It’s never been easier to create a new enterprise in the UK, so what is a company?
Your new company is a legal entity with its own legal personality which is distinct from the individuals who manage the day-to-day administration of the business.
Whilst several types of companies are available to you, for example Public Limited Companies or Private Companies Limited by guarantee, in this article we will guide you through the basic principles of developing and formalising the most popular entity in the United Kingdom; the private company limited by shares.
There are many legal and administrative benefits of forming a company, but the primary reason to enlist your business with Companies House is to ensure that the operation of your business is governed within the legal and regulatory frameworks encapsulated in the “Companies Act” 2006.
Why would you want to form a registered entity on Companies House?
There are of course alternative ways to structure your business, as a sole trader for example, but following the route of forming a company will distinguish the liabilities of the individual owners and directors from the company itself. This limits you personally from being exposed to creditors and litigation and by formalising the ownership and voting structure you can protect those who are involved in the business. Most notably, raising finances for your business may be significantly easier under the formal umbrella of a limited company.
Forming a company is relatively straightforward once you have collated the necessary series of documents and forms to submit to the Registrar of Companies.
Your company is brought into existence once you have provided the sufficient information for a certificate of incorporation to be issued. These are three simple items, an IN01 form summarising the founding director(s) and shareholders, a Memorandum of Association, and your articles of Association.
What’s in a name?
This is an exciting opportunity to explore the market and study competition in your field. To choose a name for your new enterprise, the best place to start is to decide on keywords which define your core values, principles, services, and products.
By creating a grid of words that express your company’s unique identity, you can create a matrix of inspirational themes that capture the essence of your fledgling enterprise. Then use a thesaurus to explore every possible variation of those keywords and add them into your list so that you have a menu of potential ingredients for your brand.
Plug in these keywords into Companies House and you will find a plethora of variations on almost every theme.
You will soon discover that almost every word in the English language has already been taken, and that using combinations of words is the next step. Try fusing two or three core words from your matrix to see if combinations are available. In doing so, you will no doubt encounter company names that are similar to ideas you have had yourself.
It can be disheartening to discover that your favoured keywords and company names have already been taken, but this is all part of the process. Herein lies the creativity within the administrative procedure of forming a new company.
By searching the existing names which are already registered on Companies House, you will be able to narrow down your choices into only those combinations and variations of words which are still available, and then begin to blend and merge words to form your final brand.
Once you have decided on your final company name, and you have explored every alternative option, you are ready to begin the formation of the company.
The Leader of the Pack
Appointing a director is the most important part of the process, and you have the option of appointing a company secretary too. You will need at least one shareholder or guarantor, and many choose the Director. You’ll need to explore how dividends from shares are taxed and verify if you’ll need to issue shares or set a guaranteed amount.
The Big Cheese
You will need to identify people with significant control (PSC) over your company, for example, anyone with voting rights or more than 25% of the shares.
The most important element of this process is the preparation of your ‘memorandum of association’ which is a legal statement signed by those agreeing to form the company.
You will also need to prepare your ‘articles of association’ written rules about running the company agreed by the shareholders or guarantors, directors, and the company secretary
These steps are relatively simple, if you register your company online, you don’t need to write your own memorandum of association as it will automatically be created as part of your new registration. You can also use the memorandum of association template if you are registering by post.
For your articles of association, you can use standard ‘model articles’ or if you are an experienced scribe, you can write your own text to send to Companies House when you register. Remember though, you cannot update the memorandum once the company has been registered so you’ll want to get this right the first time around.
For the Record
Before registering your new enterprise, you’ll need to check what records you’ll have to keep, so make note of the company and accounting information such as records about the company itself, financial and accounting records.
Of course, you can hire a professional accountant to help with your company formation and tax as HMRC may run a compliance check to ensure you’re paying the correct amount of tax, so it is essential to keep your books in order.
Remember to keep personal details of the key individuals such as directors, shareholders and company secretaries if required. You will also need to detail any votes and resolutions of shareholders, financial commitments, and debentures to repay loans at a specific date in the future and to whom, as well as indemnities, in the event that the company is responsible for payments if something goes awry.
You will of course need to keep financial records and calculations to prepare for your annual accounts and company tax returns, so gather all relevant information on money spent including orders, receipts, and petty cash, as well as invoices of money received, sales and contracts. Retaining bank statements and financial correspondences is essential, as failing to keep accurate accounting records could result in a £3,000 fine or even being disqualified as a company director.
You are now ready to register your company.
Simply choose an official address and SIC code to identify what your business does from the Standard industrial classifications of your economic activities. You can now register your details with Companies House and generally be able to register for Corporation Tax at the same time. Your company is now ready to enter the marketplace.