Forming a company - Getting off on the right foot

Over a series of articles Oliver King examines some of the traps and pitfalls of operating within a private limited company without the protection of either a shareholders’ agreement or bespoke articles of association.

As a corporate Lawyer who’s seen his fair share of disputes and failed businesses as a result of poor preparation, Olly knows the common problems and the simple solutions to avoid them.

The incorporation of a limited company is a very simple and straightforward process, all the more so following the adoption by Companies House of various online services, known as ‘Webfiling.’

For a modest filing fee of £12 and just 10 minutes of your time, any Tom, Dick, or indeed Harry, can create a private company limited by shares.

However, the same Tom, Dick or Harry could also build a car out of crates and pram wheels, but it doesn’t mean they should take it on the M1 without at least consulting a mechanic. Without proper advice, the ease of incorporation can be both a gift and a curse.

If specific documents detailing the involvement and intentions of the company and those concerned (known as Articles of Association) are not created and adopted by the company at the outset, the company will be governed by the default model articles in force at the time of incorporation (as at the time of writing, the present model articles can be found here)

Further, if a shareholders’ agreement is not drafted, agreed and entered into, the conduct of the directors and shareholders will be governed by a combination of the model articles, the Companies Act 2006 (at the time of writing) and ancillary legislation, and the common law (cases decided by the learned judiciary).

Whilst, from a legal point of view, companies can exist without proper assistance from the outset, without bespoke articles and a shareholders’ agreement, there are many risks.

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