If you’ve considered your options and decided that a limited company is the best business structure for you, what do you need to do next?
Under the Companies Act 2006, your business can’t operate as a limited company until it has been incorporated (i.e. successfully registered) at Companies House.
It’s always within your best interests to ensure that you have all the required information and that you complete your registration documents correctly. Should your registration be rejected, you may resubmit without paying a further fee but the resulting delay will prevent your company from trading until your incorporation submission is successful.
Operating as a limited company carries the benefit of limiting the owner’s liability, but did you know that there are tax benefits too? A company pays corporation tax, rather than the income tax of sole traders and partners, and corporation tax rates are generally lower than income tax rates.
What is a company?
A company is a legal entity whose identity is separate to that of the individual or individuals who own or run it.
Most companies these days are limited liability companies, which limit the liability of the members by shares or by guarantee.
A company can be formed by one or more persons, for any lawful purpose, by entering their names on the company memorandum of association (more on that later) and therefore confirming their agreement to and acknowledgement of the formation of the company.
In this situation, the legal meaning of ‘person’ can refer to individuals, companies or other bodies.
The legal process to register a company
You will be required to register your company with Companies House. Companies House is a government body that administers companies within England, Scotland, Wales and Northern Ireland. They are the UK registrar of companies.
To register your company, you must,
1. Choose a company name
The first step in registering your company is to choose a name for it and while this might seem a straightforward process, there are a number of rules to consider.
You can’t choose the same name as an existing registered company. If Companies House consider your names to be too similar, your choice will be rejected. Even if your name is accepted, any close similarities may be subject to a future complaint which could lead to the requirement for your company name to be changed.
Check the Companies House register to find out whether your company name has already been used by another company by visiting https://beta.companieshouse.gov.uk
Your company name must generally end in ‘Ltd’ or ‘Limited’, or the Welsh equivalent ‘Cyf’ or ‘Cyfyngedig’ if you register your company in Wales.
You can’t use ‘same as’ names where the only difference between your company name and the name of an already registered company are punctuation, certain special characters, a character or word that is similar in meaning or appearance to one from the existing company name, or a character or word that is commonly used in UK company names. An example of this would be ‘Bobby and Fran Ltd’ and ‘Bobby & Fran Ltd’.
A ’same as’ company name can, however, be used if your company is part of the same group as the existing company with the same name, or you have agreement in writing that the existing company does not object to your use of the name.
If Companies House considers, or someone complains, that your company name is ‘too like’ that of an existing company, then you may be asked to change it, for instance, ‘For You With Love Ltd’ could be seen to be the same as ‘4U With Love Ltd’.
You can’t use a company name that is considered to be offensive or to contain a sensitive word or expression. It also can’t imply a connection or alliance with government authorities unless you obtain prior permission.
You can find out which words are considered offensive or sensitive, or require permission to use by visiting https://www.gov.uk/government/publications/incorporation-and-names
It’s possible to trade using a different name to your registered company name. This ‘different name’ is known as a business name and must not be the same as an already existing trade mark. They must not include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’. A business name must also not contain a sensitive word or expression unless you have obtained previous permission to use that word or expression.
To stop people trading under your business name, you will be required to register your name as a trade mark.
You should check that another company is not already using your intended trade mark by visiting https://www.gov.uk/search-for-trademark
2. Have a UK registered office address
Section 86 of the Companies Act 2006 states that, “A company must at all times have a registered office to which all communications and notices may be addressed”.
You must register this official address with Companies House as your UK registered office address. In the situation where your company carries out its business outside the UK or sells products online, it must still have a registered office address in the UK.
This is the address to which all government bodies, including Companies House and the HMRC, will address any communications to the company with the assumption that any official communication sent to the registered office address has been received by the company.
It is the company’s responsibility to therefore ensure that any documents received at this address are accessible to the company and its directors.
This address will be shown on the public register which is available to everyone. This makes it easy to find out where a company is officially based.
It is of course possible to later change the company’s registered office address or work from a different address.
The address must be in the same country that your company is registered in, so a company registered in Wales must have a registered office address in Wales.
The company’s registered office address should appear on business letters, emails, stationery, invoices, marketing materials and the company website.
3. Appoint your Directors and Company Secretary
You must have at least one director to form a company. Any director is legally responsible for the running of the company and ensuring that company accounts and reports are correctly prepared.
A director must be at least 16 years old and not disqualified from taking the role of director. They do not have to live in the UK as long as the company has a UK registered office address.
The name and address of each director will be available to the public from Companies House. The exception to this is where a director feels that they or their family’s safety may be put at risk by their home address appearing on the register. This risk must be caused, however, by the work of the company.
It is not necessary to have a company secretary but some companies appoint them to take on a portion of the responsibilities of the directors.
It is perfectly acceptable for the company secretary to be a director but they must not be the company’s auditor or an undischarged bankrupt unless they have been granted permission in court.
To check if someone has been discharged from their bankruptcy, visit https://www.gov.uk/search-bankruptcy-insolvency-register
Even if a company secretary is appointed, the legal responsibility for the company still falls on the directors.
4. Decide on Shares and Shareholders
The majority of limited companies are limited by shares, that is, they are owned by shareholders. These shareholders have certain rights over the company.
A company that is limited by shares must have at least one shareholder, possibly a director. In the case of there being one shareholder, they will own 100% of the company. If there are more than one shareholder, then the company will be split between them depending on how many shares they own. There is no limit on the maximum number of shareholders.
Each individual share can be of any price but choosing a low share value, such as £1, will limit the shareholders’ liability should the company ever shut down and the shareholders be required to pay for their shares in full.
When you register your company, you will be expected to provide information on the company shares, such as,
- the number of shares of each type that the company has
- their total value
- names and addresses of all shareholders
You will also be required to state your company’s ‘prescribed particulars’, i.e. what rights each type of share gives to the shareholder. You should include:
- what share of company dividends they will receive
- whether the shareholder can exchange their shares for money
- whether they have voting powers on company matters
- the number of votes they have
5. Write your memorandum and articles of association
Together these documents form the constitution of the company and must be filed with Companies House when you register the company.
The memorandum of association is a legal document which is signed by all initial shareholders to denote that they agree to the forming of the company. Companies House provides a template for this document, should you wish to use it.
The articles of association lay out the rules of the company and how it will be run by the directors on behalf of the shareholders.
The Companies Act 2006 gives a company unlimited powers, however the articles can be written to restrict the company’s powers, for instance, should the shareholders wish to prevent the directors from taking certain actions without shareholder approval.
Along with the articles, a shareholders’ agreement may be drawn up to expand the articles with regard to the running of the company, etc. The articles are a public document, whereas the shareholders’ agreement is not available for public viewing.
There is no standard format for the articles although there are rules for what information must be included in them. To assist anyone who wishes to register a company, model articles (examples of how an article could be written) are provided by Companies House. Similarly, the Charity Commission provides model articles for charitable companies, and community interest companies can acquire relevant model articles from the Community Interest Companies Regulator.
Should you choose not to use the model articles, then you must send the full articles by post to Companies House for review when applying to register your company. Any registration application will not be approved until the articles of association are accepted by Companies House. Charitable companies should also send their articles to the Charity Commission for approval.
The articles of association should include:
- Directors’ powers and responsibilities
- Liability of any members
- Directors’ meetings, delegation to other, voting and conflicts of interest
- Records of directors’ decisions and how they will be retained
- The appointment and removal of directors
- Shares (unless limited by guarantee) including different share classes, the issuing of shares, share certificates and share transfers
- Dividends and other member distributions
- Member decision making
- Attendance at general meetings
- Use of the company seal, if one exists
- Directors’ insurance and indemnity
6. Register your company with Companies House
Once you have compiled all the above information, you can submit your registration in a number of ways.
Register online if your company is limited by shares and you have used the model articles for your articles of association. At the time of writing, it costs £12 and can be paid by debit or credit card or PayPal. If successful, your company will be registered within 24 hours. Visit the Companies House website to register online.
You may register by post, using form IN01. Postal submissions cost £40, payable by cheque to ‘Companies House’, and takes 8 to 10 days. However, if you pay £100 and get your application to Companies House before 3.00 pm, you can be registered on the same day.
Your envelope and should you use one, your courier’s envelope, should be marked ‘same day service’ in the top left-hand corner for the £100 application.
Send your application to the address on the IN01 form.
You can also register through an agent or by using third-party software.
If your company is based outside the UK, you will need to register as an overseas company. Contact the UKTI (UK Trade and Investment) for further details.
7. Register for Corporation Tax
Once you have successfully registered your company with Companies House, you must register it with the HMRC for corporation tax. This must be done within 3 months of when your company began trading, including buying and selling, advertising and marketing, renting or purchasing a property, and employing anyone.
Late registration may incur a penalty.
Within a few days of the registration of your company, the HMRC will have posted your unique taxpayer reference (UTR) to your company office address. You’ll need the UTR to register online for corporation tax.
When you register with the HMRC, you will also need your company’s registration number, the date you started business, and the date that your annual accounts are made up to.
Once you have registered, the HMRC will inform you of your deadline for paying corporation tax.
Should your application be successful and your company registered, you will receive a certificate of incorporation. This confirms that your company legally exists and displays the company number and date of formation.
Why legal advice is important
Working your way through the process of registering your business, compiling information and making decisions on company name and shares can be a massive undertaking.
Specialist legal advice can help give your company the best start by ensuring the registration process is carried out successfully the first-time round, allowing your company to begin trading as soon as possible and on correctly constructed foundations.