What is a Company?
A company is a ‘legal person’ that is separate from its owners (the shareholders/members) and the people who run it (the directors). Companies can own property, conduct business, borrow money and do most things that an individual can.
Companies do not have a physical presence and therefore cannot do anything for themselves (such as sign a contract). A company’s officers, employees and agents must act on the company’s behalf. For example the directors of a company could sign a supply agreement on behalf of the company. The agreement would be between the company and the supplier, rather than the directors and the supplier.
Why do people form companies?
For numerous reasons, depending on their individual circumstances. The more common reasons are:
Risk – forming a limited liability company can limit your exposure to any debts generated by your new business (see above).
Taxation – Forming a company may offer tax advantages (always speak to your accountant).
Status – Forming a company shows that you are committed to your business idea. It is more official than operating as a sole trader. Customers and suppliers may also refuse to deal with you unless you operate through a company.
Finance – Investors may want to own a share of your business in exchange for their investment. If you form a company you can issue shares to an investor (although not to the public unless you form a Public Limited Company).
Ownership – If more than one person is going to own a share of a business then the easiest way to split the ownership is to form a company and issue shares.
What is the advantage of Limited Liability?
Limited liability limits the risk of going into business. Limited liability is available if you form a Private Limited Company or a Public Limited Company. The overwhelming majority of companies formed in the UK are limited liability companies.
The effect of limited liability is best explained by way of example. If you invest £100 in a limited liability company (buying 100 £1 fully paid shares) then the maximum amount which you can lose if the company is not successful is normally* limited to your investment of £100, even if your company generates larger debts. Without limited liability you are personally liable for all of your businesses debts, no matter how large they are. Without limited liability you are potentially risking all of your assets, not just the amount you decide to invest in your business.
It is comforting to know that you can shield your personal assets such as your home, from the risk of going into business.
*Beware, there are exceptions to this rule. For example: it does not apply if you have given personal guarantees, or if you continue trading after you know – or should have known – that the company is unable to pay its debts.
If I form a company will my paperwork increase?
All companies are obliged to file accounts and confirm their details to Companies House each year.
How many people do you need to form a company?
One – for a private limited company. Since 6 April 2008 a single person can form a company, and appoint themselves as the sole director and shareholder. Companies are no longer required to appoint a company secretary.
If you decide to appoint a company secretary and your company only has one director then the secretary you appoint cannot also be the sole director. In other words you will need two people, either two directors, one of which is the secretary, or one director and a secretary.
Public Limited Companies are still required to appoint a company secretary. They must also have at least two shareholders.
Can I form a company to reserve its name or to use later?
Yes, this is known as a Dormant Company. The only requirement is that you file a Confirmation Statement and Dormant Company Accounts with Companies House each year. We can help you with that. The process is not particularly expensive or onerous. Companies House must also be informed of any changes to your company’s details.
Forming a Dormant Company is an effective way to reserve a name.
What is a registered office?
The registered office is the company’s official address to which official correspondence may be sent and notices served, such as communications from HM Revenue & Customs and Companies House. The post at a company’s registered office should be checked regularly.
Where should my registered office be located?
All companies registered at Companies House must have their registered office in the country in which they are registered: England, Wales or Scotland. The registered office must be a valid postal address (or a PO Box which has been validated by the Royal Mail).
It is perfectly acceptable to have your residential address as your registered office.
What are the Memorandum and Articles of Association?
The Memorandum and Articles of Association set out key details of the company and rules governing the mechanics which enable the Company to operate. For example, rules concerning the holding of meetings and the way in which the company makes decisions.
When we form a company on your behalf we will draft the Memorandum and Articles for your company and submit them to Companies House. We will also send a copy to you.
Do I need a company seal?
It has been possible for many years for companies to execute documents without the need for a company seal (such as a plier type seal). Therefore we do not include a seal in our formation package.
What are the restrictions on my choice of company name?
Unique – Your company name must not be the same as any other name already registered with Companies House.
Form – Depending on the type of company you are forming, your company name must end in ‘Limited’, ‘Public Limited Company’ or ‘Company Limited by Guarantee’ or their Welsh equivalents.
Not restricted – Our FREE Advanced Company Name Checker will check your proposed company name against a database of restricted words and expressions. For example the words ‘Royal’, ‘International’ and ‘British’.
Not offensive – Your proposed company name must not be offensive or imply a criminal activity. Our FREE Advanced Company Name Checker will check your name against the more common (although not all) offensive words.
What is a director?
A director is an officer of a company. Directors are responsible for the day-to-day running of the company in accordance with the company’s internal rules (the Articles of Association). Directors have a number of responsibilities and obligations imposed by law.
What is the difference between a director and a shareholder?
A director is responsible for the day-to-day running of the company. A shareholder owns a share of the company. Directors can be shareholders and vice-versa. The majority of smaller companies are both owned and run by the same people.
How many directors do I need to form a company?
That depends on the internal rules of the company (the Articles of Association). All the companies we form only need one director (save for Public Limited Companies). Our companies also have no limit on the number of directors that can be appointed.
Do I need any qualifications to become a director?
There are no formal qualifications required to become a company director. Although a director must not be:
- under the age of 16;
- disqualified from being a director by the Courts; or
- an undischarged bankrupt.
There are no residence or nationality requirements for directors. For example, a French citizen living in Spain can be a director of an English company.
Do I need to appoint a Company Secretary?
Standard Limited Companies (private companies limited by shares) formed after 8 April 2008 do not require a Company Secretary.
Public Limited Companies are still required to have a Company Secretary.
What does a Company Secretary do?
A Company Secretary is an officer of a company with responsibility for maintaining and updating the company’s official records. Duties include keeping minutes of board and shareholder meetings, making appropriate filings at Companies House, registering transfers of the company’s shares and giving notice of board and shareholder meetings.
Do I need any qualifications to become a Company Secretary?
There are no formal qualifications required to become a Company Secretary of a Standard Limited Company (private company limited by shares). Nor are there any nationality or residence requirements.
However, Public Limited Companies (PLCs) are required to appoint a sufficiently knowledgeable and experienced company secretary with one of the following qualifications:
- Membership of one of the following: the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants of Scotland, the Association of Chartered Certified Accountants, the Institute of Chartered Accountants in Ireland, the Institute of Chartered Secretaries and Administrators, the Chartered Institute of Management Accountants, or the Chartered Institute of Public Finance and Accountancy.
- Being a UK qualified barrister, advocate or solicitor.
- Holding the position of Company Secretary of a PLC for three of the past five years.
- Being otherwise capable, by virtue of previous positions held or memberships of appropriate bodies to discharge the functions of a Company Secretary.
Public Limited Companies
What is a Public Company (PLC)?
A Public Limited Company (as opposed to a Private Limited Company) is a company in which the shareholders have agreed to invest at least £50,000 (and have paid at least £12,500 of that investment to the company). PLCs are subject to more onerous accounting and other obligations than a private limited company.
It is unusual for a company to be formed as a PLC. PLCs are normally formed by converting a Private Limited Company into a PLC.