Perhaps you’re self-employed and looking to expand your business. Or maybe you’re looking to start a new endeavour from scratch, and want to raise capital by selling shares. Whatever the reason, you’re thinking about creating an incorporated business, often called a company.
There are several steps to go through to establish and register a new company, but first and foremost is understanding what you’re signing up for.
What are the advantages of forming a company?
A limited company is a kind of incorporated business, meaning that the business is considered a separate entity under the law. The business’ finances are separate from the owners’.
Companies have access to different tax rules and options for raising funds, but are subject to stricter regulations. This includes more accountability to people who have invested in the business, as well as to the public. It also means having to submit more reports and documents to HMRC and Companies House.
But there are many kinds of legal businesses, which we break down here. If you’re aiming to be the sole owner and don’t need much external funding, being a sole trader is likely more appropriate. If you have a few external investors who won’t have any control of the business, a limited partnership may be best.
Choose a name
You must choose a name for your company, which must usually end in ‘Limited’ or ‘Ltd’. You can also use the Welsh equivalents Cyfyngedig’ and ‘Cyf’ if you registered the company in Wales.
A name is considered the ‘same as’ another if the only difference is punctuation, special characters, or words that look similar or mean the same thing. You will need to be part of the same group as or have written consent from a company to use a name considered the ‘same as’ its own.
Appoint a director
You will need to appoint at least one director for the company. They will be legally responsible for keeping company records, filing tax returns, and paying corporation tax. Directors do not have to live in the UK but the company must have a UK registered office address.
What if I don't have a physical office?
All limited companies need to have a ‘registered office address’. However, this does not mean you need to own or rent a building just for this use.
At CIGMA Accounting we offer services which allow you to use our address as your company’s registered address. We also offer services that can take you all the way through the incorporation process.
Contact us here to get a free quote for company formation in London and across the UK.
Decide on shareholders or guarantors
Most limited companies are ‘limited by shares’. This means they’re owned by shareholders, who have certain rights and ‘limited liability’ – they only stand to lose the money they have paid in for their shares.
Company profits are usually divided between shareholders according to what percentage of the shares they own, referred to as dividends.
A company limited by shares must have at least one shareholder, who can also be the director. The price of an individual share can be any amount, and usually give their holders one vote on company decisions per share.
Companies can also be ‘limited by guarantee’. Instead of shareholders, these companies have guarantors who have promised to pay a set amount of money if the company cannot pay its debts.
Listing people with significant control (PSCs)
A person with significant control of your company (PSC) is someone who:
- Holds more than 25% of shares
- Has more than 25% of voting rights
- Can appoint or remove the majority of directors
You will need to submit a list of PSCs when you register your company with Companies House. You will need details about your PSCs such as their date of birth and home address. You can find the full list of required information here.
Company agreement documents
To register your company, you will need a ‘memorandum of association’ and ‘articles of association’.
The memorandum of association is a legal statement signed by all initial shareholders or guarantors agreeing to form the company. This will be created automatically if you register online.
The articles of association are written rules about running the company agreed by the shareholders or guarantors, and directors. You can use premade standard articles or write up your own.
Check which records you need to keep
Aside from your PSC list mentioned earlier, you must keep other records about the company and its accounting.
Among others, you will need to keep documents recording:
- The directors and shareholders
- The results of shareholder votes
- Company loans and repayment dates
- Bought and sold shares
Your accounting records will need to include the following, though this is not the full list:
- All money received and spent
- Details of assets
- Debts the company owes or is owed
You are expected to keep records for at least six years.
Register your company
To register your company, you will need to provide an office address. This address must be a physical address in the UK and be in the same country that the company is registered in.
You will also need to use this document to check what your business’ SIC code is. The ‘standard industrial classification of economic activities’ (SIC) describes the kind of business or trade your company engages in.
You can then use this service to register your company with Companies House. You will also be registered for Corporation Tax at the same time. For the registration, you will need personal details about shareholders or guarantors, such as their town of birth and telephone number.
If you need any assistance with incorporating your business, or registering for Corporation Tax, our CIMA-registered chartered accountants would be happy to assist.