Memorandum: The first document required for setting up a company UK Changes in the rules for Memorandum from CA 1985 to CA 2006

08 Oct

In the process of company formation UK, there are certain requirements to be fulfilled. Amongst those is an important step of company registration UK. For a company to be registered some initial documents should be provided. Those documents are basically the rules and regulations set by the company itself. The company has to abide by these. And these should not be in contrary to the default law of a company which is Model Articles.

Incorporation of a Company

There are certain basic requirements for setting up a company UK. According to Subsection 7ff of Companies Act 2006, the incorporation of a company requires to devise two documents that include the rules and regulations of the company. These rules must include the rules other than mentioned in Model Articles, as Model Articles have to be incorporated by any UK based company by default (Section 20 of Companies Act 2006). Of the two documents, the first one is namely, memorandum of association. The second legal document of a company is the Articles of Association. It is often considered as the constitution of a company. For the incorporation of the company it is a necessary step to devise the above mentioned two documents and submit the memorandum along with articles of association to the registrar.

The First Legal Document

The first document to be devised is the memorandum of association. The general definition of this document is that it elaborates the relationship between a company and its shareholding members. A memorandum of association or simply, memorandum, provides regulations for the company. These regulations inform a company about how to deal with external matters. The matters within the company are handled by articles of association, which is the second legal document. Hence, a memorandum is a complimentary document for the constitution of a company. A memorandum also defines the basic conditions that are to be observed by the company to get into a running state. A memorandum includes the fundamental financial information with initial capital included.

Regulations on Memorandum by 1985 version of Companies Act

With each new edition of Companies Act, there may be changes in the rulings. Companies Act 1985 is an old version of the Act and had certain rules and regulation that have been subjected to change in the latest version of Companies Act. However, this section will discuss the rulings regarding the form of memorandum, alteration of memorandum and cancellation of the change being brought in memorandum are mentioned in this section. The 1985 version of Companies Act also informed us about the required information that was compulsory in a memorandum.

Incorporated company’s Setup

  • The memorandum states that a limited or unlimited liability company may be formed by a minimum of two persons with legal intentions, who present their names in a memorandum or follow any procedure of registration required, per Section 1(1).
  • Section 1(3A) states that a private incorporated company with limited guarantee or shares may be created by a single person with legal intentions, presents his name in the memorandum and follows other regulations of registration in Companies Act 1985.

The information to be included in a memorandum

A memorandum may include the following information about any company per Section 2 (1):

  • The company’s name should be mentioned.
  • The location of the registered office. It may be Wales, Scotland or England.
  • The goals and objectives that a company has at the time of formation.

Resolution for location

However, if the current office is intended to be situated in Wales it should be mentioned in the memorandum and if its current location is Wales and has to be shifted or changed, this may be done by passing a special resolution for the alteration of memorandum per Section 2(2).

Limited Company

According to Section 2 (3) of Companies Act 1985, a memorandum should include a statement mentioning that the company has limited liability for its members, when a limited company is being formed.

A company with limited guarantee

Regarding a company that is limited by guarantee, the Section 2 (4) provides certain rules and regulations. The memorandum should state about each member’s contribution in the belongings of the firm to pay for any financial requirement, liability or debt at the time of liquidation. Also, it states that it may be subjected to a member who is either currently a member or has withdrawn from the membership but the time passed since withdrawal is less than one year. 

Rulings regarding Share Capital

Regarding the share capital, part 5 of the same section provides a set of terms and conditions. The amount of share must be mentioned in the memorandum, along with the quota by which it has to be divided into shares. Also, the amount of shares along with the names of the corresponding shares must be a part of the memorandum. Each person who intends to be the member after the formation of company must have at least one share in the company.

Form of Memorandum

As far as the formal definition is concerned, it has been subjected to changes in the 1985 version of Companies Act by the 2006 version. Section 3(1) in Companies 1985 stated the following aspects about a memorandum of association:

  • The form of memorandum should be specified subjected to the regulations outlined by Secretary of State.

The 1985 version of Companies Act would provide the information about the type and financing methods of the company, for instance, whether the company was public or private in nature or had limited or unlimited liability. Also with the inclusion of information related to share capital of the company.

The 1985 version states objective of company’s formation in Section 3A:

  • The memorandum should mention the objective of a company to participate in any commercial transactions and that it has the authority to perform any act that is necessary for the fulfilment of the object.

Alteration of memorandum

Section 2(7) states that the terms and regulations mentioned in a memorandum may not be subjected to any change in all the cases that the Act does not allow to amend.

Regarding any alteration in the objective it is stated in Section 4(1):

  • The objective of a company can be altered by the passage of a special resolution.
  • However, if the procedure mentioned in Section 5 is followed to apply for cancellation of alteration, the memorandum will not get altered unless the court allows for it.

Cancellation of any alteration

Any alteration may get cancelled by the method mentioned in Section 5. It is as follows:

  • An application may be submitted for the nullification of the change made in the memorandum via special resolution (Section 5(1))
  • Section 5(2) states that the application may be submitted by either of the following:
  • For a company limited by shares, 15% of share capital holders should request for it. For a company not limited by shares, 15% of the members should submit the application.
  • Debenture holders holding at least 15% of the firm’s debentures
  • Section 5(3) states that the submission must be made within the next 21 days to the day of alteration by one or more persons appointed as representatives of all the entitled applicants.
  • Section 5(4) states that the court may affirm the change brought in the either completely, or some part of it, subjected to certain terms.
  • The lawsuit may be suspended and the interests of unsatisfied members should be set for auction by the court.
  • Orders facilitating the auction or any such remedy should be given by the court.
  • Section 5(5) states that the court may order the company to buy the shares of any member and decrease the capital. Hence, any alterations for any such purpose may be made in memorandum.
  • Section 5(6) states that no amendment in the in the memorandum can be made if the court does not allow for it.
  • Section 5(7) states that a change made under this section has the same impact as the alteration made via resolution.
  • Section 5(8) states that the debentures applying floating charge are allowed to demand the nullification of an alteration and should be issued prior a certain date, which is first December 1947. Also, those forming a part of the series similar to any issued debentures. Moreover, the debenture holders must be notified about the special resolution in the same manner as the regular members are notified. If the debenture holders are not notified same action would be taken as for not notifying the members.

Regulations on Memorandum by 2006 version of Companies Act

The older version of Companies Act has been subjected to changes. This section discusses the major changes made in the Act. Hence, Section 8 of Companies Act 2006 replaces Section 3(1) of Companies Act 1985 by providing a more purposeful and concise definition for the memorandum of association.

  • A memorandum is an evidence to the objective of subscribers for the formation of a company and participate in the company as members after the formation.
  • It also acts as a proof for the companies with limited shares that the each of the members will buy at least one share.
  • Amendment of memorandum cannot or need not be done. However, the constitution of a company may be subjected to a change (‘History’, p 25 and Chapter 4).

Another addition to the rulings on memorandum is done by Section 28 of Companies Act 2006. It is stated as follows:

  • Any regulation of the memorandum that is not entertained by Section 8 of Companies Act will be treated as the regulations of Companies’ articles.

After Formulation of memorandum

Once a memorandum has been formulated, the next step is to submit it to the registrar. The registrar will then register the documents provided that he is satisfied that all the information given in the files is as per the requirements of Companies Act.

Authentication of a Memorandum

It is mentioned in subsection 9ff of Companies Act 2006 that to mark a memorandum authentic, it has to be signed by either the first or some of the initial members and submitted to the Registrar. Also, the documents for complementing the memorandum must be submitted. Registration of a company requires a fees. That amount should also be given to the registrar.

Documents required for registration

According to Section 13 of Companies Act 2006, the registrar must be provided with the name, location of registered office and information about the type liability of members. It should also include the name of possible directors or secretary of the company. Documents showing their assent to the initial capital of shares (for a company having shares) and act. If there is no document of articles of association devised yet, the Model Articles will be submitted as default to the registrar.

Name of the company

The name of the company should be subjected to some rules provided by Companies Act 2006. Hence, it should be checked whether the name of a company can be registered or not (subsection 53ff of Companies Act 2006). It is clear that to register a business name UK, the name should abide by the rulings given in Companies Act.

Certificate of Incorporation

If all the formalities for registration process has been completed in accordance to those mentioned in Companies Act, the registrar has to register the company. Section 15 of Companies Act has made it mandatory for the registrar to sign the certificate of incorporation and authenticate it via his seal once the requirements are fulfilled to register a business name UK. This certificate provides a proof that the applicants for company registration have completed the requirements and the company is now registered. That is, the process of company registration UK has ended.

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