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9 November, 2021 | Wade Hansen
Businesses can be set up as a sole trader (you by yourself under your own name), a partnership (you and another person), trading trust (managed by trustees) or limited liability company (a “company” — the most common form of business structure). Each of the different structures has different implications for how your business will run – for example some of the things that are affected by different types of business structures are:
It is advisable to discuss with your lawyer and your accountant which structure is the best option for you and your business. Assuming you decide to incorporate a company, you will need to make the following decisions:
Directors are the people who control the business. There could be just one director, or several. It is important to note that the age of the “silent” or “nominee” director is over – company directors have legal obligations to be active in their duties as directors. Anyone who is signing on to be a company director should make sure they fully understand all their duties, obligations and liabilities under the various laws (including, for example, the Health and Safety at Work Act 2015, The Companies Act 1993 and the Financial Markets Conduct Act 2013)
Shareholders are the owners of the business. Directors can (and often are) also shareholders, but a shareholder does not have to be a director. This is an option where someone wants to benefit financially from the business, but does not want to be active in the day to day affairs of the business. The percentage of shares to be allocated to each shareholder reflects the percentage of ownership each shareholder has.
A Shareholders’ Agreement is a private contract between the shareholders and set out their agreement about important matters such as how they plan to run the business and what will happen if or when somebody wants to sell their shares, how the shares are to be valued and how the business will be funded. See our article of Shareholders’ Agreements here.
We generally recommend a constitution for those companies with a range of un-related shareholders – the same shareholders we recommend have a Shareholders Agreement (if you don’t have a constitution then the company’s procedures are governed by the Companies Act)
Once you have decided that a limited liability company is the right structure for your business, you will need to reserve your company name with the Companies Office. Your commercial lawyer will need to make sure your company name isn’t already taken, by searching the companies register on the website first. Read more about choosing names here. The Companies Office will email your business lawyer to let them know if the business name has been approved.
Once your company name is approved you must then complete the incorporation process within 20 working days, otherwise the name reservation expires and you’ll have to start again.
To complete the incorporation process you need to provide your business lawyer with the particular details of your company, including:
Once your business lawyer has completed the application for incorporation and paid the fee, the Companies Office will generate directors’ and shareholders’ consent forms to be signed and returned to them. This must also be done within the 20 working days.
Having completed all of the above your company will then be incorporated and you will receive a Certificate of Incorporation from the Companies Office.
If you require assistance with your business structure, or with company incorporation and deciding whether your company needs a Constitution and/or a Shareholders Agreement, contact the commercial team at Smith and Partners.
22 February, 2012 | Wade Hansen
7 March, 2012 | Wade Hansen