In the world of business, company formation is a pivotal step that can shape the trajectory of your entrepreneurial journey. This article will guide you through the process of forming a new company in the UK, offering insights into the benefits, requirements, and steps involved.
What is Company Formation?
Company formation, also known as company incorporation, is the process of registering a business as a limited company. Upon registration, the business becomes a separate legal entity, distinct from its owners. It is responsible for its own finances, assets, and liabilities.
The key advantage of forming a limited company is the financial protection it offers. Known as ‘limited liability’, this protection ensures that if the company becomes insolvent, the owners (shareholders or guarantors) are not personally liable for its debts beyond the sums they have invested in shares or committed to pay in guarantees. This is in contrast to sole traders, who do not enjoy this financial protection and have unlimited liability for business debts.
How to Form a Company in the UK
Limited companies in the UK are incorporated under the Companies Act 2006. However, the Companies House, which is the Registrar, operates in three separate jurisdictions throughout the UK – England and Wales (one jurisdiction), Scotland, and Northern Ireland.
Companies must register in one of these jurisdictions, which will determine the location of their registered office address.
The quickest and easiest way to incorporate a limited company is through an approved online company formation agent. The application forms are completed online and submitted electronically to the Registrar.
Most applications are approved by Companies House within 3-6 working hours.
The 5-Step Company Formation Process
Choose a Company Name
Check the availability of your proposed name using an online company name-check tool. The system will compare the name against the Index of Company Names at Companies House. You will be alerted instantly if the name is available or if it requires adjustments.
Select a Company Formation Package
Choose from a wide selection of packages for companies limited by shares, tailored packages for Non-UK Residents, companies limited by guarantee, Public Limited Companies (PLCs), and Limited Liability Partnerships (LLPs).
Add Company Address Services
All limited companies must provide details of a registered office. A service address must also be supplied by each director, subscriber, company secretary, and Person with Significant Control (PSC).
Complete the Online Application Form
Provide the necessary information including company name, registered office address, description of main business activities (SIC code), director’s details, shareholder’s or guarantor’s details, secretary details (optional), information about People with Significant Control, statement of capital, and supporting documentation (if required).
Submit Your Online Application to Companies House
Your application will be checked before being sent to Companies House, where it will be processed within approximately 3-6 working hours. You will be notified by email as soon as your company registration is approved.
Key Considerations in Company Formation
Minimum Requirements
How many people are needed for company formation? To form a limited company, you must have a minimum of one director (officer) and one shareholder/guarantor (member). It is possible for one person to assume both roles and incorporate a company on their own.
Time and Cost
Most companies are incorporated online through a company formation agent because it is the easiest and quickest option. Generally, it takes no longer than 3-6 working hours for Companies House to approve these applications. The cost of forming a limited company through a formation agent starts at just £12.99 plus VAT.
Age Requirement
Company directors must be at least 16 years old at the time of company formation. There is no statutory provision prohibiting any persons under this age from owning shares
Non-UK Residents
Almost anyone can set up a private limited company in the UK, irrespective of where they live. The accessibility of online company formation services makes it easy to incorporate from anywhere in the world. All you need is a computer, an Internet connection, and a payment card.
Types of Companies
There are two main types of limited companies: companies limited by shares and companies limited by guarantee.
Companies Limited by Shares
These are owned by shareholders (members) and managed by directors (officers). This structure is the most popular choice for any business that intends to make a profit for the benefit of its owners.
Companies Limited by Guarantee
These are controlled by guarantors (members) and managed by directors. This structure is primarily used by non-profit organisations and charities that wish to generate income to promote and achieve their non-profit objectives. Generally, profits are not distributed to guarantors.
Understanding ‘Limited Liability’
The term ‘limited liability’ refers to the reduced financial responsibility of the company owners. Shareholders and guarantors are only required to contribute the value of their shares or guarantees toward company debts if the business becomes insolvent. This protection safeguards the personal finances and assets of members beyond what they invest in shares or guarantee to the company.
Required Addresses for Company Formation
Companies House requests the details of several different addresses at the time of company formation, some of which are placed on public record. These include the Registered Office Address, Service Address, Usual Residential Address, SAIL Address, and Business Address.
Required Documents for Company Formation
If you incorporate through an online company formation agent, there is no need to sign any paperwork in person or send any documents by post. All necessary information is completed and delivered online.
What Happens After Company Formation?
Once your company is incorporated, you can begin trading as soon as Companies House approves your application. HMRC is notified by Companies House as soon as any new company is incorporated, so there is no need for you to contact HMRC in this instance.
Public Record
Companies House maintains an official register with details of all limited companies incorporated in the UK. This information is made available to the public to create openness and corporate transparency, reduce tax evasion and money laundering, and eliminate corruption.
What happens if my application is rejected?
If Companies House rejects your company formation application, it’s usually due to one of the following reasons:
- Supporting Documentation: Your application may be rejected if it requires supporting documentation for the registration of the company name, and this hasn’t been provided.
- Sensitive Words or Expressions: If your company name includes a ‘sensitive’ word or expression, you must provide supporting documentation. Failure to do so can lead to rejection.
- Incomplete Director’s Details: If the details provided for the director are incomplete, your application may be rejected.
- Incorrect Share Structure: If the share structure is incorrect, this could lead to rejection.
- Authentication Details: If there’s an error in a director’s authentication details, this could lead to rejection.
- Minimum Age Requirement: If a director does not meet the minimum age requirement of 16, this could lead to rejection.
- Missing PSC Information: If information about People with Significant Control (PSC) is missing, this could lead to rejection.
If your application is rejected, you will need to amend the application and resubmit it. If you’re using a company formation agent, they will often review your application before submission, reducing the chance of rejection. If your application is rejected, they will notify you immediately, allowing you to make the required changes online in a matter of minutes. If supporting documentation is requested, you can submit this electronically. There will be no additional charge and there should be no significant delay to your company registration.
Introducing 1st Formations Ltd.
1st Formations is the UK’s leading company formation agent.
Founded in 2014, they have formed over 1 million companies and assisted many thousands of clients to grow their business with expert advice on limited companies, reporting requirements, and corporate governance.
They can help you with registering a new company, registered office services, full Company Secretary services, and much more.
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