UK company formation guide: Steps and legal requirements
How to set up a company in the UK
You’ve got a great business idea and a solid business plan, but what’s the next step in launching your business? Most aspiring entrepreneurs opt to incorporate a limited company at this stage. To assist you, we explain how to set up a company in the UK, covering how to choose a compelling company name and the reporting obligations you must fulfill after forming a limited company.
The process of forming a company is quick and simple, providing numerous benefits and protections for you and your business. By the end of this comprehensive guide, you will have a solid understanding of the basics of company formation and be able to decide if it’s the right choice for your business.
What is company formation?
In simple terms, company formation is the process of registering your business as a limited company through Companies House, the UK Government’s official registrar of companies. Companies House is the only entity in the UK authorized to incorporate a company officially.
So, what does it mean to incorporate a company? Incorporating a company involves transforming your business into a separate legal entity, making it an individual person in the eyes of the law. This is crucial because it provides you with protection if your business is unsuccessful.
By incorporating a limited company, you establish a legal separation between yourself and your business regarding finances, liabilities, contracts, and ownership of property or assets.
As a company owner, your liability is limited to the nominal value of the shares you issue. Any personal assets beyond the value of those shares are protected. This protection is known as ‘limited liability.’
The majority of private companies are limited by shares, designed to generate profit for their shareholders. This is the type of company we focus on this article
Strictly speaking, incorporating a company is not a legal requirement in the UK. However, if you operate as an unregistered entity or sole trader, there is no legal separation between you and your business. This means that if something goes wrong, your personal finances or assets could be at risk.
That’s why many business owners choose to form a limited company.
How do I form a company?
If you’d like to turn your new business into a company, you’ll be relieved to know that the company formation process is quick and simple using a next-generation company operating system like Startxpress to start a company in the UK.
Here’s what you need to form a limited company:
Unique company name
Starting a new business in the UK and need to ensure your chosen company name is available for registration? Look no further! Startxpress’ free tool allows you to effortlessly check the availability of company names in the UK. Our intuitive tool streamlines the process, saving you time and hassle. Simply enter your desired company name and within seconds you’ll know if it’s available for registration. You can Check your name availability in seconds here.
Registered office address
This address can be located anywhere in your chosen jurisdiction (England and Wales, Scotland, or Northern Ireland), but it must be a real address, not a PO Box. If you’d like to keep your address private, Startxpress offers a registered office address service to ensure your personal address stays off the public register at Companies House.
Company director
This is the person responsible for managing your company. You must have at least one director, but you can have several if you prefer.
Shareholder
This is the owner of your company, and it can be the same person as your company director. You only need one person to incorporate a company, though you can have more than one shareholder if desired.
Memorandum and articles of association
The memorandum and articles of association are the founding documents of your company. There’s no need to worry about obtaining these documents: Companies House will generate the memorandum during the company registration process and attach it to the articles, which your company formation agent will provide as part of their service.
Share capital of at least one issued share
You must issue at least one share, which is easily done using the online company order form. There is no limit to the number of shares you can issue; however, issuing more shares increases your liability if your business encounters financial difficulties. We recommend issuing between 10 and 100 shares, each with a nominal value of £1.00.
Standard Industrial Classification (SIC) code
This code is used by the government to identify your business based on its industry type. You can select up to four SIC codes to describe your business activities. The formation agent’s company order form simplifies this process by providing a comprehensive list of SIC codes to choose from.
Starting your new company online with Startxpress
If you need assistance getting started, Startxpress offers a variety of company formation packages designed to meet most business needs. Our straightforward online process allows you to choose your company name, select a formation package, make a card payment, and complete your company details in just 10 to 15 minutes.
Once you have completed your order, we will review your application and submit it to Companies House. While approval usually takes up to 24 hours, it may vary depending on the workload at Companies House, and occasionally it can take longer.
As soon as your company is incorporated, we will send your company documents to you via email. You’ll then be ready to start trading. It’s really that simple!
How do I come up with an outstanding company name?
One of the enjoyable tasks when starting a new business is creating a brilliant name for your company. However, be aware that it can also be one of the most challenging parts!
So, how can you come up with a great company name?
The nature of your business
A great starting point is to consider the nature of your business. Think about words or phrases that capture the essence of your business idea, or the products and services you plan to offer.
Feel free to get personal or even experiment with puns. If you’re feeling stuck, there are many ways to spark your creativity.
For example, you can turn a long or cumbersome phrase into an acronym or combine two or three words to create a unique and clever name for your business. You might also draw inspiration from mythology or fiction, or explore foreign words or dead languages like Latin.
Finding the perfect name can be challenging, and you might need to seek help from friends and family. It could also take some time. However, when you discover the right name for your business, you’ll recognize it immediately.
The name you select will be legally associated with your business, and there are several government regulations you must follow when registering a new company name. So, what are these rules?
An unique name
First and foremost, your company name must be unique. It cannot be identical or too similar to the name of an existing company. For example, Companies House may reject your application if your company’s name differs from another only by a special character or certain punctuation.
If you’d like to make sure another company hasn’t already reserved your name, you can check instantly by using Startxpress’ company name search tool.
Company name rules
Company name rules and regulations prohibit the use of offensive words, and you must also be cautious about using “sensitive words.” For example, you cannot use words that imply a connection to the UK Government, any devolved government, administration, or public authority.
Companies House usually decides on the use of sensitive words on a case-by-case basis. If you attempt to use words like “royal” or “trust” without obtaining permission first, Companies house will likely reject your application.
Companies House imposes a character limit on company names. When you incorporate a company in the UK, you must limit your company name to 160 characters.
Additionally, if it’s a limited company, your name must end with either the word “Limited” or the abbreviation “Ltd.”
Trading name
If you worry about displaying the word “Limited” in neon lights above your new shop, don’t be concerned.
While you must display and use your company’s exact registered name for any trading activities, many companies choose to adopt a “trading name.”
Your trading name can be catchier, making it easier to market and display in bright lights.
You’re entirely within your rights to operate under a trading name if you choose to do so. However, you must clearly state your trading name and registered name on company stationery, emails, and your website. For example, at the bottom of your website or on letterheads, you might say: “‘X Media’ is a trading name of ‘X Media Services Limited.'”
How do I handle company reporting?
Owning a startup can be a lot of fun, but it also comes with reporting responsibilities. If you incorporate your new business as a limited company, you must accurately report all business income, expenditures, liabilities, and assets. You will also need to file an annual confirmation statement.
Accurate records
First, you must maintain accurate records of the money your company receives and spends.
You need to keep track of your business’s assets, any debts it owes, and any debts owed to your company by others. Additionally, you should keep an inventory of the stock your business owns at the end of its financial year, along with the stock-takings used to determine that inventory.
You should also keep records of the goods your company buys and sells, including details of suppliers and customers. If you’re selling products in the retail market, you’re usually exempt from reporting customer details.
You must store these records at a specified location where officials can access them if needed.Additionally, you must retain your business records for at least six years from the relevant accounting period.
Annual accounts
This information will be used to prepare your company’s statutory annual accounts, file your company tax returns, and pay Corporation Tax (and VAT, if applicable). These are regular accounting responsibilities you’ll need to fulfill as part of running your company.
You can read more about company tax returns and Corporation Tax here.
The most important requirement is your company’s statutory accounts. These are due every year, regardless of whether your company is trading or not. You must file them with Companies House within nine months of your accounting reference date, typically the anniversary of the last calendar day of the month in which you incorporated your company.
Confirmation Statement
The confirmation statement is an annual filing requirement that replaced the annual return in 2016. Its purpose is to ensure that the company information displayed at Companies House is accurate and up-to-date.
To complete a confirmation statement, companies must ensure that the information registered at Companies House (and shown on the companies register) is correct and up to date. The details you need to verify include the registered office address, SIC codes, shareholders, people with significant control, directors and secretaries, and share capital.
You can file the statement online through a company formation agent like Startxpress or use the Companies House WebFiling service. It can also be filed by post using paper form CS01.
Do you have any other questions?
At first glance, this may seem like a lot to take in. By forming a company, you’re taking a significant step towards turning your business idea into a thriving enterprise. While you will need to assume a few legal responsibilities, once you get the hang of it, your reporting requirements and legal obligations as a limited company owner are actually quite straightforward.
Forming a limited by shares company provides essential protection for both you and your business, allowing you to focus less on financial worries and more on making your new venture succeed.
With Startxpress, you can start your company in the UK anytime and anywhere you want.
For more detailed guidance, visit the Startxpress Help Center and Blog. If you need further assistance, don’t hesitate to contact us at support@startxpress.io!
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