Services / Cross-border transactions and investment
Forming a limited company: two promoters now
The number of promoters is a point a good deal of guidance has not caught up with, and the memorandum is a document usually filled in from a template rather than decided on, although what goes into it binds the company for a long time afterwards.
Two promoters or more
Section 1097 of the Civil and Commercial Code provides that any two or more persons may promote and form a limited company by subscribing their names to a memorandum of association and doing the other things the Code requires. This is a figure worth checking against the provision itself, because a great many circulating forms, guides and summaries still give the older, higher number.
What the memorandum must contain
Section 1098 requires the memorandum to state the proposed name of the company, which must always carry the word Limited at its end; where in the Kingdom the registered office is to be; all the objects of the company; a statement that the liability of the shareholders is limited; the amount of registered share capital and the par value into which it is divided; and the names, addresses, occupations and signatures of the promoters together with the number of shares each has subscribed.
Objects, drawn wide or narrow
The objects clause is commonly copied from a template rather than considered, although it carries on into several later things: applications for particular licences, opening accounts and transacting with financial institutions, and the due diligence counterparties later run. Drawing it wide reduces future amendments but makes for a long document that may not match the picture of the business one wants to present. It is a decision rather than a form-filling exercise.
Registered capital and par value
Section 1098(5) calls for the amount of registered share capital and the par value into which it is divided. The two figures work together with the intended shareholding structure, because the par value determines how finely holdings can be split. Setting it too high makes later adjustments to proportions harder than they need to be.
Amending it afterwards
The particulars under section 1098 are not fixed forever, but changing them requires the company's own procedures and registration as the Code provides, which takes time and costs money. The items most often amended later are the objects, when the business grows in a direction not written down, and the registered office, when the company moves. Thinking both through at the outset is cheaper than amending them afterwards.
PREPARE
What to bring
- The preferred company name and alternatives
- The promoters, with addresses and occupations
- The shareholding structure and each holding
- What the business will actually do, and plans to do
- The office address and evidence of the right to use it
QUESTIONS
Questions this raises
Can a foreign national be a promoter?
Section 1097 speaks of any two or more persons and does not restrict nationality in the provision itself. The real question is usually not about being a promoter but about the shareholding proportions and the kind of business to be carried on, which fall under separate legislation on foreign business operation.
Is there a downside to very wide objects?
In legal terms, drawing them wide reduces the need for later amendment. In practice there is a side effect worth knowing: counterparties, financial institutions and licensing authorities read the objects to judge what the company actually does, so a long, all-encompassing list can call for more explaining than it saves.
LAW
The legislation
- Civil and Commercial Code, section 1097
- Civil and Commercial Code, section 1098
ENQUIRIES
