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UK Company Formation

A company may be formed in the UK through a range of commercial vehicles and business structures. The choice as to which kind of company you wish to form depends on a number of factors such as the number of shareholders, the level of involvement by the public and the responsibilities that the shareholders have.

Types of UK Limited Company Formation

Private Limited Company: The private limited company in the UK may be limited by shares or limited by guarantee and can range from very small family companies to subsidiaries of large group companies. It is most popular to limit a private company by shares as the company will have a pre-determined share capital with the liability of each member limited to the value of any investment that has been made into the shares of the company. It is important to note that these shares cannot be offered to the public. A company limited by shares is legally separated from the people who run it, it has shares and shareholders and the finances of the company are separate from the personal finances of the members.

Some of the advantages of the private limited company include:

  • Limited liability
  • Protection from risk
  • Protected company name
  • No obligation to commence trading after corporation
  • Better control over your finances and more power when raising funds.
  • Possible reductions of tax bills
  • The Limited Company has a separate legal entity so the private limited company would only be discontinue in the event of liquidation or dissolution.

On the other hand, a number of disadvantages of the private limited company can be considered: 

  • The directors of a Limited Company have considerable responsibilities with duties owed to the Shareholders to act in the best interest of the company at all times. In the most extreme cases, directors can be found liable of committing a criminal offence.
  • Complex accounts and administrative responsibilities.
  • A higher level of transparency is required such that more of the details of the company’s earnings and details of the business are available to the public through Companies House. 
  • Management can become diluted and the founder of a business may find themselves losing the power to make decisions within the company as more shares are issued and the ownership of the company becomes more separated. 

The Public Limited Company (PLC): This type of commercial vehicle has a share capital and the liability of each member is the amount unpaid on the shares. It is a company that may offer shares to the public. The stock of a Private Limited Company can be acquired by anyone and may be quoted on the stock exchange however there are some additional legal requirements which accompany the formation of a PLC.

Alternative Business Structures

Limited Liability Partnership: An alternative corporate vehicle which gives the benefits of limited liability however it allows the members the flexibility of organising the internal structure as a traditional partnership. Two or more individuals agree to share in the profits or losses of the business therefore the risk, loss and benefits are all shared. In addition, each partner is responsible for the other partner’s negligence or misconduct. The partner’s liability is limited to the amount of money invested in the business. It is necessary to register the limited liability partnership with Her Majesty’s Revenue and Customs (HMRC) and Companies House.

Sole Trader: A self-employed sole trader can work for themselves through this option which is the simplest and easiest form of business to register. You will be responsible for all liabilities and it is important to be aware that this can include personal assets as well as those jointly owned with another person.

Steps to take to establish a business: 

  1. Ensure you are familiar with the commercial vehicle which is most appropriate for your business and personal motives. It is important to consider how your business will evolve in the short, medium and long term to ensure that you business can evolve and grow in the directions it needs to. 
  2. You then need to choose a name for your business. It is vital to be aware of the rules surrounding certain company names and for the company name to not already be in use. 
  3. You would then select the company directors and appoint a company secretary. 
  4. Next, decide who the shareholders or guarantors are and identify those persons with significant control (PSCs). 
  5. You should then agree how the company will be run in the Articles of Association. 
  6. Check which records you need to keep and what accounting obligations your company will be under. 
  7. You can then register your company with Companies House who will issue a Certificate of Incorporation. 
  8. In the first few weeks of registering a company, it is advisable that you hold a board meeting to cover the necessary formalities. 
  9. Start Trading.

Overseas companies registering in the UK have additional disclosure obligations following registration so it is important to be aware of the documents you must send to Companies House, the accounting requirements, the rules on company names and trading disclosures. 

Get in touch with Global Capital Hub to find out more about the United Kingdom’s company formation process or for any other investment, citizenship or immigration enquiries. 

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