Company Incorporation Methods

Incorporation Methods

• There are four methods of company formation: incorporation by Royal Charter, incorporation by Act of Parliament, incorporation by Delegated Authority, and incorporation by Registration.
• Incorporation by Registration is the most common method, with nearly all new UK companies using this approach.

Incorporation by Royal Charter

• The Crown can create a company via a royal charter, resulting in chartered companies.
• Historically, this method was prevalent in activities favored by the monarchy, such as exploration and overseas trade.

Incorporation by Act of Parliament

• Parliament can establish companies through Acts of Parliament.
• Public Acts serve national interests or needs, like the Post Office.
• Private Acts, known as statutory companies, are created for specific commercial purposes, such as running privatized industries.

Incorporation by Delegated Authority

• Legislation may authorize specific individuals or bodies to establish companies.
• Example: the Financial Conduct Authority (FCA) can create open-ended investment companies under the Open-Ended Investment Company Regulations 2001.

Incorporation by Registration

• Incorporation by Registration involves subscribing to a memorandum of association and complying with the Companies Act 2006's registration requirements.
• Companies are free to customize their articles, but they typically adopt established rules and practices.
• Model articles, introduced by the Secretary of State, serve as templates for these articles.

Articles of Association

• Articles can include any provisions deemed appropriate to the company, subject to certain limitations.
• Provisions inconsistent with the general law or legislation governing companies are void.
• Articles not related to membership may not be contractually binding on members.

Construction and Effect of Articles of Association

• Interpretation of articles follows the general principles of legal construction, ensuring that the contract's intended meaning is aligned with the background knowledge reasonably available to its audience.
• Articles are viewed as commercial or business documents, subject to the principle of business efficacy.

Defining the Contractual Nature of Articles

• In the landmark case of Eley v Positive Government Security Life Assurance Co Ltd (1876), Lord Cairns LC highlighted the contractual nature of articles, asserting that they represent ‘an agreement inter socios’ or an agreement among business partners.
• The phrase 'social contract' is used to describe the essence of articles as a literal translation of 'contract inter socios', underscoring the agreement among business partners.

Public and Private Companies

• Section 4 of the CA 2006 defines public companies as those limited by shares or by guarantee, with a share capital, and explicitly labelled as public.
• Private companies encompass all others.
• Significant differences between public and private companies are outlined in Part 20 of the Act.

Share Capital

• Share capital plays a crucial role in company formation.
• Public perception: most people assume that all companies have shares, but this is not the case.
• Company promoters can choose whether their company will have a share capital.

Re-registration

• Companies may need to change their status over time to align with their evolving business needs.
• Part 7 of the CA 2006 outlines the process of re-registration, allowing companies to change their status.
• Various types of re-registration are possible, including transitioning from private to public, public to private, limited to unlimited, and vice versa.