Essay Sample on Company Registration in the UK and Germany

Published: 2019-10-16
Essay Sample on Company Registration in the UK and Germany
Type of paper:  Essay
Categories:  Company Management Business
Pages: 8
Wordcount: 1979 words
17 min read

Registration of companies in the UK is governed by the Companies Act of 2006 (National Archives, 2006). The Act is a guideline for the requirements needed for one to register a company. However, the Act prohibits the formation of a company for unlawful purposes. This includes the types of companies one can register, methods of setting up a company, memorandum of association, requirements for registration, and many other issues pertaining a company. The Act suggest that there are four types of companies one can register. One or a group of people can register community Interest Company, limited an unlimited company, a company with share capital, a company limited by guarantee, public limited company, and private limited company.

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Single Member Company in the UK

A single member company is a form of private limited company. A private limited company which is limited by stocks is a type of company which is incorporated under the company law of the UK and certain Commonwealth countries. The Companies Act (National Archives, 2006) define a private company as any company which is not a public company. Under the Companies Act, one or more persons can form a company. A private limited company has shareholders with limited liability. Unlike stocks in a public limited company, stocks of a private limited company are not sold to the members of the public. The word limited by shares imply that shareholders own the company and that the shareholders liability to the companys creditors is only limited to the amount of funds raised by the invested by the stock owners during the formation of the company. That is the initial contribution of the stock owners and any premium that accrue from the sale of stock by the company. As a result, the personal assets of the shareholder are protected in case the company become insolvent. However, the shareholders will lose the money owned by the company. Declaration of annual returns in a private limited company is not strict as in the case of a public limited company. It is for this reason that the private limited companys stock cannot be sold to the members of public and therefore the company cannot participate in a stock exchange open to members of the public. This is one of the main distinguishing characteristics of a public limited company and a private limited company. In the UK, the law (the Companies Act), allows an individual or individuals to form a company for any legally accepted activity (Usa, 2012).

A single member company is a type of private company. Just like a private company, it is limited by either shares or guarantee. However, a single member company, the membership is reduced to a single member or that the shares are incorporated to a single shareholder. Unless the companys articles of association spell anything contrary, a single individual who can be present by proxy or in person may constitute a quorum during a meeting organised by the shareholders. However, in case such a meeting is held, there must be a record of the minutes. In case a member makes a decision during a meeting, such a decision need to be submitted to the company in writing. If under any circumstance the company enters a contract which has not been put in writing with the sole person who happens to be the director of the company (and it is such that the contract has nothing much to do with the companys business), the company ought to ensure that the contract terms are specified in the memorandum, or next board meeting incorporate record of written minutes of the contract, for any purpose. The guarantee can limit a single member company. A private limited company whose shares is limited by guarantee does not have a share capital. Such companies are usually used purposely for non-profit organisations that find it necessary to have a legal personality. Instead of the shareholder, such a company has a member who acts as guarantor. In the event of either a shortfall or cessation, the guarantor is responsible for the contribution of a nominal amount, usually small, needed to wind up the company (Usa, 2012). Although it does not distribute profits to shareholders, a single member private limited company by guarantee which distributes its profits to the shareholders is not eligible to be registered as a charity.

Formation of a Public Limited and a Private Limited Company in Germany

In Germany, there are laws governing the formation of a private limited company (abbreviated as GmbH) and a public limited company (abbreviated as AG). Law governs, for example, the formation of a private limited company (GmbH) on Private Limited Companies (GmbH-Gesetz abbreviated as GmbHG). According to GmbHG, a private limited company can be found by one or more person (Campbell, 2009. GmbHG does not restrict the maximum number of shareholders to form a company. In Germany, GmbH may start operating even before it is fully registered. Before it is fully registered, the person or persons who formed it are liable for any debts incurred by the GmbH until such a time it is fully registered. Upon registration, the liability of the shareholders in GmbH ceases. However, the shareholder(s) are liable for the debts incurred by the company in proportion to the amount (share capital) they contributed to its formation up to an extent that the extent that the losses are no longer covered by the share capital of the company. In GmbH formed by more than one person, the liability of the shareholders is vested in the company itself. However, if the company does not possess any assets or if one shareholder forms the company, there are exceptions to this rule. The German law does not recognise the doctrine of ultra vires (Rush & Ottley, 2006) implying that once a GmbH has been registered, it acquires the same legal powers just like any other natural person. It is for this reason that the articles of association of companies formed in German do not necessary need to have detailed objects clauses. Instead, a brief general description of what the company intends to do is sufficient.

Single-Member Company in Germany

In Germany, the equivalent of the UKs limited liability company is GmbH and the legal basis for its formation are contained in the GmbH Act (Wendler, Tremml, & Buecker, 2002). Once incorporated as a business entity, the GmbH possess obligations and rights, and it becomes liable to its debts including its corporate assets. A GmbH, using its name, can defend and pursue legal actions. In the articles of incorporation, the shareholders in a GmbH come up with what constitute a nominal capital which each of them is supposed to pay the corporation. After that, every shareholder is only responsible for the obligations of the company only to the amount such a shareholder committed to the corporation as capital investment. In a GmbH, no member has enforced an obligation which is more than the nominal amount. The German law does not allow shares of a GmbH to be quoted on a stock exchange. The formation of a GmbH can be established for lawful activities by one or more people. When a one person forms a GmbH, it becomes an equivalent of a single member company of the UK. However, in the case of Germany, the founders can be legal entities, natural persons, residents, and non-residents. A single member company gives a chance to limit the liability of the single shareholder and also makes its administrative function become simpler (Tessema, 2012).

Differences Between a Single-Member Company in Germany and the UK

A study of the German and British company law suggest there are major differences. One area where this difference is highly pronounced is corporate governance such as division of powers in a company. The German law provides that the powers can be allocated within the company, but the articles can be amended if it is found to be extremely necessary. In contrast, the British law is quite flexible. In British law, the principle of freedom of contract allows for the amendment of the constitution in this respect (Hirt, 2004).

In Britain, there is practically no condition or requirement to maintain or pay capital: the British law on company registration for a private limited company does not impose a minimum amount of capital requirement. As a result, the capital can as low as $1 or it cannot be paid at all. In German company law, a private company must have a share capital of at least EUR25, 000 (Reeg, Wilhelm, Kramer, & Weiss, 2016). The British system allows for a simple, fast, and cheap way of formation. There are no requirements to pay or use a notary. Unlike in the case of German laws, the British laws does not impose a requirement to form works council (Betriebsrat) or supervisory board (Aufsichtsrat) (Carl, 2005). Mortgages as well as any other charges made to the assets of a private company formed in the UK are not only shown in a separate part of a Companies Register but also shown on the Land Register, with great emphasis on floating charges, which is the main type of security usually requested by banks. This suggests a UK company is more transparent compared with a German GmbH. Whether in civil or criminal law, there is a high possible for a director to be held personally liable in the UK company because in English law corporate crimes are a reality. In the UK system, there is a duty to file annual returns.

There are conditions which guide on how the annual returns are to be made (Companies Act, 2006). For example, there is a minimum amount required for a turnover and balance sheet totals. Beyond a certain amount, the company accounts need to be audited. There is also a fine imposed on a company which fails to submit annual returns. A newly registered company is given only up to 18 months to submit audited accounts. Repetition of the offence may see the company struck off the Company Register. In the UK company law, a private limited company can be converted into a public limited company. However, it cannot be converted into a partnership. There is no English law which is similar to the German Umwandlungs-Gesetz. Particularly, the English Law only knows that a single member company can acquire other corporations. However, it does not recognise true amalgamations or mergers where the identity of the parts constituting an amalgamation or merger is retained.

There is a difference in the way of formation of the private limited company in the UK and Germany. Unlike in the situation of a private company formed in German, the formation document of a private limited company in the UK comprises not just one but two agreements. The two agreements need to be signed by founder member. One of the document is the Memorandum of Understanding, and the other document is the Articles of Association (UK GOV, 2016). When it comes to safeguarding the assets of the company against the shareholder, the English law employs a different approach. For example, a company may not sell shares to an individual who as part of the transaction gains some financial advantage from the company. Furthermore, the company does not grant financial advantage to an individual who wants to buy shares from another shareholder. When such transactions take place, they are considered void.

The British Law, unlike the German law, has a different approach to the issue of company secretary. In the British law, there is a requirement that a private limited company must have at least one secretary. However, the German company law does not recognise the existence of a company secretary. The secretary, according to the British law, is largely responsible for formal functions. As a result, such a secretary ought to be well conversant with the general UK company law, filing requirements, companys reporting structure, and also Companys Articles. The secretary is a trusted person responsible for keeping th...

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