Coronavirus Business Interruption Loans and Finance
Jeremy Over | 27.04.2020
01.03.2018 Thomas Clark
Incorporating a company can be a useful strategic step for your business. As a company is the vehicle through which you operate your business, it is crucial that it is set up correctly from the outset and tailored to meet your unique business needs.
Companies can be incorporated for multiple reasons; you may be a sole trader looking to limit your personal liability, a large corporate group looking to ring fence a particular branch of your business, or a partnership evaluating options in respect of succession planning.
When forming a company, the best starting point is to evaluate and consider the most suitable type of corporate structure. Registration of a limited company creates a distinct legal personality from its shareholders and directors and therefore protects the individuals who own and run the business. However, with the role of shareholders and
directors come legal obligations such as the Companies Act director duties which must be complied with.
The most common company structure is a private company limited by shares. An alternative structure is a private company limited by guarantee. The latter being more suitable to a company with a not-for-profit agenda, as the company profits should be held in reserve rather than paid to shareholders in the form of dividends.
Once your corporate structure is determined, it is key to consider the company constitution - the way in which the company is governed.
The constitution of your company is set out in the Articles of Association, which are publicly available on Companies House, and this document states the administrative and procedural rules affecting your business.
It is often advisable to put a Shareholder’s Agreement in place. This is a private contract between the shareholders and the company, which regulates the shareholder relationship, ownership of shares and governance of the company. As this is a private document it is not publicly available on Companies House.
It is in these two documents (Articles of Association and Shareholders Agreement) that the power of the directors can be enhanced or restricted, the procedure for general and board meetings can be tailored and mechanisms for the valuation of shares could be included. These documents can be amended to evolve with the changing objectives or corporate direction of your business.
In terms of the management of your company, you will need at least one director and at least one shareholder, who can be the same person. The board of directors are responsible for the daily management of the company. Whilst the Articles of Association can dictate the powers available to directors, having shareholders acting also as directors is another means of asserting a high level of control over decision-making in relation to the company.
Company secretaries are not a mandatory role in a private limited company so, if required, this role can be performed by any individual in your company.
Once you have considered the elements of structure, governance and control, decisions need to be made in respect of naming the company, choosing the registered office address, choosing the accounting date
and selecting auditors. This is a non-exhaustive list of further considerations. When naming your company, the name must not be confusingly similar to an existing company on Companies House. The appropriate name checks should be made prior to incorporation so you are certain the name you wish to use is available. You can change your company name after incorporation, but the same rules regarding company names still apply.
Finally, reporting obligations should be discussed with a solicitor. Companies are required to prepare annual financial accounts and file various details with Companies House throughout the year. This includes informing Companies House who the person of significant control is and under which conditions they hold this significant control.