Now that you have made up your mind that you are going to run your business through a company this chapter tells you what to think about and how to plan it and includes:

Creating A Separate Entity

This is fundamental.

What Is A Company?

In Chapter 1 you read how the concept of partnership came about and how as trade increased there was more and more of a burden on the individual partners. The property and the debts of the firm were considered to be the property and debts of the individual partners. In the nature of things partners died and, as they were no longer partners, the partnership ceased to exist.

By the mid 19th century a more permanent form of partnership evolved, known as the joint stock company.

This meant that a company could hold property, incur debts and sue and be sued in its own name. This was known as ‘limited liability’ and meant that the members (partners) were no longer personally liable for the debts of the company.

As a result of this the company exists permanently and is in effect an ‘artificial’ person, quite separate from the individual members of the company.

From now on whenever the word ‘company’ is used please remember this important principle. All detailed legislation relating to limited companies is contained in the Companies Act 1985, with amendements in the Companies Act 1989. This is now the main statutory framework for UK company law.

Deciding Your Objects

Any company must define what it is and what it is for. This is done in a document known as the Memorandum of Association.

The Memorandum, in a form specified by regulations, must be submitted to the Registrar of Companies and will state, amongst other things:

• the company’s name
• the place of the registered office of the company
• the objects of the company
• that the liability of the members is limited
• the amount of the share capital and its division into shares.

 

Let us briefly deal with each of these in turn.

Choosing The Name

You can choose any name you wish, subject to a few obvious conditions. You may not choose a name if:

This list is by no means exhaustive but you can see the difficulties that may arise if your intended name is too similar to that of another company or gives the impression that it is something which it is not. Watch this carefully as that other company could object and your company be directed to change its name with the additional expense that entails.

Example

Acceptable	–	Chapman Security Ltd.
Not acceptable	–	Police Security Systems Ltd.

Locating The Registered Office

This is the ‘official’ address of the company where anyone can get in touch and where certain statutory information is held. The Memorandum only asks you to state whether it is in England and Wales, or in Wales, or in Scotland. Once this ‘domicile’, as it is known, is established the actual address can be moved within that domicile but not outside it. For example, if the domicile is England the address can be changed from Liverpool to London but not Liverpool to Glasgow.

Example

The Registered Office of the company will be situate in England.

Defining The Objects

Although a company can, as a separate legal person, acquire rights and incur liabilities, its powers are slightly less extensive than a real person. A real person can do anything not prohibited by law but a company can only do what is authorised by the objects clause in its Memorandum.

It is not, however, necessary to go into great detail here as it is generally recognised that the main object of the business can be defined by a very general trading clause which will








not inhibit the company from carrying out any of the objects it wishes.

In other words, for all intents and purposes, you will be able to do anything you wish within reason and within the law.