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How to form a company

How to form a company

Contents

Starting up

One or more people can form a company. These people can include individuals, companies and other corporations.

If you form a company yourself, you'll need to send a set of documents, together with the registration fee, to Companies House. This is the agency of the Department for Business Innovation and Skills that will register your company.

The documents to send are the following:

Application to register a company (Form IN01)

When you apply to register ('incorporate') your proposed company, you'll need to complete application Form IN01. In this form, you must:

  • Give the proposed name of the company;
  • State the type of company, i.e. whether it's public or private, limited by shares or guarantee;
  • State whether the company will have its registered office in England and Wales, Scotland or Northern Ireland (this can't subsequently be changed);
  • State its intended registered office address;
  • Give details of proposed officers, i.e. the director(s) and the secretary if the company will have one; and
  • Give a statement of capital and initial shareholdings or a statement of guarantee.

Each person who signs this form is known as a 'subscriber'. The subscribers must confirm in the form that the persons named as directors and secretaries in the form have consented to act.

Note that the Registrar of Companies can leave out the day of the date of birth of the director from the public register.

Memorandum of association

This is a document stating the names of the people forming the company and confirming their intention to form it and become members. Each person who signs this statement is known as a 'subscriber'.

Once the company has been incorporated, the memorandum can't be changed, but will no longer affect the ongoing operation of the company.

Statement of Persons with Significant Control

Companies incorporated on or after 30 June 2016 will have to file, with the application to register, an initial statement of the people who have significant control over the decisions of the company. These people are formally known as Persons with Significant Control (PSCs).

A PSC in relation to a company is a person who meets one or more of the following conditions in relation to that company:

1. Directly or indirectly owns more than 25% of the shares

2. Directly or indirectly has more than 25% of the voting rights

3. Directly or indirectly has the right to appoint and remove a majority of the board of directors

4. Has the right to exercise or actually exercises significant influence or control over the company (this is only relevant if none of the above conditions are satisfied)

5. Has the right to exercise or actually exercises significant influence or control over a trust or firm that is not a legal entity but which would satisfy any of the above 4 conditions.

These provisions are aimed at making companies disclose the people who direct the activities of the company and ensure the company acts in the way they want it to. These people may or may not be the shareholders, as the shareholders may be holding shares on behalf of other people. There may also be shareholders agreements and joint venture partnerships that give certain people control.

If there is another legal entity that fulfils the requirements above (e.g. if the controlling shareholding of a company is held by another company) and also is subject to requirements to have its own PSC register, that controlling company will be a Relevant Legal Entity (RLE). Its details must be included on the PSC register of the company it controls.

There are certain exceptions where people influencing the company's decisions are not automatically PSCs. These include professional advisers (such as lawyers and accountants), people who have a commercial relationship with the company (such as suppliers and lenders) and directors, particularly managing or sole directors.

Articles of association

This document sets out the rules for running the company's internal affairs.

You can use your own bespoke articles, but most companies use standard articles known as 'model articles'. Model articles are available for private companies limited by shares, private companies limited by guarantee and public companies.

In Form IN01, you'll need to say whether your company is using:

  • Model articles
  • Model articles with changes (a copy of the changed articles must be sent with the IN01)
  • Bespoke articles (a copy of the full articles must be sent with the IN01)

If you don't say which articles you're using, Companies House will automatically apply the model articles appropriate to your company type. Companies House can't supply bespoke memorandum and articles, but you can buy them from a law stationer or company formation agent. Alternatively, you can prepare them yourself.

Matters to consider

Can I make changes to the articles of association?

If you wish to change your articles of association after the company is formed, 75% of the shareholders must vote to do so. This is known as a 'special resolution' (see Shareholder meetings for more information on how shareholders make decisions).

Once your company is incorporated, you must tell Companies House every time your company changes its articles. You and your company will be committing an offence if you don't do so.

You must send a copy of the special resolution making the change and a copy of the amended articles to Companies House within 15 days.

Entrenched articles

Your company can 'entrench' some articles, which means they can only be changed if certain conditions are met. For example, an article appointing a particular shareholder as a director could be entrenched by a condition giving that shareholder more votes than the other shareholders on a vote to change this article. Entrenched articles can only be changed if all the conditions are met, if all the shareholders agree to the change, or by order of the court.

If your company's articles include entrenched provisions when the company is formed, the articles are 'restricted'. You must then complete the appropriate section of the application to register a company (Form IN01). The articles themselves must make it clear what conditions need to be met in order to change the entrenched provisions. Your company must tell Companies House if, after the company forms, the articles are changed to include or remove an entrenched provision.

What is a registered office?

By law, every company must have a registered office. The registered office must be a real address, i.e. a physical location where documents can be delivered to the company. However, the registered office doesn't need to be a place where the company does its day-to-day business. For example, some companies use their accountant's address as their registered office. The directors must ensure their registered office effectively handles all notices, letters and reminders. These could include a legal demand from a creditor, and you'll need to respond promptly to avoid further action.

If any person you do business with writes to you asking for the address of your registered office, you must respond within 5 working days. The same applies if someone asks where they can inspect your company records, or for details of the records you keep at your registered office.

If, after registration, you decide to change your registered office address, you must complete Form AD01, and send it to Companies House. The new address must be in the same part of the UK as the previous address. So, for example, if the original registered office of your company is in England and Wales, its registered office must always be in England or Wales.

The change of registered office isn't effective until Companies House registers the form.

What is the minimum number of officers a company requires?

If you have a private company, you must have at least one director who is an individual. You may choose to have a secretary if you wish.

If you have a public company, you must have at least 2 directors (at least one of whom must be an individual) and a secretary. The secretary of a public company must be qualified.

Can I choose any name I want for my company?

General restrictions

There are restrictions on your choice of company name. Before you apply to form a company, it's important to check that the name you want for your company is acceptable. Companies House won't register a name that:

  • is likely to be considered offensive;
  • is the same name as another name on the register;
  • contains any words that would constitute a criminal offence;
  • includes banned characters, signs, symbols and punctuation; or
  • doesn't end with the appropriate designator (or permitted abbreviation) for the company type (e.g. 'limited' or 'ltd', 'public limited company' or 'plc').

In addition, Companies House won't register names that imply a connection with national or local government or certain public authorities without their consent. Some words will require the permission of the Secretary of State or some other specified body before you can use them. Rules introduced on 31 January 2015 reduced the list of words that require permission. Companies can now use words such as 'national' and 'United Kingdom' in their names without permission. The list of characters that can be used in names has also been extended.

You should also check whether your chosen name is too similar to any other names already on the register. If this is the case, you might be told to change your company's name. The new regulations allow certain words such as 'group' and 'export' to count towards distinguishing business names. Previously these words had to be disregarded when names were being assessed for similarity to registered names.

Objections to a company name

Any person or company ('complainant') can object to your application to register a company name if your name:

  • is the same as the name in which the complainant has built up goodwill (the brand recognition or reputation of a business); or
  • is so similar to the complainant's name that using it would mislead the public into thinking there is a connection between your company and the complainant.

If a complainant objects, the Company Names Tribunal (also known as 'the Adjudicator'), which the UK Intellectual Property Office operates and administers, would decide whether you can use the name. This would depend on whether you can show you had adopted the name legitimately. If your application is an 'opportunistic registration', i.e. you're registering a name only to cash in on the complainant's reputation or goodwill, or to prevent the complainant from registering that name, you won't be allowed to register the name.

Trade mark registrations

You should do a trade mark search to see if an identical or similar name is already registered. This is because if there is a trade mark registration that is identical or similar to the company name you've chosen, and you're in a similar type of business, you may face legal action for a trade mark infringement.

For advice, including how to search the trademark' register, contact the UK Intellectual Property Office.

Passing off

If another business is already using a name identical or similar to the company name you've chosen, even if they haven't registered that name as a trademark, they may be able to stop you using that name by bringing a 'passing off' claim against you. They'd have a right to claim if they can show that they have built up goodwill in their name, and that by using the same or a similar name you'd be likely to confuse the public into thinking that your goods or services are associated with theirs. They'd need to prove that they'd be likely to suffer loss as a result of your use of a name similar to theirs.

You should therefore do a search on the internet, in trade journals and telephone directories to see if anyone is using the same or a similar name.

How much does Companies House charge to form a company?

You can find details of the Companies House's current fees on its website.

Tax

Limited companies have to pay Corporation Tax on their income and profits. You also need to operate a Pay As You Earn (PAYE) system to collect and pay Income Tax and National Insurance contributions from your employees, including company directors.

You must work out how much Corporation Tax the company needs to pay by using a self-assessment system. To avoid paying penalties, it's important to understand how this system works and when your company needs to make returns. Your accountant or auditor will be able to help you.

When you register a new company, Companies House will pass on the details to HM Revenue & Customs (HMRC). You must also contact your own local HMRC office within 3 months of starting business activity to let them know that your company is active. If you don't do this, you may have to pay a penalty.

See Tax for limited companies for more information.