United Kingdom

United Kingdom

Company Formation UK

Introduction

The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain is a sovereign country in Western Europe. Lying off the north-western coast of the European mainland, it includes the island of Great Britain, the north-eastern part of the island of Ireland, and many smaller islands. Northern Ireland is the only part of the UK that shares a land border with another sovereign state—The Republic of Ireland. The UK is considered by many to be Europe’s leading business center, while the City of London has long been the European Union’s financial center.

Language

The official and spoken language of United Kingdom is English.

Economy

The UK is a leading trading power and financial center, and deploys an essentially capitalistic economy. It is one of the quartets of trillion dollar economies of Western Europe.

Over the past two decades the government has greatly reduced public ownership and contained the growth of social security programs. Agriculture is intensive, highly mechanized, and efficient by European standards, producing about 60% of food needs with only 2% of the labor force. The UK has large coal, natural gas and oil reserves, primary energy production accounts for 10% of GDP, one of the highest shares of any industrial nation.

Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance. A wide range of incentives are available to companies, joint ventures, partnerships and other commercial entities investing in the UK. Like most countries, the UK imposes detailed regulatory requirements on banks (these are administered by the Bank of England) and insurance companies (administered by the Department of Trade and Industry).

There is no legislation restricting foreign investors in the UK. Foreign investment in manufacturing and internationally traded services is encouraged. Foreign companies and individuals may in general establish or acquire businesses in the UK and buy securities, land or mortgages without a special license. However, in certain strategic sectors such as defense, foreign investments may be regarded as against the UK’s national interest.

Business Entities and Formation of Company in UK

Companies in United Kingdom are incorporated (registered) under the Corporations Act, 1985. The Act is overseen and administered by Companies House in Cardiff, Wales.

 

A United Kingdom company is usually incorporated as either a Private or Public Company. (There are also specialist companies such as companies limited by guarantee for clubs, associations and charities).

Sole Trader

Requiring minimal set up and administration, operating as a sole trader is common for new businesses in United Kingdom. Registration at Companies House is not required although the business owner should notify HMRC. This type of business is not deemed to be a legal entity in its own right, consequently the owner of the business has unlimited liability to all debts and legal actions.

Whilst sole traders benefit from fewer regulations and reduced filing requirements, the personal risk associated with this type of business may act as an incentive to register as a limited company.

Private Companies

The majority of new companies registered in the UK are companies limited by shares. This is the standard business structure for any company which has been formed with the intention of generating profit for the owners of the business.

This structure is remarkably popular because it allows the sharing of profits amongst the shareholders whilst also offering restricted financial liability. The shareholders are only responsible for company debts up to the value of the shares they hold in the company. So their personal assets will be protected, should the company encounter any financial difficulties.

Public Companies

Prior to the 1985 Companies Act, the only way that a company could offer its shares to the public to raise capital was by admission to one of the official stock markets.

This was limited to a relatively small number of substantial companies that excluded the small to medium-sized enterprise in need of capital. The 1985 Act created the PLC and made the procedure to acquire public company status much simpler.

The advantages in acquiring PLC status may for some be a matter of image, but for most a need to be legally entitled to offer shares to investors, subject to regulatory approvals.

A PLC must have an issued share capital of not less than fifty thousand pounds of which a minimum of 25% must be fully paid up. Shares cannot be issued for an undertaking to do work or perform services; payment for shares may only be by ‘cash’ or a ‘non cash’ consideration. The latter method would normally be in respect of a property or other tangible asset and completed within 5 years of allotment. A PLC is not obliged to float its shares or offer them for sale, and it can remain as private as the shareholders wish and as with private limited companies if the shares have been fully paid there is no shareholder liability. A PLC enjoys increased status because of the larger capital base. A PLC requires two shareholders and two directors (at least one director must be an individual). A qualified company secretary who usually undertakes the administrative duties of the company must be appointed. A company registered as a public company on its original incorporation cannot commence business or exercise its borrowing powers unless the Registrar has issued it with a certificate of entitlement to do business and borrow (the trading certificate) which normally takes approximately two weeks to process.

Guarantee Companies

This company structure is commonly used by non-profit organizations in the United Kingdom. It protects the personal finances of the company owners in a similar way as a company limited by shares. Instead of having shareholders and shares, it has guarantors and guarantees. The guarantors’ financial liability is restricted to the amount of money they guarantee when forming the company.

 

Rather than the company owners sharing profits, any money generated is paid back into the company to help further its aims. In some instances, the owners may take a share of the profits but by doing so they will relinquish the company’s right to apply for charitable status.

Flat Management Companies

A flat management company has its Memorandum and Articles of Association specially drawn up to allow the company to own, manage and administer a freehold property, which is normally divided into several dwelling units or flats, with each leaseholder owning a share in the company. The leaseholder will be obliged to transfer this ownership of the share to the new leaseholder when disposing of the property.

Limited Liability Partnerships

A limited liability partnership is a new form of legal business entity with limited liability.

The main features of limited liability partnerships are that they have organizational flexibility but are taxed as partnerships. In many other respects they are very similar to companies.

The Limited Liability Partnership Act 2000 generally allows two or more persons carrying on a lawful business with a view to profit to form a limited liability partnership by subscribing to its incorporation document – Form LLP 2. (In law, ‘person’ includes individuals and companies.)

However, limited liability partnership must at all times have at least two, formally appointed designated members. (Designated members are analogous to the executive directors and the company secretary of a company). The designated members are responsible for:

  • Appointing an auditor (if one is needed);
  • Signing the accounts on behalf of the members;
  • delivering the accounts to the Registrar;
  • Notifying the Registrar of any membership changes or changes to the registered office address or name of the limited liability partnership;
  • Preparing, signing and delivering to the registrar an annual return (Form LLP363); and
  • Acting on behalf of the limited liability partnership if it is wound up or dissolved.

Designated members are liable in law for failing to carry out these legal responsibilities. If there are fewer than two designated members then every member is deemed to be a designated member. (The limited liability partnership may have been decided that all members will be designated members or that only some members will be designated).

With the agreement of the other members, a member may become a designated member at any time. Designated members enjoy the same rights and owe the same duties towards the limited liability partnership as any other member. These mutual rights and duties are governed by the limited liability partnership agreement and the general law. However, the law also places additional responsibilities on designated members.

Branches

An overseas company may register itself in United Kingdom to operate as a branch, in lieu of incorporating a wholly owned United Kingdom subsidiary. To do so various application forms need to be lodged with Companies House and annexed to them must be certified copies of the company’s current certificate of incorporation and other prescribed documents.

The company must file with the Companies House each year its annual accounts and comply with other reporting requirements, such as changes in its directors and registered office in the country of incorporation.

Business Entities and Formation of Company in UK

Company and Business Names

A formal register of company and business names was abolished in the early 1980’s.

You can incorporate a company with any name unless it is considered undesirable by the Registrar.

The following words require special consent: Bank, Building Society, British, National, International, Group, Holding, Chamber of Commerce, and any word that may indicate connection with Royalty or Government. Names will not be registered under the Companies Acts where it is the same as that of an existing company.

Another company or trader may object if the name confuses the public as to the identity of the party using it, or is in some other way in breach of the complainant’s legal rights.

Memorandum & Articles of Association

These are the rules and regulations that form the legal basis for the conduct of a company both with third parties and amongst their own shareholders and directors.

The Memorandum of Association must state the name of the company and whether the registered office is situated in England, Scotland, Wales or Northern Ireland. They include the amount of the authorized share capital, the classes of shares and the number of shares that are to be registered. The Articles of Association govern the internal affairs of the company.

Directors and Secretary (Private Company)

  • A private company must have a minimum of one director.
  • A sole director must be a distinct person.
  • A private company does not need to have a company secretary unless the company’s articles of association require it.
  • The minimum age limit for directors of a private limited company is 16.
  • The directors, as officers of the company must act responsibly in good faith and in the interests of the shareholders of the company.
  • An undischarged bankrupt or a person subject to a disqualification order cannot be a director or be concerned in the formation, promotion or management of a company.

Directors and Secretary (Private Company)

  • A public company must have a minimum of two directors, one of which must be a natural person.
  • The maximum age for directors of a public limited company is 70 years.
  • A secretary to a public company must be qualified.
  • An undischarged bankrupt or a person subject to a disqualification order cannot be a director or be concerned in the formation, promotion or management of a company.
  • The directors, as officers of the company must act responsibly in good faith and in the interests of the shareholders of the company

Registered Office Address

The registered office is the place where the company’s statutory records are maintained, available for inspection and is the address where documents can be served if necessary.

It need not be where the company will carry out its business, but every company registered in the United Kingdom must have its registered office in the United Kingdom.

Books, Accounts, Registers and Filing Requirements

The Companies Act requires companies to maintain various records and registers of their accounting and administrative transactions. It is usually the secretary (if one is appointed) who carries out such tasks.

The Companies Act also requires certain documents to be filed at Companies House from time to time so that an up-to-date record of the company’s affairs is available for inspection by the public. Every company must lodge an Annual Return in which a director or secretary of the company confirms relevant details of the company for the public register including names and addresses of all directors, registered office address and details of shareholders and their shareholdings.