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A Complete Guide on Company Formation in UK

Published by UK Property Accountants
Published Date: July 31, 2023

Company formation is the process which involves legal procedures for the establishment of a business entity with a separate legal identity apart from its owners and shareholders. After its incorporation, any company will possess rights, liabilities, duties, and responsibilities as an individual legal entity.

Therefore, company incorporation is registering one’s business as a company with the Companies House, the only government body in the UK permitted to incorporate a company officially.

Choosing The Right Structure

The first step in incorporating a company in the UK is to select the most suitable business structure. Some of the commonly used structures in UK are:

  • Private limited company (LTD)
  • Public limited company (PLC)
  • Limited liability partnership (LLP).

Each structure has its own legal and financial implications, so careful consideration should be given to factors such as liability, taxation, and administrative requirements.

A company differs from other entities mostly on the following means:

  • It has a separate legal personality of its own
  • It can enter a contract in its name
  • It has the legal right to make money from sales and can keep profits
  • It is responsible for paying its debts and liabilities
  • It can sue or can be sued

Benefits of Establishing a Limited Company in The UK

Benefits of establishing a limited company in the UK

The UK’s excellent global reputation, well-regulated jurisdiction, attractive tax regime and access to global markets has attracted many entrepreneurs and investors to enter the business market & incorporate the company in UK. Some of the benefits of establishing a company in UK are:

01

Taxation Benefits

One of the major benefits of establishing a UK limited company is that you will be liable to pay less tax than a self-employed sole trader. Due to lower corporation tax rates, especially for businesses with lower turnover, limited companies are generally taxed less on their profits than sole traders and therefore tend to be more tax efficient. Further, the government also offers various business incentives, including Tax relief and Venture capital programs.

02

Limited Liability

A limited company, with a separate legal identity from its members, will protect the legal rights of members as well. This implies that any financial loss made by the company business will be paid off by the company assets rather than the individual asset of the member. Unlike the owners of a limited company, a sole trader is personally liable for their business’s debts. Personal assets may be at risk if creditors cannot be paid, as the structure is based on the notion of unlimited liability.

03

Separate Legal Personality

The Business name of the company is protected by UK Law, protecting it from unnecessary infringement from the third party. A sole trader business doesn’t have any legal identity separate from its owner. The trader shall be personally liable for any debts and liabilities that incur in the running of the business, including taxes, putting the owner at greater financial risk if/when anything goes wrong. However, that is not the case with officers associated with a limited company.

04

Additional Capital for Business Expansion

The shares of the company can be sold to raise new capital for the business. The UK has one of the world’s biggest stock markets. The London Stock Exchange is an excellent option to which to raise funds for ambitious businesses.

Procedure for Company Formation

Procedure for Incorporating a Company

The Companies Act 2006 mandates various procedures to be followed for the incorporation and registration of a company in the UK. The following guide shall provide step-by-step procedures for the inception of a company with the necessary requirements.

Requirement to Register a Limited Company 

Primarily, children under the age of 16 years cannot legally incorporate a company. Secondly, those individuals who have been disqualified (by a court order or by their company's own memorandum and articles) cannot be a director.

  • One or more individuals can form a company for any purpose within legal limitations.
  • A UK-Company can have a non-resident director. Any income arising from such position shall be subject to UK wage tax withholding.
  • An individual regardless of nationality can start a business in UK.

Methods for Establishment

Electronic software filing is the most efficient and quick method to establish a company. Web services and paper filing services are also available but are time-consuming and less efficient.

Details Necessary for The Incorporation of a Company

For Incorporating a limited company in the UK, various details would be required. IN01 Form is the form to register a private or public company. The following details are required for the incorporation of a company in the UK.

A Unique Business Name as a Proposed Name

The name plays a special role in in the formation and is one of the key attributes in the process of incorporating a company. The name should be unique & hence one cannot use the name that has already been registered in the companies House. To check whether the name has already been taken or not, one can use Company name availability checker online.

To register an entity as a limited company, separate nomenclature of that entity is a must. The name that is proposed for a newly established entity is a proposed name. A proposed name cannot be reserved. The business name of a company is protected from third-party infringement only after it has been legally acquired by the company through the incorporation process. The business name shall have the following features:

  • Either end with “Limited” or “Ltd”, or the Welsh equivalents (“Cyfyngedig” or “Cyf”).
  • Preferably the name that captures the essence of the preferred business must be used.
  • Any company name that suggests a link to an official body, the monarchy, or a charity cause must be approved beforehand.
  • A sensitive expression in a name must be avoided.

Capital & Initial Share Holdings

The Statement of capital and initial shareholdings is a snapshot of a company's share capital at the time of registration. The company's share capital represents the ownership interests and can be divided into different classes of shares with varying rights.

The Statement of capital and initial share holding shall cover the following information:

  • The total number of shares of the company to be taken on formation by the subscribers to the memorandum;
  • The aggregate nominal value of those shares;
  • For each class of shares: prescribed particulars of the rights attached to those shares, the total number of shares of that class and the aggregate nominal value of shares of that class; and
  • The amount to be paid up and the amount (if any) to be unpaid on each share (whether on account of the nominal value of the shares or by way of premium).

UK-Based Registered Office Address

This is the major requirement for establishing any company in the UK. The service must be a physical address as all written communication associated with the company is sent here. The address can be anywhere within the chosen jurisdiction (England and Wales, Scotland, or Northern Ireland) but must be a physical, occupied space. The registered address can be different from the service address of the officers of the company. We offer registered office address service.

Company Officers

The officers of the company are those who run, owns, or control the company.

Company Officers

Director

The director is an individual who is authorised to manage the day-to-day business administration of the company. A company can have more than one director.

Directors are legally responsible for overseeing the activities and performance of a limited company in accordance with the Companies Act 2006. The duties of a director include but are not limited to the following:

  • Follow the company’s constitution
  • Avoid conflict of interest
  • Avoid benefits from third parties
  • Maintain filing and reporting obligations
  • Comply with the company’s legislation and regulations
  • Maintain company’s registrar

Secretary

The role of the company secretary includes maintaining the statutory registers of the company and ensuring that the company compliances are duly fulfilled within a legal timeline.

From October 2009, the Model Articles used in standard incorporations of private limited companies make no provision for the appointment of a company secretary.

Shareholder

The shareholders are the company’s financial supporters who provide finance by purchasing shares in the company. Under the Companies Act 2006, major business decisions which affect shareholders’ rights must be approved by the shareholders at a general meeting called by the directors of the company by way of special resolution.

Person with significant control (PSC)

Person with Significant Control (PSC) are those who have significant control over the company’s business. This is a person/s who holds ultimate control over the company, also known as Beneficial Owners (BOs). There is various nature of control that establishes conditions for PSC.

Service and Usual Residential Address of The Director

A director of a UK company is required to provide an address to appear on the public record where legal documents from the Companies House and HMRC can be sent to them personally. This address is called the service address/ correspondence address of the director. The Companies Act 2006 mandates the display of the service address of the director publicly available at the Companies House registrar in public domain.

As the name suggests, the residential address is the home address at which the director lives. Unlike the company’s registered office address, the residential address is not publicly available at the companies house portal. However, for the correct record purpose, a change of residential address must be notified to the companies house at the earliest.

Memorandum of Association (MOA)

MOA is the personal constitution of a company that guides every activity and decision-making within the company. It outlines the company's constitution and its relationship with shareholders. Under the Companies Act 2006, the memorandum is a much shorter document as most of the details are available through the AOA of the company.

Articles of Association (AOA)

AOA is the internal rulebook chosen by its members. It defines the internal rules and regulations governing the company's operations, such as the rights and responsibilities of directors and shareholders. It is a legally binding document that incorporates almost all guidelines within itself. The Companies House provides a standardised AOA that supposedly contains necessary guidelines for a limited company, known as the Model Articles. However, these articles can be personalised as per any company’s requirements and priorities within the scope of the law.

Principle Business Activity of The Company (SIC Code)

The principle business activity of the company is reflected by the Standard Industrial Classification of Economic Activities, also known as the SIC Codes. SIC codes are 5-digit numbers used to identify the nature of company’s principle activities in which it is engaged. Companies House does not require any input relating to the expected nature of the company’s activity at the time of incorporation.

In short, to register a company IN01 form is required. The necessary details to fill out the form for a private limited company are as follows:

  •  Proposed Full Name of the company
  • Company type and membership
  • SIC Codes to reflect principle business activity
  • Registered Office address
  • Model Articles or Bespoke articles of association
  • Proposed appointments (Director, Secretary/Corporate Secretary)
  • Directors residential address
  • Directors service address
  • Secretary’s service address
  • Statement of capital
  • Initial shareholdings, share class, nominal share value, pad/unpaid shares.
  • Statement of guarantee
  • Person with Significant Control (PSC) details relating to the nature of control, if any
  • Relevant Legal Entity (RLE) details relating to legal form and governing law, nature of control, if any
  • Other Registrable Person (ORP) details, if any

Compliances & Changes in Details of a Limited Company After Incorporation

The directors and shareholders of a company need to be aware of the legal compliance Post incorporation of the company, as it is duly said that “Ignorance of the law is not an excuse”. Below is the list of common compliances and changes a company undergoes after its incorporation.

Confirmation Statement

Confirmation Statement

A Confirmation Statement is a document to be submitted to the Companies House annually to ensure that the company’s business details are up to date. The confirmation statement mostly requires updates relating to a company on the following headings:

  • The details of your registered office, directors, secretary, etc.
  • Your statement of capital and shareholder information
  • Your SIC code (the number that identifies what your company does)
  • Your register of People with significant control (PSC)

While there are separate forms to reflect various changes in the company through separate forms (for example, AP01 for director appointment, PSC04 for change in details of PSC, CH01 for change of director’s details, and such). But to reflect changes relating to the following, the filing of a confirmation statement is a must:

  • Change in Standard Industrial Classification Code (SIC Code)
  • Statement of capital
  • Share transfer
  • Shareholder information
  • Exemption from keeping a PSC register.

The Companies House requires the submission of confirmation statements every year, without fail, even if the information that was being reported remained the same. As suggested, a company's confirmation statement must be filed at least once a year- but can be filed multiple times as per the company's requirement. If a confirmation statement is filed before the company's review period ends, the new 12-month review period will start from the date of confirmation statement filing.

For Example, 

A company was incorporated on 1 January 2023. The review period here is from 1 January 2023 to 1 January 2024. So, the due date to file the company's confirmation statement will be 1 January 2024.

If the company wishes to file a confirmation statement on 10 July 2023, the new due date to file another confirmation statement will be 10 July 2024 (not 1 January 2024).

Annual Accounts

Annual Accounts

Directors of a limited company are legally held responsible for submitting accurate annual accounts within the statutory filing deadline. A limited company account must strictly adhere to the Financial Reporting Council (FRC) accounting standards.

The first annual accounts must be delivered to Companies House within 21 months of incorporation. After the first year, accounts for Companies House will normally cover 12 months and should be delivered by 9 months after the accounting reference date (ARD).

Dormant companies only need to prepare accounts with a balance sheet and notes about the accounts. The company’s status as dormant must be informed to the HMRC for Corporation Tax purposes.

Company Name Change

The company name change is either an attempt to correct an existing error or a part of a re-branding. Within the purview of the Companies Act 2006, the company’s name can be changed through either of these methods:

  • By passing a special resolution

A special resolution must be passed before initiating the process by securing approval of the new name. A special resolution can be passed either at a general meeting or by a written resolution. For a special resolution to be passed, a majority of at least 75% of members must vote in favour of it.

  • With provision in the Articles of Association (AOA)

If the company was incorporated with model articles, one must obtain shareholders’ approval by passing a resolution to change the company name.

After the approval is received, the associated form (NM01 or NM04) must be filed in the Companies House along with a copy of the mentioned resolution. The most efficient way to send these documents to the Companies House is through the online process, which is also less time-consuming. When these documents are filed and approved, the Companies House shall issue a Certificate of Incorporation on Change of Name.

Part 5 of the Companies Act 2006 mentions the fulfilment of following condition before proceeding with the name change of a limited company:

  • The company name must not be against the law,
  • The company name must not be offensive,
  • The company name must not suggest a connection with the UK government, a devolved administration, a local authority, or a specified public body unless that body has approved the name,
  • The company name must not be the ‘same as or too similar to an existing name on the register,
  • Only certain characters, signs, symbols, and punctuation can be included,
  • The company name, including the ending, must not contain more than 160 characters, including spaces.

Director Appointment and Resignation

Director Appointment and Resignation

A director is an individual who is legally held responsible for major decisions relating to a company. Every limited company must have at least one director. If a limited company has only one director, who must be a human, not another company. A company director can be appointed during company formation. After incorporation, director appointments must be carried out using a formal process.

The director should sign a letter of consent confirming their wish to act as a director for the company; legally, most members must approve the appointment of a new director by passing an ordinary resolution.

Once the appointment has been made, the AP01 form (for appointment of individual director) and/or AP01 form (for appointment of corporate director), including the followings details, must be filed to the Companies house within 14 days of appointment:

  • Company name
  • Company Registration Number (CRN)
  • Date of appointment of new company director
  • Title, full forename, surname, including any former name of the director
  • Date of Birth
  • Residential address of the director
  • Service address
  • Occupation
  • Nationality
  • Registered name and the number of corporate director’s, registered office, registration place, and legal form for the corporate director.

Similarly, the directors can resign or be removed from the directorship before the end of their term after the company incorporation. However, the process must be guided by one of these processes:

  • Voluntary resignation by the director
  • Removal by ordinary resolution
  • Retirement by rotation
  • Disqualification by the court or other authorised authority
  • Removal under the company’s Articles of Association (AOA)

The Companies Act 2006 requires approval by the officer before the director’s removal. The remaining director’s must notify the Companies House within 14 days of a director's removal, retirement, and resignation. TM01 form is used for the termination of individual or corporate directors. Similarly, the TM02 form is used for the termination of the secretary.

Share Allotment and Transfer 

Share Allotment and Transfer

Share Allotment is one of the major ways for a registered company to raise new capital. Other alternative methods like business loans from banks/institutions/individuals or selling the company’s assets can also be exhausted. However, share allotment is one of the most reliable methods to raise money for business finance operations.

In a private company, the share allotment must be done in a way that is not regarded as an invitation to the public to subscribe for shares. A board resolution must be passed before initiating the allotment process, followed by filing the SH01 form in the Companies House. The Sh01 shall consist of the following details:

  • Company registration number (CRN)
  • Company name
  • Date of allotment
  • Type of share (ordinary or preference)
  • Currency of share (sterling/euro/dollar)
  • Number of shares allotted
  • The nominal value of each allotted share
  • Amounts paid and unpaid per share
  • Description of the consideration (if not cash)
  • Statement of capital for each share class that clarifies the total number of shares, the aggregate nominal value of company shares, and prescribed particulars of rights attached to shares in the class.

Share Transfer is the process of transferring existing shares from one shareholder to another existing shareholder or new individual, either by sale or gift. A natural and legal person can be a shareholder of a limited company in the UK. When a shareholder is removed from a company, the same shares must be transferred to existing or new individuals as per the Companies Act 2006. The change in share structure through the transfer process should be kept from the Companies House. However, the change must be notified through the upcoming confirmation statement of the company.

When an existing share is transferred to new shareholder/s, AML verification of new shareholders is a must. The new shareholder must pay a stamp duty tax if the share transfer involves a monetary value. However, an exemption certificate must be completed if the value of the sale is less than £1,000, and it is not necessary to inform HMRC about the transaction. But, if the value of the transaction is more than £1,000, the stock transfer form must be sent to HMRC within 30 days from the effective date of transfer to get approved and stamped.

A stock transfer form (J-30 form) includes the following:

  • Company details
  • Consideration
  • Share value and type
  • Current and future shareholders’ information
  • Stamp duty declaration (if required)

Business Service Address Change

For incorporation of any company under the Companies Act 2006, the Companies House requires a UK address as the company’s registered office address. Statutory forms and correspondences from the HMRC and other government agencies are sent to the registered office address. Further, the Companies House requires notification of a change of registered address of the company every time after each change through AD01 form filing. The details provided through the form are publicly available to promote transparency within the UK territory.

Further, the change in service address of the director/ secretary/ shareholder should also be notified to the Companies House after each change.

Company Dissolution

Company dissolution consists of striking off a company from the Companies House registrar. A company can initiate the process of voluntary strike-off if it:

  • Has not traded any stock in the last 3 months,
  • Has not changed its name in the last 3 months,
  • Is not threatened with liquidation,
  • Has no agreements with creditors.

If one of these conditions is not met, the company must initiate a voluntary liquidation process.

To apply for dissolution of a limited company, a DS01 form must be filed to the Companies House, which must be signed by a majority of the company’s directors.

Certificate of Good Standing

Certificate of Good Standing

A certificate of good standing certifies that a company’s details are kept up to date, that legal compliance is obeyed on all state registration fees and is legally permitted to engage in business activities in the state. The certificate is also known as a certificate of existence, certificate of status, or even a state-specific name.

A certificate of good standing is not a business license, which must be obtained to conduct business legally. When a business needs to provide legal/formal documents to prove its continuous, unbroken existence and has complied with all statutory filing requirements since its inception, one can acquire a good standing certificate. The Companies House provides the certificate for any UK- registered private limited company upon fulfilment of the criteria mentioned above.

Other Considerations

Several other considerations need to be followed incorporating the company. Bank account opening, tax, and other legal compliance must be considered.

Taxation & Compliance

After incorporation, the company must register for taxes with HM Revenue and Customs (HMRC) and comply with various statutory obligations, including filing annual financial statements, maintaining proper accounting records, and submitting tax returns. Any company must understand the UK's tax regime and comply with its requirements.

Employment Considerations

If the company plans to hire employees, it must adhere to employment laws, including providing appropriate contracts, minimum wage requirements, ensuring health and safety regulations, and a suitable workplace environment. Familiarising oneself with UK employment regulations is crucial for maintaining a compliant and productive workforce.

Conclusion

Incorporating a company in the United Kingdom offers numerous advantages and opportunities for entrepreneurs and investors. By following the steps outlined in this comprehensive guide, prospective business owners can confidently navigate the process. However, it is crucial to seek professional advice from lawyers, accountants, or business consultants to ensure compliance with all legal and regulatory requirements during the incorporation process and subsequent operation of the company.

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