Is Your Company Formed Correctly?

It is important that your company is correctly formed. Most companies intend to be limited by shares, but you will be surprised by the frequency of companies ‘accidentally’ set up to be limited by guarantee.

 Is your company correctly formed?

It is important that your company is correctly formed. Most companies intend to be limited by shares, but you will be surprised by the frequency of companies ‘accidentally’ set up to be limited by guarantee. Unless your lawyer has given you a good reason to elect this route and you understand the implications of this option, it should be avoided.

It is also important that the shares of your company include at least one class of non-redeemable shares.  Your company can be structured to take advantage of different types of shares and the benefits associated with each of the same.

Are your Articles suffocating your business?

In the UK all private companies have articles of association – they may be a standard template (‘model articles’) or bespoke to fit your business.  Once created business owners tend to forget about their company formation documents and focus on running the business and making money.

If, however, something goes wrong or you come to sell your business then your company documents, including your articles could be almost forensically examined.

Why is it important?  

If an issue arises internally, such as shareholders or fellow directors being disgruntled with decisions of the Board directors, and you have failed to follow the Articles then the whole decision risks being unraveled. Any decision made in breach of the Articles may be reversed or have to be raised with the shareholders for approval and, as a director, you are potentially personally liable.

In addition, if you are looking at selling your business the purchaser or investor will almost certainly look at the company documents. If these documents are not in good order it could affect the overall value of your business and may discourage a potential purchaser from the sale.

Shareholders agreement

If you have more than one shareholder at your company it is vital that you have in place a comprehensive shareholders agreement. Such documents govern how disputes are resolved and ensure that minority shareholders are protected. Without an agreement of this nature disputes between shareholders are very difficult to resolve without lawyers or the courts.

Summary

It is important that your company documents are regularly reviewed. As a business changes, so must the company; out of date or inaccurate documents may come back to haunt you in a dispute or when selling your business.

We offer all commercial clients and prospective clients a complementary, regular no obligation company health check.

For more information contact us…

0207 426 0382

enquiries@acitylawfirm.com