- What
is a limited company?
- What
advantages are there?
- What
are the disadvantages?
- How
quickly can my company be formed?
- What
name can I use?
- What
is the difference between directors and shareholders?
- What
is a Registered Office?
- What
are the Memorandum & Articles?
- How
is the company set up?
- What
do I have to disclose about the company?
- I
already have an overseas company, do i need to form a UK company?
- What
will the annual running costs be?
- Do
I have to trade immediately?
We trust that the above
information is of use to you, and look forward to being of service
to you in the future. However, if you should have any further queries
please do not hesitate to contact us. In the meantime, if you have
a more detailed technical question which you would like us to answer
free of charge please send us a message by clicking here. If you
would like us to do a free name check to see if your choice of name
is available please click here.
A limited company is a separate legal entity which,
amongst other things, can trade, own property, sue and be sued in
its own name. The legislation which controls companies is primarily
to be found in the Companies Acts. Certain Government Departments
are responsible for ensuring that companies abide by the law - for
example, the Department of Trade and Industry, of which Companies
House is a division.
Legally, a company is a distinct and separate
entity from its owners and managers. It pays tax in its own right,
has its own credit rating, and carries on business on its own account
- it has what is called a separate legal personality.
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The major advantage of using a limited company is
that, unless you sign a personal guarantee or trade fraudulently,
you cannot be held personally liable for a company's debts - if
you trade as a sole trader or partnership you are responsible for
the businesses debts to the extent of your own personal assets,
and you could ultimately be made personally bankrupt.
A limited company is "limited" because the
liability of its owners is limited to the amount of share capital
which has been issued for which they have not paid. For instance,
if a shareholder is issued with shares with a "nominal value"
of £10,000 and he pays the company £5,000 then he can
be asked for the other £5,000 in the event of the company
going into liquidation. If he is issued with shares with a nominal
value of £2 which he pays for in full then in the event of
a liquidation he cannot be asked for any more money.
The tax implications of trading through a limited
company as opposed to as a sole trader or partnership should be
discussed with an accountant, as it is very dependant upon individual
circumstances. However, a limited company can most certainly be
viewed as an "insurance policy", especially for a new
or a high risk business, and the tax and cost considerations may
well be secondary to ensuring that you do not risk your personal
assets on a speculative venture.
In addition to limited liability, a company can have
the following advantages:
- You can give a share of the business to others,
e.g. family
- It may be easier to attract people to invest
money in your business
- Obtaining bank loans may be easier
- There may be lower tax payments
- In the event of a partner leaving, or somebody
dying, it is easier to continue the business
- It is easier to sell the business
- You have a better standing in the public
eye
- It can assist in the protection of a name
- People have more confidence in your business
as they can check up on your company, on the public records, at
Companies House
- Subcontractors and agency workers will find
it easier to obtain work
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- The preparation of annual accounts may cost more.
- The public can check up on certain aspects
of your business
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If you have a name which you want to use for your
company the normal procedure is to form a "custom-made"
company. This normally takes six working days from receipt of your
instructions (i.e. a company ordered on a Tuesday will normally
be incorporated on the following Wednesday, subject to bank holidays
etc.), and the company is formed to your own choice of name immediately.
If time is of the essense then generally an "off-the-shelf"
company is usually the answer. This is a company which is already
formed, and we can provide you with a list of available names on
request. This option means that you can have limited liability status
within a matter of minutes. If the name is not to your liking then
we can arrange to effect an immediate name change for you; this
takes the usual seven working days, but the company already exists
and can commence trading immediately (think of the name change as
being similar to changing your name by deedpole; you are still the
same individual before and after, but your name has been legally
changed). We offer a "package" price for the purchase
of an off-the-shelf company with an immediate name change.
We always have from stock a large number of off-the-shelf
companies with non-descriptive names. Our private companies have
a standard authorised share capital of one thousand pounds. Once
the ownership has been transferred and the new officers appointed
the company can start trading immediately.
As an alternative, it is possible to arrange either
a same-day or next-day incorporation. This means that the company
is set up from scratch to your choice of name. However, this is
considerably more costly than using an off-the-shelf company.
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To check if the name you are interested in is available,
please click here. Generally, a company may be formed with any name
which has not already been used by another company, providing that
name is not offensive. However, there are also various restrictions;
for instance, a name cannot include words such as Bank, Building
Society, British, National, International, Group, Holding, Chamber
of Commerce etc. or any word that may indicate a connection with
Royalty or Government, without prior consent.
While a company name may be registered if it only
differs from an existing name by one letter, the existing company
has the right to object to the Registrar of Companies who can if
he agrees with them direct the new company to change its name. You
should also be aware that if you adopt a name which misleads the
public into believing that your business is that of another business
- for example, trading as a department store under the name 'Harrods'
- then you may face a legal action for 'passing off' by the person
whose business you have affected. Registration of a name by Companies
House is no guarantee that you are safe from such an action EVEN
IF THEY DO NOT HAVE A COMPANY OF THAT NAME THEMSELVES - they could
be sole traders, partnerships, or it could be a trading name.
Similarly, whilst you registering a name prevents
another limited company from having an identical name, it does not
stop the name being used as a trading or business name and you could
have to defend your rights to the name in the future.
To find our more about special rules for names please
click here to see Companies House's guidance notes.
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In most small companies in the U.K. the directors
and shareholders are the same people. However, legally it is important
to be aware of the differences. Basically, the directors run the
company, and the shareholders own it. The company secretary is responsible
for ensuring that all the statutory procedures relating to the running
of the company are carried out correctly.
When thinking about these different roles it is worth
bearing in mind that the legislation is equally applicable to ICI
as it is to a small corner shop. It is often useful to think of
them in the context of ICI and then work back to your own business.
The shareholders ultimately own the company, but that they do not
have any day-to-day control over what the directors do.
The directors have a responsibility to the shareholders
to, amongst other things, protect the companies assets and maximise
profits; they must act in good faith in the best interests of the
shareholders. In most small companies, however, the directors are
also the shareholders; but they still have to "wear different
hats" to, for instance, vote as a shareholder to decide whether
they should be appointed as a director of the company, or to decide
as a director whether a meeting of shareholders should be called.
Every private company must have a director and a secretary.
A company need only have one director, although that person cannot
also be secretary; if a company has two directors then one of them
can be the company secretary too. There is no age limit for directors
of a private limited companies, and the directors and secretary
can live abroad; however, the company MUST have a registered office
address where it is registered. A PLC must have a minimum of two
directors and there is an age limit of 70 for directors.
An undischarged bankrupt or a person subject to a
disqualification order cannot be a director or be concerned in the
formation, promotion or management of a company. A secretary to
a public company must be "suitably qualified", although
in reality this means they must have had some relevant experience.
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Because a limited company is a separate legal entity
it has to "live" somewhere. This is the official address
for the business, where official documents and letters can be delivered.
The registered office need not be where the company will carry out
its business, but every company registered in the United Kingdom
must have its registered office in the United Kingdom. It can be
your home address.
The registered office address must be shown on the
company's letterheading if it is different to the trading address.
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These are the "rules and regulations" which
form the legal basis for the conduct of a company both with third
parties and amongst its own shareholders and directors.
The Memorandum is the "outside" rules of
the Company - it states the name of the company, where the Registered
Office is situated, the amount of the authorised share capital,
etc.. It also states what the "objects" of the company
are - our objects clause has been drafted in the widest possible
form to allow the Company to carry on any business it desires.
The Articles are the "internal" rules of
the Company, governing how directors, shareholders, etc. act. These
are based upon standard rules, and have been drafted to be as flexible
as possible.
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To enable us to form your company as quickly as we
possibly can, the company is set up with our "nominees"
as director, secretary and shareholders, and with the Registered
Office at our address.
On the day the company is incorporated our nominees
resign and transfer their shares to your choice of shareholders,
and we file the relevant documentation to change the company's Registered
Office to your choice of address.
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One of the disadvantages of trading through a limited
company is that you have to place information about your business
on the public file at Companies House.The reason for this is that,
as a sole trader or partnership people doing business with you know
that they can collect their debts from your personal as well as
business assets; with a company they do not have this luxury, and
so they need to be in a position to know as much about the company
as possible before they do business with it.
A limited company must show legibly on all business
letters, written orders, invoices, receipts and written demands
for payment the company's place of incorporation, registration number,
full name (including the word "Limited), and the Registered
Office address (this is normally the "small print" at
the bottom of the letterheading). It is not necessary for directors
names to be shown, but if they are then the names of ALL directors
must be shown. This information must also be displayed in any premises
where business is carried on and to which customers and suppliers
have access.
The details of who the directors and secretary are
has to be lodged at Companies House, and is available for public
inspection. Each year an Annual Return has to be filed, giving an
up-to-date "snapshot" of Directors, Secretary and shareholders
at the return date.
Annual accounts also have to be filed, which are also
available for public inspection. Smaller companies can file "abbreviated"
accounts, which disclose more limited information - basically just
a balance sheet plus supporting notes, allowing people with whom
you wish to trade to look at the extent of your solvency, amount
of assets owned, etc. without competitors being able to discover
sensitive information about your profit margins etc.
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An overseas company may register with Companies House
in the United Kingdom subject to certain conditions. The advantages
of this are that the tax liability will be restricted to the net
profits generated in the UK, and there is no statutory obligation
to have audited accounts prepared.
However, many overseas companies prefer to operate
branches through a separate U.K. limited company because of the
protection it affords the parent company should the U.K. subsidiary
run into difficulties.
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As with any business, the company will need to prepare
annual accounts and present these to the Inland Revenue. However,
in addition the company will also need to file a copy of its accounts
with Companies House.
For companies with a turnover (sales) below £1m
per year no audit of the accounts by a qualified accountant is required
unless the shareholders require one. For companies with turnovers
below this limit an accountant is not a legal requirement, although
as with any business we would always recommend that you seek advice
from a suitably qualified accountant; they will prevent you from
making costly errors and almost certainly reduce your tax charge.
An audit is necessary for turnover above £1m per year.
An Annual Return also needs to be filed with Companies
House once a year. The filing fee for this is £15.00.
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No. Your company can remain dormant (non-trading)
for as long as you wish, subject to you filing dormant accounts
with both the Inland Revenue and Companies House, and an Annual
Return with Companies House.
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