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Starting a company. What’s involved

18th March 2015

If you start a business one of the things to decide is will you be a sole trader, or a partnership, or form a limited company? There can be good reasons for choosing any of these structures, and you should take proper advice before deciding, but a limited company can offer benefits.

Unlike a traditional partnership, a limited company exists as a separate entity in law. The company can do, and own, things in its own name, and its liability is limited to the assets it holds.

The most common form of company is limited by shares. For example, a company may have 1,000 shares each of £1 (its “share capital”). For most purposes that, and any assets it owns in its own name, will be the limit of its liability

A company is created by filing the necessary documents at Companies House. You can either create a tailor-made company, with documents that are specifically tailored to your requirements, or, more commonly, you can buy a shelf company. This is a company that has already been incorporated but has not yet traded. Company formation agents register many shelf companies with standard provisions and sell them to buyers who then change them to meet their requirements.

A company must have a constitution and rules. There are two key documents.

First a “memorandum of association”, which states that the subscribers have agreed to become members and to take at least one share each. The memorandum is a snapshot of the company’s constitution at the point of registration.

Secondly a company must have “articles of association” which set out the management and administrative structure of the company. They regulate its internal affairs (for example about the issue and transfer of shares) and create a contract between the company and its members.

To form a company you will need to choose a name – which must be agreed as suitable by Companies House. You will also need to appoint at least one director, and say who are the original shareholders.

When you are ready the documents must be delivered, or sent electronically, to Companies House, and the company is brought into existence when the certificate of incorporation is issued.  This normally takes about seven days and currently costs £40.

Once formed there are legal rules you will need to comply with, but as long as these are met, the company can live forever!

Robert Enticott. Partner and Head of Business Services and Commercial Property

George Ide
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