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How to Set up a Company in the UK: A Step By Step Guide

Setting up a company in the UK is a straightforward process, tailored to the business structure chosen. Entrepreneurs may opt for different entities, such as a sole trader, a partnership, a limited liability partnership (LLP), a public limited company (PLC), or a private limited company (Ltd). Registering as a sole trader is the simplest option, involving less paperwork and allowing individuals to start their business affairs immediately, but it comes with unlimited personal liability for debts and obligations.

When a more formal structure is desired, partnerships offer a way for two or more people to share ownership, though like sole traders, partners can be personally liable for business debts. A Limited Liability Partnership blends elements of partnerships with limited liability features, providing some protection for members' personal assets. For those looking to start a limited company, the most common choice is setting up a private limited company, which offers limited liability to its shareholders and has its own legal identity.

Registration of a private limited company can be done efficiently online through the Companies House, where one must provide key details such as the company's name, address, director(s) information, and details about shareholders. The process also requires the selection of a Standard Industrial Classification (SIC) code that best represents the company's primary business activities. Public limited companies, which can sell shares to the public, undergo a more stringent setup process to comply with additional regulatory requirements. In all cases, it's essential to be well-informed about the legal and tax obligations of the chosen business structure to ensure compliance and successful operation within the UK’s regulatory framework.

Determining the Business Structure

Choosing the right business structure is foundational to the success and sustainability of a company in the UK. Each form has its own implications for liability, taxation, and control.

What Different Types of Limited Companies Can be Formed in the UK?

In the UK, individuals can form two main types of limited companies: Private Limited Companies (Ltd) and Public Limited Companies (PLC). Private limited companies are owned by shareholders who have limited liability, and shares do not trade publicly. Conversely, public limited companies may offer shares to the public and have more stringent regulatory requirements.

Comparing Sole Trader, Partnership, and Limited Companies

StructureLiabilitySet-UpControl
Sole Trader Unlimited personal liability Simple, no formal registration required Full control by the individual
Partnership Joint liability among partners Partnership agreement advised, but not mandatory Shared control among partners
Limited Company Limited liability for shareholders Must register with Companies House Controlled by directors and owned by shareholders

Sole traders carry full liability for debts, which can risk personal assets. A partnership involves shared responsibility and liability among partners. Limited companies offer liability protection, potentially reducing personal financial risk.

Understanding Limited Liability Partnerships

A Limited Liability Partnership (LLP) combines elements of partnerships and limited companies. In an LLP, partners have limited liabilities, meaning they are not personally responsible for the debt of the partnership. This structure is beneficial for professional services firms.

Choosing Between Private and Public Limited Companies

When deciding between a private and a public limited company, one should consider the business goals in terms of scale, investment, and shareholder engagement. Private limited companies usually require less capital to set up and have less rigorous disclosure requirements. Public limited companies can raise capital by selling shares to the public but must meet higher transparency standards and are subject to more regulations.

Are non-UK residents allowed to form a company in the UK?

Yes, non-UK residents are permitted to form a company in the United Kingdom. The company formation process for non-residents is akin to that for residents living within the UK. Non-residents can take on various roles, including company director, shareholder, or company secretary.

Key Requirements:

  • Registered Office: A company must have a registered office address within the UK. This is essential for incorporation and serves as the official address for all correspondence.

  • Company Director: A non-resident may act as a company director. While residency is not a requirement, the individual must adhere to all related legal responsibilities.

  • Shareholders: Foreign nationals can be shareholders of the UK-based company without living in the UK.

For more detailed guidance on the specific steps involved in forming a company as a non-UK resident, including the documentation required and the various types of company structures available, non-residents can reach out to incorporation service providers or consult legal professionals who specialize in UK corporate law.

What Documents Are Required to Successfully Set Up a Company in the UK?

When setting up a company in the UK, several key documents are necessary for successful registration. These documents are foundational for the legal structure and registration with Companies House, the UK's registrar of companies.

Memorandum of Association: This legal statement, signed by all initial shareholders or guarantors, includes an agreement to form the company and confirmation of intentions to participate in the company formation.

Articles of Association: These are the written rules about running the company, agreed by the shareholders, directors, and the company secretary. They outline the duties and powers of the directors and the means of handling company shares.

Form IN01: This application form is required to register a company with Companies House. It collects details about the company’s office, director(s), secretary (if applicable), and shareholder(s) or guarantor(s).

  • Personal Information: For each person involved in the company (including directors and shareholders), one must provide:
    • Full name
    • Date of birth
    • Nationality
    • Occupation
    • Residential address

Company directors must also provide at least three pieces of personal identification information which could include:

  • Town of birth
  • Mother’s maiden name
  • Father’s first name
  • Telephone number

Finally, every company will receive a Certificate of Incorporation upon successful registration. This official document confirms the legal existence of the company and includes the company number and formation date. It must be kept with the company's records.

Preparing the Necessary Documentation

When setting up a company in the UK, it's crucial to prepare and submit the correct documents to Companies House. These documents will define the company's structure and comply with legal requirements.

Drafting the Memorandum of Association

The Memorandum of Association is a mandatory document required for incorporating a company in the UK. It establishes the constitution and outlines the company's scope of operation. This document includes:

  • The company's name
  • The registered office address
  • The nature of the business (objects)
  • The liability of members (limited by shares or guarantee)
  • The capital structure (initial shareholdings)

The Memorandum must be signed by the initial shareholders or guarantors.

Creating the Articles of Association

The Articles of Association are a set of internal rules governing the company’s operations. They cover aspects such as:

  • The rights and responsibilities of directors and shareholders
  • Procedures for appointing and removing directors
  • The conduct of board and general meetings
  • The issuance and transfer of shares

A company can either adopt the standard 'Model Articles' or draft its own to suit specific business needs.

Assembling Additional Paperwork

Beyond the Memorandum and Articles of Association, certain supplementary forms are necessary:

  1. Form IN01: This application form for registration includes:

    • Details of the company's proposed officers (directors and secretary)
    • The proposed address of the registered office
    • Details of shareholder or guarantor consent
  2. Statement of Capital: When shares are involved, a company must provide a statement of capital and initial shareholdings. This statement includes:

    InformationDescription
    Number of shares The total number of shares being issued
    Aggregate nominal value Overall value of the shares
    Shareholder information Names and addresses of the shareholders
    Paid-up capital Amount paid on each share

Careful preparation of these documents is essential for a smooth company registration process.

What steps are involved in registering a new company in the UK?

To register a new company in the UK, individuals must complete several key steps:

  1. Verify the Business Structure: Determine if a limited company structure suits the business needs.
  2. Choose a Company Name: Select a unique name that complies with all naming regulations.
  3. Appoint Directors: At least one director must be appointed to manage the company.
  4. Appoint a Company Secretary (Optional): Some companies may choose to appoint a secretary, though it is not mandatory.
  5. Identify Shareholders or Guarantors: Decide who will have control over the company through shares or guarantees.
  6. Prepare Documents: Create the necessary legal documents, including the memorandum and articles of association.
  7. Register with Companies House: Submit the application to Companies House, either online, by post, or through an agent.
StepAction Required
1 Business structure verification
2 Company name selection
3 Director(s) appointment
4 Company secretary appointment (if applicable)
5 Shareholder(s) or guarantor(s) identification
6 Document preparation
7 Registration with Companies House

Companies must also register for Corporation Tax within three months of commencing business activities. The registration process can be conducted online, which is typically faster, or via postal forms. It's important to ensure that all information is accurate and complete before submission to avoid delays.

Registering Your Company

Registering a company in the UK is a structured process that involves naming the company, determining a registered address, appointing directors, and identifying Persons with Significant Control (PSCs). All companies must register with Companies House, which includes a registration fee.

Choosing a Company Name and Address

A company must choose a unique name that is not similar to any existing registered company's name. It should avoid using sensitive words or expressions unless with permission. Additionally, the registered office address must be a physical address in the UK where official communications can be sent; P.O. Boxes are not permitted unless they are part of a full address that includes a physical property.

Name Availability Check:

  • Companies House: Facilitates online search for name availability.
  • Name Constraints: Avoidance of sensitive or misleading words.

Company Address Specifications:

  • Location: Must be in the same country of the UK where the company is registered.
  • Accessibility: Should be able to receive official mail.

Appointing Directors and a Company Secretary

At least one director must be appointed who is legally responsible for running the company and ensuring reports and accounts are properly prepared. A director must be at least 16 years of age. While a company secretary is not mandatory for a private company, it may be beneficial to ensure compliance with statutory requirements.

Director Requirements:

  • Minimum Number: One
  • Age Limit: At least 16 years old
  • Responsibilities: Legal operation of the company

Company Secretary (Optional):

  • Role: Ensuring compliance with statutory requirements
  • Benefit: May assist with governance and paperwork

Identifying Persons with Significant Control

Companies need to identify individuals who have significant control over the company. PSCs are individuals who hold more than 25% of shares or voting rights or have the right to appoint or remove the majority of the board of directors.

PSC Criteria:

  • Shareholding: More than 25%
  • Voting Rights: More than 25%
  • Board Influence: Right to appoint or remove directors

Disclosure Requirements:

  • Register: Companies House maintains a public register of PSCs.
  • Accuracy: Information must be accurate and kept up to date.

Understanding Taxation and Compliance

When setting up a company in the UK, it's crucial to understand the obligations regarding Corporation Tax, Value Added Tax (VAT), and employee taxation under PAYE. Companies need to adhere strictly to the pertinent tax laws, register for the appropriate taxes, and ensure timely submissions of tax returns to comply with HMRC regulations.

Learn about how non residents can benefit by by forming an offshore company and potentially pay 0% tax (shhhh, because the UK is actually a tax haven). 

Registering for Corporation Tax and VAT

A newly formed company must register for Corporation Tax with HMRC. This involves securing a Unique Taxpayer Reference (UTR) and filing tax returns annually. The deadline for tax returns is within 12 months after the end of the accounting period, with payments due within 9 months and one day after the same period. As for VAT, businesses with a taxable turnover above the VAT threshold must register for VAT and charge this tax on their goods and services. They should report the VAT collected and paid out by submitting VAT returns usually every three months.

Setting Up PAYE for Employees

If a company employs staff, it is necessary to set up a PAYE (Pay As You Earn) system to collect Income Tax and National Insurance contributions from the employees' wages. Companies must register for PAYE with HMRC before the first payday. It's important to keep accurate payroll records for each employee, including details of payments and deductions, and to report these to HMRC on or before each payday.

Filing Company Tax Returns

Filing accurate Company Tax Returns is essential for compliance. This involves reporting a company's profits accurately and detailing all allowable expenses and deductions. The filing must be done within the statutory time frame, which is usually 12 months after the end of the company's accounting period. Late submissions can attract penalties and interest charges, thus timely filing is critical for compliance and avoiding additional costs.

Managing Finances

Effectively managing finances is a cornerstone of any successful company in the UK. Directors and shareholders must ensure that the company's financial activities, from opening a company bank account to maintaining accurate accounting records, are handled with diligence and comply with legal requirements.

Opening a Company Bank Account

A company bank account separates personal finances from business transactions, safeguarding clarity in financial dealings. Directors should provide identification and the company's details, such as the Certificate of Incorporation, to set up the account. Most UK banks offer accounts tailored to company needs, which can include facilities for managing share capital.

Understanding Shares and Share Capital

The share capital represents the amount invested by shareholders into the company. Shares are portions of share capital, reflecting ownership. A company issues shares during incorporation; specifics, including the number of shares, type, and value, are recorded in the Articles of Association. Shareholders invest in shares and in return, gain potential dividends and voting rights.

Maintaining Accounting Records

A company is legally required to maintain accurate financial records. These records are essential for transparent reporting to shareholders and compliance with the HM Revenue & Customs (HMRC). Appointing an accountant is advisable, as they can ensure that all transactions are recorded accurately. Accounting records include sales, expenses, debts, and credits.

By adhering to these financial practices, a company in the UK can lay a strong foundation for long-term economic stability and growth.

Understanding Legal Responsibilities

When setting up a company in the UK, it's crucial to understand and adhere to the legal responsibilities that come with it. This involves compliance with government regulations, safeguarding personal finances, and maintaining up-to-date company information.

Complying with UK Government and Companies House Requirements

The UK Government and Companies House set forth a range of requirements that company directors must follow during the incorporation process and beyond. Initially, directors must register the business with Companies House, selecting an appropriate structure such as a limited liability company to ensure tax efficiency. They must also:

  • Choose a unique company name.
  • Provide a registered office address.
  • Submit Articles of Association and a Memorandum of Incorporation.

Following registration, companies must adhere to ongoing obligations, including:

  • Annual filings of accounts and Confirmation Statements.
  • Notification of any changes in directorship or significant company details.
  • Compliance with UK tax obligations, which involves accurate recording and reporting of financial activities.

Protecting Personal Assets and Finances

Incorporating as a limited liability company offers directors and members protection of personal assets, meaning they aren’t personally liable for business debts beyond their initial investments. To maintain this protection, they must:

  • Keep company finances separate from personal accounts.
  • Ensure the company does not trade if it can’t pay its debts.

Monitoring and Updating Company Information

Directors are responsible for monitoring and regularly updating the company's legal documentation with Companies House. This helps to preserve the integrity of the business and maintains public trust. Responsibilities include:

  • Updating the registrar with changes to the company’s officers or their personal details.
  • Reporting changes to the structure or share holdings within the company.
  • Keeping company records, such as the register of members and directors’ service addresses, up to date.

Directors must ensure that public records reflect current operations, as failure to do so can result in legal penalties and loss of limited liability status.

Final Steps

When setting up a company in the UK, the concluding phase involves proper allocation of shares to founders and investors and ensuring all legal documents are secured and compliant.

Issuing Shares and Distributing Dividends

Once a company is registered, it must issue shares to its shareholders. This is a declaration of who owns parts of the company. Shares can be allotted in various classes, with each class holding specific rights and restrictions. It is important to issue share certificates to each shareholder as proof of ownership.

Share Allotment Basics:

  • Share Type: Determine the type and class of shares being issued.
  • Value: Assign a value to each share.
  • Records: Keep a record in the company's Register of Members.

Dividend Distribution:

  • Shareholders may receive profits from the company through dividends.
  • Dividends are declared and distributed in line with the number and type of shares owned.
  • The company must not distribute more in dividends than its available profits.

Obtaining Certificates and Final Documentation

A UK-registered company must secure final legal documents upon incorporation, which include:

  1. Certificate of Incorporation: Confirms the company's legal existence.
  2. Memorandum of Association: Lists the founding members and their intention to form the company.
  3. Articles of Association: Outlines the company's internal governance rules and procedures.

All documents must be stored safely, as they are often required for legal processes, opening bank accounts, and other corporate activities. It's also vital for the company to obtain a unique tax reference number from HM Revenue and Customs.

 

 

 

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***Please Note: If you are a resident of a country that is a signatory of the Common Reporting Standard (CRS) (or a US citizen) your tax reduction possibilities are limited. Due FATCA, CRS, and CFC laws you may not be able to completely eliminate your taxes without moving your residence. While opening an offshore company can increase privacy and asset protection, your tax obligations remans tied to your ownership of overseas entities. Offshore company's are often not taxed in the country where they are incorporated, rather you as the owner are obligated to pay taxes in the country where you reside. Please make sure you know your tax obligations, as we are not tax advisors. Please seek a local tax professional for help regarding your situation. 

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