Company Registration in the United Kingdom- An Overview
The United Kingdom has always been a big attraction for businesses all around the world because of its business-friendly infrastructure, high-level facilities, good governance and effective implementation of rules and regulations. Its capital city of London stands as one of the major financial centres in the world. The UK is a magnet that attracts some of the best talents across the world. This attraction supplies a trained and skilled workforce to the industries and companies. Further, the legal system of most countries is similar to that of the British, especially in colonial countries, making it easier for entrepreneurs to set up their businesses seamlessly in the British economy.
Benefits of Company Registration in the United Kingdom
Following are the benefits of company registration in the United Kingdom:
- Tax benefits-
The United Kingdom takes pride in being the most extensive network of double tax treaties offering incentives to companies across the world to set up their companies in the United Kingdom. Further, their taxation system offers several tax incentives for technology and fintech companies.
Corporate Tax payable in the United Kingdom is 25% for all the companies (except ring fence companies), making over £250,000 annually. The companies that are making profits less than £50,000 annually with marginal relief available for earnings up to £250,000 have to pay a tax at the rate of 19%. These rates shall be applicable from 1st April 2023.
- One of the largest and most dynamic world marketplace-
The United Kingdom takes pride in being one of the world's largest and most vibrant marketplaces, especially in Europe. It acts as an excellent gateway to other parts of the world. The foreign investors coming to the United Kingdom enjoy the following advantages:
- It is ranked very high in the 'Ease of Doing Business report released by the World Bank because registration of a company in the UK takes only 24 hours. There is no minimum capital requirement to register a company; only 1 shareholder and 1 director are required to open a company, and the appointment of a company secretary is also optional for the registration of private companies in the UK.
- There are very strong similarities with the legal system followed across the world, making it easier for such companies to replicate the system.
- The UK offers a robust business ecosystem to support companies and build long-term businesses.
- The UK is a big magnet for world-class talent, which offers a vast pool of employees ready for the market. This is mainly because of a close-knit relationship between world-class academic institutions and businesses.
- It is strategically located between the East and West and offers a central time zone position.
- It is also one of the major financial centres of the world.
- Further, it offers an ideal environment for research and development work.
- Ideal environment for International Holding Companies -
The legal system of the United Kingdom offers to be an ideal jurisdiction for International holding companies because of the following benefits offered:
- Most of the dividends received by foreign sources have been exempted under UK tax laws. The tips received by the UK companies are exempt on certain conditions, such as whether the entity is a small, medium or large company.
- No withholding tax is imposed on the distribution of dividends paid to the shareholders or the parent companies, irrespective of the residential status of the shareholders and the parent company.
- There are no duties imposed on the paid-up or issued share capital. The stamp duty paid is also very less at a mere rate of 0.5%.
- Capital Gains Tax Exemptions -
The United Kingdom tax regime does not impose capital gains tax on the disposal of a 'substantial shareholding' in a trading company or holding company of a trading company or other companies. A substantial shareholding is one where at least 10% of the ordinary shares are stored in another company for a continuous period of 12 months in the previous six years preceding the sale.
Relief has also been provided in the case of disposal of shares in companies owned explicitly by the Qualified Institutional Investors (QIIs).
Regulatory Authority/ Body for Company Registration in the United Kingdom
The primary regulatory authority for company registration in the United Kingdom is the Companies Register of the UK or commonly known as the Companies House.
Eligible Business Structures under Company Registration in the United Kingdom
The Companies Act, 2006 of the United Kingdom recognises a number of companies, viz. limited and unlimited companies, Private and public companies, companies limited by shares and share capital and community interest companies. However, the following are the five major types of companies that are commonly adopted by businesses in order to do business in the United Kingdom:
- Private Company Limited by shares
- Public Company limited by shares
- Private Company limited by guarantee
- Private Unlimited Company
Following are some of the less common forms of business structures that are adopted in the UK:
- Community Interest Company
- Unregistered Company
- Private Company Limited by shares -
A private Company limited by shares is the most common type of business entity in the United Kingdom. Almost 95% of all the companies registered in the UK are private companies limited by shares. All the private companies limited by shares need to affix the word 'Limited' or 'Ltd.' at the end of their name. The law has not prescribed any minimum share capital for such companies, and any person can start a company with as little capital as £1. The liability of the shareholders is limited to the number of unpaid shares held by them. There is no prescription on the amount paid up on shares on issue. The shares of these companies cannot be offered to the public. These companies should have at least 1 director, and there are no compulsions to appoint a company secretary.These companies are not as heavily regulated as public companies limited by shares.
- Public Company limited by shares -
A public company, often called 'PLC', is a business entity adopted for big businesses due to its ability to make its shares available to the general public through the stock market to raise capital for the business. Again, the financial liability of the shareholders is limited to the amount of unpaid shares held by them. The law prescribes a minimum share capital of £50,000 to incorporate a Public Company limited by shares. Further, a minimum of 25% of the nominal value and the whole of any premium payable on the issued shares must be paid up at the time of allotment of shares. These companies are required by law to have at least 2 directors and a company secretary appointed at the time of registration.
- Private Company Limited by Guarantee -
In this type of company, there is a pre-agreed amount that the company shall pay to its debtors in case the company shuts down. This form of business structure is usually adopted by non-profit organisations for purposes, viz., charity, education, clubs, unions etc. These companies do not have shareholders, and there exists no share capital. The members of the company become the shareholders, and the guaranteed amount can be as little as £1.
- Private Unlimited Company-
The distinctive feature of this type of company is that there is no monetary limit to the extent of liability that may be accrued to the members of the company in case the company shuts down. This type of structure is valid for only those companies that are sure there is no case of insolvency. These companies are also not legally bound to submit their annual accounts to the Companies House.
- Branch Office (Registered UK establishment)-
A branch office or a registered UK Establishment is a UK registration of an overseas company. It has no separate legal personality, and its affairs continue to be governed by the directors and shareholders of the overseas company. This entity is an alternative to the registration of a separate company in the UK. However, a UK establishment has to be registered with Companies House to function as a branch office in the UK. The identities of the directors and authorised representatives shall be publicly available.
It is nothing but a local representation of an overseas company in the UK. This registration with the Companies House must be done within 1 month of opening in the UK. The cost of its registration depends on the country of registration of the overseas company. Its reporting requirements are similar to that of a UK private limited company. Its registration requires a physical address in the UK, and liability is subject to the requirements of the overseas company. It has to pay taxes only to the extent earned by the UK-based establishment.
- Community Interest Companies (CIC)-
A Community Interest Company is a type of private limited company that has been set up to carry out benefits for the community. Though it is a not-for-profit entity, it has to earn profits to remain solvent and apply the benefits of such profits for the benefit of the community and not for personal gain.
- Unregistered Companies-
These companies have not been registered under the Companies Act 2006 or any other Act of Parliament. Instead, they are created through Private Acts of Parliaments or a Royal Charter.
Procedure for Company Registration in the United Kingdom
An applicant going through the process of company registration in the United Kingdomhas to follow the below-prescribed method:
- Checking if the Limited Company structure is right for your business
- Choosing an appropriate name for the company
- Choosing the Directors and Company Secretary for the company
- Deciding on the shareholders or guarantors of the company
- Preparing the required documents to run the company
- Maintaining the required records of the company
- Registration of the company
- Checking if the Limited Company structure is right for your business-
The first step in registering a company is to determine whether the company structure is suitable according to the commercial activities sought to be undertaken by the entrepreneur. Further, a company should be set up keeping in mind the taxation structure of the business entity. The ideal option for a foreign investor is to set up either a branch office of an overseas company (where the foreign company directly operates from outside and bears all the responsibilities of the debts and obligations of its branch office) or open a subsidiary in the form of a private limited company limited by shares (where the subsidiary is a separate legal entity and bears its own responsibilities). To decide the structure of your business and the concomitant tax implications, you can speak with the incorporation experts at Enterslice.
- Choosing an appropriate name for the company -
The promoters of the company are also required to choose an appropriate name for the company. The name should not be the same as any other registered company. The company's name should end with either 'Limited' or 'Ltd.'. For the companies that are supposed to be registered in Wales, the name ‘Cyfyngedig’ and ‘Cyf’ should be added. The name of the company cannot be offensive. It cannot contain a 'sensitive' word or expression and should not suggest any connection with the government or local authorities unless permission is obtained from the government regarding the same.
The companies have provided an option to use a trading name different from the company's registered name. This name is known as the 'business name'. Such business name should not include the terms like 'Limited', 'ltd.', 'LLP', 'Limited Liability Company, 'Public Limited Company' or 'plc'. The name should also not contain a sensitive expression or word unless permission has been sought from the concerned authorities. Additionally, if the company's name is similar to the trade mark of some other company's name, such name should not be used in the name.
Where a company is registered as a charity or limited by guarantee and the articles of association of the company reflect that the company has been registered to promote or regulate art, religion, commerce, education, charity or any other profession, it cannot use 'Limited' and similar equivalents with its name.
- Choosing the Directors and Company Secretary for the company -
The Company Law makes it mandatory for the promoters to appoint at least 1 director for the purposes of company registration. However, the company doesn't need to appoint a company secretary right at the time of incorporation.
Directors: The directors of the company are legally responsible for running the affairs of the company and ensuring that the company accounts and reports are properly prepared. In order to qualify as a Director of a company, the person should be above 16 years of age and should not have been disqualified from being a director of a company
under any decree or law.
No statutory compulsion exists for a director to be resident in the United Kingdom. However, the company's registered address should be present in the UK. The directors' names and personal information are publicly available from Companies House. Every Director is required to provide a service address or an address for correspondence purposes which will also be publicly available. If a director uses his/her address, he/she can ask the Companies House to remove it from the register.
Company Secretary: A company doesn't need to appoint a company secretary for a private limited company. Though some companies appoint them to take on the responsibilities of a Director of the company. It must be noted that a company secretary can be a Director of the company but cannot become an:
- Auditor of the company
- An ‘undischarged bankrupt’ unless permission has been sought from the court
It must be remembered that even if a company appoints a company secretary, the directors shall remain legally responsible for the company.
- Deciding on the shareholders or guarantors of the company -
The companies need to decide who the shareholders and guarantors are going to be of their companies.
Generally, the companies are limited by shares and owned by shareholders with certain rights. Most companies issue 'ordinary shares' where the directors get one vote per share and receive dividend payments. All the limited companies by shares need at least one shareholder or guarantor who can be a director of the company.If a person is the only shareholder, he can own 100% company ownership.
The law has imposed no limit on the maximum number of shareholders. If the company needs to be shut down, the shareholders must pay their full shares. At the time of the registration of a company, the information about the shares (statement of share capital) has to be provided, which includes the following:
- The total number of shares with the company and their types along with their total value (known as the share capital)
- The names and addresses of the shareholders (known as subscribers and members)
- Maintaining the required records of the company -
It must be remembered that for the purposes of limited company registration in the United Kingdom, certain records regarding the affairs and personnel of the company must be maintained by the company (The HM Revenue and Customs (HMRC)has been given the authority to check the compliances of the company and whether the right amount of tax is being paid by the company). These records are as follows:
- Records about the company itself
- Financial and Accounting records of the company
Records of the company: the details related to the following must be maintained with the company:
- Shareholders, company secretaries and directors of the company
- Result of the votes of shareholders and resolutions of a company
- Promises made by the company to repay loans in the future and the recipient of such repayment (debentures)
- Promises made by the company for payment to the recipient in case something goes wrong due to the fault of the company (indemnities)
- Transaction records of the shares bought in the company
- Loans and mortgages secured against the assets of the company
Register of ‘people with significant control’: this register must include the following details about the persons who:
- Have more than 25% voting rights in the company
- Can remove or appoint a majority of directors in the company
- Can influence and control the company
It must be noted that the above-mentioned record has to be maintained anyway if there are no people with significant control.
Accounting Records: the accounting records of the company should include the following:
- The money received and spent on the company, including the grants received by the company
- Assets owned by the company
- Debts of the company
- Stocks owned by the company at the end of the financial year
- All the goods bought and sold by the company and the recipient
The financial records of the company must include the following:
- The money spent by the company is reflected in the receipts, petty cash books, orders and delivery notes
- Money received by the company is recorded in the invoices, contracts, sales books, till rolls
- Banks statements, correspondences etc.
- Registration of the company -
For the final registration of the company, the company needs to register an official address for the company and select the SIC code that identifies what kind of activities are undertaken by the company.
Physical Address: The purpose of registration of an official address for the company is to receive all the written communications sent to the company. The address must be a physical address in the UK and the same country where the company is registered. You can use a PO Box; however, you must use a physical address and a postcode. This address shall be publicly available on the online register.
In case you do not wish to reveal the address of your company, you can keep your address private by using a different address or appoint an agent who shall give you an address to use. It is necessary to have a physical address before registering the company.
SIC Code: You must always use the SIC codes on the condensed list available from the Office of National Statistics (ONS) to classify business establishments by the type of economic activity the company is engaged in. The correct SIC code should be provided to the Companies House, or the application will be rejected.
Registration: On the company's registration, the promoters shall be handed over a 'certificate of incorporation, which means the company has come into existence. The Certificate of Incorporation is evidence that the company legally exists and shows the company's number and date of formation.
Corporate Tax in the United Kingdom
Corporate Tax payable in the United Kingdom is 25% for all the companies (except ring fence companies), making over £250,000 annually. The companies making less than £50,000 annually with marginal relief available for profits up to £250,000 have to pay a tax of 19%. These rates shall be applicable from 1st April 2023.
Documents for Company Registration in the United Kingdom
The registration of a company can be done electronically through the e-Business portal. In case the founders of the company do not wish to get their company registered electronically, they can avail the option of physical registration of the company with the assistance of a notary. The notary shall help in the preparation of the following documents required for the registration of a company:
- Memorandum of Association
- Articles of Association
- Form IN01
- In the case of an overseas company Form OS IN01
- Founders and Co-Founders’ Agreement
- Information about the shareholders and guarantors such as (town of birth, mother’s maiden name, father’s first name, telephone number, national insurance number, passport number)
The promoters can adopt other means too for registration of the company, which include the following:
- Via post
- Using an Agent
- Via third-party software
Promoters register the company via post, they need to use Form IN01.
The company is also required to register for the Corporation Tax within 3 months from starting the business. Usually, the promoters register for Corporation Tax at the time of registration with the Companies House. If the promoters are unable to register with the Companies House, they can register separately with HM Revenue and Customs (HMRC) after the company has been registered with the Companies House.
Documents for the registration of an Overseas Company
- The name of the overseas company
- Details of the accounts and constitutional documents
- Principal place of business and registered office address
- Objects of the company
- Amount issued as the share capital
- Details of the officers of the overseas company
Documents for registration of a Branch Office (Registered UK Establishment)
- The name of the Branch office
- Registered office address of the Branch office
- Type of business activity to be carried out by the company
- Permanent representative of the UK establishment
Details of the person to accept service on behalf of the Branch office