Contrary to popular belief, you don’t need a solicitor/lawyer, agent, accountant or other professional to set up a limited company. Setting up your own limited company has never been easier, quicker or cheaper.
To set up your own limited company you just head to gov.uk, set up a Government Gateway user ID and password for your company, enter the details needed, pay the fee and you’re good to go. The gov.uk website leads you through a straightforward process and tells you what details you will need. This takes a few minutes of data entry, payment of the Companies House fee (currently £12), and your new company incorporation will be confirmed usually within a couple of hours.
Things you might need a lawyer for are:
- where you have more than one class of shares (e.g. A and B shares) which have different rights, such as rights to dividends or proceeds of sale of the company or its business (It is not enough just to state any rights attaching to shares in the fields in the incorporation process or when completing a form or filing for an allotment of shares. Without being in articles of association or a shareholders’ agreement the rights stated in those fields or forms are not legally binding);
- where you want shareholders to have the right to buy out exiting shareholders ahead of shares being sold to a third party, so called ‘pre-emption rights’;
- where you want shareholders to have the right to appoint directors;
- where you want to be able to force shareholders to sell their shares, such as if they leave the company or if the majority decide they want to sell the company;
- where shareholders want a right to financial or other information about the company;
- where you want shareholders to be prevented from competing with the company whilst they are a shareholder or for a period after they sell their shares.
You might need a lawyer for these things because they need to be recorded in legally binding documents, either the company’s articles of association and/or a shareholders’ agreement.
If you wish to discuss putting in place bespoke Articles of Association or a Shareholders’ Agreement, then please do not hesitate to contact us.
Phone us on 0800 689 1700 or fill out our short enquiry form below with your details and a member of our team will be in touch.
If you want to deep dive into the full process, below is our free step-by-step FAQ guide.
Contents:
- What does it mean to ‘set up’ a limited company?
- How do you actually set up your company?
- What information do you need to provide?
- What happens when you have submitted all the information?
- You are a sole director – necessary amendments you should make to your Articles of Association
- The benefits of adopting bespoke Articles of Association.
- Where there is more than just one shareholder in your company a Shareholders’ Agreement provides additional protection
What does it mean to ‘set up’ a limited company?
You have made the decision to carry out your business through a limited company. The next step is to set one up. The technical term for this is ‘incorporation’. This involves providing information as to who will own and run the company to the central registry for companies, called Companies House.
How do you actually set up your company?
Companies House web incorporation services allows you to incorporate a simple private limited company for £12 through its website. You can access this service 24 hours a day and seven days a week and often your company will be incorporated within a few hours.
There can be a perception of mystery or difficulty around setting up your own company. In reality, if you have applied for a passport, credit card, any form of credit or visas then you are capable of setting up your own company via the Companies House webfiling process.
What information do you need to provide?
Firstly, Companies House will require you to register with them by providing an e-mail address and password of your choosing. Thereafter, all the remaining information that you provide is used to populate Companies House form IN01, which is the form used to incorporate a company. A specimen is available to view here. The information that you have to provide is as follows:
Proposed company name
One of the most fundamental stages of setting up your company is deciding on a company name. You are not allowed to duplicate or choose a name similar to the name of an existing company. There is a helpful name search facility on the Companies House website.
There are also many websites that generate suggested business names for you at no cost.
Proposed Principal Business Activity
You will need to provide at least one trade classification code or a brief description of your company’s business activity. A full list of trade classification codes can be found here.
Proposed Registered Office
The registered office of your company is its primary contact address. A company must have its registered office in the country of registration, therefore a company registered in England and Wales must have its registered office in England or Wales.
Proposed Company Directors
You will need to provide details of who is to become company directors, namely the people who will actually run your company. A private limited company must have at least one director who is an individual. To incorporate a new company, each proposed director must provide the following details:
- Full Name;
- Date of Birth;
- Nationality;
- Business Occupation;
- Service Address; and
- Residential Address.
Only the director’s service address is shown on the public record, however a director may choose their service address to be the same as their residential address. Only the month and year of the director’s date of birth will be disclosed on the public record.
It is possible to have corporate directors (namely another limited company or limited liability partnership), where other identifying information must be provided. If you are considering going down the route of corporate directorships, we can provide you with the pros and cons of doing this.
Proposed Company Secretary
A private limited company no longer requires a company secretary. However, if you choose not to appoint a company secretary, these duties ultimately become the responsibility of the directors. If you choose to appoint a company secretary, then you will need to provide their full name and service address and these details will be available on the public record.
Proposed Shareholders
On incorporation, a private limited company must have at least one shareholder, who holds at least one share. There is no restriction on the nominal or face value of that share, and the subscriber shares (namely the shares issued on incorporation) can be issued as nil paid, with the obligation to pay the company for these shares in the future.
Shareholders must provide their name and address, and the number of shares being issued to each of them.
Details of people with significant control
You must provide details of any people who have significant control over your company. A person with significant control (“PSC”) is someone that holds more than 25% of shares or voting rights in a company, has the right to appoint or remove the majority of the board of directors or otherwise exercises significant influence or control.
You will have to either state that there are no PSCs in relation to your company or provide the following information for any individuals who are PSCs:
- Name;
- Service address;
- Country or state of usual residence;
- Nationality;
- Date of birth (only the month and year will be published on the records at Companies House); and
- Usual residential address (this will remain private and not published on the records at Companies House).
Memorandum and Articles of Association
In addition to the information set out above you will automatically file a Memorandum of Association (‘Memo’), which is a statement by the subscribers stating that you wish to form a company. In addition, you are required to adopt ‘Articles of Association’ (‘Articles’), which together with the Memo form what is known as the company’s constitutional documents or constitution.
Life is made significantly easier as, as you go through the online process, there are boxes to tick that allow you to adopt what is known as ‘model’ Articles of Association. These are simple articles of association provided by companies’ legislation and are adequate for you to incorporate your company.
However, there are circumstances where changes to the model Articles are necessary, namely in the case of sole directors, or practical going forward. Changes to the model Articles can be done at the time of incorporation or shortly afterwards or indeed at any other time during the life of your company.
In addition, where there is more than one shareholder in your company, then a Shareholders’ Agreement can set out mechanisms for the resolution of common problems that can occur between shareholders.
What happens when you have submitted all the information?
Once you have submitted the relevant information, this is processed by Companies House and you will receive correspondence, including by e-mail, to say that you have incorporated your company. This correspondence will include a ‘certificate of incorporation’, which sets out your company name, company registration number and the date of incorporation, and a copy of your constitutional documents.
Your company is a separate legal entity that makes its own decisions, may have its own bank account and through which you will carry out your business.
You are a sole director – necessary amendments you should make to your Articles of Association
2022 case law has provided that amendments to the model Articles are necessary where a company has only one director, otherwise known as a ‘sole director’ - find out more about this in our sole director update. These changes are required in order to ensure that any decisions that you make as sole director are valid and therefore cannot be challenged going forward.
The amendments are simple and can be put in place quickly by us, either as you go through the process of incorporation or shortly afterwards. If you do not make the necessary changes, then your decisions risk being invalid, which may cause problems for you, especially if you seek investment in your company.
The benefits of adopting bespoke Articles of Association.
The model Articles allow you to incorporate your company quickly, cheaply and with the minimum of fuss. The downside of the model Articles is that they are generic and do not cater for some quite common scenarios that business owners face. These include:
Dealing with Directors’ Conflict of Interests
The model Articles exclude a director from any decision-making where that director has an interest in the transaction or arrangement concerned.
In small private companies where directors are often also shareholders there is almost always some form of conflict of interest. Therefore, this can result in directors not being able to vote and requiring shareholder approval to proceed, creating an additional administrative burden that takes valuable time.
Bespoke Articles can give directors the ability to vote if they declare any conflicts at the outset.
Providing for different classes of share
Newly incorporated companies are often incorporated with only one class of share and certainly, this is the easiest way to proceed in terms of the Companies House incorporation process. This class of shares - ordinary shares - carry the right to a dividend and to vote.
The creation of separate classes of share can allow different rights to attach to different classes of shares. Some classes may have voting rights and some may not. Some classes may have the right to a dividend and some may not or not until another class of shares has had their dividend first.
Investors typically require different classes of shares. Bespoke Articles can suit everyone and can future proof your company from the outset.
Providing pre-emption rights on the allotment and transfer of shares
Pre-emption rights are the ‘right of first refusal’. This means that on an allotment or transfer of any shares current shareholders are offered the chance to acquire the same amount of shares.
Companies’ legislation sets out a statutory process for pre-emption rights on share allotment. Bespoke Articles can remove these statutory pre-emption rights to give the directors greater scope when allotting shares, setting out a process that better fits your business plan.
The model Articles are silent on pre-emption rights on a transfer of shares. Bespoke Articles would provide protection if one of your original shareholders decides to leave, giving you the right of first refusal over their shares.
Directors’ meetings
The model Articles state that a quorum for any directors meeting is 2 directors. If there is a disagreement and one director does not attend a meeting then a quorum will not be present and nothing can be decided. Bespoke Articles can specify 1 director as a quorum.
On the other hand, your company may have a greater number of directors and you may wish to specify the quorum at a different level to ensure that decisions are made taking more views into account.
Adopting bespoke Articles of Association either as part of the incorporation process of shortly afterwards, allows you, as business owner, to know that your company is fit for purpose and for investment and growth. It reduces the administrative burden and protects the original investors.
Amended Articles can be put in place by us quickly and easily.
Where there is more than just one shareholder in your company a Shareholders’ Agreement provides additional protection
Bespoke Articles can protect you and your fellow shareholders/directors in many circumstances, such as those that are described above.
They do not, however, cater for every eventuality and specifically, do not cater for where there is a breakdown in the relationship between shareholders or where shareholders wish to exit the company at different times.
This can and does happen and it is much more practical to agree what should happen in such scenarios before it happens than once it has taken place, when it is almost impossible to agree anything.
Importantly, potential investors and creditors will often expect you to have considered and provided for these eventualities by putting in place a Shareholders’ Agreement.
A Shareholders’ Agreement typically complements bespoke Articles and can deal with some of the same topics. It is, however, the place in which you and your fellow shareholders will specify what will happen in the event of a disagreement and it can also contain provisions for other scenarios that regularly occur in the life of a company, such as the following:
Shareholder disputes and exit
A Shareholders’ Agreement can provide a mechanism to resolve disputes that occur between shareholders, including whether any such dispute should be referred to mediation or arbitration.
It can also give shareholders a ‘right of first refusal’ on shares that another shareholder wishes to sell, whether as a result of a disagreement or otherwise, which can be used to control who may or may not acquire shares in the company.
In addition, it can also try to restrict the business that an exiting shareholder can carry out in competition with your company, especially once that shareholder has left.
A Shareholders’ Agreement can also specify what will happen to shares when a shareholder dies and also to shares that are owned by employees or directors and those employees or director leave the employment of the company.
Reserves some decisions for the shareholders alone
Whilst the running of the company is generally left to the directors, you may decide that there are some matters that should be reserved to the shareholders, particularly if there are some directors who are not also shareholders.
Protects minority shareholders
A Shareholders’ Agreement can protect minority shareholders by requiring certain decisions, such as the issuing of further shares, to be made with the unanimous consent of all the shareholders and not simply on a majority vote.
The agreement may also contain ‘tag along’ provisions, which enables a minority shareholder to ‘tag on’ to a majority shareholder in a share sale situation and sell their own shares, where the majority shareholder might attempt to sell only their shares and not the company as a whole.
Protects majority shareholders
By contrast, ‘drag along’ provisions might apply where an offer is received to buy all of the shares in a company and the majority shareholders wish to accept that offer. Drag along rights allow the majority to force the holders of the remaining shares to accept the offer so that the sale can go ahead.
