Incorporating a company in the UK

Unincorporated legal forms

We will talk about such a form for registering a business entity in Britain as a partnership. Partnerships in the UK have a number of significant advantages:

• The most common types of British partnerships among foreign entrepreneurs, like LTDs, limit the liability of their founders. In other words, most partners in such an organisation are liable only for their shares in the share capital in the event of its bankruptcy;
• Unlike a private company, a partnership is not a payer of income tax. The non-deductible income received by the firm is distributed among the partners, who file a declaration and pay income tax at their tax residence;
• To open a partnership, you will need to draw up and sign a minimum number of documents. A standardised partnership agreement may be sufficient;
• Annual accounts for English and Scottish partnerships are simpler than for limited liability companies, especially if the organisation’s business activities take place outside the British Isles.

Registering a partnership in England requires at least 2 founders, which can be UK and foreign companies and individuals. Overseas entrepreneurs usually register in the United Kingdom:

• Limited Partnership (LP – Limited Partnership) – a business organisation in which all participants are divided into general partners and limited partners.

General partners make all decisions in the company, but for their broad powers they are fully liable for all LP debts. Limited partners risk only the amount contributed when the limited partnership was registered, but they are not allowed to manage the company;

• Limited Liability Partnership (LLP – Limited Liability Partnership) in which the liability of all partners is limited to the amount of their contribution to the share capital of the company.

All LLP partners are divided into ordinary and responsible partners. Responsible partners register the company with the tax authorities (including, if necessary, as a VAT payer), keep accounting records, appoint an auditor, prepare and submit annual accounts, timely inform Companies House of all changes and act on behalf of the partnership in the event of its liquidation.

An additional advantage of an LLP is that, in certain circumstances, it does not pay stamp duty when it acquires immovable property within the British realm.

• Scottish Limited Partnership (SLP – Scottish Limited Partnership). This structure is similar to an English limited liability partnership.

Scottish partnerships have a separate legal personality from their members. In other words, on behalf of the SLP can enter into transactions, take loans and acquire assets.

As in a UK LP, all members of a Scottish limited partnership are divided into responsible partners and limited partners. The functions of the liable partners include liaising with government bodies.

The founders of a Scottish partnership need to pass on to Companies House information about all persons with significant control in their firm. An SLP may not file financial statements if all of its activities take place overseas.

Branch office

An overseas registered company can set up a branch in England to carry on business in England. This may be market research, representation or the usual commercial activities of selling products and providing services.

Like the legal forms discussed earlier, a UK branch of an overseas company is registered with Companies House and is obliged to file accounts there every year. The UK branch is not considered a separate legal entity. The parent company is financially responsible for the operation of its UK branch.

What are the registrar’s requirements for founders of UK companies?

All requirements for founders of a business in the UK can be divided into age, financial, organisational and legal requirements.

The age limits apply only to individuals. To open a company in England, a person must be over 16 years of age.

The financial requirements relate to the costs accompanying the incorporation of a company in the United Kingdom. You will need to pay the registration fee, rent a registered office in Britain, pay for the services of a corporate secretary and lawyers. Some law firms in the UK offer their clients a package of services that already includes a wide range of tasks for a start-up UK businessman.

If you will be opening a PLC, you will need to pay at least part of the authorised capital. Recall that in the case of a public company, this will require a minimum of £12,500 to be placed in a bank account.

Organisational requirements primarily concern the process of interaction between the British authorities and business structures registered in the country.

The new requirements impose a ban on using a PO Box as a company’s registered office. When submitting an application to Companies House, the entrepreneur must specify a real office as the address of registration of his company, where all official correspondence will be received and processed by the corporate secretary. Most authorised registration agents in the UK can provide their office as the registered office address.

Every corporate entity in England must have an officially registered email address to which government bodies can send their notices.

The legal requirements apply to all founders, both natural and legal persons, as well as directors. The parent company must be an officially registered entity, with all the documents that accompany its status.

All directors, founders and co-owners of companies registered in the British kingdom must provide the Registration Chamber with their personal data, as well as independently or with the help of a registration agent to confirm their identity.

In addition, there are qualification requirements for the owners and management of businesses in the UK, assuming that such persons do not have behind their backs injunctions and orders related to bankruptcy and business insolvency.

As already emphasised, there are no restrictions on the nationality and tax background of company and partnership founders in the UK.

The process of starting a company in the UK

Although the British have gone out of their way to simplify the company registration procedure as much as possible, the optimal solution is still to register a company with the help of a professional corporate lawyer.

Opponents of such a decision argue that it would be better for a foreign entrepreneur to handle a relatively uncomplicated process on their own. However, they forget that each mistake of the businessman will cost him the registration fee and additional time to reapply.

Moreover, incorporation agents in England usually offer their foreign clients comprehensive solutions: providing a registered office, corporate secretarial services and assistance in confirming all responsible persons in the company.

Therefore, those business people who value their resources, be it money, time or nerves, turn to professionals for advice and after a short time receive a certificate of company registration in England.

The whole process of opening can be divided into 7 steps.

Step 1: Choosing a suitable name

The name of your company should not repeat or be similar to the names of already existing business structures and registered trade marks in the country. At the end of the name, you should always indicate the legal form of the company, e.g. Ltd for a limited company.

The name of your company cannot have an offensive context. Words that imply involvement with the British state and local government are unacceptable, unless you have the appropriate authorisation from the authorities.

Step 2: Rent a registered office

Your firm must have a valid registered address within the United Kingdom. Official correspondence will be sent to your registered office. If you use the services of a registration agent, they will usually also become your company secretary and, for a relatively small fee, provide their office as the address for your company’s incorporation.

Renting a registered office address is a fairly common practice in England, as international companies do not usually have an actual and economic presence at the place of incorporation.

Step 3: Appointing a director and secretary

You will need a minimum of one director for incorporation, a role which can be fulfilled by one of the founders or a hired manager. Again, carefully read what the UK authorities require of the future management of the company.

The functions of the company secretary are usually assigned to a company employee resident in the British Isles, or hire professionals – a local lawyer or company.

Step 4: Determine the structure of the company

Structure refers to the number of founders (shareholders) of the company and how shares will be distributed between them.

The law does not regulate the size of the authorised capital of LTD, the number of founders and the minimum number of shares, so technically such a company can have one shareholder owning one share with a minimum par value.

PLCs have a more complex structure as they can issue bearer shares, the authorised share capital cannot be less than £50,000 and must be at least 25% paid up by the founders.

Step 5: Preparing the Memorandum of Association

The memorandum of association documents govern the structure and management decision making of the company. At this stage, your company’s Memorandum of Association and Articles of Association should be drafted and signed.

Step 6: Formal incorporation

If you register your company in the UK with the help of an agent – a solicitor or law firm – he will take care of all the work of filling in the forms, collecting and preparing the documents, paying the fees and sending them off.

If you do proceed on your own, you can apply for official incorporation remotely on the UK Registration Board’s website (the much-mentioned Companies House). To do this, you will need to download a carefully completed and submitted application form, attach supporting documents and pay the government fee.

The alternative method involves you printing out and completing an application form for company registration in England, attaching the necessary documents and a receipt for the fee and sending it to Companies House by post. This option is not suitable for those entrepreneurs who need a UK company as soon as possible.

Step 7: Certificate of Incorporation

The Registrar of Companies reviews your online application within 48 hours. If the fee is paid, the official form is completed correctly and all the required documents are attached, Companies House will register your company, make the appropriate entry on the public register of UK companies and prepare an electronic certificate of incorporation for you.

After incorporation

After incorporating a company, a British businessman has a few more important tasks to complete. To operate successfully, his firm needs to open a current account with one of the local or European banks, as well as register with the tax authorities.

If you register an LTD or PLC, your firm is automatically registered for corporation tax and given a unique tax number. The company is registered separately as a value added tax payer, should the need arise.

Next we will talk about corporate taxation and the nuances accompanying the opening of an account in the banks of the British kingdom.

How do British companies pay taxes?

There is no fixed rate of corporation tax for companies registered in the UK. It varies from 19 to 25%.

The exact amount of the company’s income tax rate depends on its profits:

A special tax regime, which differs from the standard corporate tax rates, applies to the following sectors of the British economy:

• Gas and oil extraction – the corporate tax rate is 35%, while favourable treatment for investors is available in this sector;
• Insurance business;
• Shipping – UK companies owning or disposing of ships of the relevant criteria can opt for tonnage tax instead of corporation tax;
• The profits of UK financial institutions are subject to an additional 3% corporation tax if they exceed £100 million;
• Investment funds and holding companies – profits of such business structures are subject to 20% tax;
• Residential construction – income of property developers exceeding £25m is subject to 4% corporation tax.

Reduced to 10% tax is levied on corporate profits from patents owned by the firm, and the tax base in this case can include not only royalties, but also a significant part of income from sales of patented products.

Value Added Tax

VAT in Britain is charged at the rate of 20%. A reduced rate of up to 5% is applied to supplies of fuel, electricity and some other commodity groups.

A significant part of export supplies, most public transport, a substantial part of foodstuffs, and a number of socially important goods and services are not subject to value added tax in England.

Other taxes in the British kingdom

Britons pay stamp duty when they make transactions with shares, as well as purchase commercial or residential property. The rate of stamp duty can vary depending on the subject of the United Kingdom, as well as the purpose, area and value of the property purchased.

Businesses operating in the UK pay local and industry taxes, payroll taxes, contribute to social security and pension funds. Unfortunately, the format of our article does not allow for a more detailed review of all the taxation items faced by UK entrepreneurs.

It is difficult for a foreign businessman to understand the arsenal of tax optimisation tools hidden in the British corporate and tax legislation. The optimal solution for a newcomer is to consult professionals.

Bank account for a UK company

Your newly formed company will need to open a current account with a reliable financial institution in order to successfully deal with customers and suppliers around the world.

Major international banks from the UK have a centuries-old history, renowned for their reliability both at home and far beyond. Modern financial institutions of the United Kingdom offer their corporate clients several types of bank accounts for business, differing in the set of options, size of overdraft, customer service and the ability to manage their finances through online applications. In addition, the services of UK banks are usually cheaper for the entrepreneur than in Europe and the US.

To open a current account with a UK bank, a foreign entrepreneur will need to be very patient. Before applying to open an account, you will need to prepare the following documents:

• Certificate of Incorporation;
• Articles of Association and Memorandum of Association;
• A detailed description of the company’s business activities, including a description of the planned financial transactions on the account;
• Personal details of the business owners and directors, including passport copies and proof of residential address.

In some cases, the representative of the financial institution may request a business plan for your company.

The submitted paperwork and information is scrutinised before a decision is made to open an account. Sometimes British banks request a personal meeting with the founders of the company.

In short, starting co-operation with a British financial institution is a non-trivial task. It is not inferior in complexity to the process of company registration, but it can be successfully solved if you have reliable legal support.

Conclusion

Entrepreneurial activity in England, as in any other country in the world, has its own specifics. The British are extremely interested in the development of small and medium-sized businesses in their country, so they have tried to make a significant part of the process simple and understandable – from company registration to the preparation of annual reports.

In order for your business in the United Kingdom to bring maximum profit, you need to choose the type of company that suits you, and then one by one realise all the unique opportunities of this jurisdiction!