Making sure easy also means safe

Linda Tsang explains which factors to consider when setting up an off-the-shelf company, and examines the importance of the company registration agent. Linda Tsang is a freelance journalist.

The setting up of an off-the shelf company is not always a simple matter of taking a box file with books and company seal down from the shelf, filling in the forms, sending them to Companies House and then doing nothing else. Solicitors providing this services either through their own firm or through an agent, should also do their homework and ensure that all formalities are complied with when setting up a company. The company should also make sure that it has the right constitution for governing the running of the client's business, whether as a private company or a public limited company.

When looking for a reputable company registration agent, personal recommendation is the ideal starting place, but in the absence of that, it is good practice to check whether the registration agent is a chartered company secretary or is a member of the Association of Company Registration Agents. Although membership of the association is not compulsory, those agents who are members have to meet fairly stringent standards, which include carrying professional indemnity insurance up to £250,000 and having their quality of service checked.

This also extends to checking the quality and content of the memoranda and articles of association, as well as the standard of the statutory books and company seals provided by the agent.

Last year, the Home Office approached a number of agents with a view to setting up a 'bible' of self-regulation in a bid to prevent criminals setting up and registering such companies for money-laundering.

This involved the Home Office checking on the agents' systems of record-keeping as well as keeping up-to-date on all relevant information. Although this self-regulation is essentially from the perspective of keeping a check on money-laundering rather than best practice, the two are inevitably linked, so if the agent was approached by the Home Office, this can be seen as an additional recommendation of its capabilities.

Apart from personal recommendation, chartered secretaryship and membership of the association, it is also possible to check on the proven track record of the agent in question, and how long they have been in business. If time allows (which it rarely does, as many off-the-shelf companies tend to be wanted immediately), a number of agents can be contacted for company background information as well as details of charges.

With the advantages of obtaining limited liability for the client and the fact the UK has the cheapest off-the-shelf companies in Europe, it is tempting for the client to think that they can set up an off-the-shelf company without the advice of a solicitor, accountant or agent, thus saving on any or all of those fees.

But the caveat for a client who is seeking corporate status and the advisers (whether legal or financial) is to ensure that the memoranda and articles of association comply with current legislation. Most importantly, the sign of a good agent is that they provide comprehensive memoranda and articles when the company is set up to cover all that the client may want the company to do in the future.

The average cost of setting up a company is between £100 and £200 but it is worthwhile checking exactly what the setting-up costs cover. If time is of the essence, and/or a name change is also urgently required, this will usually be more expensive.

If the agent is to provide other services, such as a registered office or nominees for directors or shareholders, this will also add to the cost. Inevitably, when buying an element of external expertise, cost is a major consideration in deciding whether the disbursement element of that work justifies instructing an external agent or the solicitors firm keeping the work in-house.

The marketplace is changing all the time and at the moment this seems to be a fairly buoyant area given the recent change of government and both recent and anticipated tax changes. So, unless this is the type of work that the legal firm does all the time, it can save both time and expense to have an external agent with the resources and lower overheads of maintaining companies and their records full-time, to handle all initial setting-up formalities, as well as the continuing compliance formalities once the company is up and running.

If the agent is not providing officers or nominee services, the ongoing administration costs will usually run on average between £100 to £200 a year. It is a matter of factoring in the costs of having a fee earner carry out what is essentially basic compliance work at a fee earner's rates, and comparing that with those of the agent when deciding who should do this paperwork.

As one agent warns: 'If the solicitor or accountant is only setting up a company perhaps once a year, it can be easy for them to miss filing changes of directors or shareholders, and if the statutory records are not kept up to date, this can be a nightmare at a later date if vital contracts have not been signed by the appropriate people.

'One of the key factors to remember is that the statutory compliance commitment is very important, and its importance is usually forgotten until the company has a problem, such as the death of a director which has not been notified to Companies House. In an extreme case, if you haven't dotted all the i's and crossed all the t's, the company could be struck off for its lack of compliance.'

More particularly, the following questions should be addressed: whether the agent provides translations of the memoranda and articles for overseas officeholders and a means of participation for those overseas; what other services do they provide in terms of search resources, and at what cost?

However, it is not just within the area of company law that agents should show their knowledge. Another question to ask is what UK companies should do with the advent of the Euro. Irrespective of whether the UK joins in 1999 or later, any good agent should know and be able to advise the solicitor and their client about all the latest and likely changes. And they should also be aware of all changes, including technological advances with the likely advent of electronic filing.

As with any external advisers, any queries regarding the agent should be made at the beginning it is obviously sensible to check that the agent is aware of all the statutory compliance commitments and, given the Government legislation in the pipeline, it is also useful to check on the agent's awareness of the new Companies Act which may be passed in 1999.

A consultative paper on the Act is due in March or April this year. Any agent who is a consultee of the Department of Trade & Industry in this area could advise on the best way to set up a company in view of the new Act and the likely changes to solicitor's duties.