Incorporation

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Incorporation

Methods of Incorporation

There are three methods of creating a company:

-          By statute;

-          By Royal Charter;

-          By registration.

Incorporation by an Act of Parliament

-          Parliament can create a company by passing an Act of Parliament.

-          For example, an Act of Parliament was passed to create the Olympic Delivery Authority, which was created by the London Olympic and Paralympic Games Act 2006.

Incorporation by Royal Charter

-          This is most commonly done on the recommendation of the Privy Council.

-          Modern examples are the BBC and The Law Society.

Incorporation by Registration

-          Petitioning Parliament or the monarch is not the most efficient way to create a company. Accordingly, a simpler way was created by the Joint Stock Companies Act 1844, namely incorporation by registration. Today, the vast majority of companies are formed through registration.

The Registration Process

-          Section 7 of the Companies Act 2006.

-          Incorporation by registration is so-called because it involves the submission of certain documents to the Registrar of Companies at Companies House.

-          The required documents are the memorandum of association and an application for registration. The application for registration must include certain information, such as:

o   The company’s proposed name;

o   A copy of the proposed articles of association;

o   The company’s registered office.

-          If the Registrar is satisfied that all of the required documents have been submitted, he will issue a certificate of incorporation. This means that the company has been validly created under the Companies Act 2006 section 15(4).

Off-the-Shelf Companies

-          Preparing the registration documents can be difficult for a layperson.

-          There is therefore such a thing as an incorporation agent.

-          The incorporation agent forms the company, and places it on the shelf until such a time when it is purchased. At this time, the agent will inform the Registrar of the new owner’s identity and relevant changes (such as the change of registered office).

Advantages and Disadvantages

Advantages

-          Corporate Personality

o   The primary advantage of incorporation is that the company adopts its own personality. It is recognised in law as a person.

-          Limited Liability

o   As the company is a separate entity, it follows that the members are not usually personally liable for its debts and liabilities – the company itself is liable. However, this does not mean that the members are not liable to contribute anything. Where a company is unlimited, the members’ liability will also be unlimited.

o   Companies pay the price for limited liability as limited companies are subject to greater regulation.

o   However, whilst limited liability strengthens the position of the members, it arguably weakens the position of the creditors. This is because the risk is potentially shifted onto them. On the other hand, the creditor…

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