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How to Operate a Company, Decision Making & Auditors…

Business people scaling a mountain using charts and graphs of business material.

It is vital you start as you mean to go on by ensuring that your company’s administrative records are well maintained.

1. Decision making

1.1 The majority of the decisions of the company will be taken by the board of directors. Unless specified otherwise in the Articles of Association, decisions will be taken by a simple majority vote.

1.2 Certain other decisions, by reason of the Companies Act or Articles of Association, are reserved for shareholders alone to vote on. Shareholders make decisions in these areas at either a shareholders meeting or in the form of written resolutions agreed and signed by the relevant majority.

1.3 Each shareholder’s voting power can often directly affect whether or not a shareholders’ resolution is passed. The key ‘controlling’ percentage thresholds for a shareholder are as follows:

(a) holding shares that have more than 50% of a company’s votes attaching to them; and

(b) holding shares that have 75% of a company’s votes attaching to them.

1.4 The above thresholds are ‘controlling’ thresholds for the two types of shareholders’ resolution:

(a) an ordinary resolution: a resolution passed by a simple majority of votes cast by shareholders present and voting at a meeting of which the relevant notice has been given. Ordinary resolutions are used to pass resolutions such as to authorise directors’ conflicts of interest, appoint auditors and appoint/remove directors;

(b) a special resolution: a resolution passed by a 75 per cent majority of votes cast by shareholders present and voting at a meeting of which the relevant notice has been given. Special resolutions are used to pass resolutions such as to alter the Articles of Association, change the company’s name (unless the Articles of Association provide that the company’s name can be changed by other means, for example, a resolution of the directors), reduce share capital or place the company into voluntary liquidation.

2 Auditors

2.1 Another consideration relevant for a newly formed company will be the appointment of an auditor. A UK company must have auditors, who will be a firm of accountants. However, a young company may be exempt from the requirement that its annual accounts be audited if it meets the conditions of the small companies exemption. For example, companies whose financial year ends on or after 1 October 2012 will qualify for an audit exemption if they meet 2 of the following criteria: (i) they have an annual turnover of no more than £6.5 million, (ii) they have assets worth no more than £3.26 million and (iii) they have 50 or fewer employees.

2.2 An auditor’s role is not to act as book-keepers (although it is permissible for a firm of accountants which provides book-keeping services also to act as auditors) but in effect to represent the interests of creditors and of shareholders and to ensure that the annual accounts have been prepared in accordance with the requirements of the law and of financial reporting standards, giving a true and fair view of the company’s position at the financial year-end.

2.3 A company’s auditors have a right of access at all times to its books and accounts and also to receive notices of and attend shareholder meetings and speak at them on any part of the business which concerns them as auditors.

3 Company filings

3.1 A company is required under the Companies Act to make certain filings at Companies House both periodically and upon the occurrence of certain events. In many of these cases a failure to file the relevant form on time leads to an offence being committed by the company and directors, and the possible levy of a fine.

3.2 Some of the more common company filings include:

(a) filing an annual return (an annual summary of a company’s capital and shares); and

(b) informing the Registrar of Companies of:

(i) a change of a director’s details;

(ii) a change to the capital of the company;

(iii) a change to the Articles of Association;

(iv) a change to the name of the company.

4 Statutory books

4.1 As indicated above, UK companies have to maintain certain registers and minute books. The most important of these “statutory registers” is the register of members, which sets out ownership of the company’s shares. These statutory registers need to be updated to reflect changes such as the appointment and resignations of directors and the transfer and issue of new shares.

5 Stationary and signage

5.1 A company must display its registered name at its registered office, and any other place where it carries on business. A company also needs to show, in all of its business letters, orders, invoices and other business documents:

(a)         its name and business address;

(b)         its number of registration; and

(c)          the address of its registered office.

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