Company formation is the process where one registers a business as a limited company at Companies House. Thus, the company now becomes a distinct legal entity. This process is also known as ‘company registration’ and ‘company incorporation’. When a company is incorporated, it becomes a separate ‘person’ in the eyes of law. Incorporated companies are completely independent of their owners in terms of liabilities, finances, ownership of property & contractual agreements.
Company formation is the process of setting up a company or business entity, ensuring all legal requirements are met and registering with the relevant authorities. Company Formation is a vital process for those looking to establish a business, as it not only outlines the structure of the company, but also provides an array of legal rights and obligations which govern the company and its director‘s working relationships. The process is fairly simple, but it is essential that all the required documents and fees are filled and submitted correctly.
The first step is choosing the type of business entity you would like to set up, the most popular being a private limited company or a sole trader. Depending on the jurisdiction, some other entities such as partnerships or limited liability companies may also be available. The legal rules and procedures for filing and setting up each type of entity will differ, therefore care should be taken when making your decision.
The second step is to register the company’s name with the relevant agencies. It’s important to choose a name that accurately reflects the business, products, and activities the company will undertake. A professional name should also be selected to make a good corporate impression.
The third step is completing the articles of incorporation, which sets out the company’s legal framework and purpose. This also includes an identification of its shareholders, directors, and any additional officers. After submitting the incorporation documents, the relevant authorities will proceed to process the necessary formation and registration requirements.
This is the main advantage of registering a limited company. You are likely to pay less tax than a sole trader. Also, you can choose to take a less salary and draw most of your income in the form of dividends. Thus, you can minimise your payment to National Insurance Contributions (NICs) as there is a separate tax for limited company dividends and are not subject to the NICs.
Registering a limited company helps you to keep your personal finances independent of the business activities. The term ‘limited liability’ means even though your business fails or does not gain profits as per expectations, you will not be personally liable for any loss made by your limited company.
In the corporate world, having a registered limited company enhances your professional image and helps to grow your business at a faster rate as compared to sole traders.
With a registered limited company, it will be easy for you to consider a loan for growing your business or to attract investment.
Once the limited company gets registered with Companies House its name is automatically protected i.e. nobody has the right to use the same name for his/her own purpose.
A limited company can fund its employees’ pensions which will be counted as a legitimate business expense. This is not an option if your business is a sole trader.
You need to register your company with Companies House in the UK. Companies House is the Registrar of Companies in the UK. It is an official government agency. It is an Executive Agency of the Department for Business, Innovation and Skills (BIS). All UK limited companies and Limited Liability Partnerships and overseas companies with a place of business in the UK are legally registered with Companies House.
You might be thinking that registering a limited company will be a tedious process, but, it is much simpler especially when our company formation accountants are with you! We can assist you in registering your company, provide quality company formation advice and offer a wide range of financial services for supporting your business.