FAQ

The main types of companies are as follows:

• Private company limited by shares – a company of this type has a share capital and each members’ liability is limited to the amount unpaid on shares that the member holds. A private company is unable to offer its shares for sale to the general public.
• Private company limited by guarantee - members of this type of company do not make any contribution to the capital during the company’s lifetime as they do not actually purchase shares. Each member’s personal' liability is limited to the amount that they agree to contribute to the company's assets if it is wound up. 
• Private unlimited company – a company of this type may or may not have share capital and there is no actual limit to the members' liability. Because there is no limitation on members’ personal liability, the company has to disclose less information than other types of company.
• Public limited company– a company of this type has a share capital and, the personal liability of each member is limited to the amount unpaid on shares that a member holds. A public limited company can offer its shares for sale to the general public and is very often quoted on the stock exchange.

• Limited Liability Partnership (LLP) - An alternative business vehicle affording partnerships the benefits of limited liability but allowing the members the flexibility of organising their business structure as a traditional partnership.

The first three company types described above are forms of private company .There are still a few “companies limited by guarantee with a share capital”. However, it has not been possible to form these since 1981.

There are a number of reasons why people choose to form a limited company. One of the main reasons is that you benefit from ‘limited liability’. Shareholders in a limited company are generally speaking only liable to external parties to the limit of their personal shareholding. Other company participants for example directors would not normally have any personal liabilities to creditors, unless there has been wrongful or fraudulent trading or when personal guarantees or other such assurances have been given by them personally or others.

Other reasons might include customers prefer to trade with a limited company, personal tax profit extraction advantages, lower rate of corporation tax.

You may choose a company name of your choice. However, there are a few exceptions:

Your chosen name must be different to a company already incorporated at Companies House.

The name or a word contained in the name is not liable to cause offence.

The name is not ‘sensitive’ as far as Companies House is concerned http://www.companieshouse.gov.uk/about/gbhtml/gbf2.shtml#three e.g. British, National, European

In addition, some names need the approval of the Secretary of State before they can be registered.  These include names which contain words prescribed by regulations and names which suggest a connection with Her Majesty’s Government, or local government.

A special resolution must be passed by the company at a formal meeting, or the members (representing not less than 75% of the total voting rights of eligible shares) may agree to change the name by a written resolution. Further information about resolutions can be found at  “Resolutions” (Companies Act 1985 or Companies Act 2006) guidance at www.companieshouse.gov.uk 

A signed copy of the resolution containing the new company name needs to be sent to the Registrar of Companies together with the appropriate fee.

An amended copy of the articles of association with the change of name resolution is also required. Assuming the new name and documents are acceptable, Companies House process the resolution and will issue a new Certificate of Incorporation on Change of Name.  

It is a requirement for private companies to appoint at least 1 director unless the company's actual articles of association require more than 1 director.

From 6 April 2008 a private company does not have to appoint a company secretary unless the company’s articles of association actually require the company to have one.

PLC’s must have at least 2 directors and 1 secretary and this secretary must be formally qualified.

With effect from 1 October 2008 all companies, whether private or public, must on formation have at least one director who is an individual.

All company officers have important responsibilities in law. The key requirements are set out in the companies house 'Directors and Secretaries Guide' available at www.companieshouse.gov.uk

On formation of the company you must also advise Companies House about the following:

• appointment of a new officer/s
• termination of an appointment of an officer of the company;
• changes in an officer's name or address or any of the other personal details originally registered; and/or
• registered office change of address.

It is generally up to the members of the company to appoint individuals they believe will run the company extremely well on their behalf. There are a few restrictions that may prevent someone being appointed as a director:

• the individual must not be disqualified from acting as a company director (unless the court has given he/she permission to act for a particular company);
• the individual concerned must not be an un-discharged bankrupt (unless permission has been given by the court to act for a particular company);
• the individual must not be under the age of 16 (from 1 October 2008); and
• at least one director must be an individual (from 1 October 2008).

From 1 October 2008 any person who has not reached the age of 16 will cease to be a director. The minimum age limit applies to the whole of the United Kingdom, and any individual who has not reached the age of 16 will cease to be a director.  A notice will be put on the public register to show that the appointment has ceased.  The company will also need to amend its register of directors showing the ceased appointment and if the company is then left without an eligible director it will be required to appoint at least one director.

A non UK resident individual is able to become a director. Certain people who are not British or of other EEA nationality are restricted as to what work they may undertake while in this country. If you need more information about whether such a person can become a director of a UK registered company please contact Companies House.

The Registered Office is the official address of the company and is the address to which Companies House will send letters, reminders and notices. The companies registered office must be:

• in England and Wales (if your company is registered there); or
• in Scotland (if your company is registered there) ; or
• in Northern Ireland (if your company is registered there) ; or
• in Wales (if your company is registered there).

It is important to ensure the correct registered office is noted at Companies House as this is the address important general and legal letters will be sent to.

The Memorandum of Association is a statement made by each subscriber confirming their intention to form a Company and become a member (Shareholder) of that Company. If the Company is to have a Share Capital on formation, then each member also agrees to take at least one share.

The form of the Memorandum of Association is as prescribed in the Companies Act 2006.

The Companies Act 2006 has introduced a new model set of Articles of Association with small businesses in mind.

The Articles of Association is a legal document which sets out the way in which a company is governed. It takes care of matters like shareholder rights, appointment of directors, general meetings etc.

The purpose is to make it simpler for the directors to run the business on behalf of the shareholders.

• adopt the model articles in whole or in part as its own articles of association;
• adopt the model articles with modifications; or
• adopt their own articles.        

When a company is formed a decision is made as to whether to limit the members' liability by shares.

Upon registration at Companies House, members of the company (i.e. the ‘shareholders’) must formally take some, or all, of the shares. The memorandum of association must show the names of the individuals who have agreed to take shares and the number of shares each will take. These individuals are generally referred to as the subscribers.

The concept of authorised share capital was abolished with effect from 1 October 2009. Before this date, the authorised share capital of a limited company was the amount of capital with which it starts with on incorporation and which the old style memorandum of association stated.  A company’s authorised share capital is not the same as its issued capital and the authorised share capital.

A company often has different types of shares, all with different conditions attaching to them. Generally speaking share types fall into the following categories:

• Ordinary - these are the ordinary shares of the company with no particular special rights or restrictions. The company can divide them into classes of different value.
• Preference - these shares generally carry a right that the company will pay any available annual dividends for distribution on these shares before the other share classes.
• Cumulative preference - these shares carry a right that, if the company is unable to pay the dividend in one particular year, it will carry it forward to successive years.
• Redeemable – these shares are issued by the company with an agreement that it will buy them back at the option of either the company or the shareholder after a certain period, or on a fixed date. A company is prohibited from having only redeemable shares.

A subscriber is basically a shareholder of the company. Any individual who holds a share or shares in the company can be regarded as an owner of the company.

Issued share capital is the value of the shares issued to shareholders. This effectively means the nominal value of the shares e.g. £1 rather than their actual worth.

A company can issue additional shares, but only if an authority to issue shares is currently in force.

• Private companies generally only issues shares to its members, to staff and their families, and to debenture holders. However the company can issue shares to anyone it chooses by private arrangement.
• A public company may offer shares to the general public in a prospectus or by listing particulars

A Company is Dormant if it has had no 'significant accounting transactions' throughout a financial period. If a Company’s only financial transactions have been limited to:

• Payment for shares taken by subscribers to the Memorandum of Association.
• Filing fees paid to Companies House for a change of Company Name, or the re-registration of a company or for filing annual returns.
• Payment made in respect of civil penalties imposed by Companies House for delivering accounts to the Registrar after the statutory time allowed for filing.

Companies House requires that every company (even those that are dormant) must submit an annual return. The annual return shows key information about the company, such as directors, secretary and shareholders.

The annual return is completed to a particular date known as the 'made-up date'.  This is a date not later than:

• 12 months after the date of the made-up date of the previous annual return; or
• in the case of a company's first annual return, the anniversary of the date of incorporation.

It is a legal requirement that all limited and unlimited companies, whether or not they are trading, must keep accurate and proper accounting records.

What will a set of company accounts include?

Generally, company accounts will include:

• profit and loss account (or income and expenditure account if the company is not trading for profit);
• balance sheet signed by a director;
• auditor's report signed by the auditor (if applicable);
• directors' report signed by a director or the secretary of the company;
• notes to the accounts; and
• group accounts (if appropriate).

The first accounting reference period is automatically set for new companies. This is the first anniversary of the last day in the month in which the company was incorporated. For example, if the company was incorporated on 12 March 2009 its Accounting Reference Date (ARD) would be set at 31 March, and the first accounts would cover a period from 12 March 2009 to 31 March 2010 (or up to seven days either side of that date).

Please note the Accounting reference Date is set on incorporation of the company can be changed.

If your company's first accounts post incorporation cover a period of more than 12 months, you must file them with Companies House within 21 months of the date of incorporation for private companies and 18 months for public companies, or 3 months from the accounting reference date, whichever is the longer.

For example, a private company incorporated on 1 March 2009 with an accounting reference date of 31 March 2010 on which the accounting reference period ends each year, has until midnight on 1 December 2010 (21 months from the date of incorporation) to submit its accounts.

Unless you are filing your company’s first accounts (see above), the time normally allowed for submitting accounts is:

• 9 months for private companies; and
• 6 months for public companies

after the end of the relevant accounting reference period.

If the companies accounting reference date has been shortened, the new filing deadline will automatically be the longer of the following two options:

• 9 months for a private company (6 months for a public company) from the new accounting reference date;  or
• 3 months from the date of receipt by Companies House of the notice (change of accounting reference date form).

The table below shows the deadlines for submitting accounts for accounting periods starting on or after 06 April 2008:

Much depends on how late the company accounts are filed at Companies House.

There are significantly increased penalty bands applying to any accounts that are delivered late on or after 1 February 2009, whether they are filed under the Companies Act 1985 or the Companies Act 2006 (any penalties for late submission of accounts under the Companies Act 2006 are for financial years beginning on or after 6 April 2008).

The following table shows these bands:

The level of penalty depends upon whether the company was public or private at the end of the financial year in question.

Double penalties

The amounts set out in the table above will be DOUBLED in cases where:

• The accounts are filed late under the Companies Act 2006; and
• The previous year’s accounts under the 2006 Act (i.e. for a financial year beginning on or after 6 April 2008), were also late.

The rate of Corporation tax payable by the company will depend on a number of factors i.e. trading profit made, number of associated companies etc. As tax is such a complicated area we recommend you contact Smith Emmerson Chartered Accountants www.smithemmerson.co.uk

If you intend to begin trading on formation of the company you must notify HMRC within three months to avoid al late notification penalty being incurred.

If the company is to make salary and wages payments to employees and directors then it will also be required to register for a PAYE scheme.

Please ask for our business starter kit for lots of useful information.

You are required to register for VAT if your turnover for the previous 12 months is above £70,000. This is known as the VAT registration threshold.

You must also register for VAT if:

you believe your business turnover may go over the £70,000 threshold in the next 30 days or you take over a VAT registered business as a going concern.

you are selling goods into the UK from another country in the EU and exceed the 'distance selling threshold'.

you acquire goods from other countries in the EU totalling more than £70,000 in a year.

You may consider VAT voluntarily registration if:

• your business turnover is below the £70,000 threshold required to register.
• the new business incorporated has not yet started to trade.
• you are an overseas trader selling goods to UK customers - distance selling - where your sales value is under the relevant threshold .
• your business is in the UK and you supply goods or services only to customers outside the European Union (EU) - but only if you purchase goods or services from UK VAT registered businesses and/or you import goods into the UK on which you could reclaim VAT.

Cashflow advantages can be obtained by being able to charge VAT on your sales and claim back VAT on your purchases. For example:

• selling zero-rated items and buying standard-rated items you would receive a VAT refund from HMRC.
• if you are not likely to sell anything during the initial VAT accounting period, you can still claim VAT back on your purchases.
• you have the use of the VAT your customers pay you before you have to pay it to HMRC.

As the company is a separate legal identify it is recommended that the company opens a company bank account as soon as the company incorporation certificate is received. To assist with the bank account opening the bank will require sight of the company incorporation certificate and also the Memorandum and Articles of Association.

Sources:   www.companieshouse.gov.uk   –  www.hmrc.gov.uk