In her latest article Specialist Company & Commercial Solicitor, Hem Gujadhur outlines what incorporation is and how it works.
Note: this article only relates to incorporation as a private company limited by shares or limited by guarantee
What is incorporation and how does it work?
Incorporation is the registration of an existing or a new business as a limited company.
There is a specific incorporation process to follow, and an appropriate company name must be used in accordance with the guidelines from Companies House.
What is needed to incorporate a company?
Details of the shareholders and directors (including any secretary) will be required. The company will also need a UK registered office address, which is compliant.
It is expected that any document sent to the address will come to the attention of a person acting on behalf of the company and that it will be acknowledged.
The same requirement applies to the company’s email address, which will have to be provided on incorporation.
Articles of association (being the constitutional document detailing how board/shareholder meetings are organised, shares are issued or transferred to existing or new members, appointment/powers of directors and so on) can be model or bespoke to the business.
What happens after the company has been registered?
Once a company has been successfully registered on Companies House, the directors of the company will have to ensure that each shareholder is issued with a share certificate and that statutory registers are created.
Please note that the business being incorporated can be trading or non-trading; hence, charities, clubs or associations can also be incorporated.
What are the different types of companies?
Companies can be incorporated as being limited by shares or limited by guarantee. The key differences between a company limited by shares and a company limited by guarantee are that:
Limited by shares
A company limited by shares has a share capital and can pay dividends to its shareholders as required. It also has the ability (amongst other things) to raise capital and issue further shares.
Limited by guarantee
With a company limited by guarantee, there is no share capital. The members instead each give a guarantee to pay a certain amount if the company is wound up.
These types of companies are often used by not-for-profit organisations such as charities, clubs and associations.
Which type of corporation is best for my business?
The most common type of company used by businesses is the company limited by shares.
However, the choice of company will depend on the business type and the purpose of incorporation.
What happens when a company becomes incorporated?
A company can start trading as soon as it has been incorporated although there is an option for trading to commence at a later date. Directors need to be aware that they are bound by seven general statutory duties. If a director is in breach of any of these duties, the company may bring a civil action against that director, and the director may also be disqualified.
What are the benefits of incorporation?
The main benefit of incorporation is that a company is a separate legal entity from its directors and shareholders. This can help in protecting the personal assets of the directors/shareholders and limiting their liability unless they personally guarantee the obligations of the company as a director/shareholder or the court pierces the corporate veil, albeit this is in very limited circumstances.
What are the disadvantages of an incorporated company?
There are almost no disadvantages to incorporation.
However, it is important that company accounts and confirmation statements are filed yearly and there are associated Companies House fees. The statutory registers must also be kept up to date. In addition to this, any information filed at Companies House in relation to the company must be timely and accurate.
How long does incorporation of company take?
The incorporation process is fairly straightforward as long as the articles of association have been finalised and all the necessary details of directors and shareholders have been provided.
How much does it cost to incorporate company in UK?
In addition to legal fees, there is the Companies House incorporation fee of £50 if filed online or £71 if filed via paper form. Same day incorporation is £78.
What are the tax implications of incorporation?
Companies pay corporation tax and shareholders pay tax on dividends. Therefore, we would strongly advise that you speak with an accountant before incorporating. We work very closely with accountants and can make recommendations if required.
Do you need a lawyer to incorporate?
Generally, no. However, we would recommend instructing a lawyer to deal with the incorporation since often businesses may not want to adopt model articles. Hence, bespoke articles of association will have to be drafted.
It might also be useful having a lawyer on board if the company is being incorporated with alphabet shares (which are essentially different types of shares and may have different rights).
Recent changes
With the recent changes adopted by Companies House, directors and beneficial owners (or anyone with significant control) of UK companies will need to have their identity verified before incorporation. Existing directors/beneficial owners will have to do so within a specified timeframe.
Specialist Incorporation Solicitors
If you have any questions after reading this article or are looking for help with incorporating a business, please give the team a call on 01202 499255 or fill out the form.
We offer all new clients a free initial chat to discuss your needs and give you the opportunity to get to know the team you will be working with.
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