Incorporating a private company limited by shares, how difficult can it be?

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Starting a new business can be exciting and involves a myriad of decisions, including the structure of the business. The type of business structure you choose will depend on many factors such as the type of business you intend to run, what you are aiming for, and how the business will be financed. The private company limited by shares is the most common form of company. If you, as an entrepreneur, want to start a business, this blog will help you.

A company can be incorporated in two ways; using a paper form which is posted to the Registrar of Companies (which takes 8-10 days) or, by electronic filing, which usually allows the company to be registered within 24 hours.

To register a business you must file all necessary documents (see below) and pay a fee to Companies House.

Choose a business name

You need to choose a name for your new business. However, certain rules must be observed. For example, the name cannot be identical or too similar to the name of another registered company, or contain sensitive words or be offensive.

You can find more information on choosing a business name here.

Main business activity

An IN01 is the form to complete to register your new business. On the IN01, you must provide at least 1 type code of industrial classification of economic activities (called SIC code). A SIC code describes the nature of a company’s activities. If you are unable to find a suitable SIC code for your company’s activities, you must provide a brief description of what your company does.

A list of SIC codes can be found here.

Registration desk

You must provide a registered office address; this is where all written communications will be sent.

If you choose to register your company in Scotland, you must have a registered office in Scotland. Learn more about headquarters here.

At Brodies, we offer a head office service.

business leaders

When setting up a private company, you must appoint at least one director and always have a natural person (not a legal person) appointed as a director throughout the life of the company.

A director must be at least 16 years old and must not be disqualified from acting as a director.

Company Secretary

Private companies no longer need to have a general secretary, but you can appoint one if you wish.

Shareholders

If you want to set up a partnership limited by shares, you need at least one initial shareholder (also called a subscriber), holding at least one share. There is no maximum number of shareholders; however, this may be limited by the company’s articles of association.

Issuance of the initial shares

When registering your company, you must provide a declaration of capital. This indicates the total number of shares that each subscriber will take upon incorporation of the company, the total nominal value of the shares and the total amount to be paid on these shares (if any).

The “prescribed particulars” set out the rights which attach to each type/class of shares. A company may have different classes of shares with different rights. For example, a certain class of shares may hold more voting rights or a right to a larger share of profits.

Person with Significant Control (“PSC”)

A PSC is someone who significantly influences or controls your business. Their details should be registered on your company’s PSC register and should be included in your company’s application for incorporation.

Normally, ESPs are those that hold:

  • more than 25% of the shares of the company
  • more than 25% of the voting rights in the company
  • the right to appoint or dismiss the majority of the board of directors
  • the right to exercise, or actually exercise, significant influence or control over the company

Your company may not have a CSP, but this should be indicated on your application.

Constitutional documents

In order to register a company, it must have a memorandum of association and articles of association.

A memorandum is a statement that the underwriters of the company wish to form a company, agree to become members and take at least one share each. If you register your company electronically, it will be created automatically.

Articles of Association are essentially the bylaws of a business, setting out how the business is to be run.

When incorporating a start-up, you may wish to adopt standard articles of association, which are the default standard provisions that govern the running of a business. Alternatively, you can adopt the model articles with modifications or completely bespoke articles. Both of these options allow shareholders’ wishes to be reflected in the company’s articles of association but will require more work, resulting in additional expense.


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