Owning and operating a limited company comes with a great deal of responsibility, including legal obligations, corporate compliance requirements, and the disclosure of information in the public domain. It is a big decision, so you should not buy a limited company as a gift for someone else unless you have their express permission to purchase and set up a company on their behalf.
What you can do, however, is buy a company formation package for someone else – and then pass the details over to the recipient, so they can log in and proceed with the company formation.
Whilst the company formation process itself is reasonably straightforward, actually setting up a limited company requires careful and informed consideration. Below, we outline the reasons why this decision should only be made by the people who are named as members (shareholders) and directors on the application to register a company.
Personal details must be provided on the application form
The application (Companies House form IN01) to register a limited company must include the personal details of every member and director, including their name and service (correspondence) address.
Every director must also provide their home address, date of birth, nationality, and country of residence.
Individuals must ‘consent to act’ as company directors
Pursuant to section 100 of the Small Business, Enterprise & Employment Act 2015, an individual must ‘consent to act’ as a director of a company before their appointment takes place. The consent to act statement is included on the application to register a company.
The company should keep evidence of every director’s consent – for example, in the form of a signed contract or letter of appointment.
Subscribers must authorise the appointment of directors
During the company formation process, only the subscribers (founding members) have the authority to appoint directors.
If you were to register a company as a gift for someone else without their knowledge, that individual would be unable to authorise their appointment as a director.
Proof of ID and address requirements
Company formation agents have a legal obligation to request proof of ID and address documentation if an applicant fails the automatic digital ID check. This is based on the information entered on the application to register a company.
Company information is disclosed in the public domain
Much of the information provided to Companies House during the company formation process, including personal details of members and directors, is disclosed on the official register of companies.
This online database, which contains details of every company incorporated in the UK, can be accessed free of charge by the general public. Adding someone else’s information to the public domain without their knowledge would affect their privacy.
Statutory compliance requirements
When someone is appointed as a company director, they become legally responsible for the management of the company, including all filing, reporting, accounting, and record-keeping obligations.
Failure to comply with these requirements is a criminal offence, which can result in financial penalties, prosecution, and director disqualification for up to 15 years. Such responsibility should never be placed on someone else without their knowledge.
Ask permission before setting up a company for someone else
There are many factors to consider before starting a limited company, like choosing a company name and registered office address, deciding how many shares to issue, understanding tax and accounting obligations, and figuring out the most tax-efficient way to pay yourself through a company. These important decisions should only be made by the person(s) who will own and manage the company.
Whilst it’s a popular business structure offering many benefits to new and existing business owners, running a company is a significant commitment that may not appeal to everyone. Therefore, buying and setting up a company for someone else is something that should never happen, unless the individual in question is aware and has provided their consent.