Company formation is the process of incorporating (registering) a business as a limited company. When this happens, the business becomes a distinct legal entity; an individual ‘person’ in the eyes of the law. Essentially, this means that the company is completely separate from its owners in terms of finances, liabilities, contractual agreements, and ownership of property and assets.
The law does not view unincorporated businesses like sole traders as distinct legal entities. When you operate as a sole trader, there is no separation between the business and the owner in terms of finances, assets, and liability.
Why would I register a limited company?
Generally, the main reason to register a limited company is to limit the financial responsibility of the people who own the business. This protection is known as ‘limited liability’. Private companies can be either 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 only 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, have unlimited liability. This means that they are wholly liable for all business debts and claims because there is no legal or financial distinction between the individual person and their 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 trustworthy business. As a result, dealing with limited companies is a more attractive prospect to clients, investors, lenders, 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)
- Northern Ireland (Belfast registrar)
A company can only be registered in one of these countries, but it can be based and operate in all parts of the UK and overseas. The country of registration simply dictates the company’s legal jurisdiction and the location of its registered office (official address). For example, if you incorporate a company in England & Wales, your registered office must be in England or Wales.
What does the company formation process involve?
Company formation is incredibly simple because the whole process can be carried out online. Applications are completed and delivered electronically to Companies House, and approval is normally granted within 3 hours. Furthermore, you only need one person to register and run a company. This is because the same person can be both the sole director and sole shareholder or guarantor.
To register a private company limited by shares or guarantee, you will require:
- a unique company name
- a registered office address in England and Wales, Scotland, or Northern Ireland
- a minimum of one director
- a minimum of one shareholder or guarantor (owner)
- 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 about People with Significant Control (PSCs)
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?
If your company formation is rejected by Companies House, it will probably be down to a small error or oversight that can be rectified quickly and easily.
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.
If you use the incorporation services provided by Companies House, however, it takes significantly longer to be notified of a rejected application and rectify the problem.
Most common reasons for rejected company formation applications
The most common reasons for company formation applications to be rejected are:
- the company name is unavailable, incomplete, or missing from the application
- the company name requires supporting evidence
- supporting evidence for the proposed company name has been incorrectly presented
- the 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
- the 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 (which contains information about share capital) is incomplete or missing (limited by shares companies only)
- the articles of association has not been included
How to avoid a rejected company formation application
All of these errors can be easily avoided, so it’s worth taking your time during the application process. It’s also important to check the availability of your company name before submitting your application.
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. This significantly reduces the risk of rejection.
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. If any additional documents are required, these 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 directly at Companies House. If you choose to set up a company online through an approved agency like Rapid Formations, you will 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, all you will need to do is complete a simple online application form. The following electronic documents must be completed (we’ll help you with these) and submitted to Companies House:
Articles of association
This is the company’s governing document. The articles of association sets 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
Supporting documentation will only be 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 – 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 company’s founding members (i.e. the shareholders or guarantors), which states:
- the name of each subscriber (member)
- their agreement to form the company
- their agreement to become a member 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, which 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 public register of companies.
Incorporating directly at Companies House
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:
- Companies House 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 incorporation 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 to 6 hours
Our streamlined application process provides online company formation in 3 to 6 working hours (subject to Companies House workload). Our 4 Steps to Company Formation guide outlines this simple online procedure.
Rapid Formations offers a range of online company formation packages for private limited companies, with prices starting at just £12.99. Our Digital Package is ideal 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 limited company as soon as your company formation application has been approved. Alternatively, you can make your company dormant if you don’t plan to start trading straight away.
A UK limited company is considered to be actively trading when:
- it carries on any kind of 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 that your new company has been incorporated. You will then receive a letter from HMRC at your registered office. This will contain your company’s Unique Taxpayer Reference. It 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 Company Tax Return.
If your company is going to be dormant (i.e. not trading), you should advise HMRC by contacting the Corporation Tax department.
If you have employees, you will need to register the company as an employer and set up Pay As You Earn (PAYE). You will also need to register for VAT if your annual turnover is likely to exceed £85,000 (2020/21 VAT registration threshold).
Can I bring in a business partner after company formation?
The limited company structure gives you the option to bring in one of more business partners at any time. A business partner could be a valuable addition to your limited company, particularly if you are running the business single-handedly. However, before you agree to appoint a new director or bring in additional shareholders, you must be certain that they have the necessary skills and knowledge to successfully manage all aspects of the business.
The introduction of a business partner can provide many benefits, such as:
- raising additional capital
- expanding the business
- funding a new project
- sharing the burden of operational responsibility and financial liability
- providing 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 company, 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 (i.e. a shareholder), you will need to sell some of your own company shares or issue 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 set up your company. This will enable you to transfer (sell) some of your existing shares at a later date.
Conversely, if you issue only one share to yourself, you won’t have any available shares to sell. Instead, you will need to increase your company’s issued capital by allotting (issuing) new shares. Whilst not a huge issue, issuing new shares is more time-consuming and costly than simply transferring existing shares.