Setting up a limited company – the practicalities

Deciding to start a business is both a daunting and exciting prospect. It is important to ensure that the business structure that you choose is the correct one for you and your business. Aside from the fundamental decision about whether to limit personal liability, which is clearly a key reason to opt for a limited

Home » commercial law » Setting up a limited company – the practicalities

dserota-sbDeciding to start a business is both a daunting and exciting prospect. It is important to ensure that the business structure that you choose is the correct one for you and your business. Aside from the fundamental decision about whether to limit personal liability, which is clearly a key reason to opt for a limited company structure, the decision is otherwise often led by tax and it is important to seek specialist advice from an accountant regarding this.

Many businesses take the form of a limited company because of the limited liability protection that is provided.

Formalities for setting up a company

To set up a limited company is in fact very easy and low cost. It is not generally necessary or a requirement to use a lawyer to help with the basic paperwork.

The first step to incorporating your company and getting your business up and running is to ensure that all of the correct forms and documents are filed at Companies House together with the correct fee.

The Company will be “incorporated” when the Registrar of Companies House issues you with a certificate of incorporation. When incorporating a Company the initial subscribers (shareholders) need to make the decision whether or not to create a bespoke company or to purchase a ready made company that has not yet traded (on the shelf company). If the latter is chosen for speed, the original shareholders transfer their shares and you can even change the company name, subject to not trying to change it to the name of a company which has already been registered.

All registered companies must have articles of association (unless the model articles apply). This is a key document as it details the internal rules of the company in circumstances, where to the surprise of many new businesses, company law is largely silent. Standard articles are available but these can be amended and in most cases should be, for example to protect minority shareholders and to reflect the circumstances which apply to you. This is where it is advisable to obtain legal advice because without doing so, it is all too common for there to be prejudice, problems or costly legal disputes later. The articles must be registered on the company’s file at Companies House.

Prior to registering your company name it is important to ensure that the name that you wish to use is available and if it is available whether you can actually use it. The Registrar can reject certain names for example those which could be considered to be offensive. There are restrictions on the use of certain names. If for example a company is a public company it must end its name with either “p.l.c” or “public limited company” or its Welsh equivalent. Private companies must as a general rule end with “limited” or “ltd” there are certain exemptions to this rule for example charities.

It is also important to ensure that you would not be breaching another party’s trademark or copyright.

If you purchased an off the self company it is likely that you will want to change the name of the company this is done by way of a resolution of the members of the company. The directors will also need to hold an initial board meeting.

Directors responsibilities

It is important that if you intend to be a director of the company that you are fully aware of both your duties and obligations as a director. These duties were originally found in case law but have now been codified in the Companies Act 2006 and breach of these duties can lead to some fairly severe penalties (please see our article on directors duties).

Other legalities worth considering on set up

Once your company has been incorporated prior to the commencement of trading it is advisable to have any documentation that you may need to run your company in place. For example if your company is producing and selling a product it is likely that you will need terms and conditions, contracts for sale, contracts between yourself and your supplier, a bribery act policy,  possibly employment contracts, service agreements, to name a few.

We can help and understand the difficult decisions when starting out

We can assist you with drafting these documents and any other documentation you may require in a practical and cost effective way. We know that often finances are tight when a business is being set up and that other priorities may appear more important. We work with new business clients with this in mind, with a view to developing a long term relationship with you. Many of our clients started with us at the start up stage and remain clients with flourishing businesses. Get in touch with me to discuss how I can help.

commercial law • Debbie Serota

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