The first hurdle any business founder will likely face is incorporating their business into a UK company so that the business can operate as a separate and legal entity.
A business must incorporate at Companies House in order to act as one under the Companies Act 2006. When incorporating as a new company, the business undertakes certain obligations of notification and filing.
Company formation can be overwhelming for start-up founders looking to incorporate their business. Company law is complex and the legal requirements required for company registration can be overwhelming. This guide outlines the things you will need to take into account and the processes you are required to complete when you decide to incorporate a company in the United Kingdom.
Types of company
When deciding to incorporate, you will need to determine what type of company you want to incorporate. There are four main company structures that a business founder can choose to incorporate:
Private company limited by shares
A private company limited by shares is the most common type of company that businesses decide to incorporate as. Under this arrangement, a company has a share capital and the individual’s liability is limited to the amount of unpaid shares of this capital that they hold. Limited liability businesses often have Ltd after their company name. By definition, this sort of company is private so the shares within this company must be privately held and cannot be sold to the general public for investment.
Private company limited by guarantee
Private companies limited by guarantee is similar to a private company limited by shares but under this arrangement, members are guarantors, not shareholders. Here, the members essentially set a limit that they agree to contribute to the company’s assets if it is wound up that can be paid to creditors and other parties claiming from the business.
Private unlimited company
A private unlimited company differs from the two types of companies mentioned above. As its name suggests, the key difference is that the members’ liability is unlimited, irrespective of whether it is incorporated with or without share capital.
Public limited company
A public limited company differs from these above as it can offer its shares for sale to the wider public, for example via the stock exchange. These companies also have a share capital and act similar to private companies limited by shares in that a member’s liability is limited to the amount unpaid on their shares.
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Incorporation
In order to begin incorporation, you will need to have taken the following steps for your application.
Company Name and Registered Offices
When deciding to incorporate, you will need to select an official company name that must be unique. You can check if your proposed company name is available here on the registrar of companies. You should also check the UK Intellectual Property Office trade marks register else you might infringe an existing trademark. You must also ensure that the name of your company will not be considered harmful or misleading by the public and certain sensitive words and expressions require approval by the Secretary of State. Your company can be changed post incorporation as the company number assigned to you will be used to identify it.
You will also need to choose an official address for your company- it's ‘registered office’- so that departments like HMRC can deliver important information like legal notices, reminders and statutory updates. When choosing your address you must ensure that it is the country in which the company is formed and incorporated and that it is a physical address within that region. It does not need to be where the company carries out its business activity. For example, if the company is incorporated and registered in Northern Ireland, the company’s registered office must also be in Northern Ireland.
You can also set up a service address so that the company director can receive communications from others, such as third parties, about the company. This address can be the same or different from the registered office address, such as the directors residential address. However if you elect to use your home address as the service address this will be available on the public register for the purpose of third parties being able to make contact with you.
Like your company name, your registered office address can also be changed (to somewhere else in the jurisdiction in which you first registered) and will be effective once Companies House register the form. To do so you need to file a ‘Change of registered office address’ (AD01).
Members, officers and Persons of Significant Control
The number of officers and directors required to incorporate will depend on the type of company you are registering. For example, a private company requires one director (or more if agreed in the company’s articles) and does not require a company secretary whilst a public company must have at least two directors (one of whom must be an individual, as opposed to another company) and a secretary who is qualified.
You will also need to ensure that you have identified all Persons with Significant Control (PSC). These, who are typically shareholders or guarantors, will own or control the company and therefore are considered to be people with significant control over it.
As part of your application you will need to provide the directors’ service and residential addresses.
Memorandum and Articles of Association
A Memorandum of Association (hereinafter the ‘Memorandum’) affirms the intention to form a company and to become its member on formation. Reform under the Companies Act 2006 means that the Memorandum of Association is a shorter, simpler document than it had previously been as the Articles of Association now contain the constitutional rules relating to the company. Post-incorporation, the Memorandum cannot be amended or edited. You can view the required Memorandum wording in the The Companies (Registration) Regulations 2008 (2008/3014) and use this format when preparing it or download a proforma from gov.uk.
As mentioned, your company is also required to have Articles of Association (‘Articles’) that contain its constitutional rules and act as your company’s personal and internal rulebook. Articles are legally binding on both the company and its members and are designed to carve out processes. The articles will typically contain rules such as how the company pay dividends, the responsibility of the director(s), how decisions are made and voting rights and processes.
When deciding on your articles, you can adopt the model articles in their entirety or select articles that you wish you to incorporate into your own personalised Articles. The model articles are standard articles that are provided in schedules 1-3 of The Companies (Model Articles) Regulations (SI No. 3229) and are suitable for most companies and available for private companies limited by shares or guarantee and public companies. If drawing up your own Articles, you cannot include any rules that are against the law and due to their complexity you might want to obtain professional support and advice.
When completing the application incorporate and register your company you will need to identify whether you have adopted the model articles in their entirety, with amendments or whether you have decided to adopt bespoke articles and provide Companies House with copies of the articles you adopt. Failure to indicate which articles you are adopting will lead to automatic application of the appropriate model articles for your company type.
Your company can amend its articles but you must communicate and deliver these changes to Companies House within 15 days. Rules relating to how your company changes is articles will be dictated by the Articles itself.
Share Structures (where relevant)
When forming a company that involves share capital, you will need to determine the number of shares you will issue. Shares dictate the portion of the company that a member owns. Your shares will dictate your financial liability to the company- their nominal value is what determines this. A lot of new businesses will ascribe a nominal value of £1 to each shares but the amount that you decide is up to you. However, it is a requirement that you issue at least one share per member.
Once the above has been decided you will need to produce a statement of capital and initial shareholders. In the case of a private company limited by guarantee, you will need to provide a statement of guarantee.
Choosing a SIC Code
When making an application, you will need to provide Companies House with details relating to the company’s intended business activities. To do so, you need to reference a standard industrial classification code (SIC) in your application. If more than one applies to your business you can enter multiple SIC codes.
Application
To incorporate a company you need to complete an application (form IN01) that outlines the information set out above. You can incorporate your company in three ways:
Web Services
The Set up a limited company and register for Corporation Tax service is a quick way to register with both Companies House and HMRC (and optional PAYE).
This service is available for private limited companies (by shares or guarantee) or Community Interest Companies (CIC). The set up cost is £12 (£27 in the case of a CIC) and whilst there is no same day service for this platform straightforward applications are usually processed within 24 hours.
Paper Filing
Paper filing takes longer to process than incorporating your company through web services as paper documents must be sent to the appropriate offices. The standard fee for this process is £40 but the fee will be £20 if the company’s registered office is in Wales and you file the documents in Welsh or if you are incorporating an unlimited company.
Straightforward applications are usually processed within 5 days of receipt.
Electronic Software Filing
You can make your application for incorporation through suitably enabled software, perhaps provided by a company formation agent. The standard fee for electronic filing is £10. Straightforward applications are usually processed within 24 hours but if you require a guarantee of a same day service, the charge will be £30 provided that the application is received by 3pm on Monday to Friday.
If the application and the documents satisfy the checks, Companies House will incorporate the company and issue a certificate of incorporation which marks the official incorporation of the company.
Conclusion
Once you have gone to the effort of ensuring that your business is properly registered with the UK government you will likely be looking for opportunities for your business to grow whether through hiring a team, entering into a supplier agreements or through discussing potential partnership opportunities. You will therefore want to ensure that you have robust contracts in place in order to protect your small business. Legislate provides lawyer-approved contracts on no legal budget which can be tailored to suit your circumstances in a safe and controlled way. View our contract suite or sign up for free today.
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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.