Company Formation Solicitors — Incorporation, Shareholder Agreements, and Directors' Duties

Companies House incorporation is quick and cheap — a company can be incorporated in under an hour using the model articles of association. However, for any business with more than one founder or shareholder, the model articles are inadequate. They contain no provisions for what happens when a shareholder wants to leave, how shares are valued, or what decisions require unanimous consent. These omissions routinely lead to costly disputes. A solicitor drafts the articles, shareholder agreement, and related documents (service agreements for director-shareholders, IP assignment agreements) to ensure the business is properly structured from day one.

A good leaver/bad leaver provision determines the price at which a departing shareholder must sell their shares. A "good leaver" (someone who leaves for reasons beyond their control — death, ill-health, redundancy, or retirement) typically receives market value for their shares. A "bad leaver" (someone who resigns voluntarily, is dismissed for cause, or competes with the company) receives only nominal value or cost. This incentivises key people to remain with the business and prevents a departing founder from retaining a full shareholding after leaving. A solicitor drafts the definition of "good leaver" and "bad leaver" with care — the categories must be clearly defined to avoid later dispute about which category applies.

Yes — and in owner-managed businesses, the same individuals are typically both directors and shareholders. This creates a potential conflict: a director's duties under the Companies Act 2006 run to the company (not to the shareholders personally), while as shareholders they have their own economic interests. The risk arises when a director takes decisions that benefit themselves as shareholders at the expense of the company's other shareholders or creditors. A solicitor advises directors on their duties, assists with board resolutions formally recording decisions and the director's conflict disclosure, and advises on the distinction between the director's role and the shareholder's role.

Ordinary shares typically carry one vote per share, participate in dividends, and share in the assets on a winding up after all other claims are satisfied. They are the standard equity share. Preference shares carry preferential rights — typically a fixed or preferential dividend that must be paid before ordinary dividends, priority in a winding up, and sometimes cumulative dividend rights (arrears accumulate if not paid in a year). Different classes of ordinary shares (A shares, B shares, etc.) allow flexible dividend allocation to shareholders — for example, to suit different income tax positions — without necessarily conferring different voting rights. A solicitor advises on share structure design and drafts the articles to give effect to the intended rights.

All private limited companies must: (i) file a confirmation statement (Form CS01) at least once every 12 months, confirming the company's details are up to date; (ii) file annual accounts (usually abbreviated accounts for small companies, or full accounts for larger ones) within 9 months of the accounting reference date; (iii) file any change of directors, registered office, or share structure within 14 days; (iv) maintain and file an up-to-date PSC register; and (v) file notification of any change in significant control. Failure to file on time attracts automatic penalties and can result in the company being struck off the register. A solicitor advises on compliance and ensures filings are made on time.