Incorporating a company in England: a complete guide

If you are an ambitious entrepreneur, you have probably at least once in your life had the idea of taking your business to an international level. As a rule, the first step in this direction is to register a company abroad in a suitable jurisdiction. One such country could be the United Kingdom, where there are many suitable legal forms for launching a new business.

Types of commercial structures in the UK

British legal forms for doing business can be divided into unincorporated and incorporated forms. Unincorporated forms include sole proprietorships and various types of partnerships. Corporations are all kinds of private companies, with different principles of distribution of responsibility of the founders. Let’s look at the most popular types of business organisations in Britain.

Individual entrepreneur / Sole trader

The simplest form of doing business in England. It is not uncommon for aspiring British businessmen to start out as sole traders.

Benefits:

• Equally suitable for self-employed professionals and those who combine business with employment.
• You can start a business without registering with the tax office until your business income in the accounting year reaches £1,000.
• Comparatively simple registration process and minimal reporting requirements.
• All income from the business after income tax belongs to the businessman.
• It is possible to work independently and invite hired professionals to work for you.
• Sole Trader may conduct business in its own name or register a separate trade name for this purpose.

Disadvantages:

• Only permanent residents of the UK can run a business as a sole trader. I.e. citizens or those with long-stay visas.
• A sole proprietor is inseparable from his business and is fully liable for all debts.
• The profits of UK sole traders are taxed on the same progressive scale as personal income.

Limited liability company / Private limited company / LTD

A limited liability company has its own legal personality. Therefore, LTD is able to acquire property, enter into contractual relations and utilise loans in its own name.

A private limited company is equally well suited for a single businessman or a team of entrepreneurs. LTD is managed by one or several directors. The management position can be held by either the founder or a hired manager.

Benefits:

• The liability of the founders for the debts of such an organisation is limited to the amount of their financial or property investment in the business.
• The founders of a UK limited company can be individuals and other business entities.
• There are no restrictions in the United Kingdom on the nationality or tax affiliation of the LTD founders and directors.
• Current legislation does not regulate the minimum amount of authorised capital in such a company.
• A UK LTD is fairly simple to register and does not require a lot of maintenance costs.

How is the liability of LTD owners limited?

English limited companies are categorised into 2 types:

1. A company where the liability of the founders is limited to the authorised capital.

The authorised capital of LTD is divided into shares of the same par value. The shares are distributed among the founders of the corporation (shareholders) according to their shares. Shareholder’s shareholding is expressed in money, in property transferred into the ownership of the company, or in a financial obligation. This method of limiting liability is used in commercial corporate structures.

2. A company where liability is limited by guarantee, where the guarantee is the amount the guarantor founders undertake to pay if their company goes bankrupt. LTD limited by guarantee is used in English not-for-profit companies.

Disadvantages:

• Because a limited company is legally separate from its shareholders, it is not allowed to engage in commercial activities until it is formally registered.
• It is not allowed to use “mailboxes” for LTD The legal address of the company can only be a real office in the territory of the British Isles.
• The name of the company must be separately agreed with Companies House before applying for registration.
• All limited companies incorporated in Britain are automatically registered for tax purposes and become tax resident. Profits are taxed first at the corporation level and then at the shareholder level when dividends are paid.
• LTD cannot attract additional financing into the business by means of additional issue of shares or placement on the stock market of securities.

Public limited company / Public limited company / PLC

A UK public company has the ability to issue shares of various types and denominations, including non-named shares for allotment on regulated securities markets.

Benefits:

• A publicly traded company can attract additional investment through the issuance and listing of shares on the stock exchange.
• In the event of the bankruptcy of a PLC, shareholders’ losses are limited to an amount equal to the market value of the shares they have purchased.
• A public company is an excellent solution for those business people who are incorporating a large company with a complex management structure in England.
• A PLC in the UK is considered a more prestigious legal form than an LTD.

Disadvantages:

• You will need at least two shareholders to incorporate a public limited company. A PLC is managed by a board of directors with two or more directors.
• The founding capital of a UK public company must be at least £50,000. At least 25% of this amount is paid by the founders of the company by depositing funds into a special bank account.
• The registration and administration of PLCs is more complicated and expensive. In public companies, a general meeting of shareholders must be held at least once a year, and the annual accounts must be independently audited.

Limited liability partnership / Limited liability partnership / LLP

The UK LLP is interesting in that the liability of its members extends only to their investment in the business, as in a limited company, while it has the same tax advantages as an ordinary partnership.

Benefits:

• Two participants are sufficient to establish an LLP. These can be private individuals and other commercial organisations. The law does not impose restrictions on the nationality and taxation of the partners.
• A limited liability partnership is an independent legal entity that can acquire property in its own name and enter into contracts with other commercial organisations.
• The partners’ liability for the debts of an LLP is equal to the amount they contributed when the partnership was formed. In other words, if the company declares bankruptcy, the founders will not be fully liable.
• In England, the principle of ‘pass-through taxation’ applies to limited liability partnerships. What is its essence? The profits made in the accounting period are not taxed at the company level and are distributed to the partners so that they include the dividends in their returns and pay income tax at their tax residence.

LLP income is not taxable in the UK, even at partner level, if the business is carried on overseas and all the founders of the partnership are tax resident in other jurisdictions.

• Like corporations, limited liability partnerships are registered at Companies House. LLPs, unlike corporate structures, have only one constituent document – the partnership agreement entered into by the members.
• The partnership agreement regulates the distribution of profits within the LLP, the obligations of the members, the procedure for making decisions and introducing new partners. In a limited liability partnership, each founder has the right to vote and can participate in the management of the company.

Disadvantages:

Despite the equality of participants, at least 2 partners in the organisation are appointed as ‘responsible’ partners. They are responsible for the accountability of the partnership and for informing the Registry when there are any changes to the LLP structure.

Scottish limited partnership / Scottish limited partnership / SLP

The SLP has similarities to the LLP in a number of ways:

• Such a business structure can also be set up by 2 partners.
• The Scottish limited partnership is also subject to the principle of ‘pass-through taxation’, whereby tax liabilities only arise for the partners once they have received their share of the profits.
• The SLP too is a legal entity and subject to commercial transactions.
• The main constituent document of a Scottish partnership is the contract between the partners.

Features of the Scottish limited liability partnership:

• SLPs are only registered with a registered office in Scotland.
• At least one founding member of the SLP must be a general partner and at least one other member must be a limited partner.
• A Scottish partnership has the right not to file an annual return if its members are only foreign tax residents and all of the company’s income was derived abroad.

Rights and obligations of SLP partners

Company registration in the UK

The British authorities have gone to great lengths to make it easy for even a novice businessman to register a new company. However, an enterprising foreigner is still better off using the services of a registration agent. Professional counselling saves a lot of time that applicants unfamiliar with UK corporate law have to spend on correcting numerous mistakes.

What does a step-by-step plan for incorporating a business in England look like? Let’s take the example of incorporating a limited company:

1. Choose a suitable name

Come up with an original name for the future company. It must not be the same as the names of businesses and trade marks already registered in the jurisdiction. The Registration Chamber does not allow the use of phrases in the name that hint at the proximity to government agencies and the British monarchy, as well as the use of obscene or offensive words.

At the end of the corporate name it is necessary to specify the legal form – in our case it is the abbreviation Ltd.

2. Find and rent a legal address

A company in England can only be registered at an address with an actual office. Finding a suitable legal address becomes an urgent problem even for those entrepreneurs who plan to operate exclusively outside the British Isles.

Fortunately, a significant proportion of registration agents in the UK can, for a small rental fee, make their office available for registration along with corporate secretarial services.

Don’t forget that under the new rules, every newly formed company in Britain must have an email account for prompt communication with the authorities!

3. Collecting a package of documents

The Articles of Association and Memorandum of Association are the key documents of the company and reflect the structure of the business.

In addition, the entrepreneur needs to provide confirmed details of the founders and documents for the director (including the relevant minutes of the shareholders’ meeting and the consent of the person appointed as director).

4. Filing an application for company registration

When all 3 preparatory steps are safely completed, your registered agent carefully fills in the official application form, attaches all the necessary documents, and pays the registration fee. The application form is sent to the UK Companies House.

There are 3 ways to apply for incorporation:

1. The old-fashioned one is in an envelope in the mail.
2. Today’s one is on the UK government website.
3. Professional – through your registration agent, who has specialised company registration software at their disposal.

By resorting to method 2 or 3, you will receive an electronic certificate of registration in just 2 working days.

What obligations arise for a UK company after incorporation?

Every business entity in the British kingdom has liabilities after incorporation, even if it is a dormant company that does not yet have commercial operations.

• Firstly, a new entrepreneur must keep careful records of all business transactions and keep corporate documents in order. For this purpose, the businessman hires a professional accountant or engages the services of an accounting company.
• Secondly, virtually every UK company has a tax liability. If your business is automatically registered for tax when it goes through the Companies House registration process, you will still need to register for VAT (once you reach a certain turnover) and/or PAYE (for those who employ staff).
• Thirdly, every English company submits an annual financial report and tax return. Large commercial organisations submit audited accounts approved at the annual shareholders’ meeting.

If you are having trouble communicating with the IRS or filing returns, make an appointment with experienced corporate attorneys with a good reputation.