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The art of 'sharing' and setting up a private company

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The art of sharing and setting up a private company

Many businesses are set up as limited companies and – as such - they are limited by the number of shares that the company holds. In recent weeks the Government has sold more of its shares in Lloyds Banking Group, to just below eight per cent as they try to return the lender to full private ownership, and thus, a private company.

This increase in share sales means that the taxpayer now owns 7.99 per cent of the bank, down from the 43% share it held following the lender’s bailout at the height of the financial crisis.

The UK Financial Investments (UKFI) which manages the Government’s stake, stated that the announcement: “shows the further progress made in returning Lloyds Banking Group to full private ownership”.

The UKFI however abandoned plans for a share sale to the public, due to current market volatility.

Transferring shares

In the case of many private companies, it can be considered appropriate that a shareholder should not be free to transfer their shares to anyone they choose. The reason for this is that if an existing shareholder is free to transfer shares to anyone, they are - in effect - in a position to decide who fellow shareholders’ future associates should be.

Although the decision-making with regards to transfer or sale of shares at first seems limited, there are many advantages of being part of a private company.

The advantages of a private company

A private company can be formed by two persons only. It can start its business immediately after incorporation and is not required to wait for the certificate of commencement of business. The liability of members in a private company is limited, and can be a more inviting prospect for people starting off in business.

Private limited companies enjoy permanent succession because the company is its own legal entity. Shareholders and employees act as ‘agents of the company’, and therefore, do not affect the company if they leave.

However, as with any business venture, you must be careful when setting up a company, and on deciding how the company will conduct its business.

Getting the best advice

You must fully consider all of the advantages and disadvantages when forming a private company, and ensure that the articles of association are fully reflective of how you would like the business to conduct itself.

Neither the ‘Model Articles’ nor ‘Table A Articles’ of association give directors automatic authority to issue shares and when taking part in a business start-up under a private company. As such, it may be considered desirable to include such power in the articles of the company, that a meeting of members is not needed for the issue of shares when the company is newly formed and for the foreseeable future.

Our commercial team has a broad and in-depth knowledge of company start-ups - private and public – as well as drafting articles of association, and providing advice on how a company should conduct its business.

If you are thinking of embarking on starting your own private business, or are in need of any advice please contact Thomas Baker in the commercial law department

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