What is company formation?
Company formation (also known as company incorporation or company registration), is the process of registering a limited company at ‘Companies House’. Companies House being within the Governmental Department for Business, Skills and Innovation – who specifically deal with the regulation and incorporation of limited liability partnerships and limited companies in the UK.
Upon incorporation, a limited company becomes an individual legal entity that is separate from their owners (directors etc) as well as responsibility for its own finances, liabilities, assets and contractual agreements. Likewise, once incorporated, companies must ensure they adhere to the accounting practices and reporting requirements as per the ‘Companies Act 2006’.
The fundamental role and activates of Company House:
- Incorporating and dissolving limited companies
- Getting information about all registered companies trading in the UK
- Guaranteeing all corporate information on past and present incorporated businesses is available to the general public
Why register a limited company with company formation?
Primarily, the main reason to register a limited company with company house revolves around reducing the financial responsibility of the people who own the business. This protection known as ‘limited liability’ can be either limited by shares or limited by guarantee.
So, if a company limited by shares or guarantee becomes insolvent (for whatever reason), they are only liable for the value of their shares or only liable for the value of their guarantees. For instance, if someone has invested £500, they cannot hold the company liable for any more than £500. Their personal finances and assets are protected beyond the limit of their liabilities.
Moreover, limited company formation creates a more professional persona for the company. It gains the advantage of being viewed as more trustworthy and established from various internal as well as external stakeholders.
Company limited by shares vs company limited by guarantee?
Private companies in the UK must be incorporated as limited by shares or limited by guarantee. The limited by shares structure is mostly adopted by businesses that seek to make a profit for the benefit of their owners. Contrastingly, the limited by guarantee is used mostly by charities and non-profile organisations who aim to generate enough money flows to achieve their non-profit objectives.
What does the company formation process entail?
The entire process of UK company formations can be carried out via post or online. Though the latter is recommended, as it can be incredibly quick with approval being granted within three hours compared to 2-10 working days taken by post. Additionally, soon as your application is approved you can start trading as there no set time restriction which can prevent you from doing so. To register a private company limited by shares or guarantee, the following basics are required:
- Company name (that has not only been registered or being currently used)
- Office address registered in within England, Wales, Scotland or Northern Ireland
- Minimum of one director
- Minimum of one shareholder or guarantor
- Share capital of at least one issued share (limited by shares companies only)