What are the types of UK company formation? If you want to form a uk company are certain procedures to follow. This article will take a look at what is required.
Types Of UK Company Formation
If you want to form a UK company are certain procedures to follow. This article will take a look at what is required to successfully form a company.
When you understand your business you may decide to set up a company in the UK. There are different types of entities that you can choose from.
Types of companies in the UK?
There are eight main company types you can choose to form in the UK. There are important distinctions between them that you should be aware of if you choose to form a limited company.
These distinctions relate to issues your company might face, such as its legal status or what happens as regards ownership if the company is liquidated. We will go through these eight types of company formation packages and their key differences.
Public limited company (PLC)
Public limited companies are corporate entities that any member of the public can own through purchasing shares of the company on the stock exchange or public market, helping to raise capital.
This can help raise finance for the business while protecting the owner's personal liability limiting their risk to the value of the number of stocks they own or their share capital. Therefore, anyone who has an ownership stake in the public company is not liable beyond a fixed monetary amount should anything go wrong with said company.
This is one of the most popular business structures in the UK, given that it can apply to almost any type of company. With the benefits of allowing anyone to put money into the business, therefore generating more profits, alongside the financial liability protection, it is easy to see why this is such a popular choice.
There is one caveat to creating an LLP: you must allot shares up to a value of at least £50,000 as a minimum capital requirement.
Limited liability partnership (LLP)
Despite the name, limited liability partnerships are not treated as "partnerships" under UK law. Instead, they are dealt with much like the other new companies already discussed.
Therefore, in a limited partnership, one or more of the partners needs to have limited liabilities, meaning they are only responsible for their own actions in the business, rather than having a collective responsibility. Legal professionals or accountancy firms usually form these companies.
One distinction between LLP agreements and other types of companies is that the partners can directly control the business and its operations.
In the other formations previously discussed, the majority shareholders will usually elect a board of at least two directors, who will consequently hire a team of managers to oversee the running of the business.
Private company limited by shares (LTD)
An alternative to a public limited company is a private limited company or LTD. Members of the public cannot own private limited managed companies.
Instead, they are owned and operated by private NGOs or a small collection of shareholders. The sale and distribution of company shares are overseen privately by at least one director.
However, there is one similarity between a private limited company and a public one: the shareholders are only financially liable to the extent of the value of their shares, again protecting them from any financial issues the company may face. This makes private limited companies another of the most popular types of company in the UK.
Company limited by guarantee
Another option is to form your new business into a guarantee company. This is a popular choice for non-profit organisations or businesses without any shareholders, given that no individual owner is responsible for the company's financial liabilities based on the value of their investment.
Instead, guarantee companies have a group of private guarantors who agree to cover the operating costs and any financial issues the business could have. Under UK law, such companies still need the designation of "limited" in their registered name. However, there are some exceptions, particularly in the case of non-profit organisations, where any profits are not distributed amongst the company members.
Unlimited company (UnLTD)
As you might guess, unlimited companies are very different from limited companies. The primary difference between them is that there is no formal regulation denoting the extent to which each shareholder or owner is financially responsible for the business in an unlimited company.
If the company goes into formal liquidation, shareholders are required to settle any outstanding liabilities, but this is not related to the value of their investments.
Community interest company
Community interest companies are established not to merely generate maximum profits for their various shareholders but to undertake the morally righteous work of improving their local communities.
Any profits generated will not go to individual shareholders. Instead, they will use their assets to improve the communities around where the business exists. Some profits may also be used to improve the business, but only in so far as it helps them to serve their community better.
Industrial and provident society (IPS)
While less relevant today, industrial or provident societies typically conduct the same type of business as community interest companies.
However, these businesses have been replaced in recent years with the aforementioned community interest companies, cooperatives or community benefit societies.
Royal charter (RC)
Companies formed under a Royal Charter have been granted the ability to operate by a monarch. Once upon a time, all companies had to have a Royal Charter, but those days belong to the past, and now anyone can form a company whenever they like.
Examples of companies with a Royal Charter include the Bank of England and the Royal Opera House. While it is a prestigious distinction, Having a Royal Charter does not affect the day-to-day operations of your company.
What is company formation?
A company formation is when you register your business with the UK Government. You can do this through "Companies House, " the only public authority permitted to incorporate companies in the UK as the official registrar.
There are many reasons why you may want to incorporate your business through this channel, but most often, it is done to turn your business into a separate legal entity in itself.
Incorporating your business in this way becomes an individual body in its own right under the law. This is crucial for your protection, as you will not be liable for any failures in the business if it is incorporated as a limited company.
This separation includes all elements of your business, from finances, contracts, liabilities and the ownership of assets or properties.
As the owner of a limited company, any money you have beyond the nominal sum of the shares you issue through your company will be protected.
These shares are used to generate profits for the company and its shareholders, with most private, "limited liability" companies choosing this route for their formation.
You do not need to form a limited company if you have a business, but operating as sole traders or an unregistered business means your personal assets could be at risk if anything goes wrong with your business. This is the main reason most business owners choose limited company formation.
Who can incorporate a company
Any person can incorporate a company, so long as its purpose is lawful and they have submitted their names with a memorandum of associates during company registration.
Under UK law, a "person" does not have to be an individual; it can also apply to whole companies or other operational bodies. By submitting a memorandum of associates, those listed on it agree to form an incorporated company. It is not legal for those under 16 to form an incorporated company.
Method and fees
There are three main methods of incorporating a company, the first of which being electronically. Electronic software filing, either through an incorporation agent or by yourself, makes it incredibly easy to incorporate your company.
However, depending on the number of filings you think you will make, such as annual accounts, it may be best to check the recommended software providers on the UK government website.
If you outsource this to a tertiary service, you can expect to pay a standard £10 fee for any filings you need, with an increase to £30 for same-day filings submitted before 15:00.
You can also establish your limited company and register it for corporation tax through the web services of Companies House and HMRC. Through these services, you can establish and company formation you like, including:
Private companies limited by guarantee.
Community Interest Companies.
Private companies, with liability limited by shares.
Through these services, you can upload any documents you need to submit, such as detailing your company's name or articles of association.
You will also be registered with the HMRC regarding your Corporation Tax, with the option to participate in the PAYE system. The small fee for this is £12, or £27 for a Community Interest Company, which you can fulfil through a card payment or PayPal.
Your final option is traditional paper filing. However, you must ensure that you send the relevant company documents to the correct office. Paper filing times are also considerably higher and involve a £40 fee.
This fee is reduced to £20 if your company is located in Wales and files its documents in the Welsh language or incorporates as a private unlimited company.
Documents required to incorporate a company
There are some specific documents you need to file in order to incorporate your company, which are:
IN01 Form, an application to register a company, and the appropriate fee payment.
Further information should your application include sensitive wording or expressions.
Memorandum of Associates.
Articles of Association.
You may not be able to incorporate your business under the name you have chosen if it is too similar to another name on the registrar's index.
An exception to this rule is if the existing company that already has the name is part of the same group of companies you own and allows you to use the name.
Proposed name
It is not possible to reserve a company name for yourself. All filings and applications are handled by Companies House as and when they receive them.
Therefore it is recommended that you register your company online or electronically, as these are usually processed far quicker than traditional paper documents.
The application to register a company
In your application to register your company, or in other words, your IN01 form, you have to include:
Your proposed name for your company.
Confirmation statements of compliance or guarantee.
Your registered office address, which must be the same as the location where your company is registered. For example, a Scottish company must have offices registered in Scotland.
The location of the company, whether it is registered in England, Wales, Scotland or Northern Ireland.
The proposed formation of the company, whether private, public or unlimited.
Details of the intended business activities of your company, referencing the Standard Industrial Classification code (SIC).
Service and residential addresses of your director(s).
Articles of Association.
Details of your company director(s) and company secretary if you have one.
Details of people with significant control (PSC), i.e. the key decision-makers in your organisation, or other required documentation, such as having no PSCs in your company.
Warnings if your proposed name has sensitive words or expressions in it, with proof that you have requested a review by a governmental department or similar body.
Statement of your current capital and initial shareholdings, or, alternatively, a statement of guarantee. If you are applying to be a company limited by guarantee and do not want to use the word "limited" or "cyfyngedig" in your name.
Registered address
The registered address you submit as part of your company formation will be the company's official address to which all written correspondence will be sent.
If you use a third party to handle your written correspondence, make sure that they forward all relevant documents to your registered address. This address must:
Be in the same country that your company is registered in.
Physically be in the United Kingdom.
On the other hand, a director uses a service address to receive communications related to their business that is not their company's registered address. This can be the address of any property, whether their personal address or that of the registered company.
Do not worry if you use your home address as a service address. This information will not be available on any public register through Companies House and will be kept on a private register of addresses only available to certain entities.
Memorandum of association
A memorandum of association informs Companies House of the people who wish to form a company and become members of it when it is formed, as well as wider details, such as the business structure.
This memorandum also denotes the member's agreement to take ownership of at least one share in the company for limited companies. The Companies Act 2006 made the memorandum of association more of a limited document.
The vast majority of the constitutional rules the company will follow are detailed in the articles of association. Once the memorandum of association has been submitted, and your company has been formed, you cannot change the company details previously declared.
The appropriate wording of your memorandum is detailed in The Companies (Registration) Regulations 2008 (2008/3014). You will need to adhere to this specific wording completely, as if you change the wording from the original specification, your application will be denied.
Articles of association
The articles of association for a particular company detail that company's internal rules and regulations that they will adhere to so long as they are in operation.
These are a legal requirement for all those involved in the company's business and are intended to ensure the company can operate efficiently, detailing how you will manage company decisions, alongside other matters relating to stocks and shares.
There are pre-existing models and examples of articles of association that you can copy from. Otherwise, for companies that wish to form their own bespoke articles, they should seek professional advice on what should and should not be included.
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