ABG Commercial Newsletter – February 2015

New Regulations – Company and Business Names

Two new sets of regulations which came into force on 31st January 2015 have made changes to the law relating the words and symbols that can be used in company names and the requirements for trading disclosures.

In summary, the new regulations have implemented the following changes:-

  • Under the previous regulations, prior approval was required by the Secretary of State before certain sensitive words or expressions could be included in a company name.  The new regulations have reduced the list of words that require this approval.  Words such as ‘United Kingdom’, ‘European’, ‘International’ and ‘National’ have been removed from the list and so can now be used without prior approval.
  • Before registering a company name, Companies House will check whether there are any companies already registered with the same name.  For this purpose, certain words are ignored, because they are classed by the regulations as ‘the same’ and therefore do not differentiate a company from one with a similar name.  For example, ‘X Holdings’ and ‘X International’ would not have previously been allowed as the words ‘Holdings’ and ‘International’ were classed as ‘the same’.
  • Under the new regulations, the list of words that are considered the same for this purpose has been reduced.  More words, including ‘Holdings’, ‘International’, ‘Group’, ‘Export’, ‘Imports’ and ‘Service’, can now be used to differentiate companies from one another.  This change will be helpful for group reorganisations as the names of the group companies can be more easily changed.
  • The list of characters that can be used in company names has been expanded and now includes accents, diacritical marks, signs, symbols and ligatures which were previously prohibited.
  • The trading disclosures requirements, which state that a company must display its name at its registered office and any location it carries out its business have been slightly amended. Where 6 or more companies share an office it is no longer a requirement that the details of all the companies are displayed, providing that the information is held and available on request.

These changes will make things easier when incorporating new companies as there are more options available and when re-naming companies after reorganisations.

Further guidance on the restrictions on company names can be found on the Companies House Website https://www.gov.uk/government/publications/incorporation-and-names.

Unpaid director and shareholder was an employee

This latest case from the Court of Appeal highlights that businesses, especially start-up businesses, need to carefully consider the intended roles of each director and shareholder and document it appropriately.

In order to bring a claim for unfair dismissal a person must be an employee within the meaning of the Employment Rights Act 1996.

For an employment relationship to exist there must be a contract in place, whether this is express or implied.  If there is no express contract in place, where it is necessary to give effect to the reality of the situation, a court can imply a contract.  However, there cannot be an employment contract unless there is some form of remuneration or consideration.

In a recent case, the Court of Appeal has held that a director and shareholder who worked for the company but did not receive a salary was an employee for the purposes of the Employment Rights Act 1996 even though no express employment terms had been agreed.

In this case, the claimant was a director and shareholder of the company who worked in the company business for over three years before his relationship with the other directors broke down and his directorship was terminated.  The claimant brought a claim for unfair dismissal and unauthorised deduction of wages.  The company argued that the claimant was not an employee as there was no employment contract in place.

The Employment Tribunal found that an employment relationship did exist as at incorporation there had been an express agreement that the claimant would work for the company.  It would make no sense for the claimant to work for free when one of the other directors, who had an equal amount of shares, was being paid.  Therefore there was an implied term that the claimant would receive reasonable remuneration for his work.  The company appealed to the EAT.

The EAT upheld the appeal on the grounds that the Employment Tribunal had implied an employment contract in the absence of remuneration and remitted it to a fresh Employment Tribunal to determine whether  a contract of employment could be implied in the circumstances.  The claimant appealed to the Court of Appeal.

The Court of Appeal held that there was an employment relationship between the claimant and the company.  The Court of Appeal found that there was an express agreement on incorporation that all three of the directors would contribute something to the venture and these mutual promises were sufficient to constitute consideration.  The claimant accepted an obligation to work for the company and in reality it would not make sense for the claimant to work for free when one of the other directors was being paid for his work.

This case highlights the difficulty in establishing an employment relationship and the importance of having either written terms of employment or clearly defining a party’s role and status within the business by way of a Shareholders Agreement or similar.  It is also the second case to suggest that, directors and shareholders do not need to have been paid in order to be considered employees providing it can be shown that there is a legal obligation to pay them.

Therefore, if you have any concerns or wish to review your paperwork please a member of the Commercial Group.

Terms incorporated into a contract by reference

On entering into a contract the parties may decide to incorporate terms from a previous related contract into the new contract. It is a matter of construction as to which terms the parties intended to incorporate.

This has been illustrated in a recent case in which the parties had incorporated terms from a previous agreement into a later agreement.  One of the parties then sought to terminate the second contract based on a right to terminate for convenience contained in the first contract.   The other party then brought a claim for repudiatory breach based on the fact that there was no right to terminate for convenience in the second contract.

The High Court held that the terms of the first agreement prevailed over the second agreement.  There was nothing in the second agreement to suggest that the parties wanted to incorporate some and not all of the terms of the first contract and therefore on a true construction, the right to terminate on convenience was incorporated into the second contract and could be relied upon.

This case is a good reminder that, when incorporating terms from a previous contract, it is important to be aware of what terms are being incorporated and understand what effect these will have on the new contract.  If it is the intention that only some of the terms are to be incorporated then this should be expressly stated.

 

The comments in this note are of a general nature only.  Full advice should be sought on any specific problems or issues.

 

Tim Sisson tsisson@abg-law.com +44 (0)115 934 3333

Andrew Sutton asutton@abg-law.com +44 (0)115 934 3303