Company formation is the process of registering a business as a limited company at Companies House. As a result, the business becomes a distinct legal entity. The process is also referred to as ‘company incorporation’ and ‘company registration’.
When you incorporate a limited company, it becomes an individual ‘person’ in the eyes of the law. Incorporated businesses are completely separate from their owners in terms of finances, liabilities, contractual agreements, and ownership of property and assets. Such a view is not afforded to unincorporated businesses like sole traders as distinct legal entities.
The law does not view unincorporated businesses like sole traders as distinct legal entities. Therefore, there is no separation between a sole trader business and its owner in terms of finances, assets and liabilities.
Why would I register a limited company?
Generally, the main reason to register a limited company is to reduce the financial responsibility of the people who own the business. This protection is known as ‘limited liability’. Private companies can be limited by shares or limited by guarantee.
The owners of a company limited by shares are only liable for the value of their shares. The owners of a company limited by guarantee are liable only for the value of their guarantees. Their personal finances and assets are protected beyond the limit of their liabilities.
This is not the case for unincorporated business structures. Sole traders, for example, are wholly liable for all business debts and liabilities because there is no legal or financial distinction between the individual person and the business.
Aside from the obvious benefits of personal financial protection, limited company formation creates a professional corporate image and allows business owners to manage their personal remuneration in a more tax-efficient manner.
Furthermore, limited status gives the impression of an established and reliable business. As a result, incorporated businesses are more attractive to investors, lenders, clients and suppliers.
Registering as a limited company is, therefore, an effective and affordable way to further the potential of a fledgeling or existing business, attract more favourable tax rates and appeal to a wider audience.
Do I have to register with Companies House?
Yes. Companies House is the Registrar of Companies in the UK and an Executive Agency of the Department for Business, Energy and Industrial Strategy (BEIS). All UK limited companies and Limited Liability Partnerships (LLPs), as well as overseas companies with a place of business in the UK, are legally required to register with this official government agency.
The primary role and activities of Companies House are:
- Incorporating and dissolving limited companies.
- Receiving information about all registered companies trading in the UK.
- Ensuring all corporate information on past and present incorporated businesses is available to the public.
The Companies Act 2006 governs all UK companies under a single law regime, but Companies House operates in three separate jurisdictions, each of which is served by a different registrar: England and Wales (Cardiff registrar), Scotland (Edinburgh registrar), and Northern Ireland (Belfast registrar).
A company can be registered in any one of these jurisdictions but it can operate in all parts of the UK and overseas. The registrar with whom a company incorporates primarily dictates the location of its registered office address (official HQ address).
What does the company formation process involve?
Company formation is incredibly simple: only one person is required; the entire process can be carried out online; applications are delivered electronically to Companies House, and approval is normally granted within 3 hours. To register a private company limited by shares or guarantee, you will require:
- Unique company name.
- Registered office address in England and Wales, Scotland or Northern Ireland.
- Minimum of one director.
- Minimum of one shareholder or guarantor (owner) – can also be the director.
- Memorandum and articles of association (governing documents).
- Share capital of at least one issued share (limited by shares companies only).
- Up to four Standard Industrial Classification (SIC) codes to describe what the business does.
- Information regarding the Company’s Register of Persons of Significant Control
Rapid Formations offers a wide range of online company formation packages for registering a limited company or LLP in England and Wales, Scotland or Northern Ireland. We also provide several professional company address services in London and Glasgow, including a Registered Office Service, a Service Address and a Business Address.
What happens if my company formation is rejected?
This happens from time to time. If your company formation is rejected by Companies House, it will probably be down to a small error or oversight that you can fix quickly and easily, so it’s usually not a huge issue.
If you submit an online application through a company formation agent, you will be notified of any mistakes or missing information immediately. You can then address the error and resubmit your application online on the same day for no extra charge.
This is one of the many benefits of registering through a company formation agent. It will take significantly longer to be notified of a rejected application and rectify any problems if you use Companies House incorporation services.
Main reasons for rejected company formation
The most common reasons a company formation is rejected are:
- A company name is unavailable, incomplete or missing from the application.
- A company name requires supporting evidence.
- Supporting evidence for a company name has been incorrectly presented.
- A company name contains a ‘sensitive’ word or expression.
- Incomplete details are provided for a director or company secretary.
- A residential address is flagged as being a commercial property.
- Company share structure is incorrect.
- There is a problem with an officer’s authentication.
- A company director does not meet the minimum age requirement of 16.
- A director is registered as an undischarged bankrupt or a disqualified director.
- A registered office address has not been included, or it is situated in the wrong country.
- The statement of capital is incomplete or missing.
- The articles of association have not been included.
Avoid rejection by being careful
All of these errors can be easily avoided so it’s worth taking your time during the application process. And remember to check the availability of your company name before submitting your application.
It will only take you a couple of minutes at most. If you choose to register your company through Rapid Formations, your application will be reviewed by a specialist agent before it is delivered to Companies House, thus significantly reducing the risk of being rejected.
In the unlikely event that your registration is not accepted, we will notify you immediately. You can also follow the progress of your application on our Online Admin Portal.
In most cases, errors can be fixed in a matter of minutes. Additional documents can be sent electronically to Companies House for no extra charge. All being well the second time around, your new limited company should be approved and ready-to-trade within 3-6 working hours.
What documents are required for company registration?
It depends whether you register through a company formation agent or Companies House. If you choose to set up a company online through a formation agency like Rapid Formations, you should not have to submit any paperwork or deal with any physical documentation. Our incorporation service is electronic and carried out entirely online.
If you decide to use the registration services provided by Companies House, however, you will have to complete form IN01, which is extensive, and deliver it online or by post. You may also have to submit certain documents, depending on whether you use the online or postal service.
Incorporating through a company formation agent
By choosing to set up a company through a formation agency like Rapid Formations, you will require completing a simple online application form. The following electronic documents must be completed (we’ll help you to do so) and submitted to Companies House:
Articles of association
This is the company’s governing document. The articles of association set out the rules about how the company should be run, the rights and responsibilities of the members and directors, how and when shares can be issued or transferred and how decisions should be made. We provide standard Model articles with all of our company formation packages. This version is suitable for most companies.
Supporting documentation for sensitive words in a company name
Only required if your company name contains sensitive words or expressions that need to be approved by Companies House or another authorising body. This additional documentation may be attached to your online application in the form of an email, digital file or scanned paper document, so there is no need to send anything by post.
You will authorise the submission of your application by creating a unique digital signature. When your company registration has been approved (usually within 3 hours), you will receive digital copies of your incorporation documents by email. Paper incorporation documents are also available.
Memorandum of association
The memorandum is a declaration of the founding members (shareholders or guarantors) of the company. It states their names and their agreement to form the company and become members by taking at least one share or guaranteeing a sum of money to the company.
You do not have to complete this form per se, but you must provide certain information during the registration process that Companies House will then enter on the memorandum. A copy will be provided to you after incorporation. The memorandum will also be displayed on the central public register of companies.
Incorporating with Companies House directly
Companies House provides online and postal incorporation services that take between 2-10 days to process. You do not need to post any physical paperwork if you use the online service, unless you are resubmitting an application that was rejected or you are asked to send additional documentation.
To register a company by post, you will need to submit the following documents:
- Form IN01 ‘Application to register a company’.
- The memorandum of association.
- The articles of association (unless you adopt Model articles in their entirety).
- Supporting documents for the use of sensitive words or expressions in your company name
The postal application form can be used to register a company limited by shares or guarantee with model or altered articles. However, the online service from Companies House can only be used to set up a limited by shares company with Model articles and no sensitive words in its name.
Register a company in 3 hours
Our streamlined application process provides online company formation in 3 to 6 working hours (subject to Companies House workload). For a step-by-step guide to setting up your company and completing the online application, please click here.
Rapid Formations offers a range of online company formation packages for private limited companies. Prices start at £9.99 plus VAT. Our Digital Package is suitable for setting up a dormant company or reserving a company name for later use. One of our comprehensive packages may be more suitable if you want to begin trading immediately.
Can I start trading when my company has been set up?
You can start trading through your private limited company as soon as your company formation application is approved. Alternatively, you can make your company dormant if you don’t want to start trading straight away.
The trading status of a limited company is considered to be active when:
- It carries on any kind of trading or professional business activity.
- Goods are bought or sold with a view to making a profit.
- It provides services.
- Income is received.
- Interest is earned.
- It manages investments.
- Staff are employed.
- It buys or rents property.
Companies House will inform HMRC when your new company is incorporated. You will then receive a letter from HMRC at your registered office. It will contain your company’s Unique Taxpayer Reference. The letter will also provide information about what to do when your company starts trading.
If your company is trading, it is ‘active’ for Corporation Tax. You must tell HMRC that it is active within 3 months of carrying on any type of business activity. HMRC will update their computer records with the information you provide. They will tell you when you need to pay corporation tax and file a tax return. Similarly, if your company is to remain dormant, you should also advise HMRC of this fact.
If you have employees, you will have to register for PAYE. You must register for VAT if you think your annual turnover will be more than £85,000 (2018-19 VAT registration threshold). You can also voluntarily register for VAT if your turnover is below the threshold.
Can I bring in a business partner after company formation?
Yes, any time you like. A business partner could be a valuable addition to your limited company, particularly if you are running your business single-handedly. However, before you agree to appoint a new director or bring in new shareholders, you must be certain that your chosen sidekick has the necessary skills and knowledge to successfully manage all aspects of the business.
You must also ensure he or she supports your company’s values and vision, that your personalities and attitudes can integrate well and enable you to work collaboratively, and that you maintain overall control by retaining a majority stake in the business.
The introduction of a business partner is an effective way to raise additional capital, expand your business or fund a new project, share the burden of operational responsibility and financial liability, and provide expert skills and knowledge to complement your own.
However, before you make any commitments, we strongly recommend seeking expert legal advice because it can be difficult to get rid of someone once they have a financial stake in a business. The right partner could be the making of your business, but the wrong one could prompt its swift demise.
Selling company shares to a new business partner
If you wish to bring in an equity partner (shareholder), you will require selling some of your own shares or issuing new shares in exchange for capital investment. Ideally, this is something you should take into consideration during the company formation process because your long-term plans will affect the number of shares you decide to issue.
If you are likely to bring in a business partner at some point after company formation, you should issue more than one share when you register with Companies House. This will make it easier to sell some of your shares at a later date. If you issue only one share to yourself, you have no shares to give to anyone else. This is not a huge problem. You will simply have to increase the issued capital by allotting new shares in your company. However, this is more time-consuming and costly than selling existing shares.
To transfer (sell) some of your own shares, you will typically need to complete a Stock Transfer Form Form and have said transfer approved by the board. If you need to increase the issued capital and create new shares, the prospective member will have to complete a letter of application, the existing members should waive their right to pre-emption on the new shares (if applicable), the board should approve the application, and finally the Directors should file a Return of Allotment of Shares at Companies House. Any other requirements required by a company’s Articles of Association in both cases must also be adhered to. If your new business partner will be appointed as a director, you must complete Form AP01 after the board or members (whichever is permitted) have approved the appointment, and file it with Companies House within one month.