Resolutions for limited company meetings

Lawpack on March 27, 2020

What is a company resolution?

A company resolution is an official record of the decision of the directors or members of a company.

Once a resolution is passed, the company is bound by it. If a majority is not reached, then a resolution has not been made.

What kind of resolutions can be made?

Under the Companies Act, there are two categories to which resolutions can be assigned

The first centres on fixed issues that cannot be altered, such as the requirements for appointing a director or matters to be recorded at Companies House, among others.

The second revolves around issues that can be changed and which are generally accepted as suggestions, rather than hard facts.

These can deal with topics including ideas for how directors and shareholders run the company.

While the resolutions set out under the first category are subject to the Companies Act, those set out in the second category are merely enforced under the company’s own rules.

What are the benefits of resolutions?

Recording company resolutions in minutes is a positive way of sharing company procedure across the board and ensuring everyone is working towards the same goal.

How is a resolution made?

The company’s articles of association set out the way a vote on a resolution is conducted during a general meeting or a meeting of class members.

Typically a vote is taken by a show of hands, but any member can demand a poll unless company policy states otherwise.

Although the vote is not counted, the resolution is only passed when the chairman declares a majority vote in favour of the resolution.

Company members, and where relevant auditors, must be given notice of the intention to propose a resolution.

Must they be submitted to Companies House?

Company resolutions must be submitted to Companies House in print form, or via an approved Companies House form, within 15 days of being passed.

What other types of resolutions are there?

There is a number of different kinds of company resolutions which include:

  • Director’s resolutions: These are only used by directors at board meetings and they must be filed at Companies House. There are certain criteria that make up this sort of resolution but it includes a change in company and a move by directors to convert the old public company into a plc.
  • Ordinary resolutions: These are standard resolutions that are used for all issues unless the Companies Act or the firm’s articles of association need to implement another type of resolution.
  • Extraordinary resolution: As the title suggests, these are more uncommon types of resolutions that must be passed by a minimum 75 per cent majority vote. An instance where this kind of resolution might be relevant is for changing the rights of classes of shareholders.
  • Special resolutions: Similarly, these require a 75 per cent majority vote and deal with important issues that include changes to articles of association.
  • Elective resolutions: These apply to private companies only and are limited to five specific purposes.
  • Written resolutions: These may be proposed by the director or members and no prior notice nor a meeting is required. They apply to private companies who must issue a copy of the resolution in print form or electronically to every eligible member.
  • Class resolution: This applies to company resolutions proposed that will affect only one class of share and they can be obtained in writing or by passing an extraordinary resolution at another class meeting.
  • Shareholder resolution: These are required when resolutions are proposed by shareholders and are due to be moved at an annual general meeting if a certain amount of members request it.

Any companies wishing to save time making resolutions should consider downloading Lawpack’s Ready-Made Company Minutes & Company Resolutions ebook, which includes all the templates a limited company needs.

This book of templates has been updated to include reforms made to the Companies Act 2006.

Other information

 

 

Legal requirements after company formation

Lawpack on March 27, 2020

Once you receive a Certificate of Incorporation from Companies House you have formed your limited company and the limited company directors are now free to issue shares, open bank accounts and start trading, etc.

But be aware, there are still limited company legal requirements you need to fulfil and the limited company directors need to make some company resolutions.

To discuss and agree on the fulfillment of your legal requirements you will need to hold a meeting of all the limited company directors (called a ‘board meeting’). All board meeting decisions must be recorded in writing (called ‘board minutes’). Or, alternatively, all the limited company directors can sign a written company resolution.

Limited company resolution #1 – Issue shares

The limited company directors should allot and issue one share of £1 each to each of the subscribers to the Memorandum of Association. If you have more than one director, a majority of the limited company directors must agree to do so at the board meeting.

Limited company resolution #2 – Issue share certificates

To provide the shareholders with a title document to their shares, the limited company directors will need to issue share certificates at the first board meeting.

Find out more about issuing shares and share certificates.

Limited company resolution #3 – Open a bank account

To open a company bank account, the limited company directors must pass a company resolution of approval.

Limited company resolution #4 – Appoint auditors

The limited company is obliged by law to file annual audited accounts (i.e. approved by a registered auditor). The directors must pass a company resolution appointing auditors for the limited company; the auditors must be independent, i.e. not employees of the limited company.

But there are limited companies that are exempt from having an audit. Find out if you need to appoint auditors here.

If you don’t need an audit, you must appoint accountants to prepare the limited company’s accounts.

Limited company resolution #5 – Appoint a company secretary

Appointing a company secretary is optional after 6 April 2008. If you don’t appoint a limited company secretary, make sure that one of the limited company directors is tasked with ensuring that all company secretary duties are carried out.

Download company minutes and company resolutions today.

Limited company resolution #6 – Decide which financial year end to use

In limited company terms, the financial year end is known as the ‘accounting reference date’. The accounting reference date automatically falls on the last day of the month in which the anniversary of the limited company’s incorporation falls. But it can be changed.

Find out more about how you can change your limited company’s financial year end.

Limited company resolution #7 – Decide where your limited company’s registered office will be based

Your registered office is often your limited company’s office. But you can, as an alternative, use the address of your solicitor or accountant. They will, though, make a charge for this.

Limited company resolution #8 – Decide on the frequency of future board meetings

In practice the day-to-day running of the limited company will be delegated by the board of directors to one or more of them so that it’s unnecessary to hold board meetings frequently.

If the limited company directors don’t wish to hold a board meeting, they can pass a written company resolution as long as all the directors sign that company resolution. The company resolution is dated when the last director signs it and it’s entered in the company minutes book.

Limited company resolution #9 – Decide whether to hold Annual General Meetings

AGMs are traditionally used as an opportunity to lay the limited company annual accounts and directors’ and auditor’s reports before the shareholders, and to deal with other matters (such as the re-election of any directors retiring by rotation and the annual appointment of auditors).

From 1 October 2007 there is now no longer any legal need to hold an AGM, unless your Articles of Association require you to do so. But there is nothing stopping you electing to hold AGMs, if you want to.

Limited company resolution #10 – Transfer assets to the limited company

If you’ve been operating a business prior to forming your limited company, you can transfer the assets and debts of the business to the new limited company at an agreed sum and receive shares and possibly a credit to a director’s loan account in exchange.

But you cannot burden your limited company with more debt than assets. You cannot sell your personal property to the limited company at inflated prices or exchange limited company shares for personal property that is overvalued.

If a limited company director wishes to buy a non-cash asset from the limited company or dispose of such an asset to the limited company (and that asset is above a certain statutory value) the shareholders must approve the transaction in a General Meeting, or by written company resolution. Your accountant can advise you on this. You will also need to take legal advice on how to effect the transfer of your assets to the company.

The limited company directors will also need to pass an appropriate company resolution which must be documented in the board minutes. Stamp duty may be payable on documents relating to the transfer of assets (e.g. property).

Limited company resolution #11 – Decide whether you want to introduce goodwill into the limited company

This shouldn’t be entered into lightly nor without the help of an accountant, but, with careful planning, if you incorporate an existing business (i.e. turn it into a limited company), you should be able to create a sum for goodwill.

Simply put, if you introduce a sum for goodwill from your present business as you incorporate to a limited company, as the business proprietor you will have created a sum in the company’s balance sheet – a sum that is due back to you.

Lawpack’s book 101 Ways to Pay Less Tax gives further tax guidance on how to introduce goodwill into a limited company, plus many other tax-saving tips for your business.

Limited company resolution #12 – Pay tax

You’ll need to report your new limited company to your local tax office and if you’re employing staff, including paid directors, who are employees of the limited company, you’ll need to ask them to set up a PAYE scheme.

The tax office will provide you with the documents required to operate a PAYE (pay as you earn) scheme and tell you how to make National Insurance contributions. You should also contact HM Revenue and Customs to find out whether you need to register for VAT.

Your accountant will be able to help you with queries concerning corporation tax and capital gains tax. Lawpack’s book Tax Answers at a Glance also includes tax guidance on corporation tax, capital gains tax and registering for VAT.

Related Articles:

Transferring shares in a limited company

Lawpack on March 27, 2020

If you need to transfer shares from one limited company shareholder to another, you will need to complete a stock transfer form, in accordance with the Stock Transfer Act 1963.

The stock transfer form must be signed by both of the parties involved in the transfer and a copy should be kept on record.

Lawpack provides a stock transfer form template that has been drafted by solicitors for straightforward completion and contains all the information required.

What is a share transfer?

A share transfer, or a stock transfer, allows you to shift the legal ownership of company shares to someone else.

There are a number of reasons why you may need to transfer shares. For example, one shareholder may be leaving the company, while another may retire.

Similarly, in the event of a shareholder’s death, their stock holdings may be transferred to another person.

How is a share transfer made?

A share transfer is made by means of a stock transfer form, which can be downloaded through Lawpack’s website.

Typically, the current shareholder will fill in the form, providing details of the shares to be transferred.

Once it is signed, it will be handed over, together with a share certificate to the transferee. Payment, if necessary, will be made at this point.

The transferee will then complete the relevant sections of the stock transfer form, including any information required on tax.

Do I need to pay stamp duty?

This depends on the circumstances involved in the transaction. If no money or value is paid for the transfer, then you will not be liable for stamp duty.

If money or value is paid, then stamp duty will apply, but only if the transfer is valued at more than £1,000.

This applies to any legal forms used on or after March 13th 2008.

If the value falls below this, then an exemption certificate must be completed.

Transfers valued above £1,000 are subject to stamp duty at 0.5 per cent of the price paid for the shares. This will be rounded up to the nearest £5.

So if you were to transfer shares for £10,000, stamp duty of £50 would need to be paid (£10,000 x 0.5 per cent = £50).

Stamp duty on share transfers has a minimum value of £5. So if the amount payable is less than this amount, then you will still have to pay £5.

What happens next?

If stamp duty is to be paid, then the stock transfer form must be sent along with the correct fee to HM Revenue and Customs, where it will be stamped.

This fee must be sent in the form of a cheque or international money order made payable to HM Revenue and Customs.

The completed and stamped form and the share certificate must then be forwarded by the transferee to the transferor. If no stamp duty is payable, the stock transfer form will be sent straight to the transferor.

Upon receipt of the documents, the company whose shares are being transferred will cancel the old share certificate and update its register of members.

It will also record the details of the transfer and issue a new certificate to the transferee within two months of the date the transfer was lodged.

There is no need to send a form or give notice to Companies House, as this will be included in the next annual return filed for the firm.

Circumstances in which a stock transfer may take place

As mentioned, a stock transfer may take place in a number of circumstances.

If a shareholder dies, their shares and the associated rights must be given to a personal representative or executor.

This individual will either register themselves as a member or transfer the shares directly to the beneficiary named in the deceased’s will.

Similarly, if a shareholder is declared bankrupt, their shares will be moved to a trustee who will again register as a member or sell on the shares directly.

If a shareholder leaves the company or retires, an agreement on what to do with their shares must be reached.

Shares can be bought back by the company and redistributed among the remaining shareholders, or they could be transferred to a single individual.

What information should a stock transfer form contain?

A stock transfer form from Lawpack will contain the following information:

  • Consideration
  • Company details
  • Share type and value
  • Current shareholders
  • New shareholders
  • Stamp duty declaration

Our stock transfer form template is suitable for use by companies registered in England, Wales and Scotland.

It is not lawful for a transfer of shares to take place without the necessary paperwork and procedures. ADNFCR-1645-ID-800572652-ADNFCR

Further information

 

External information

The role of limited company directors

Lawpack on March 27, 2020

When you form a limited company, your role as company director is to promote the success of the limited company and to manage the limited company on behalf of the shareholders.

Company directors have extensive powers to manage the limited company, which are delegated by the shareholders in the Articles of Association. But shareholders can dismiss limited company directors by passing an ordinary company resolution at a shareholders’ meeting.

Shareholders holding a simple majority (either alone or collectively with other shareholders) of the issued shares of the company will be able to remove a director and control the board. This is providing that 28 days before the shareholders’ meeting, notice has been given to the limited company of the resolution, and the limited company in turn has given the members notice of the resolution 21 days before the shareholders’ meeting.

When managing a limited company, directors are obliged to act in good faith and in the best interests of the limited company.

They must avoid placing themselves in a position where there is, or could be, a conflict between their personal interest and their duty to the limited company. They must exercise skill and care in their role as limited company directors.

Company directors’ duties are now set out in limited company legislation. A company director’s general management duties are to:

  • Act in accordance with the limited company’s constitution and exercise their powers for proper purposes
  • Act in a way to promote the success of the limited company for the benefit of the members as a whole
  • Exercise independent judgment
  • Exercise care, skill and diligence
  • Declare to the other company directors the extent of any interest in a proposed transaction or arrangement with the limited company

In addition, a limited company director must avoid conflicts of interest and must not accept benefits from third parties.

Sometimes the limited company directors and shareholders are the same people, although there is no requirement that they should be.

Shareholders can, with the Court’s consent bring a derivative claim on the limited company’s behalf against a company director who is in breach of his/her duties or is negligent.

Limited company directors and board meetings

Generally, the company directors manage the limited company and decisions will be taken at board meetings.

Limited company management legislation sets out rules on how limited company board meetings should be run:

Board Meeting Rule #1

The Articles of Association are likely to specify that at least two limited company directors must be present at board meetings (unless there is only one director, when that person will form a quorum).

Board Meeting Rule #2

All the limited company directors in the UK must receive reasonable notice of a board meeting. Company resolutions are passed by a majority of the company directors at the board meeting.

Board Meeting Rule #3

A record of board meetings must be kept. The record is known as ‘board minutes’.

Board Meeting Rule #4

If the directors don’t wish to hold a board meeting, they can pass a written company resolution, provided that all the directors sign that company resolution.

The company resolution is dated when the last director signs it and it’s entered in the board minutes book.

In practice, the day-to-day management of the limited company will be delegated by the board of directors to one or more of them, so that it’s unnecessary to hold board meetings on many matters.

But certain company management activities will require the company directors to act collectively in a board meeting (e.g. issuing shares to shareholders).

Appointing limited company directors

The first company directors are named in the limited company formation documents (Form IN01) filed with Companies House. The company directors are appointed on incorporation of the limited company (i.e. the date on the Certificate of Incorporation).

Additional company directors may be appointed by either the board of limited company directors or the shareholders.

Anyone can be a limited company director so long as they have not been disqualified, are not an undischarged bankrupt, and are over 16.

Related Articles:

 

The pros and cons of forming a limited company

Lawpack on March 27, 2020

Limited companies are among the two most popular types of company chosen by UK business people, with the sole trader route the other main avenue.

The first step for anyone setting up a limited company is to register it with Companies House, which oversees the registry of companies.

Company registration matters are enshrined in the Companies Act 2006, with Companies House an executive agency of the Department for Business, Innovation and Skills.

Currently, there are more than two million limited companies registered in Great Britain, with over 300,000 new firms incorporated every year.

Under the Companies Act 2006, each limited company must have at least one director. However, having a company secretary is no longer mandatory.

Business owners are often unsure about which entity to trade as – sole trade, partnership or limited company.

There is no legal obligation for companies to trade using a particular entity, but there are differences between them. Here we outline the pros and cons of limited company incorporation.

What are the advantages of forming a limited company?

Status

The term ‘limited’ gives the company a bit more weight so it appears to hold more esteem and seems bigger, both for potential investors and consumers.

Investors

Investors are more inclined to take a chance on limited companies as their investment has more protection than a sole trader or partnership.

Under a limited company, the investor’s liabilities are also limited to their shareholding, thus giving them more security than other companies offer.

Security

As such, banks also tend to favour limited companies and they are given the chance to take out extra security by lodging a ‘floating charge’ over the company’s assets.

That means that if the terms and conditions of the loan are breached, the bank has the first claim on the assets.

Shares

Provided there are no unusual clauses in the shareholder’s agreement or company’s articles, transferring shares in a limited company is generally easier and more straight-forward than it would be in a partnership or sole trader.

Dividends

The dividends of a limited company are not subject to national insurance and are at a lower rate of tax than self-employment income.

Effective tax rates

If you intend retaining some of the profits within the business, then it might be best to go limited as this reduces the tax rate.

Despite these positives, there a number of cons to keep in mind.

What are the disadvantages of forming a limited company?

Liability

Banks will still require personal guarantees from the directors, which means that the directors can still be liable for the company’s debt.

Administration

Directors are also expected to deliver statutory documents to Companies House, so anyone failing to do this is subject to late filing penalties and could be deemed to have carried out a criminal offence.

Less privacy

Becoming a limited company means accounts and other details are held on public records so anyone, including competitors, can access company information, although it can be restricted.

Withdrawals

Making withdrawals from the company can also pose a problem in terms of tax as it is difficult for shareholders and directors to separate their finances from those of the business.

Accountancy fees

One expense bound to be higher for limited companies is the accountancy fee as reporting requirements tend to be bigger.

With all this in mind, it is worth remembering that limited company incorporation can be a profitable prospect, so why not read Lawpack’s practical guide on How to Run a Limited Company?

Written by HM Williams Chartered Accountants, this detailed guide is packed full of information and expert advice on the legal duties and formalities that must be followed when incorporating a company.ADNFCR-1645-ID-801387379-ADNFCR

Related articles