At the outset, when the thought of incorporating a company in England is in your mind, it is worthwhile spending time availing yourself of the whys and wherefores and potential pitfalls of not doing things properly.
It can appear to be a daunting process given that there are a myriad of rules to concern yourself with, and potential hoops to jump through, but if your homework is done at the beginning, then it is a relatively simple and straightforward process.
One of the first things that has to be considered will be how the company views itself, as this will have an impact on how it is incorporated. To determine the same, questions will need to be answered. For example, who owns the liabilities of the company? What is its purpose? What is the management structure?
If the consensus is to incorporate as a Plc (Public Limited Company), this is done under the Companies Act 2006, with a Plc remaining the most popular type of business structure.
Should you decide on this particular course of action, it is imperative the shares are allocated at the outset and all company directors are named and registered with Companies House. Though being the sole director of such a company is fine, it’s good business practice to make someone else the company secretary, and be aware that personal addresses will be on file at Companies House, and anyone is able to search for these.
As a sole trader, however, there is no need to do anything quite as in-depth.
Her Majesty’s Revenue & Customs (HMRC) will expect you – as a sole trader – to file a yearly tax return, but that would be the only administrative duty incumbent upon you. Compare that with incorporation of a company.
Annual accounts must be filed at Companies House along with annual returns, and notification if any company officers (eg those involved with the decision making processes) leave the entity. Failure to do any of these administerial duties can result in fines.
It’s also worth pointing out that the option of being a limited liability partnership exists. The benefits are obvious, should the worst happen to the company in the course of the way it conducts its business affairs. Setting up a business as an LLP may rest on how many shares are created when the business is being incorporated at Companies House.
Be aware too, that a basic partnership i.e. that between two people will leave both partners jointly liable for the debts of the business. They may be fine if the venture is between family members, but not so great otherwise.
Let’s take a more in-depth look at what’s required when setting up a Plc, as well as the various areas of business that should be fully agreed upon and locked down before the incorporation is made official.
You will not be able to incorporate a private limited company unless you have a physical street address in the United Kingdom. For some companies this will simply be the address from where the company will conduct its business. Others may choose the address of the company accountant, for example.
This address will, in general terms, not been one which is listed as the personal address of any of the company directors, as all official communications will be sent to this address and it is publicly available to view on the online register.
It is important to clarify that any company materials, including stationery, as well as the main company website and any outgoing emails must have the registered office address clearly legible.
There are various protocols that a Plc has to follow when choosing its company name, and those governing company name registration are, for all intents and purposes, common sense.
Be prepared, for example, to amend the company name slightly if needed, as businesses often find that their ‘unique’ company name is anything but. A name that is too similar to one already registered, and which could therefore be confused with it, will not be allowed.
The company name can’t be offensive – (which begs the question as to why you would want to alienate anyone at the start of your journey as a new company in any event?)
As a Plc, the company name must end with either Limited or Ltd., must not make any reference to a Royal connection, and it can’t contain any symbols or characters that would be considered outside of the normal alphabet and set of numbers.
A final rule of thumb is to ensure that no sensitive words or expressions are used in the naming of the Plc. An example of the definition of what these would be is a name that would imply certain connections, for example with the Government. The list isn’t prohibitive but must be studied carefully. If permission is needed to use a name that would be considered to be using sensitive words, the Secretary of State will generally confer the same (or not).
Persons with significant control
One of the first things that must be made clear when a company is looking to be incorporated, is who owns the company and who controls it. To be regarded as a ‘person with significant control,’ you will be responsible for a variety of administrative duties including, but not limited to, appointing directors and overseeing voting rights.
It therefore follows that the person or persons that can demonstrate significant control of the company have to be registered at the time of incorporation.
In so doing, it allows the appropriate authorities to understand exactly who is in charge of, and owns, the company. Ultimately, this part of the process is designed to ensure full transparency, and to stop companies engaging in illegal activities.
Directors of a plc are considered as First Officers, of which there has to be at least one who has not been disqualified from holding such a position in the past, and who is at least aged 16. Such directors must also be living, for it has been known for companies not to change their filings with Companies House even when directors have passed.
Although it’s quite proper for a director to be in charge of a company but not live in the UK, it is a condition of their directorship that Companies House be in possession of their home address, which will be made available for public record. Should the director(s) prefer not to disclose the same, the option to use a ‘service address’ (which could be but doesn’t have to be the same as the registered address) is available to them.
How the directors should attend to their business and ensure that the company is managed correctly will be set out in the ‘Articles of Association.’ In layman’s terms, these are a simple set of rules to be adhered to, and which specify the scope of power each director has, commensurate with their statutory duties.
The duties of a company secretary are manifold and mainly administrative, and, as with directorships, this role can be performed by a person or a corporate entity. However, there is no requirement for a Plc to have a company secretary in place, unless their Articles of Association specify that they should do so.
Once a company has registered as a Plc, it is imperative that shares are allocated to each shareholder. As a nominal amount, one per person at a value of £1 each is a common start point.
Referring to the Articles of Association is also necessary at this stage, as this will set out the share structure which the company has decided upon. This will always include whether different classes of shares (Class A, Class B, Class C etc) will be made available, and with the purchase of any or all of those shares, what rights (eg voting rights) will be included.
The Articles of Association have already been referred to above. This remains the most important document of any company that intends to incorporate as a Plc.
It’s important to remember that the detail within the document must be agreed by the members of the company.
This will include, but is not limited to, board resolutions and notices, the appointment of directors and their relevant responsibilities, share issues and meeting notes.
Though a company does have the option to use their own ‘Bespoke Articles,’ a more accepted practice is to use a standard set of Articles defined by Statute.
The Memorandum of Association is a much less detailed document but no less important, as it sets out the intention for a company to be formed, and the subscribers to be legally bound to become members of the company once it has been incorporated.