, sue and be sued - all in its own name. The company is 'born' the moment Companies House issues the certificate of incorporation.
A company is formed by one or more persons subscribing their names to a memorandum of association and complying with the registration requirements. Yes - just ONE person can form a company! Gone are the days of needing two founders.
Registration happens at Companies House - the government registry for UK companies. You can do it online (cheaper and faster) or by post. Most solicitors use the online route. The process is surprisingly quick - same-day registration is possible if you pay extra!
Form IN01 is the heart of the registration process. It includes: the proposed company name, registered office address, whether the company is limited by shares or guarantee, whether it's private or public, details of the first directors and secretary (if any), details of initial shareholders and their shares, and a statement of capital showing the total shares and their value.
Remember the fees! Standard postal: £50. Online: £30. Same-day service: £100. The SQE loves testing whether you know practical details like this.
Once Companies House is satisfied everything is in order, they issue a certificate of incorporation. This is the company's 'birth certificate' - it confirms the company now legally exists. The certificate shows the company name, registration number, and date of incorporation. From this moment, the company is a separate legal person (remember Salomon!).
The certificate of incorporation is conclusive evidence that the registration requirements have been complied with and that the company is duly registered. This means even if there were defects in the registration, the certificate makes the company's existence unchallengeable!
The memorandum of association is a simple document where the founders (called 'subscribers') declare their intention to form a company and agree to become its first members. Think of it as a formal declaration: 'We want to create this company, and we're signing up as founding members.'
Here's something important: the CA 2006 completely changed the memorandum. Under the OLD law (pre-2006), the memorandum was a detailed document containing the company's objects clause, powers, and liability. Under the NEW law (CA 2006), the memorandum is much simpler - just a statement of intention. All the detailed stuff now goes in the articles.
Once the company is registered, the memorandum cannot be amended. It's a historical record of who the founders were. If old companies have objects clauses in their memorandum, those are now treated as part of the articles and CAN be changed.
If the memorandum is the birth certificate, the articles of association are the company's rulebook. They set out how the company will be run: how directors are appointed, how decisions are made, what powers shareholders have, how shares can be transferred, and much more. Every company MUST have articles.
To make life easier, the government provides ready-made 'Model Articles' that companies can adopt. There are three versions: one for private companies limited by shares (most common), one for private companies limited by guarantee, and one for public companies. If you don't submit your own articles when registering, the Model Articles automatically apply.
The Model Articles are set out in this statutory instrument. They provide a complete off-the-shelf constitution for companies that don't need bespoke rules. Many small companies simply adopt them unchanged.
Many companies, especially larger ones or those with outside investors, need customised rules. They can: (1) adopt the Model Articles and modify specific provisions, (2) draft entirely bespoke articles from scratch, or (3) start with Model Articles and add extra provisions. Most solicitors take approach (1) - it's quicker and you only change what needs changing.
| Topic | Private Ltd | Public Ltd |
|---|---|---|
| Directors minimum | 1 | 2 |
| Secretary required? | No | Yes |
| Directors can delegate? | Yes | Yes |
| Share transfers | Directors can refuse | Generally free |
| Quorum for board | 2 (or 1 if solo director) | 2 |
| Written resolutions? | Yes | No |
Before CA 2006, companies used 'Table A' - the predecessor to Model Articles. Many older companies still operate under Table A (or a modified version). The key difference? Table A was more director-friendly, giving boards wider powers. Model Articles shifted some power back to shareholders. When advising an older company, always check which articles they actually have!
Unlike the memorandum, articles CAN be changed - but it's not easy. You need a special resolution, which means at least 75% of shareholders voting must agree. This protects minority shareholders from the majority constantly changing the rules against their interests.
A company may amend its articles by special resolution. A special resolution requires 75% majority. This is a HIGHER threshold than ordinary resolutions (which only need 50% majority).
Here's a clever trick: articles can contain 'entrenched' provisions that are HARDER to change than normal. For example, an article might say 'This provision can only be amended with 100% shareholder approval' or 'with the consent of Person X'. This is useful when investors want extra protection - they can entrench provisions that protect their rights.
A company's articles may contain provision for entrenchment - making specified provisions more difficult to amend than by special resolution. BUT you cannot make a provision completely unamendable - there must always be SOME way to change it.
Even with 75% support, you can't amend articles to do anything illegal or to unfairly prejudice minority shareholders. The power must be exercised 'bona fide for the benefit of the company as a whole'. Courts can strike down amendments made in bad faith.
The company's 'constitution' is bigger than just the articles. Section 17 CA 2006 defines it as including: the articles of association, any resolutions and agreements affecting the constitution (like special resolutions), and certain other documents. Think of it as the full package of fundamental rules governing the company.
Unless the context otherwise requires, references in the Companies Acts to a company's constitution include: (a) the company's articles, and (b) any resolutions and agreements to which Chapter 3 applies. This includes special resolutions and unanimous shareholder agreements.
Here's the really important bit: section 33 CA 2006 says the constitution forms a CONTRACT between the company and its members, and between members themselves. This is a 'statutory contract' - it exists by law, not because anyone signed a contract in the normal sense. This means members can sue to enforce their rights under the articles!
The provisions of a company's constitution bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe those provisions. Translation: it's a binding contract!
Section 33 creates THREE relationships: (1) Company bound to members, (2) Members bound to company, (3) Members bound to each other. Think of it as a triangle of obligations!
[1915] 1 Ch 881
The association's articles said disputes between members and the association must be referred to arbitration. Hickman, a member, tried to sue the association in court instead of going to arbitration.
The court enforced the arbitration clause. The articles formed a contract between members and the company, so Hickman was bound by the arbitration requirement.
The articles create a statutory contract under which: (1) each member is bound to the company, (2) the company is bound to each member, and (3) each member is bound to other members. Members CAN enforce their rights under the articles - but only in their capacity AS MEMBERS.
Hickman established a crucial distinction: you can only enforce the articles in your CAPACITY AS A MEMBER. If the articles give you rights in some OTHER capacity (e.g., as a director, employee, or solicitor to the company), you CANNOT use section 33 to enforce them. Those are 'outsider' rights, and the statutory contract doesn't cover them.
(1876) 1 Ex D 88
Eley drafted the company's articles, which stated he would be the company's solicitor for life. He later became a member. The company then stopped using him as solicitor, so he sued to enforce the article.
Eley lost. Even though he was a member, the article gave him rights as a SOLICITOR, not as a member. The statutory contract only covers membership rights.
The articles only create enforceable rights in respect of MEMBERSHIP matters. Rights given in another capacity (director, solicitor, employee) are 'outsider rights' and cannot be enforced through the statutory contract.
Always ask: 'Is this person trying to enforce a MEMBERSHIP right?' If yes, section 33 applies (Hickman). If they're trying to enforce a right in another capacity (director, employee, solicitor), section 33 won't help them (Eley). They'd need a separate contract.
A shareholders' agreement is a SEPARATE CONTRACT between shareholders (and often the company too). It sits alongside the articles, giving shareholders additional rights and protections. Think of it as a private deal between shareholders that goes beyond what the articles say.
Good question! If articles are a contract, why have another contract? Several reasons: (1) Shareholders' agreements are PRIVATE - they don't get filed at Companies House, so competitors can't see them. (2) They need unanimous consent to change (vs 75% for articles). (3) They can cover things articles can't, like non-compete clauses. (4) They can bind people in non-member capacities.
| Feature | Articles | Shareholders' Agreement |
|---|---|---|
| Public document? | Yes - filed at Companies House | No - private |
| Amendment | 75% special resolution | Unanimous consent |
| Binds future members? | Yes - automatically | No - must sign up |
| Enforceability | Statutory contract (s.33) | Normal contract |
| Covers non-members? | No | Yes - can include directors, company |
| Remedies | Limited (often just injunction) | Full contract remedies (damages etc) |
What if the shareholders' agreement contradicts the articles? The agreement binds its parties contractually, but the articles still govern the company. In practice, this can create messy situations. Best practice: ensure the two documents are consistent, and include a clause saying the shareholders will vote to amend articles if needed to match the agreement.
Formation = IN01 + Memorandum + Articles + Fee → Certificate. Constitution = Articles + Resolutions + Agreements (s.17). The articles form a statutory contract (s.33) binding company and members. Insider rights (membership) are enforceable; outsider rights (other capacities) are not. Shareholders' agreements add private, unanimous-consent-required protection.
MACS = Memorandum, Articles, Certificate, Section 33. The four essential concepts for company formation and constitution. Memorandum declares intent. Articles set the rules. Certificate confirms existence. Section 33 makes it binding!