The legal duties of maintaining a firm
Last month, we examined doctors’ duties as a company director and here Kirsty Odell and Georgina Hall explain what you need to do once you have incorporated.
First published in Independent Practitioner Today in June 2022.
Many businesses are choosing to limit their liability by operating as corporate vehicles instead of as sole traders or partnerships.
One of the key benefits is the limited liability of a corporate entity’s members and the fact that it has its own legal identity.
While these, and others, provide some clear benefits to incorporation, there is the important element of administration that you need to be aware of. This is because the law requires you to ensure the administration of the company is properly recorded.
Below are some key requirements and the possible consequences of not meeting these reporting obligations.
Registered office address
A company must have a physical address in the UK and the name of the company must be on display. The address will be publicly available online at Companies House.
The following must be submitted to Companies House by all companies, including dormant ones:
- Confirmation Statement: records any changes to shareholders that have been made since the last statement – which must be not more than 12 months ago – and confirms that all other information held by Companies House is current and correct.
- Annual Accounts: Unless exempt, every company must prepare accounts each financial year. Company accounts must be approved by the company directors before they are filed at Companies House. Annual accounts may be filed online or by post.
Filings driven by events
There are particular changes which may occur within a company that Companies House must be notified of;
For example, the appointment of a new director or the allotment of shares.
Most changes can be filed online at Companies House. You need to be aware that there is usually a deadline by which it has to be done.
By way of examples, Companies House must be notified of the following changes:
- A change to the company’s registered office;
- Allotment of shares;
- Registration of charges;
- Changes of directors;
- Any change to the details of persons with significant control (PSCs).
Some company decisions must be taken by the shareholders rather than directors of the company.
The different decision-making options for the shareholders are set out below. The articles of association may provide whether certain decisions require an ordinary or a special resolution and there are specific decisions under company law that must be a special, rather than an ordinary, resolution:
- Ordinary resolutions – An ordinary resolution is passed when more than 50% of the votes made are in favour of the resolution. This type of resolution requires votes to be taken at a general meeting of shareholders, a board meeting of directors or by written resolution. Ordinary resolutions do not generally need to be filed at Companies House, and should be retained with the minutes of the meetings.
- Special resolutions – A special resolution is passed when 75% of shareholders’ votes are in favour of the resolution. This type of resolution is commonly used for decisions such as altering the articles of association, restructuring the company, reducing share capital and changes to the rights of shares.
The need for a special resolution to make certain decisions may be required by law or stipulated within the articles of association. Special resolutions must be filed online or delivered to Companies House within 15 days of being passed.
- Written resolutions – These may be either ordinary or special resolutions and are passed in writing, rather than in person at a general meeting. Written resolutions can be proposed by a director or shareholder owning at least 5% of the voting rights in the company.
Shareholders with more than one share may cast their votes differently with the shares, which is useful for a shareholder who is holding shares for others, like a partner holding shares on behalf of the partnership.
All companies must keep and maintain a set of statutory books, either electronically or in hard copy form. Companies are legally required to notify Companies House where the statutory books are kept, which is either the registered office or a ‘single alternative inspection location’.
They must be kept up to date with any changes that take place. As a minimum, the statutory books must include the following registers:
- Allotments and transfers of shares;
- Directors’ names;
- Directors’ residential addresses;
- Company secretary’s names and address;
- Copies of shareholder resolutions passed and minutes of meetings.
Companies are obligated to record details of their beneficial ownership. This is known as the register of people with significant control.
This provides a level of transparency over who owns and controls the company. An officer of the company must identify the PSCs and record this on the companies own PSC register, and then provide this information to Companies House within 14 days.
If this information changes later, the changes should be recorded in the same way. A PSC is someone who meets one or more of the following conditions:
- Holds more than 25% of shares in the company;
- Holds more than 25% of voting rights in the company;
- Holds the right to appoint or remove the majority of the board of directors.
However, there may be people who do not meet this criteria but have a sufficient influence over the company that they should be registered as PSCs. Generally, you do not have to register directors.
Filing at Companies House
Most of the filings can be made online to Companies House – either through the webfiling service or through a document upload facility. An authentication code is required for the majority of filings.
This a six-digit alphanumeric code. It is sent to the company’s registered office by Companies House following incorporation and it may be requested online.
What are the consequences of non-compliance?
If a company fails to file statutory information, there are specific offences under company law for each filing requirement. This is usually a fine for which the company and the directors may be liable. This includes failings to file the following:
- Confirmation statement;
- Notice of appointments or changes in directors/secretaries;
- Allotment of shares.
Where the accounts and confirmation statements are late, and following relevant reminders, Companies House may seek action for a voluntary strike-off of the company if non-compliance continues.
It should also be noted that it is an offence to deliver misleading, false or deceptive documents to Companies House.
The company may wish to appoint formally a company secretary whose responsibility it is to ensure that these things are complied with. Some companies do instruct their solicitors or accountants to fulfil that role for them.
Whatever you decide, make certain your company administration is kept up to date.