COMPANIES in the UK

PRIVATE vs. PUBLIC COMPANIES

Companies are also sometimes distinguished for legal and regulatory purposes between public companies and private companies. Public companies are companies whose shares can be publicly traded, often (although not always) on a regulated stock exchange. Private companies do not have publicly traded shares, and often contain restrictions on transfers of shares. In some jurisdictions, private companies have maximum numbers of shareholders.

A public company has several advantages. It is able to raise funds and capital through the sale of its securities. This is the reason why public corporations are so important; prior to their existence, it was very difficult to obtain large amounts of capital for private enterprises. In addition to being able to easily raise capital, public companies may issue their securities as compensation for those that provide services to the company, such as their directors, officers, and employees. While private companies may also issue their securities as compensation for services, the recipients of those securities often have difficulty selling them on the open market. Securities from a public company typically have an established fair market value at any given time as determined by the price the security is sold for on the stock exchange where the security is traded.

A private company has several advantages. It has no requirement to publicly disclose much, if any financial information; such information could be useful to competitors. For example, Form 10-K is an annual report required by the SEC each year that is a comprehensive summary of a company's performance. Private companies do not file form 10-Ks. It is less pressured to "make the numbers" - to meet quarterly projections for sales and profits, and thus in theory able to make decisions that are best in the long-run. It spends less for certified public accountants and other bureaucratic paperwork required of public companies by government regulations. For example, the Sarbanes-Oxley Act in the United States does not apply to private companies. The wealth and income of the owners remains relatively unknown by the public.

The norm is for new companies, which are typically small, to be privately owned. After a number of years, if a company has grown significantly and is profitable, or has promising prospects, there is often an initial public offering which converts the private company into a public company or an acquisition of a company by public company. Yet, some companies choose to remain private for a long period of time after maturity into a profitable company. Investment banking firm Goldman Sachs and shipping services provider United Parcel Service (UPS) are examples of profitable companies which remained private company for many years after maturing into profitable companies.

Less common, but not unknown, is for a public company to pay cash to its shareholders and become private. This is typically done through a leveraged buyout and occurs when the buyers believe the securities have been undervalued by investors. Public companies can also become private when purchased by a larger company that is private.

The shares of a public company are often traded on a stock exchange. The value or "size" of a public company is called its market capitalization, a term which is often shortened to "market cap". This is calculated as the number of shares outstanding (as opposed to authorized but not necessarily issued) times the price per share. For example, a company with two million shares outstanding and a price per share of US$40 would have a market capitalization of US$80 million. However, a company's market capitalization should not be confused with the fair market value of the company as a whole since the price per share are influenced by other factors such as the volume of shares traded.

1. Private company limited by shares

A private company limited by shares has shareholders with limited liability and its shares may not be offered to the general public, unlike those of public limited companies.

"Limited by shares" means that the company has shareholders, and that the liability of the shareholders to creditors of the company is limited to the capital originally invested.

A limited company may be "private" or "public". A private limited company's shares cannot be traded on a public stock exchange. Most companies, particularly small companies, are private. Private companies limited by shares are required to have the suffix "Limited" (often written "Ltd" or "Ltd.").

In the UK the Companies Act allows one or more persons to form a company for any lawful purpose.

Company officers

Every company must have formally appointed company officers at all times. By statute, a private company must have at least one director and a secretary. The company's articles of association may require more than one director in any case, and frequently do. The requirement to have a company secretary will be removed from April 2008.

A person who has previously been declared bankrupt or who has been banned from being a company director by the court cannot be a director. From October 2008, all directors must be over the age of 16.

No formal qualifications are required to be a company secretary.

A single member company is a private company, limited by shares or by guarantee, which is incorporated with one shareholder or whose membership is reduced to one person. The company must still have at least one director and a secretary who cannot also be the sole director. There will therefore always be two officers of the company.

Share Capital

Only £2 share capital is needed to start up a private limited company. Limited Companies are formed with both an authorised share capital and an issued share capital. The authorised share capital is the total number of shares existing in the company multiplied by the nominal value of each share. Not all such shares may have been issued. The issued share capital is the same calculation in respect of all the issued shares.

Shares in a private company are usually transferred by private agreement between the seller and the buyer, as shares in a private company may not by law be offered to the general public.

Registered Office

Every company must have a registered office, which does not need to be its usual business address. It is sometimes the company's lawyers or accountants, for example. All official letters and documentation from the government departments (including Inland Revenue and Companies House) will be sent to this address, and it must be shown on all official company documentation.

Formation

To incorporate a company in the UK (other than Northern Ireland) the following documents, together with the registration fee, must be sent to the Registrar of Companies:

• The memorandum of association (states the name of the company, the registered office and the company objectives. The memorandum delivered to the Registrar must be signed by each subscriber in front of a witness who must attest the signature)

• The articles of association (govern the company's internal affairs. The company's articles delivered to the Registrar must be signed by each subscriber in front of a witness who must attest the signature).

• Form 10 (states the first directors, the first secretary and the address of the registered office. Each director must give his or her name, address, date of birth, occupation and details of other directorships held within the last five years. Each officer appointed and each subscriber (or their agent) must sign and date the form).

• Form 12 ( a statutory declaration of compliance with all the legal requirements relating to the incorporation of a company. It must be signed by a solicitor who is forming the company, or by one of the people named as a director or company secretary on Form 10. It must be signed in the presence of a commissioner for oaths, a notary public, a justice of the peace or a solicitor).

2. Company limited by guarantee

In British or Irish company law, a company limited by guarantee is an alternative type of corporation used primarily for non-profit organisations that require legal personality. A guarantee company does not have a share capital, but has members who are guarantors instead of shareholders. The guarantors give an undertaking to contribute a nominal amount (typically £1) towards the winding up of the company in the event of a shortfall upon cessation of business. It cannot distribute its profits to its members, and is therefore eligible to apply for charitable status if necessary.

Like a private limited company, a company limited by guarantee must include the suffix "Limited" in its name, unless specifically excluded by law.

Common uses of guarantee companies include clubs, membership organisations (including students' unions, sports associations (such as the PGA European Tour), workers' co-operatives, other social enterprises, non-governmental organizations (NGOs) and charities (such as Oxfam). The railway infrastructure provider Network Rail, domain name registry Nominet UK, the UK Financial Services Authority (FSA) and IXP LINX (London Internet Exchange) are also companies limited by guarantee.

3) A company limited by guarantee with a share capital.

A hybrid entity, usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return.

4) A community interest company (CIC)

A new type of company introduced by the United Kingdom government in 2005 . A CIC is a new type of company, designed for social enterprises that want to use their profits and assets for the public good. CICs will be easy to set up, with all the flexibility and certainty of the company form, but with some special features to ensure they are working for the benefit of the community.

A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners. Social enterprises tackle a wide range of social and environmental issues and operate in all parts of the economy. By using business solutions to achieve public good, the Government believes that social enterprises have a distinct and valuable role to play in helping create a strong, sustainable and socially inclusive economy.

Social enterprises are diverse. They include local community enterprises, social firms, mutual organisations such as co-operatives, and large-scale organisations operating nationally or internationally. There is no single legal model for social enterprise. They include companies limited by guarantee, industrial and provident societies, and companies limited by shares; some organisations are unincorporated and others are registered charities.

5) Unlimited company

In the United Kingdom, an unlimited company is a company formed by registration under the Companies Act 1985 where the liability of the members is unlimited - that is, they are liable to contribute whatever sums are required to pay the debts of the company should it go into compulsory liquidation. Not surprisingly, this is not a common form of company. One example that was of significant press and political interest when it got into financial difficulties is The Equitable Life Assurance Society (company number 00037038).

An unlimited company is very similar to a partnership and there are only rare occasions when it will be preferred to that alternative business model. Examples are where the company will not trade (e.g. will only be used to hold title to property), is trading but in an area where limited liability is not acceptable, secrecy concerning financial affairs is desired (an unlimited company can have fewer reporting obligations), there is a low risk of insolvency etc. They can be registered online for fees of approximately £250 plus Vat.

The foregoing types of company are generally formed by registration under applicable companies legislation. Less commonly seen types of companies are:

6) Charter corporations

A Royal Charter is a charter granted by the Sovereign on the advice of the privy council, to legitimize an incorporated body, such as a city, company, university or such. A Royal Charter is a kind of letters patent. In medieval Europe, cities were the only place where it was legal to conduct commerce, and Royal Charters were the only way to establish a city. The year a city was chartered is considered the year the city was "founded", irrespective of whether there was settlement there before. A Royal Charter can also create or give special status to an incorporated body. It is an exercise of the Royal Prerogative.

At one time a Royal Charter was the only way in which an incorporated body could be formed, but other means such as the registration of a limited company are now available.

Among the 750 or so organizations with Royal Charters are cities; the BBC; theatres such as the Royal Opera House and the Theatre Royal, Drury Lane; Livery Companies; Britain's older universities; professional institutions and charities.

A Royal Charter is the manner in which a British town is raised to the rank of city. Most recently Inverness, Brighton & Hove and Wolverhampton were given their charters to celebrate the millennium, and Preston, Stirling, Newport, Lisburn and Newry to celebrate the Golden Jubilee of Elizabeth II in 2002.

Some of the older British universities operate under Royal Charters, which give them the power to grant degrees. The College of William and Mary in Virginia was granted a Royal Charter in 1693 and Dartmouth College was granted a Royal Charter in 1769, marking the first and last collegiate grants in the present-day U.S.. The most recent generation of UK universities were granted the power to grant degrees by the Further and Higher Education Act, 1992 instead of by Royal Charter, while some other universities operate under Acts of Parliament.

The BBC operates under a Royal Charter which lasts for a limited period of ten years, after which it is renewed.

Most Royal Charters are now granted to professional institutions and to charities. For example, the six accountancy institutes which make up the Consultative Committee of Accountancy Bodies each have a Royal Charter which allows their members to call themselves Chartered Accountants. A Charter is not necessary for them to operate, but one is often sought as a recognition of "pre-eminence, stability and permanence".

A Royal Charter changes a body from a collection of individuals into a single legal entity. Once incorporated by Royal Charter, amendments to the Charter and by-laws require government approval.

7) Statutory companies

Relatively rare today, certain companies have been formed by a private statute passed in the relevant jurisdiction.

8) Companies formed by letters patent

Most corporations by letters patent are corporations sole and not companies as the term is commonly understood today.

*** Offshore company

A company which does not conduct substantial business in its country of incorporation. They are sometimes known as non-resident companies.

Offshore companies may bring a number of benefits to individuals or companies.

• Taxation - business may be structured so that profits are realized in ways that minimize their overall tax liability.

• Simplicity - except for regulated businesses, such as banks or other financial institutions, some jurisdictions make it relatively simple to set up and maintain companies.

• Reporting - the level of information required by the registrar of companies varies from jurisdiction to jurisdiction.

• Asset protection - it is possible to organize assets and transactions in such a way that assets are shielded from future liabilities.

• Anonymity - by carrying out transactions in the name of a private company, the name of the underlying principal may be kept out of documentation. Having said that, current anti-money laundering regulations often require banks and other professionals to look through structures. Thin capitalisation - offshore jurisdictions tend not to impose "thin capitalisation" rules on companies (except for regulated entities such as banks and insurance companies), allowing them to be formed with a purely nominal equity investment.

• Financial assistance - offshore companies are usually not prohibited from providing "financial assistance" for the acquisition of their own shares, which avoids the needs for "whitewash" procedure in certain financial transactions.

Features

Memorandum and articles of association or bylaws - these documents are fundamental to the existence of the company, and detail the rights of the members, the objectives of the company and the internal processes of the company.

• Certificate of Incorporation - this is issued by the Registrar of Companies, and is proof that the company has been brought into existence. Other information may be necessary to prove that the company has not been liquidated or struck off.

• Registration Agent - it is normal for an agent to be appointed in the jurisdiction in which the company is incorporated for the purpose of dealing with official communications with the registrar.

• Registered Office - this is the official address of a company, to which official documents are sent and legal notices received. It is normal for the registration agent to provide a registered office. A company may have other business and correspondence addresses.

• Members - these are the legal owners of the company. For administrative simplicity, or for anonymity, a corporate service provider may supply nominees who will hold shares on behalf of a beneficial owner, and act on his instructions.

• Directors - the individuals who manage the day-to-day affairs of company. In many jurisdictions it is possible for companies to be directors of other companies. Corporate service providers in offshore jurisdictions will often provide directors, provided they are able to control, and be satisfied with, the activities of the company. The company is generally considered to be resident for tax purposes at the place where the decisions are made.

• Shadow directors - in some cases, it has been shown that the formally appointed directors merely act as the alter ego of others, blindly following their instructions. In these cases, the courts have considered that those instructing the named directors really control of company, and that the named directors merely rubberstamp decisions. Companies managed in this way run the risk of being deemed to be resident in the jurisdiction where the shadow director is resident. Unpredictable tax consequences may follow.

• Company Secretary - this is the person who is responsible for ensuring that the company meets its statutory obligations. Corporate service providers often provide this service.

• Statutory Records - a company is obliged to maintain registers setting out certain information about the company. The mandatory records vary from jurisdiction to jurisdiction, as does the level of public access to the information contained in the records. Many jurisdictions require that the records are kept within the jurisdiction in which the company is incorporated. The records required may include minutes of meetings, registers members, directors, officers and charges.

• Bookkeeping - directors are generally required to keep proper records. They may be required to prepare audited accounts. Specific requirements vary between jurisdictions and may depend on the nature of the company's activity. For example all banks will need to prepare audited accounts, whereas a private investment

A GLOSSARY

articles of association: umowa spółki

authorised share capital : kapitał akcyjny, statutowy

commissioner of oaths: prawnik uprawniony do odbierania zaprzysiężonych zeznań

companies act : ustawa o spółkach

compulsory liquidation: likwidacja przymusowa

declaration of compliance: oświadczenie zgodności z prawem

initial public offering : a corporation's first offer to sell stock to the public

issued (joint-stock) capital: kapitał akcyjny

justice of the peace: sędzia pokoju

legal personality: osobowość prawna

letters patent: an official document granting a right or privilege; ochrona patentowa; zaświadczenie patentowe

leveraged buyout : a buyout using borrowed money

limited liability : ograniczona odpowiedzialność
announcement of the company: ogłoszenie spółki
articles of the company: statut spółki

Companies Act: ustawa o spółkach
company accounts: rachunkowość spółki
company bodies: władze spółki

company director: dyrektor spółki
company income tax: podatek dochodowy od spółek
company's assets: majątek spółki
company's lifetime: czas trwania spółki (handlowej)
company's obligations: zobowiązania spółki

company secretary: dyrektor finansowy spółki
deed of company formation: umowa spółki
limited liability company: spółka z ograniczoną odpowiedzialnością
formation of a company: powstanie spółki
insolvency of a company: niewypłacalność spółki
member of company's bodies: członek władz (spółki)
one member company limited by share: jednoosobowa spółka z o.o. do wartości kapitału nominalnego
private company: spółka prywatna, spółka zamknięta
registration of a company: rejestracja spółki
registered office of a company, seat of a company: siedziba spółki
creditor : wierzyciel

market capitalization : wartość giełdowa spółki

memorandum of association: statut spółki

notary public: rejent, notariusz

Registrar of Companies: kierownik urzędu rejestrowego spółek

SEC: Securities and Exchange Commission - Komisja Papierów Wartościowych i Giełd

securities : papiery wartościowe

share capital: kapitał akcyjny

solicitor: radca prawny

unlimited company: spółka z nieograniczoną odpowiedzialnością

EXERCISES

Retrieved from "http://en.wikipedia.org/wiki/Public_company"

1

Match the descriptions and the companies.

1. The company has shareholders, and that the liability of the shareholders to creditors of the company is limited to the capital originally invested.

2. A new type of company (introduced in 2005), designed for social enterprises that want to use their profits and assets for the public good.

3. The company is an alternative type of corporation used primarily for non-profit organisations that require legal personality.

4. A company formed by registration under the Companies Act 1985 where the liability of the members is unlimited - that is, they are liable to contribute whatever sums are required to pay the debts of the company should it go into compulsory liquidation.

5. Examples of this type of company are cities; the BBC; theatres such as the Royal Opera House and the Theatre Royal, Drury Lane; Livery Companies; Britain's older universities; professional institutions and charities.

6. A company which does not conduct substantial business in its country of incorporation. They are sometimes known as non-resident companies.

1. Offshore company

2. An unlimited company

3. Charter Corporation

4. A private company limited by shares

5. A community interest company (CIC)

6. A company limited by guarantee

Fill in the gaps with the terms given below.

1. …………………………………………………………… states the name of the company, the registered office and the company objectives. The memorandum delivered to the Registrar must be signed by each subscriber in front of a witness who must attest the signature.

2. …………………………………………………….. governs the company's internal affairs. The company's articles delivered to the Registrar must be signed by each subscriber in front of a witness who must attest the signature.

3. ………………………………………………..states the first directors, the first secretary and the address of the registered office. Each director must give his or her name, address, date of birth, occupation and details of other directorships held within the last five years.

4. …………………………………………… is a statutory declaration of compliance with all the legal requirements relating to the incorporation of a company.

Articles of association, form 10, form 12, memorandum of association

2

Translate the following terms into Polish.

articles of association …………………………………………………………….

justice of the peace ………………………………………………………………..

legal personality …………………………………………………………………….

limited liability company ………………………………………………………..

articles of the company ………………………………………………………….

creditor ………………………………………………………………………………….

notary public ………………………………………………………………………….

share capital …………………………………………………………………………..

solicitor ………………………………………………………………………………….

unlimited company ………………………………………………………………..

SEC …………………………………………………………………………………………

Registrar of Companies …………………………………………………………..

3

---