Thinking of doing business in the UK:
Here is our comprehensive guide for businesses
Youssef Hammouda
Trainee Solicitor
Incorporating a company in the UK is an attractive option for investors and entrepreneurs due to the country’s business-friendly environment, strong legal framework, and access to global markets. Whether you’re a local entrepreneur or an international business looking to set foot in the UK, this guide will walk you through the essential steps for incorporating a company in the UK.
Why Incorporate in the UK?
Before diving into the process, it’s worth understanding why the UK is your go to destination for doing business. The UK consistently ranks high in global ease of doing business indices by the World Bank, thanks to its efficient regulatory framework and supportive business environment [1]. In addition, the UK is a leading global business hub with London one of the most visited cities on earth and a world leading financial centre. Thus, incorporating a company in the UK provides access to not only the domestic market but also the broader European and global markets. Most importantly, the UK offers a competitive corporate tax rate of 19% for small companies with profits under £50,000 and 25% for companies with profits over £250,000 [2].
Steps to Incorporate a Company in the UK
1. Corporate Structure:
The main source of legislation for companies in the UK is the Companies Act 2006.[3] Part 1, Section 3 provides that there are two principal types of companies, limited and unlimited companies. Thus, the first step is to decide on the type of company to set up:
- Limited Companies:
According to Section 3 of the Companies Act 2006 a company is a “limited company” if the liability of its members is limited by its constitution. The company may be limited by shares or limited by guarantee.
In a company limited by shares the shareholders do not have personal liability for obligations of the company beyond the amount they paid for their shares. This means if the company becomes insolvent, the shareholder will not be personally liable to pay beyond what he paid. If their liability is limited to such amount as the members undertake to contribute to the assets of the company then, the company is limited by guarantee. This type of companies is usually used for not-for-profit organisations, such as charities.
There are two main types of limited companies: public and private. As per Section 4 of the Companies Act 2006, the difference between a private and public limited company (“PLC”) is that the shares of the latter can be publicly traded.
Whether you’re launching a startup or expanding an existing business, the most common type is a private limited company. A limited company is a legal entity which is separate from those who run it. As mentioned before, one of the benefits of choosing a limited company is that the liability of the shareholders is limited to their share of investment. In other words, the company has separate finances from personal ones. Thus, any personal assets of a shareholder would not be exposed if a limited company is dissolved.
For companies looking to expand their business in the UK, setting up a limited company/subsidiary or branch is a strategic move. A subsidiary has a separate legal entity but entirely owned subsidiary of the parent company. Therefore, a subsidiary company is the preferred option if the corporation decided to enter the UK market for long term. On the other hand, a branch is the preferred option if the corporation is testing the market and seeks to evaluate potential without committing significant resources.
- Unlimited Companies:
Section 3(4) of the Companies Act 2006 provides that if there is no limit on the liability of its members thus, the company is an unlimited company. An unlimited company is a private company whose members are not limited in their liability to contribute to the obligations of the company on winding up. An unlimited company cannot be a public company.
[1] Ease of Doing Business in United Kingdom. Available at: https://archive.doingbusiness.org/en/data/exploreeconomies/united-kingdom
[2] UK Corporation Tax rates. Available at: https://www.gov.uk/government/publications/rates-and-allowances-corporation-tax/rates-and-allowances-corporation-tax
[3] Companies Act 2006. Available at: https://www.legislation.gov.uk/ukpga/2006/46/contents
2. Choose a Company Name:
Another important step is selecting a unique and appropriate name for your company. Ensuring that the name is not already in use and does not contain any restricted words is important. Because if the name is too similar to another company’s name you may have to change it. In this regard, you can check the availability of your chosen name using the Companies House name availability checker [4]. In addition, under the Companies Act 2006, the name of a limited company must usually end in either ‘Limited’ or ‘Ltd’.
3. Choose Directors and a Company Secretary:
According to Section 154 of the Companies Act 2006, A private limited company must have at least one director. A public company must have at least two directors. Directors are responsible for running the company and ensuring compliance with regulatory frameworks. While a company secretary is not mandatory for private limited companies, a public company must have a secretary.
[4] Company name availability checker. Available at: https://find-and-update.company-information.service.gov.uk/company-name-availability
4. Decide on the Shareholders and Guarantors:
A limited company by shares must have at least one shareholder, who can also be its director. Thus, if a company has only one shareholder, this means that he owns 100% of the company. In addition, there’s no maximum number of shareholders. Furthermore, upon registration, you must provide “statement of capital” which includes the number of shares issued and their total value and the names and address of all shareholders.
On the other hand, a company limited by guarantee, must have at least one guarantor and a guaranteed amount. The guarantor is a natural/legal person member of the company who controls and promises to pay an amount of money “guaranteed amount” usually £1 if the company is unable to fulfil its financial obligations.
5. Identify People with Significant Control (PSC):
A person with significant control (PSC) or ‘beneficial owners’ is an individual, company or other entity who exert significant influence, or control, over the business and management of a company. A people with significant control (PSC) must meet one or more conditions known as the ‘nature of control’, which are those who hold:
- more than 25% of shares in the company
- more than 25% of voting rights in the company
- the right to appoint or remove the majority of the board of directors.
Accordingly, you must record their details on your company’s PSC register, and you’ll need to include this information when you set up the company.[5]
[5] The Register of People with Significant Control Regulations 2016. Available at: https://www.legislation.gov.uk/uksi/2016/339/contents
6. Register Your Company:
To complete the incorporation process, the company must be registered in the Companies House.[6] By registering at the Companies House, you will be registered for Corporation Tax at the same time. Typically, the registration process costs £50 and takes 24 hours to be completed.
The information required includes:
- Company name and registered office address.
- Details of directors and company secretary (if applicable).
- Information on shareholders.
- Memorandum of Association (This is a statement authenticated/signed by persons wishing to become members of the company. It indicates that the subscribers (signers) wish to form the company and agree to become members of the company)
[6] Register your company at Companies House. Available at: https://www.gov.uk/limited-company-formation/register-your-company
Conclusion
Incorporating a company in the UK is a straightforward process by following the outlined steps and seeking professional advice where necessary, you can establish a strong foundation for your company’s success.
For specialist advice and support. Please get in touch with our corporate solicitors in London by contacting the GOOD LAW INTL office.
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