UK Company Formation FAQs
Why set up a company?
- To allow owners and managers of a trade or business to benefit from limited liability
- A company is also a convenient vehicle through which to raise finance, hold assets and enter into contractual relationships
The down side to forming a company is that the law imposes a number of duties and obligations on companies, their shareholders and their directors including, for example, the obligation to make public disclosure of the ownership and financial results of the company.
What types of UK company are there?
There are four main types of company:
- A private company limited by shares. The members' liability if the company is wound up is limited to the amount they have paid or have agreed to pay on their shares
- A private company limited by guarantee. Rather than taking shares in the company, the members agree to guarantee the debts of the company up to a particular amount (usually a nominal £1). Their liability is limited to this amount
- A private unlimited company. There is no limit on the members' liability. Unlimited companies are generally freed from the obligation to file accounts. They are therefore sometimes utilised where secrecy in relation to financial affairs is important and the loss of limited liability is not in practice material. Such companies may be formed with or without a share capital
- A public limited company. The members' liability is limited as it is in a private company limited by shares. Public companies may offer their shares for sale to the general public. Public companies are subject to a number or restrictions compared to private companies
How does one form a company?
Companies must be incorporated at Companies House. They can be incorporated on a bespoke basis or bought "off-the-shelf" from a company incorporation agent. Whichever method is followed, the company will need a constitution of two documents, the memorandum of association and the articles of association.
What are the memorandum and articles of association?
The memorandum of association is a document which states that the company is incorporated in England, states the company's name, defines (in the so-called "objects clause") the business activities the company is empowered to conduct, establishes the limited liability of the members of the company and recites the company's share capital (if it has one).
The articles of association contain the rules and procedures dealing with the internal administration of the company's affairs.
Model forms of articles are provided for under English law. In the case of a company (whether a private or public company) limited by its shares, this model form is known as Table A.
How many members are required to form a company?
Private limited liability companies can be formed by one person agreeing to subscribe to the memorandum of association by, in the case of a company limited by shares, taking shares in that company and, in the case of a company limited by guarantee, by agreeing to guarantee the debts of the company up to a certain amount.
However, public companies and unlimited companies must be formed by at least two members.
Who can be a member?
Any individual or legal entity (such as a company) can be a member. Members need not be UK nationals or UK based. Private companies need only one member although public companies must have at least two shareholders.
How many shares must I issue if I want to form a company with a share capital?
There is no prescribed minimum issued share capital for a private company. A private company may have an issued share capital consisting of only one share which can be issued nil paid.
A public company must have a minimum nominal issued share capital of £50,000, of which 25% of the nominal value of each share plus the full amount of any premium (i.e. the value of the issue price over the nominal value) must have been paid up. In other words, the minimum paid up share capital a public company can have is £12,500.
Am I free to choose any name for my company?
Whilst one has a fair degree of freedom in choosing the name of a company, the Registrar of Companies will not register a company with a name which is the same as or too similar to that of an existing company. Furthermore, certain names and words are restricted or require the consent of the Registrar or the appropriate government department before they may be included in a company name. For example, the words "International" or "United Kingdom" can only be used if the company can demonstrate to the satisfaction of the Registrar that it is part of an international group of companies.
A private limited company's name must contain the word "Limited" whilst a public company must contain the words "public limited company" or "plc" at the end of the name.
What is the registered office of a company?
Every company must have a registered office address situated in England and Wales to which Companies House correspondence will be sent and at which the company may be served with legal proceedings. Although no physical presence need be maintained by the company at that address, it is important to ensure that documentation received at the registered office is dealt with promptly. Firms of solicitors, accountants and other professional advisers often act as registered office addresses for client companies.
How many directors do I need?
Private companies need only have one director provided that another person acts as company secretary. A public company must have a minimum of two directors.
Can anyone be a company director?
Any person or legal entity (such as a company) may act as a director. However, someone who is an undischarged bankrupt or is disqualified by a court from holding a directorship cannot act as a director, unless given leave to do so.
Directors need not be UK nationals unless the memorandum and articles of association so require (although it should be noted that directors without British nationality may require a work permit if they perform an executive role in the UK). No qualifications are required to be a director.
What does the company secretary do?
A company secretary has certain limited administrative functions within the company. Every company must appoint a company secretary. The secretary of a public company must also hold certain qualifications, although this is not the case with private companies. As with directors, a company may be a company secretary.
What restrictions are there on a public company?
In addition to the differences addressed above in relation to the minimum number of members and directors, minimum issued share capital and the requirement that the company secretary has certain qualifications, public companies are subject to stricter legal requirements than private companies in relation to matters such as:
- The payment and maintenance of share capital
- Loans to directors
- The payment of dividends to shareholders
- The purchase and redemption of the company's shares
- The requirement to have their accounts audited
- The time by which they must prepare and publish their annual accounts
What obligations does a company have to maintain accounting records?
A company must keep accounting records which are sufficient to show and explain its transactions. Furthermore, unless it is dormant or able to take advantage of the audit exemption, it must prepare and file with Companies House audited accounts for each financial year. If the company qualifies as either a "small" or "medium" sized company within the meaning of the Companies Act it need only file abbreviated accounts. Qualification as a small or medium sized company is based on the amount of annual turnover, gross assets and number of employees.
There are some exemptions from the requirement to prepare audited accounts but these are subject to certain conditions (including the fact that the company concerned is not a subsidiary of another company).
What period should the accounts cover?
A company must choose its financial year end or "accounting reference date". Whilst this date may be changed, the period covered by each set of accounts must not exceed 18 months.
A private company must file its accounts within ten months of its year end whilst public companies must file their accounts within seven months.
What other ongoing requirements are there?
In summary:
- To hold an annual general meeting each year in order to approve the annual accounts and reappoint any auditors until the next AGM. A company may dispense with the need to approve the accounts and/or reappoint the auditors at the AGM and even do away completely with the requirement to hold an AGM
- To submit an annual return to Companies House setting out details relating to the company including the names of the directors, the company secretary and shareholders
- To make filings at Companies House on the occurrence of certain events relating to the company including, for example, changes in the identities and particulars of its officers, the registered office and its share capital and details of the issues of new shares
What happens to the information filed with Companies House?
It is available for public inspection.
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