Forming a new company is an exciting time for anyone. Over the years, the UK authorities have made it easier than ever to open a company. You don’t need to fill in lots of forms and send them to Companies House. It’s a matter of using their online portal to form your company.
Once you have finished, and your company has been accepted, you will be requested to print out various forms. This is will confirm that your company has been officially incorporated. It may sound too easy, but there are no hidden catches here.
But what are the biggest mistakes people make when doing this?
Forming the Wrong Company
There are many company types you have to take into account. The average small business will be better off forming a company that allows them to trade as a sole trader. It may be good to have a limited company, but limited companies come with far greater reporting responsibilities, and this extra work doesn’t always pay dividends.
You can form practically any type of company online. Make sure you do your research and don’t form a certain type of company on a whim.
Not Specifying the Shareholders
Technically, you can have as many people as you like working for your company, but if they own any part of that company they have to be mentioned. Shareholders don’t work in the same way as they do in other parts of the world. With a private limited company, for example, the shares are valued at what you say they are valued at, and you can dole them out as you please.
Only public companies have shares that are traded on the open market, and the company needs to generate enough revenue in order to become this type of company.
If you are sharing the company with someone else, they must be mentioned when you form your company, or at least added afterwards. Adding them before the company is formed will involve them placing their names on the Memorandums of Association, which is essentially an agreement to form the company.
How the Company is Run
This is where people tend to start making errors. Dictating how the company is run is a deceptive task because people assume it refers to the day-to-day running of the company. For most companies, they will use what’s known as ‘standard article’. These are a basic legal model that can be inserted via the Companies House website.
You can change this, but by doing so you are waiving your right to register your company online. The vast majority of companies have no business changing these.
Choosing the Wrong Company Address
The company address is more important than you think. It’s where official communications between the UK government and you will be sent. It doesn’t have to be the offices you are operating out of. You can use your home address. The only restrictions are that it must be in the company’s home country, and it has to be a physical address; so you can’t use virtual addresses.
What a lot of people don’t realise is that this address is available to the general public via the official register of the companies of the UK. Make sure you are comfortable with this before choosing your home address.
Failing to Register for Corporation Tax
Sole traders don’t have to worry about corporation tax, which is why most prefer to register as this type of company. If you have decided to start a private limited company, you have a legal duty to register for corporation tax within three months of forming your company so you can begin trading.
Without registering for it, you are legally unable to begin trading. And even if you never earn enough to actually pay corporation tax, you still have to be registered for it and you still have to file.
The responsibilities of a company director are to file your company right. By avoiding these mistakes, you can avoid running into trouble. What are the biggest challenges you have faced when trying to form your company?