In this blog post, Harry, provides a summary of company incorporation in the UK. This post contains general information and links to further guidance. It is not intended to comprise legal advice. If you are considering incorporation, please seek the advice of a legal professional.
Incorporation is the process by which a new or existing business registers as a limited company. A company is a legal entity with a separate identity from those who own or run it. A business cannot operate as a limited company until it has been incorporated at Companies House under the Companies Act 2006.
What does incorporation mean for your business?
A limited company can be limited by shares or limited by guarantee. Companies limited by shares are usually businesses that make a profit. This means the company has shares and shareholders and can keep any profits it makes after paying tax. Companies limited by guarantee are usually ‘not for profit’. This means the company has guarantors and will invest profits made back into the company.
Companies are categorised as being either public or private. Public companies are those which are limited by shares, and those shares are available on the public stock exchange. Shares in private companies are not available to the public. In this blog post, we shall be focussing on private companies limited by shares as this is the vehicle used by most small to medium business when they incorporate.
Advantages and disadvantages of incorporation
Limited companies have limited liability, meaning members cannot be held responsible for any liabilities other than the amount due to be paid for their shares. For example, if you held 1 share of £1 in your company and you paid for that share straight away, your liability will be £0. Even if it was unpaid, your liability would be limited to £1.
Incorporated limited companies are often seen as a ‘more’ professional operations, due to legal requirements on disclosure of company information. Furthermore, it is possible to raise capital through selling shares in your business as it grows. There may also be tax advantages with various reliefs and grants.
There is a loss of privacy due to legal requirements. Disclosure requirements mean that companies must publish annual accounts, financial information, and a confirmation statement to notify Companies House of any updates. This information is available to the public on the Companies House website. There are also financial penalties for late filing of accounts which can be found here.
Process of incorporation
If you decide that incorporation is for you and your business. You can register through the Companies House website here. It costs £12 to register online (£40 by post).
To register, the following must be prepared:
Memorandum of association: a legal statement which needs to be signed by all initial shareholders agreeing to form a company and become members of that company. If you register online, one will be automatically created for you. Please note that your memorandum cannot be updated once the company is registered.
Articles of association: the written rules of the company. There are standard models available, but they can be altered. I recommend you look carefully at the models to make sure they work for your business.
Registration documents: the application must have:
1) The company’s proposed name
2) Whether its registered office is to be situated in England, Wales, Scotland, or Northern Ireland
3) Whether the liability of the members is to be limited and if so whether by shares or guarantee
4) Whether the company is private or public
Statement of compliance: this is required as evidence that all necessary requirements have been complied with.
Once registration is complete, you will be issued with a certificate of incorporation, which will display a registration number and date of registration for the company. It will be signed by a registrar and contain their official seal. At this point your business is fully registered as a company.
This blog post was created by Harry Thompson, a third year MLaw student at Northumbria University. He is currently working in a Business & Commercial firm within the Student Law Office. After finishing his degree, Harry is looking to obtain a training contract and qualify as a solicitor in a commercial firm. Harry also hopes to travel and visit Australia, New Zealand and Canada.