FAQS

Background

What is a limited company?

A company is an amalgamation of two or more persons to form a separate legal entity for the purpose of carrying out their agreed objectives. A limited company is a company that limits the personal liability of its officers. The people who combine to form the company normally act as the directors and/or secretary and so are responsible for managing the company. They can also be shareholders each taking an agreed proportion of the shares. The shareholders are the owners of limited companies and directors are employees of the company, managing the company on behalf of the shareholders.

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Limited Liability

As a limited company is treated as a 'person in law' and is therefore responsible for its own debts. Creditors can claim only the company's assets and not the assets of any of the officers of the company.

If a limited company becomes insolvent and is forced to "wind up" only the property of the business can be used to try to clear its debts. The officers of the company retain their company salaries, they cannot be made bankrupt and they are free to form a new company.

If you trade as a partnership or as an individual, creditors can claim all your personal property to satisfy debts, and where this is insufficient, you can be made BANKRUPT. An undischarged bankrupt is forbidden from starting another business or becoming a director of a limited company.

Tax Benefits

There are a number of tax advantages in forming a limited company. Its profits are not normally subject to the higher rates of personal income tax. Corporation tax is currently set at a small companies rate of 19% for profits between £50,000 and £300,000. Profits for small companies below £10,000 per year are taxed at 0% and at marginal rates between £10,000 and £50,000.

Raising Finance

Finance can be raised by selling off issued shares. the value of the shares depend on the viability of each individual limited company.

Continuity of Business

The death or resignation of any director does not effect the structure of the company which continues to trade as before. The shares of the deceased director pass to others as provided for by the Memorandum and Articles of Association.

Protection of Business Name

Registration protects your company name. By law no other company is allowed to use it.

Company Formation Queries

Company formation is the process by which a limited company is incorporated and becomes a legal entity separate from it owner(s) (i.e. the shareholders). This process is commonly referred to as company formation, company incorporation or company registration.

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Company Names

How do I choose a company name?

An index of company names is kept by the Registrar of Companies and must be checked to make sure that the proposed name will not be the same as the name of an existing company. In this regard use our name check service which also checks for sensitive words and expressions

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What are sensitive words and expressions?

These are words that cannot be used in the company name without justification or permission from the relevant authority. You may need to supply further information to justify the use of certain words or you may need letter of permission from the relevant authority. Our name checking service will alert you if your chosen name contains a sensitive word in which case you should contact us by email enquiries@eformations.co.uk for further advice.

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When deciding whether a name is 'the same as' another name, Companies House will ignore punctuation, 'the' at the start of the name, and words like 'company (or co.), and (or &).

For example, if the name Hands Limited is already registered, then the following would be rejected:

H and S Limited (or Ltd)
Hands Public Limited Company (or Plc)
H & S Limited (or Ltd)
Hands Company Limited (or Ltd)
Hands Co Limited (or Ltd)

However, Companies House will register names that could be similar to another company name. For example, if the name Toys@net Limited is already registered they would allow the incorporation of Toys at Net Limited.

Our name check service takes into account all the rules laid by Companies House.

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The company names must end in 'Limited', 'Ltd' or their Welsh equivalents 'Cyfyngedig' and 'Cyf' and that word must not appear elsewhere in the name. For example you cannot have a company name called 'Limited Editions Limited' (or Ltd).

The name must not be offensive or imply criminal activity.

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Yes. Once a company name is registered, another limited company can object because the name is 'too similar' to their own. Companies House will consider the objection and can order a company to change its name. A change of name order can be made for up to 12 months after company formation.

It is not possible to check for all the variables of a company name you should use your judgment when searching for similar names. Our name check service checks for the name acceptability by Companies House but cannot alert you to existing companies that are likely to object on the grounds of similarity of name.

You should be aware that if you adopt a name which misleads the public into believing that your business is that of another business - for example, trading as a shop under 'Harrods' - then you may face a legal action for 'passing off' by the person whose business you have affected.

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Can a company name be changed?

Yes. Once a company name is registered it can be changed by a Special Resolution. Change of names can not be done electronically. Approximate time scale for change of name is 5-7 working days.

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How is the company name displayed?

Certificate of incorporation is produced by Companies House once the process of company formation is complete. Companies House will print the company name company formation application. However, you can display the name in lower and upper case on your company stationery.

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Guidelines for Company Stationery?

Your company's letter heading must show:

If the letter head shows the names of the directors, it must mention all of them.

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At a glance

At a glance a private limited company must have:

A registered address within the UK which must be a valid postal address and not a mail box, A minimum of two officers; one director and one company secretary, A minimum of one shareholder.

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You need a minimum of two officers for a Private Limited Company. It is possible for one person to form a UK Limited Company and also become its only shareholder provided there is a second person acting as the secretary.. There is no upper limit on the number of directors a limited company can have.

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Who can become a director?

A director can be of any nationality and can be resident in or outside UK. An individual or a corporate body can act as director of limited companies.

It is generally up to the shareholders to appoint, as directors, people they believe will run the company well on their behalf, but they cannot appoint:

Anybody who is currently disqualified by a Court from acting as a company director. An undischarged bankrupt. In Scotland, anybody under the age of 16. For a Plc, anybody over the age of 70 unless specifically approved by a general meeting of the company.

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Who can be a secretary?All companies are required to have a company secretary. A secretary can be of any nationality and can be resident in or outside UK. A corporate body may become a secretary of limited companies. A secretary is normally appointed by the company directors. For private limited companies a company secretary does not require any qualification or previous knowledge.

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Can the director and secretary be changed after company formation?

Yes. You can resign a director or secretary by completing and filing Form 288b and appoint a director or secretary by filing form 288a with Companies House.

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What are the responsibilities of a company director?

The management of all limited companies is undertaken on behalf of the shareholders by the directors. The directors have a duty to manage the affairs of the limited company for the benefit of all the shareholders and not just some shareholders. They must always act in their company's best interests, even if these conflict with their own interests.

Directors are subject to a number of onerous legal duties and carry responsibility if things go wrong. Every company director has a personal responsibility to ensure that statutory documents are delivered to Companies House as and when required:

accounts must be submitted every year; annual returns must be submitted every year; any changes of directors or secretaries or in their particulars (Forms 288a/b/c); and any change of change of registered office (Form 287).

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What are the responsibilities of a company secretary?

The company secretary usually undertakes administrative duties:

Maintaining the statutory registers. Ensuring that statutory forms are filed correctly with Companies House. Providing members and auditors with notice of meetings. Sending copies of resolutions to Companies House. Supplying a copy of the accounts to every member of the company, every debenture holder and every person who is entitled to receive notice of general meetings. Keeping, or arranging for the keeping, of minutes of directors' meetings and general meetings.

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Does a company secretary have any powers?

No, but the company secretary is allowed to sign prescribed forms on behalf of the company, make statutory declarations and sign the annual return.

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What rights does a company secretary have?

They depend on the terms of his or her agreement with the company. The secretary has no special rights under the Company Law.

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What is a subscriber?

A subscriber is a person who subscribes to the Memorandum of Association and agrees to take up shares in the company at the time of company formation. Effectively, a subscriber(s) is the first shareholder(s) of a limited company.

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What is registered office?

Like a natural person, a company has a 'home' address where legal documents and notices are served. The registered office must be in the country where the company is incorporated. So companies incorporated in England and Wales must have a registered office in England or Wales. If you wish to maintain the registered office in Scotland, the company must be incorporated in Scotland.

The registered office must be a physical location - not just a post office box - as people have the right to visit the office to deliver documents there by hand.

It is important that the mail sent to the registered office receives attention. This will include reminders and annual return forms from Companies House as well as demands for corporation tax from Inland Revenue. The registered office can be maintained at home or at the trading address of the business. However, if you do not have business premises and do not wish to use your home as company's registered office you could benefit from our registered office service. Please select this additional service when you place your order for company formation.

The company may change its registered office at any time by completing Form 287 and submitting it to Companies House.

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What are Memorandum and Articles of Association?

These are two documents: the Memorandum of Association and the Articles of Association.

The Memorandum details the powers of the company, the purpose for which it was formed (the objects) and, details of the share capital of the company.

The Articles of Association detail the provisions relating to the regulation of the company in terms of the rights of its members and the authority of the directors.

These two documents are printed and bound together as one document and are referred to as Memorandum and Articles of Association. We, the company registration agent will provide a model set of Memorandum and Articles of Association suitable for most types of business.

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What about objects of the company?

A company's trading activities are set out in the Memorandum of Association. These are called the 'objects' of the company. The 1989 Companies Act allows a company to simply state that it is trading as a 'general commercial company'. This means it can carry on any kind of business. However, if you require a company with specific objects clause, it can be inserted in the Memorandum of Association if you mention this at the time of placing an order.

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What is Share Capital?

It is the capital of the company contributed or to be contributed by shareholders.

The authorised share capital (also called the nominal capital) is the maximum capital the company has available to to issue. The amount of share capital stated in the Memorandum of Association is the company's 'authorised' capital, for example, the share capital of our ready made companies is £1000 divided into 1000 shares of £1 each.

Company formation is usually carried out with authorized share capital that is greater than the amount it needs to issue. After issuing a certain number of shares initially the company will therefore have a number of unissued shares that it can reserve for future issue of shares.

Issued capital is the value of the shares issued to shareholders. The amount of issued capital cannot exceed the amount of the authorised capital.

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Can authorised share capital of a company be increased?

Yes. You can increase the authorised share capital by passing an ordinary resolution and filing form G123 with Companies House.

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Can Share Capital be in any currency?

Yes.

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No. Not easily.

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What are the various forms in my company formation package?

When you receive your company formation documents they will include:

Form 225 - this form should be used if you wish to change the accounting reference date. You do not need to complete this form if you want the company's financial year end to be one year from its date of incorporation.

Form 88 (2) - this form should be used if you wish to allot further shares. One or two shares would already have been allotted as part of the procedure of company formation. You do not need to complete this form if there is no further requirement to allot shares at this stage.

Form 42 - this is a new requirement laid down by Inland Revenue. You must complete this form and send it to Inland Revenue - the address given on the form.

Stock transfer form - this form is for the transfer of subscriber share and will only be included in your company formation documents if you have purchased a ready made company. The stock transfer form should have been signed by the subscriber and should be given to the person whose name appears in the 'Transferee' section. It is effectively the evidence of transfer of share from our subscriber. You do not need to post this form anywhere.

First Minutes of the Board Meeting

The Minutes of the Board Meeting outline the details with which the company formation was carried out. It will outline the names of the officers and shareholders of the company as well as the registered office.

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Annual Compliance

Do dormant companies need to file accounts?

Every limited company must file the following documents regardless of whether any trading has taken place:

Annual Return with Companies House
Annual accounts with Companies House
Corporation tax return with Inland Revenue

Dormant companies have to follow the same rules as for trading companies. The same penalties will apply if accounts are submitted late. Companies will be struck off the Register if annual return or accounts are not filed on time.

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What is an annual return (Form 363)?

An annual return is a snapshot of certain company information at the made-up date. It is separate from a company's annual accounts. An annual return must contain the following information:

And if the company has share capital, the annual return must also contain

the nominal value of total issued share capital;

the names and addresses of shareholders and the number and type of shares they hold or transfer from other shareholders.

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Companies House will send a shuttle annual return to the registered office of the company. You must complete this form and return it to Companies House.

Companies House can strike a limited company off the Register for non-filing of annual return.

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Generally, accounts must include:

a profit and loss account (or income and expenditure account if the company is not trading for profit); a balance sheet signed by a director; an auditors' report signed by the auditor (if appropriate); a directors' report signed by a director or the secretary of the company; notes to the accounts; and group accounts (if appropriate).

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Accounting reference date is the financial year-end. It is also the date that determines when the accounts are due for delivery to Companies House.

For all new companies, the first accounting reference period is automatically set as the first anniversary of the last day in the month in which the company was incorporated. For example, if the company was incorporated on 10 June 2003 its ARD would be set at 30 June, and the first accounts would cover a period from 10 June 2003 to 30 June 2004 - or up to seven days either side of that date. Although the ARD is set on company incorporation, you can change it using form 225.

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What period must the accounts cover?

A company's first accounts cover the period starting on the date of incorporation, not the first day of trading. They end on the accounting reference date (ARD) or up to 7 days either side of that date.

Subsequent accounts start on the day after the previous accounts ended. They finish on the ARD or up to 7 days either side of it.

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Unless you are filing your company's first accounts the time normally allowed for delivering accounts to Companies House is:

for a private company, 10 months from the ARD; for a public company, 7 months from the ARD.

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What if the accounts are delivered late?

There is an automatic civil penalty for late filing. The amount depends on how late the accounts arrive and whether the company is private or public. The fixed penalties are as follows:

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Who can approve and sign accounts?

The accounts must be approved by the company's board of directors and signed before they are sent to Companies House.

To be a small company, at least two of the following conditions must be met:

annual turnover must be £5.6 million or less; the balance sheet total must be £2.8 million or less; the average number of employees must be 50 or fewer.

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Do Accounts have to be filed with Inland Revenue?

Yes. A set of accounts must also be filed with Inland Revenue and a Corporation Tax form must also be completed. A UK company must normally pay corporation tax on its profits. This is currently 0% for profits up to £10,000.

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Do we need an accountant to prepare company accounts?

No you don't. But given the complex nature of taxation and requirements laid down by Companies House regarding the formant of accounts presentation etc it is best if you take professional advice, saving your valuable time to run your business. Please contact us on 0870 042 1693 for professional advice and a quote for accounts preparation.

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