What is the main source of law authorising this entity form?

Companies Act 2006

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

Possesses separate legal personality.

Governing document(s)

A company is governed by its constitution, namely the Articles of Association which sets out its internal rules and regulations. The person forming the company must select if they are adopting the statutory model articles in their entirety, the model articles with amended provisions, or entirely customised articles. Liability of members is limited to the amount of the guarantee provided by them – usually a nominal amount (subject to circumstances where limited liability can be greater as a result of wrongdoing).

(Governing) bodies

Companies incorporated in England and Wales are governed by the laws of England and Wales and Companies incorporated in Northern Ireland are governed by the laws of Northern Ireland.

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Yes.

Note that the ability of UK companies to participate in mergers under the EU cross-border merger regime has been affected by Brexit. In particular, following the end of the Brexit implementation period, the Companies (Cross–Border Mergers) Regulations 2007 (Regulations) were revoked by the Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2019, SI 2019/348.

Can this type of entity be publicly listed or held?

No.

Can this type of entity be used for a non-profit or charitable organization?

Yes and it is expressly designed for use by such organisations.

Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

Main documents to be lodged with the Registrar at Companies House on incorporation:

• Form IN01 – to include information in relation to the company’s intended principal business activities and a statement of capital & initial members (amongst other things);
• Memorandum of association; and
• Articles of association (if amending or replacing model articles).

Involvement of notary, company register, governmental authorities

Company starts to exist when Registrar issues the certificate of incorporation (which details the official company number and date of incorporation).

Timing (estimate) and main costs, including registration and similar fees (excluding legal fees)

Normal hard copy service: certificate of incorporation (usually issued within 7 days) and costs £40.

Same day (hard copy only) service through an agent: Costs £100. Documents and fees must be received by the Companies House office before 3pm to avail of the same day service and the envelope enclosing same must be clearly marked “Same day service”. The certificate of incorporation will be available for collection on that day (or will be posted that day, whichever method is selected). Documents delivered after 3pm will be processed the next working day.

Electronic service: £12 standard service.

Minimum number of incorporators / shareholders and residency requirements

Minimum of 1 member that must be an individual over the age of 16. No residency requirements.

Minimum number of directors (or other applicable officers) and residency requirements

Minimum of 1 director (who can be the same person as the sole member). No residency requirements

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

There is no share capital. The member(s) are required to provide a guarantee to contribute up to a fixed amount in the event of a shortfall on winding up/liquidation – this amount is usually a nominal sum.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

No.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

Reference (UTR) from the HM Revenue and Customs (HMRC) shortly after incorporation. A company must register for corporation tax within 3 months of commencing business, and a UTR is essential for this.

What is the title of the applicable company registry?

Companies House.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:

The following must be filed at Companies House (and are all publicly available):

• Memorandum of Association;
• Articles of association (if amending or replacing the model articles);
• Annual confirmation statement (previously the annual return) containing details about directors, members, registered office address and share capital;
• Annual statutory financial accounts;
• Information in relation to persons with significant control;
• Statement of particulars for any charge it gives over its assets.

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The board of directors is the executive body of a company and their main job is to make decisions on the general day-to-day running of the company.

The board of directors’ statutory duties are governed by the Companies Act 2006 (CA 2006) which sit alongside fiduciary duties set out in case law. Principal duties include the following duties for a director to:

• Act within his or her powers (s 171 CA 2006);
• Promote the success of the company for the benefit of the members as a whole having particular regard to the matters set out in s 172 CA 2006;
• Exercise independent judgment (s 173 CA 2006);
• Exercise reasonable care, skill and diligence (s 174 CA 2006);
• Avoid conflicts of interest (s 175 CA 2006);
• Not accept benefits from third parties (s 176 CA 2006); and
• Declare an interest in a proposed transaction or arrangement (s 177 CA 2006).

Directors should also have regard to the UK Corporate Governance Code.

How are the members of the executive body appointed, dismissed and replaced?

Appointment:

• First directors are appointed by notification to Companies House during the incorporation process of a statement of proposed officers setting out the particulars of each director (to include a statement that each director has consented to act in that capacity)
• Subsequent directors are appointed by reference to the company’s articles. The statutory model articles enable the board of directors to appoint directors (if applied and this could be varied). The general meeting (of the members) also has the power to appoint directors under the model articles.

Dismissal/replacement:

• Customized articles can provide powers to remove a director to the board of directors and the majority of members, however in absence of this, the CA 2006 provides a statutory procedure to allow members to remove a director. In this case, directors may be removed by ordinary resolution at a general meeting (passed by a simple majority of the members who vote) provided the member gives special notice of his or her intention to the Company at least 28 days prior to the meeting and the statutory procedure set out in the CA 2006 has been followed. However legal advice should be obtained when removing a director to ensure that any contractual provisions entered into have not been breached.

Is it possible to appoint corporate directors or must all directors be natural persons?

It is currently still possible to appoint a company as a director of a Northern Irish/England and Wales company. However, the government have announced forthcoming changes to company legislation, and once implemented, Section 87 of the Small Business, Enterprise and Employment Act 2015 will prohibit the appointment of corporate directors, requiring all directors to be a “natural” person – i.e. an individual. We do not have a date for implementation of this yet.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

There is no requirement to have non-executive directors although these are very common in Companies Limited by Guarantee.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

There are no shareholders – members instead.

Members are responsible for the major decisions that a company must make and the following decisions are examples of those only able to be made by shareholders:

• Amending the company’s articles;
• Approving a substantial property transaction;

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Member decisions (examples of which are noted above) are either passed by way of:

• Ordinary resolutions (a simple majority of the members voting); or
• Special resolutions (at least a 75% majority of the members voting). In the absence of any specific voting rights or weighting specified in the articles, voting is per capita.

All resolutions may be passed by written resolution rather than calling a general meeting (providing the statutory procedure is followed), except where the decision involves dismissing a director or the company’s auditors.

The quorum for the meeting of the members is usually set out in the company’s articles of association. The default position (subject to anything contrary in the articles) is that a quorum is 2 members, unless it is a single-member company, in which case the quorum is 1.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

Different accounting obligations apply to different companies with turnover under a certain figure, as follows: micro-entity (£632,000); small (£10.2 million); medium (£36 million); large (more than £36 million).

If the Company is also a registered charity (which is quite often the case for Companies Limited by Guarantee) they will also be subject to charities governance requirements monitored and enforced by the Charities Commission and Charity Law generally.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

All companies (whether or not they are active) must keep adequate annual accounting records.

These must be filed at Companies House within 9 months from the Accounting Reference Date (ARD) (the date on which a company’s financial year ends).

Is the entity permitted to determine its own financial year?

The ARD set on incorporation is the last day of the month of the anniversary of the company’s incorporation (unless otherwise specified or varied).

The ARF can be altered by submitting Form AA01 to Companies House.

Is the entity subject to any statutory (external) auditor obligations?

Unless the company is exempt (see below), companies must appoint a statutory auditor and file an auditor’s report on their accounts, strategic report and directors’ report (at the same time as filing their annual accounts).

Exemption for small/dormant/qualifying subsidiary companies – but these companies must still file unaudited accounts at Companies House.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

Unless exempt, all companies must appoint an external/statutory auditor.

A company limited by guarantee is not required to have a Company Secretary (a dedicated person who deals with legal administrative requirements).

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

The members do not have ownership interests. It is generally provided that in the event of the dissolution of a company limited by guarantee any excess assets are not distributed to the members but rather to another entity having similar objects.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

Note comment above that there are no ownership interests as such. However, it is possible to have different classes of members in a guarantee company. There may be non-voting members, for example, or members who have restricted rights in some other way.

What documentation is required for the transfer of ownership interests?

Note comment above that there are no ownership interests as such. However, in terms of transfer of membership it depends on the articles of association of the company limited by guarantee whether membership is at all transferable. The model (suggested form) articles for companies limited by guarantee provide that membership is not transferable and ceases on death.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

See comments above re ownership/membership. If membership is transferable any requirements will be set out in the articles of association of the company.

Are there any applicable stamp duties imposed when transferring ownership interests?

Not applicable.

How are shares issued? (including information on payment obligations, registration requirements)

Not applicable – the articles will provide for rules and regulations around becoming a member of the company and ceasing to be a member.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

Not applicable.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

Not applicable.

Any requirements with respect to distributions to shareholders?

Distributions to members are permitted however this is invariably restricted/excluded in the articles of association where the company is not for profit and must be excluded for charitable companies.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

An agreement between the members is possible, although not usual.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

The taxes applicable to a company limited by guarantee are as follows:

• Corporation tax
• Value Added Tax (VAT)
• Stamp duty where applicable
• PAYE (income tax and national insurance on staff salaries)

Other than tax, there is an annual filing fee with the confirmation statement of £13 (if filed online) or £40 (if filed by paper). There are also penalties/fines applied for late filing of documents with Companies House and in particular automatic fines apply when the statutory annual accounts are not filed on time:

Up to 1 month £150

1 to 3 months £375

3 to 6 months £750

More than 6 months £1,500

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The corporation tax rate for company profits is 19% and is subject to change if government policy changes. There is no national/local distinction at present.

Summary of any specific matters, e.g. recent or prospective major legal developments

It is unclear whether provisions contained in English company law which stem from EU Directives will remain in force after Brexit.