Company Incorporation in the UK: A Complete Guide

Here's what you need to incorporate a company:

Incorporating a new company

In simple terms, incorporating a company is the process of registering your business as a limited company with Companies House, which is the UK Government's official registrar of companies.

By incorporating a limited company, you create a distinct legal identity. That is, you and your business are, essentially, separate ‘people'. If things don't go to plan, you are protected from the liabilities incurred.

Proposed name

Your business needs a name, doesn't it? Decide on a company name that really captures the essence of your new company.

You can be literal or a bit more metaphorical. Just remember, there are a few restrictions when it comes to deciding on a company name.

Any company name that suggests a link to an official body, the monarchy, or a charity cause must be approved beforehand.

Obviously, any naughty words or hate speech are also forbidden as a company name.

Name principal business activity

To identify your principal business activity, Companies House uses what's known as an SIC code or Standard Industrial Classification code. This is a unique sequence of five numbers representing a specific economic activity.

When you register your new business, you must provide at least one SIC code to describe the type of trade carried out by your limited company. If the business of your new company is varied or complex, you can use up to four SIC codes.

Provide registered office

Your business needs an official HQ or a registered office address.

This can be anywhere in your chosen jurisdiction (England and Wales, Scotland or Northern Ireland). But your company address must be a physical address in an occupied building. A PO box is not suitable.

Note, however, that this registered office address is not necessarily where you work. Your registered office can, for instance, be your adviser's or accountant's address.

Provide company officers with details

The government defines an «officer» of a UK company as a director, manager or (company) secretary. These are the people who run or own the company.

Companies House needs to know the details of these people as you carry out the company registration process. And if things change down the line, you can alter your details with Companies House.

Company directors

While LTD companies are separate legal entities, the company formation process does require it to have at least one human face or at least one director. The company director, as you may suspect, is responsible for managing your business.

While just one person/one director is sufficient, your business may also have several directors. For a UK company, the directors can also be foreigners or based overseas.

Company secretary

A company secretary's primary role is to keep your limited company compliant with the law.

In the past, you needed a specific company secretary to register a company. Today, that isn't necessary — any director can assume this role at a UK company.

However, many businesses still like to appoint a specific secretary. This is done to lighten the directors' admin workload and keep the business compliant.

Details of shareholders

This is the owner (or owners) of your business. It differs from a director (since a director is not necessarily a shareholder and vice versa). You can, however, be a shareholder and a director simultaneously.

Before incorporating your business, you need to discern what shareholders there are.

People with significant control

A person with significant control(PSC) is a person who owns or controls your limited company. A frequent term for a PSC is a ‘beneficial owner'.

When you register your limited company, you must let Companies House know who your PSCs are. If this changes, you must let Companies House know.

Memorandum and articles of association

These are the ground rules of your business.

The memorandum and articles of association set out roles and responsibilities, how directors are appointed or removed, and how meetings will be held and recorded once the company registration process is complete.

It's an important foundation for your limited company. Not just legally, but in general.

The UK government actually has model articles you can use. If you need something more bespoke, speak to an adviser or company formation agent.

Incorporating a company in the UK can offer several advantages but also some potential drawbacks. Here is a summary of the pros and cons.

Pros of incorporation

• Limited liability protection: One of the biggest advantages of company registration or incorporation is that it provides limited liability protection for its directors and shareholders. This means that if the company goes bankrupt or is sued, the personal assets of the directors and shareholders are generally protected.
• Credibility and trust: Incorporating a company can enhance credibility and trust among customers, suppliers, and partners. A registered company is considered more established and professional than an unincorporated business.
• Access to investment opportunities: A registered company can issue shares, allowing for more flexible equity ownership than unincorporated businesses. This can make it easier to raise capital from investors.
• Tax benefits and incentives: Companies in the UK pay corporation tax on their profits, which is currently 19%. This is lower than the income tax rate individuals pay on their personal income. Many tax benefits and incentives are also available to companies, such as research and development tax credits and capital allowances.

Cons of incorporation

• Administrative responsibilities: The company formation process involves complying with various legal and regulatory requirements, such as filing annual accounts and tax returns. You will also have to seek reliable business banking partners, open a business account and ensure tax compliance. This can result in increased administrative burdens for directors.
• Set-up and maintenance costs: There are some hidden costs associated with incorporating and maintaining a limited company, such as registration and annual filing fees. You also have to keep in mind the maintaining of a registered office and obtaining a business bank account.
• Public disclosure requirements: Information about registered companies is publicly available on the Companies House website. This includes information about the company's directors, shareholders, and financial performance.
• Additional tax burden: In some cases, incorporating a company can lead to an additional tax burden. For example, if a company distributes dividends to its shareholders, they will have to pay income tax.

Overall, whether or not to incorporate a company in the UK will depend on the specific circumstances of the business and the owner's goals. Incorporating a new business may be a good option and provide great value for those looking for limited liability protection, credibility, and access to investment opportunities.

However, businesses should carefully consider the administrative responsibilities and costs involved before making a decision on going ahead with the incorporation process.

Additional Factors to Consider

When deciding whether to incorporate your business, there are several important factors to take into account:

The size and complexity of the business

The size and complexity of your business can significantly impact the decision to incorporate. Larger businesses with multiple employees, extensive operations, and higher revenue streams are more likely to benefit from the advantages of incorporation. Incorporation provides a formal structure, which can streamline operations, enhance credibility, and provide better opportunities for growth. Additionally, complex businesses, such as those with multiple divisions or subsidiaries, can also benefit from the legal and financial protections that incorporation offers, including easier access to capital and improved management of liabilities. Many company formation agents offer services that include setting up a business account and a free business bank account, simplifying the process for new businesses.

The industry in which the business operates

The industry in which your business operates can influence the necessity and benefits of incorporation. Certain industries, such as financial services, healthcare, and digital companies, have specific regulatory requirements and standards that incorporated businesses must meet. For example, financial service providers and healthcare organisations are subject to stringent regulations designed to protect consumers and ensure ethical practices. Incorporation can help businesses in these industries comply with these regulations and build trust with clients and stakeholders. Furthermore, being incorporated can also provide a competitive edge, demonstrating a commitment to professionalism and accountability. A business account tailored to your industry can further streamline financial management and compliance.

The owners' personal circumstances

The personal circumstances of business owners play a crucial role in the decision to incorporate. Owners with significant personal assets, such as property, investments, or savings, may want to consider incorporation to protect their assets from business liabilities. Incorporation creates a separate legal entity, meaning that the business's debts and obligations are distinct from those of its owners. This limited liability protection ensures that, in the event of business failure or legal issues, the personal assets of the owners are shielded from creditors and legal claims. This separation can provide peace of mind and financial security for business owners and their families. Additionally, having a London registered office address can enhance your business's prestige and legal standing.

Consulting with professionals

If you are considering registering your company in the UK, it is highly advisable to consult with an accountant or solicitor. These professionals can provide valuable insights and guidance on the implications of incorporation, helping you to understand the legal, financial, and regulatory requirements involved. An accountant can assist with financial planning, tax considerations, and compliance issues, while a solicitor can help with legal documentation, company formation, and understanding the responsibilities of company directors and shareholders. Many company formation agents also offer packages that include setting up a London registered office address and a business account, further simplifying the process. Engaging with these experts will help you make an informed decision and choose the right business structure that aligns with your goals and circumstances.

By carefully considering these factors and seeking professional advice, you can make a well-informed decision about whether incorporation is the right step for your business, ensuring long-term success and stability.