TYPES OF FORMATION

LIMITED COMPANY: In law, a limited company is a 'person' in its own right. This means it can own property (such as a freehold or leasehold) and enter into contracts in its own name. It exists independently and separately from the people involved. When a property is divided into a number of flats, each flat owner usually has a lease of their own flat but they may also hold shares in a management company that owns the freehold (or lease) of the entire building. As shareholders, the flat owners have their say in running the limited company. Normally, the company's constitution will say that shareholders who sell their flats must also transfer their shares to the new owners. This ensures that - at any given time - the limited company represents the interests of all the current flat owners. However, it remains a separate legal entity regardless of who holds its shares from time to time.

LIMITED BY GUARANTEE: Some limited companies do not have shares and are instead 'limited by guarantee'. In England and Wales, this includes commonhold associations and RTM companies. If your company is limited by guarantee, it means that the members have agreed to contribute to the assets of the company if it is wound up. The terms 'shareholder' and 'member' mean the people who own the company.

Instead of having a company, you may wish to consider two other options:

• If your organisation does not own property but simply collects money from residents for repairs and maintenance, and pays bills when they arise, then less formal arrangements may be appropriate such as a residents association.

• Residents could consider buying the freehold of their properties in their own names or as trustees.

Ask a solicitor or accountant to tell you whether one of these options would best suit your circumstances.

CHOOSING THE NAME
You will find the relevant law in the Companies Act 1985 and in the Company and Business Names Regulations or in the UK Company Registration Procedure.

WHY HAVE A LIMITED COMPANY?
One reason why residents of a block of flats would have a company is to own the freehold or 'head lease'. Freehold gives outright ownership of the property to the company. A 'head lease' is a lease granted directly to the company, who may in turn grant subleases of the property (or parts of it) to the flat owners. For the purposes of this page, the difference between a company that owns a freehold and one that holds a 'head lease' is immaterial. However, the company is also often used for collecting a central pool of cash for carrying out repairs and maintenance to common parts of the property. Often it is a condition of buying a flat that the buyer becomes a member or shareholder of the company. In some cases all flat owners automatically become directors.

Another reason why a company would be set up is so that leaseholders of flats can exercise their right to manage the building they live in. The right to manage must be exercised through a limited company set up for that purpose. This type of company is called a ‘RTM Company’. There are special rules about setting up and running a RTM company in England and Wales which are not covered in this page. More information is available from the Office of the Deputy Prime Minister (tel. 020 7944 4400 or visit www.odpm.gov.uk )

A limited company would also be set up to own and manage the common parts of a development made up of separate units under ‘commonhold’. This type of company is called a ‘commonhold association’. There are special rules about setting up and running a commonhold association which are not covered in this page. More information is available from the Department for Constitutional Affairs (tel. 020 7210 8614 or visit www.dca.gov.uk ).

WHAT DOES THE LIMITED COMPANY DO?
Flat management companies typically manage common parts of the building. They may have other responsibilities. Your property probably has parts common to all the flat owners living in it: boundaries, roofs, halls, drives and gardens being typical examples. These require maintenance, insurance, lighting, etc. These costs are funded by the individual flat owners, who make periodic contributions into a pooled fund.

If your company just pays a few bills, perhaps for repair or maintenance, then your advisor may say that these payments need not go through the company's books. Less formal arrangements, such as collecting the money through a residents association, may be satisfactory. The company could then continue to own the freehold (or head lease) of the property, but all its accounting transactions would be conducted elsewhere - the company would then be 'dormant'. Accounts would still have to be prepared, presented to members, and delivered to Companies House, but all that would mean is a simple 'nil' balance sheet that does not have to be audited. A standard dormant company balance sheet, Form DCA, is available for companies that have been dormant since incorporation.

WHAT INFORMATION DOES COMPANIES HOUSE NEED TO KNOW?
Companies House keep up-to-date information about all limited companies on record and we make this information available to anyone who wants to know about the company. Basically we need to know:

• Where to contact the company. The company's official address is known as its 'registered office'.

• Who runs the company. That is, particulars of the company officers.

• Who owns shares in the company - the shareholders (if the company has them).

• Where certain company registers are kept.

• What rules govern the company - its memorandum and articles of association.

• What the company's financial year-end is. The company's financial year-end is known as its 'accounting reference date'.

• What the company's accounts say.

Most of this information is registered at Companies House when the company is first formed and, if anything changes, you will need to tell, usually on a special form. However, every year we will send to the company's registered office a summary of the information held on the public record at Companies House - this form is called an annual return (Form 363s). This must be completed and returned to us. Also, every year, the company must prepare accounts and send those.

The company must keep a register of its members. Any member of the company or any other person has a right to inspect the register. Unless it is kept at the registered office, Companies House must be notified of where the register is kept, and any change in its location must be notified to Companies House on Form 353.

If the company is limited by shares, the members are also shareholders. Details of shareholders have to be notified to Companies House. The information must be updated every year on the annual return (Form 363s), which we will send the company shortly before it becomes due.

What if a member sells their flat? If the company is limited by shares, the company's articles of association will usually require the seller to complete and sign the appropriate section of a 'stock transfer form' (available from legal stationers). On completion of the sale, the form and the seller's share certificate should be passed to the buyer. The buyer must then complete their section of the form, pay any stamp duty to the Inland Revenue, and pass the form and share certificate to the company. The company secretary must then arrange for the directors to authorise the change to the register of members and issue a share certificate in the name of the new owner.

Do not send stock transfer forms to Companies House. Keep them with the company's own records.

If the company is limited by guarantee, then the company's articles of association will usually require the seller to sign a form to resign as a member (forms should be available from the company secretary) and deliver it to the company.

Please note: if the seller or buyer is ALSO a director or company secretary, the relevant forms 288a or 288b must be completed and sent to Companies house within 14 days.

WHAT OTHER DOCUMENTS MUST I FILE AT COMPANIES HOUSE?
Other notices that you have to file if they apply to you include:

1. notice of an increase or change in share capital - use Form 123 or 122 as appropriate;

2. details of mortgages and charges - use Form 395 (Form 410 for companies registered in Scotland);

3. various company resolutions;

4. notice of the company's liquidation, receivership, administration or a voluntary arrangement.

Whenever you complete a document, always quote the company number. It is the company's unique identifier. The number is shown on the company's incorporation certificate or you can ring us on 020 7 439 3400.