Company Incorporation and Governance Requirements

Exam Tip: Remember that the certificate of incorporation is "conclusive evidence." This means that once it is issued, the company is legally deemed to exist, even if there were minor procedural errors in the application.

Governance: Directors, Shareholders, and Capital

Once incorporated, a company requires a structure of officers and owners to function.

Directors and Company Secretaries

A company must have at least one director, who must be a natural person (not another company) aged 16 or older. Directors are responsible for the management of the company and owe various statutory duties to it, such as the duty to promote the success of the company under s 172 CA 2006.

While not mandatory for all companies, a company secretary may be appointed to assist with administrative and legal compliance.

Shareholders and the Statement of Capital

The individuals who agree to form the company are known as the subscribers, and they become the company's first shareholders. Shareholders own the company and have rights regarding voting and dividends.

As part of the incorporation, the company must file a statement of capital. This document details:

1. The total number of shares issued.
2. The nominal (par) value of each share.
3. The prescribed particulars of the shares, which outline their rights, such as voting rights and entitlements to dividends.

The Company Constitution

A company's "rulebook" is known as its constitution. The constitution is comprised of two main documents:

1. Memorandum of Association: A short legal statement signed by the subscribers confirming their intention to form the company and become members.
2. Articles of Association: The primary document that governs the internal management of the company, including the powers of directors and the rights of shareholders.

Many companies choose to adopt the Model Articles—a standard set of rules provided by the government—either in their entirety or with specific amendments. If a company wishes to change its constitution, shareholders can typically do so by passing a special resolution, which requires a majority of at least $75%$.

People with Significant Control (PSC)

To increase transparency and prevent the use of "shell companies" for illicit activities, the law requires companies to identify their People with Significant Control (PSC).

A person is classified as a PSC if they meet any of the following criteria:

• They hold more than $25%$ of the shares in the company.
• They hold more than $25%$ of the voting rights in the company.
• They have the right to appoint or remove a majority of the board of directors.

These thresholds are not arbitrary; they correspond directly to the ability of a shareholder to influence company decisions. For example, a person with more than $25%$ of the voting rights can effectively block a special resolution (which requires $\ge 75\%$), thereby exerting significant control over major constitutional changes.

Summary Table: Key Governance Roles