Limited Company Formation

Popularity

Limited Companies (Companies limited by shares) are the most popular type of company formation. They are structured to make and distribute profits while at the same time protecting those who own them (shareholders) and those who run them (directors). Limited Companies are the type of organisation with which Investors, banks, suppliers and customers are most comfortable. They are identified by the “LTD” or “Limited” suffix.

Protecting a name

Limited companies are often formed to own or protect a trading name. Companies House will not allow two companies or LLPs with the same name to be on the register, so the first registration stops other companies being formed with the same name. The level of protection afforded by having a name on the Companies House register is not the same as trade mark protection. For instance, it does not stop someone opening an unincorporated company with the same name. Being first on the Companies House register is an inexpensive method that gives a reasonable amount of protection but is not “air tight”; Trade Mark registration is significantly more expensive.

Creating a Limited Company (Company limited by Shares)

Limited Companies are created by a process of registration at Companies House. The entire process can be completed online and without the need for signatures or paperwork. Details of directors, shareholders (also known as members or subscribers), the official address (registered office) of the company, a statement of capital and its Articles of Association are submitted online to be processed by Companies House. The information submitted is checked by Companies House. They take 1 working day (24hrs) to complete the process and register the company.

Legal Entity

Once a company is registered it becomes an independent legal entity (legal person). It has legal capacity and is separate from its owners (also known as shareholders or members) and its directors. It has the legal capacity to own property and assets, employ staff and accept financial obligations. Its assets and debts are its own.

Shareholders and directors

A limited company only needs 1 director and 1 shareholder, and they can be the same person. It can be formed with £1 capital, so only 1 share of £1 needs to be issued. There is no requirement for a company secretary. The fact that so little is required to form a company further explains their popularity. Other companies can also be shareholders and directors of limited companies, as when a group of companies is created. A limited company must have at least 1 natural person as a director.

Shareholders are the joint owners of a company. Each shareholder’s stake in a company is represented by the number of shares he or she owns. There is no limit to the number of shareholders a company can have. Directors handle the running of a company and are answerable to the shareholders. In small companies, in particular, shareholders are usually the directors as well.

Company Secretary

There is no longer a legal requirement to have a company secretary unless your company is a PLC or your Articles of Association state otherwise. The duties of a company secretary are not set out in the Companies Acts.

The duties of a company secretary are usually; the maintenance of the share register and statutory books, filing of documents at Companies House, updating of Companies House records, arranging and recording of shareholders and directors meetings, and drafting resolutions.

Notifying HMRC that you are trading

HMRC monitor the Register at Companies House. They are aware of all new company formations. Shortly after your company is registered, they will issue your company a UTR (Unique Tax Payer Reference number) which will be sent to your Registered Office. You are obliged to advise HMRC that your company is trading if they do not contact you or if you have previously notified them that your company is dormant.

Articles of Association

The Articles of Association are the written rules of the company. They explain the way it will conduct its business, call meetings of shareholders, meetings of directors and so on. They are the constitution of the company. The majority of Companies, including those incorporated by us, use the model Articles contained in the Companies Acts 2006. A company is governed by the Companies Act 2006 and its own Articles of Association.

Shares and the statement of capital

To register a company you have to provide Companies House with a statement of capital. Given that many companies are now set up with just one shareholder (who is usually the only director as well) the capital of a company is often 1 ordinary share of £1. Our online system submits a statement of capital when you make your application

Shares represent equal units of ownership, and the number of shares you hold in a company represents your stake in that company. So if you issue 1 share only, and that share is held by you; you own 100% of the company. If you own 50 shares in a company that has issued 100 shares, you have a 50% stake in the company and so on.

Paying for Shares

Shares are usually issued as fully paid up shares. That means that, when the bank account is eventually opened, the shareholders introduce money into the company as capital to pay for the shares. Until that money is introduced by the shareholder, the balance sheet will show that amount as owing to the company. Sometimes, for instance when the company starts to make a profit straight away as would be the case with a contractor’s service company, there is no need to pay for the shares. However, if the company gets into trouble, the shareholders will have to pay for the shares for which they have subscribed.

Transferring shares

Shares are property and can be bought and sold just as any other property can. Providing the shares are issued as fully paid up, the paperwork needed to transfer shares from one shareholder to another is Form J30. This Form can be downloaded from the internet and takes a matter of minutes to complete. If the shares have value, you should consult a professional to advise you on the tax implications of the transaction and stamp duty matters.

Issuing more shares

It is possible to issue more shares after a company has been incorporated. Most new companies adopt the Model Articles of Association contained in the 2006 Companies Act. Those Articles give the directors the authority to issue more shares, subject to certain conditions being met. Companies formed through us, use the Model Articles of Association as a default, unless clients supply their own

Non-trading and Dormant Companies

All newly formed companies are dormant until they start trading. If they don’t trade, they remain dormant. HMRC normally send each newly formed company a CT41G shortly after it is registered. This form can be used to advise HMRC that the company is dormant. If HMRC is advised that a company is dormant, they will not require a tax return for 3 years. Having advised HMRC that a company is dormant, the directors are legally obliged to notify HMRC when the company starts trading. Dormant Companies are still obliged to file Annual Returns and dormant company accounts with Companies House.

Closing an unwanted limited company-Dissolution

The process of striking off or dissolving a limited company is straightforward, providing the company does not have any creditors and has not been active during the 90 days prior to the application. Simply complete form DS01, which can be obtained online from the Companies House website, and send to the Registrar of Companies together with a cheque in the sum of £10. The Registrar will then advertise your application in the London, Edinburgh or Belfast Gazette (depending on the jurisdiction in which your Company is registered). Providing there are no creditors or other valid objections to the dissolution, your company will be removed from the Companies House Register after 90 days.

Accounting Reference Date (Accounting year-end)

By default, you will be expected to make up your first set of accounts to the last day of the month in which is the anniversary of your company’s registration. So if you incorporate/register your company on 7th October 2015 your first set of accounts will be made up to 31st October 2016. Shortly after your company is registered, HMRC will contact you to confirm the date.

If you wish to have a different year-end date for your accounts, you can change it.You can register a change of Accounting Reference Date by logging into the administrative portal we supply all our clients and making the change at Companies House online.