Company Incorporation in UK
Company Incorporation in United Kingdom
When you set out to form a new company, you need to choose the category of company that will be registered at Companies House. Depending on the nature of your business, there is a wide range of designations to choose from. We will outline the basic steps and will simplify the process as much as possible.
Setting Up a Private Limited Company (Ltd)
The SARL (limited liability company) is a form of private company often found in family businesses and in small and medium-sized enterprises. It is a legal entity, which means that articles of association must be drawn up.
This type of company is open to projects with between 1 and 100 shareholders. When the company is setup with only a shareholder, it is called an EURL. In any case, the minimum amount of capital required to set up the company is €1 and there is no maximum.
The management of SARL is governed by the Commercial Code, which provides security for the partners but can sometimes be inconvenient for certain types of business.
The profits of the SARL will be taxable to corporation tax. However, the option of being taxed under the system of personal income tax is available to all small to medium sized SARLs under 5 years old, whether or not it is constituted of family members (called “SARL de Famille”).
There is also a particular kind of family business where owners can elect for a form of partnership taxation (direct taxation in the name of the partners through their personal income tax). In this case the legal structure for the company will need to be “SARL de famille”.
An EURL can choose whether to be taxed through the personal income tax system (so no distinction between profits of business and income of owner), or to pay company tax on profits. Since the entry into force of the Sapin 2 law (December 2016), EURLs whose sole shareholder is a person can benefit from the micro-enterprise scheme.
Regarding the company’s director: when the director is the main shareholder (more than 50% of shares) he will fall under the same social protection scheme than self-employed (TNS). If he has less than 50% of the shares he will be affiliated to the general scheme of social security.
Setting Up a Public Limited Company (PLC)
A public limited company (PLC) is the type of company which allows the offer of its shares to the general public. As with any other designation, a PLC has certain requirements. It requires a trading certificate, a minimum of £50,000 worth of share capital, with a quarter of that paid. Two directors, one of which may be the company secretary and two shareholders are also among the minimum requirements for forming a PLC.
Another common designation is known as a private company limited by shares, also referred to “Limited” or “Ltd”. The shareholders of this type have limited liability. However, the shares of a Limited company may not be offered to the public.
Limited liability partnerships, or LLPs, are corporate bodies whose legal existence generally does not depend on its members. The members of an LLP share a collective or joint responsibility. They usually agree to an LLP agreement, but each partner is not liable to the other partner’s debts or obligations as they would be in a general partnership. An LLP has many features in common with a normal partnership – but it also offers reduced personal responsibility for business debts.
Unlike members of ordinary partnerships, the LLP itself is responsible for any debts that it runs up, not the individual partners.
Setting Up a Partnership
If two or more people go into a business together without setting up a limited company , a partnership is a simple and easy way to get started. This is similar in many ways to going the sole trader route for an individual.
A partnership has no legal participation in the business, as a Limited Company would; it is like a vehicle linking two or more self-employed people in a simple business structure.
Basically, each of the partner’s business income is counted alongside their existing personal income, so the accounting side of the business will be pretty straightforward. As the name suggests, limited partner has no management authority in the business’ day-to-day operations and his or her liability is limited to the amount of investment.
In terms of accounting, you will need to submit an annual self-assessment form to HMRC and keep accurate and up-to-date records of all business transactions (receipts and expenses) and accounts. Each partner will also have to submit an annual self-assessment form regarding the partnership. The partners will also be required to pay income tax on all profits and pay national insurance contributions on those profits.
It is important to remember that if either of the partners withdraws from the business (e.g. in case of death, resign or they go bankrupt), the partnership must be dissolved instantly, since it has no legal status.
Setting Up as a Sole Trader
Being a sole trader is the simplest way to get started in business. A sole trader is a business that is owned by one person. It may have one or more employees. A sole trader informs the government agencies about the nature of his business, and can start trading right away (subject to any specific licenses required in that particular line of work).
As a sole trader, you can quickly make changes in your business with minimal bureaucratic formalities required and you have complete control over your business and accounting affairs. However, a sole trader is liable for any debts that the business incurs. It is worth spending time considering which company set-up format is best for you.
A sole trader business is easy to set up. There are no formal procedures required and operations can commence immediately. It also does not involve dealing with any administrative or accounting firms which are required of limited companies.
If you start working for yourself, you are required to register with HMRC as self-employed, even if you already send in a tax return. There are some exceptions and special rules for particular industries, like the construction industry.
You should register the moment you start working as a sole trader, otherwise you could incur a financial penalty.
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