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JPP Law Blog

Start up guide: Forming a limited company

If you have decided that a limited company is the best vehicle for your new business, there are a number of important points to consider whilst you set up the company to minimise potential complications in the future.

When applying to register your company at Companies House, think about your corporate name, image and logos.  Make sure that both your chosen company name and the trade name can be used without legal consequences. You can obtain further information about company names in Booklet GP1 available from the Companies House website.

You will need to display your company's name clearly at the registered office and all other places of business.  Show your company's name, place of registration and registered office address on your company website, stationery and e-mails. If you wish to display the names of directors then you must display all directors' names.  The company only comes into existence when the Registrar issues the Certificate of Incorporation, so you will need to have your company registration completed before stationery can be printed.

At registration you will need to provide Companies House with your company's Memorandum of Association and Articles of Association.  These are public documents open to inspection by the public.  There are model documents available and many company formation businesses will suggest that you simply download, sign and submit these to Companies House at registration.  However, you should understand what these documents are for and consider whether you wish to amend them to reflect your company's particular business arrangements.

The Memorandum of Association concerns the company's relation with the outside world and confirms the subscribers' intention to form and become members of a company. In a company limited by shares, the memorandum will show the members' agreement to take at least one share each in the company.

The Articles of Association set out the rules for the internal management of the company including the appointment of directors, decision making by shareholders and directors, dividend policy and directors' indemnity and insurance.  They are a contract between the company members and the company, and they are legally binding.  It is important that you seek legal advice on the operation of the articles to confirm that these work in the way you expect and if not, amend them where permissible within the confines of the Companies Act 2006.

Depending on the circumstances of your company, your company may need a separate shareholders agreement.  This provides a confidential agreement providing certainty about other internal arrangements such as share acquisition and disposal, minority shareholder interests and dispute resolution. It is advisable to consider now how the business might be disposed of one day or shares disposed of to ensure that the arrangement you make now will not impede your business flexibility at a later date.

When setting up your company you also need to decide who will own the shares in the company and in what proportions.  Changing this later can have detrimental tax implications. If any member owns trademarks they will have to decide whether to keep them, sell them or lease them to the company.  Also, if any member or director owns property which the company will use it is important to take early advice on whether there is to be a lease since there will be tax implications attached to these arrangements.  In small businesses, cars and travelling expenses can be a source of conflict and it is helpful to take advice on whether cars should be company owned, financed and insured or not, and how travelling expenses will be met.

We can help advise you on the above issues to make sure your company is set up to operate in accordance with your expectations and requirements and without the need for costly changes at a later date.

For further advice on any of the issues raised in this article, or for commercial law advice more generally, please contact JPP Law on 020 3468 3064 or email info@jpplaw.co.uk.

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