The Business Legal Services Blog

Starting a Business: Incorporating a Company

Following on from our previous article regarding various types of business platforms, we hope to have assisted new entrepreneurs in making an informed decision about which to choose. We have put together brief starting points for incorporating a company for your business if this is the route you have chosen.

Incorporation types

Any new business can be set up as a company. A company can be incorporated as:

  1. Private company limited by shares – the company has a share capital and each members’ liability is limited to the amount, if any, unpaid on their shares.
  2. Private company limited by guarantee – there is no share capital for this type and its members are guarantors. The guarantors’ liability is limited to the amount they agree to contribute to the company’s assets if it is wound up.
  3. Private unlimited company – the company may have a share capital if it wishes however, there is no limit to the members’ liability.
  4. Public limited company – the structure resembles that of a private company limited by shares however, may offer its shares for sale to the general public and may be quoted on the stock exchange.

Incorporation requires filing compulsory documents and paying the required fee at Companies House. This can be done by:

  1. Forming a tailor-made company with documents especially tailored to its requirements; or
  2. Purchasing a shelf company that is already incorporated but has not yet traded. You can then amend its name, structure and documentation to meet its requirements.

Structure of your Company

Companies are run at two levels. Decisions about the day to day running of the company are made by directors. However, certain decisions are reserved for Shareholders to approve. In practice, the shareholders and directors are often the same people, particularly in small or family run businesses.

Companies are governed by their articles of association. The articles set out how the company is to be run, including the powers and responsibilities of the directors, and the rights attached to the shares. Many companies use the model articles of association, which contain standard powers and provisions about how the company is run. However, it is possible to tailor the articles of association more specifically to how you wish the company to be run. This can be done at any time during the life of the company, and does not necessarily need to be at the outset.

It is also possible to create different classes of shares, with each class having different rights attached to them. For example, you may wish for individuals to be entitled to receive profits from the company via dividends, but not have any decision making powers in terms of how the company is run.

Which type of Company works best for your business?

The majority of companies are private companies limited by shares, and this is the type of company you are likely to want to incorporate.
A private company limited by guarantee is normally used by charities because the profits of the company will not be distributed to individuals, they will be used for charitable purposes.

Given that it is the draw of limited liability which leads most people to incorporate their business into a company, you are unlikely to incorporate a private unlimited company.

Public limited companies are mainly used by large national corporations who wish for their shares to be traded on the stock exchange, and are therefore not ideal for family run or small businesses.

You can speak to the Corporate and Commercial Team at Taylor & Emmet to find out more about incorporating a company for your business. We can assist you with transferring assets into the company name and throughout the life of your business. We will get to know you and your business so that we can offer you advice which is tailored to your needs. To get in touch contact Rob Moore on 0114 218 4051 or at rob.moore@tayloremmet.co.uk.

We will be continuing our ‘Starting a Business’ series by taking an in-depth look at partnerships.

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