Opening a company is an exciting step toward financial stability and freedom, and yet it’s also quite an intimidating prospect. There are many technicalities you need to be aware of to avoid conflict with authorities and potential legal slip-ups.
When you’re opening a company in the UK, you’ll need to pick an approved name, complete your registrations, and organise your finances. With those items ticked off your to-do list, you’re just about ready to open your doors for business.
The road to get there can be muddy, so we’ve created this quick guide on opening a company in the UK. You’ll learn about:
- Defining your business, planning its organisational structure, and understanding niche requirements
- Registering your business, which includes things like picking a name, deciding on an address, and issuing shares
- Sorting the financial aspect of your brand-new company.
There’s a lot to do before you can host your grand opening party, so let’s get into it!
Do Your Research
If this is your first time starting a business, you have a lot to learn. Research is essential for developing your ideas, adhering to rules, and learning the tricks of the trade.
The path toward opening your company is riddled with costly pitfalls, unwise decisions, and potential liabilities. While many mistakes can be made along the way, arming yourself with the proper knowledge will help you avoid the majority of them.
Choose Your Business Structure
In the UK, your business structure is a crucial consideration that you should take plenty of time to think about.
The structure you choose affects the amount of taxes you pay, your degree of liability, and room for potential growth. The following are three common types of business structures in the country.
A sole proprietorship (also referred to as a “sole trader”) entails an individual running a business as an individual.
Beyond paying taxes, all profits and debts fall under the individual’s name. Though this can lead to personal wealth, it can also lead to personal assets being seized if bills aren’t paid.
As a sole trader, the tax you pay is simplified, but note that this structure is costlier the higher your profits are. You may also be required to pay national insurance contributions, so be sure to keep that in mind.
You’ll need to register as a sole trader if you have earned more than £1,000 from your business in one year. Once your business name has been approved and you’re fully registered, you must keep financial records and pay your taxes annually.
A partnership consists of you and one or more partners owning a business together. A partner doesn’t have to be a natural person — it can be a limited company, for example.
The defining characteristic of a partnership is that it’s essentially similar to a sole proprietorship, except that there are at least two people sharing responsibility for the company.
You and your partner(s) split the income and losses, and one “nominated” partner will be in charge of keeping business records and sorting the taxes.
However, all parties need to individually register with HM Revenue and Customs (HMRC) and pay their taxes separately according to their respective shares.
In setting up a partnership, you need to choose a name, nominate a partner, and register the company with HMRC. Non-nominated partners must also register separately.
The idea behind a limited company is that it creates a separate legal entity for the company. In this way, the profits earned by the company are entirely separate from the finances of its respective owners.
An advantage of this setup is that an owner’s liability is limited (hence the name). However, the company is responsible for additional administrative burdens and legal requirements such as annual reports submitted to the government.
A limited company can be set up in two ways, either one that’s limited by shares or one limited by guarantee. The former makes a profit and has shares and respective shareholders while the latter usually does not (and instead relies on guarantors).
Registering a limited company is by far the longest and most complicated of the three.
You’ll need to:
- Choose a name, directors, and a secretary
- Determine the shareholders or guarantors and who has significant control
- Agree on how to run the company
- Check what records to retain, and
- Register with Companies House and the HMRC.
Understand Your Industry’s Legal and Regulatory Requirements
Every industry has different rules and laws, so it’s also strictly necessary that you’re aware of what regulations govern your business.
For example, restaurants and bars have to abide by strict health and hygiene rules, while construction companies must have safety measures in place.
Pay attention as well to overarching employment and labour laws in the UK. Be sure to grant employees their rights to avoid getting into a messy legal battle that might ruin your company’s brand and reputation.
Register Your Business
An essential step to opening your company involves registering it. Here is a step-by-step guide on how to do this.
Choose a Unique Company Name
Review Naming Regulations
There are specific rules surrounding the name of your business, and these rules differ depending on the business structure you’re opening.
For instance, limited companies can’t use a name that’s identical to an already existing registered name (the only difference being an additional or omitted punctuation mark, for example).
These companies are also barred from using “too like” names, such as those that are substantially similar to a name that has already been registered (eg, “Blue House” vs “Blu Haus”). You can use a business name generator to find a name which suits your business.
Sole traders and partnerships have the freedom to trade under their personal names or they may opt for a business name, as long as these names aren’t offensive, trademarked, or use the terms reserved for companies.
Confirm Name Availability
Chances are, there’s already a business somewhere in the world with the name you want.
You may be able to adjust it slightly and use it, but if a complaint is made, you’ll have to change it. It’s a safer bet to use your own name or something more original and confirm the availability of your chosen name before registering. For marketing purposes, make sure that your business name can also be used for your website domain. You can search for the many top-level domains available if you go to hosting or domain registration platforms like Name.com
Check for Existing Trademarks
Trademarks protect your business’s name, preventing others from using it if they’re in the same industry. Keep an eye out for trademarks or get your own once your business name has been approved.
Register with Companies House
Companies House is in charge of registering businesses in the UK. They approve new companies and release them into the public sphere. You must complete this step for your business to go ahead.
Note that sole traders don’t need to register with Companies House. Limited companies, however, are required to do so.
Acquire a Virtual Address
A virtual address is like a PO box. It’s technically a physical address, but you don’t own the building – making it cost-effective for people who are just starting out.
You can put this address on your registration documents and have your mail delivered there. Keep in mind, however, that customers won’t generally be able to access this address.
Appoint Directors and Secretary
As a new company, you need to be contactable and organised.
A secretary will help you submit all the necessary forms and applications, and a director will get the ball rolling in terms of setting everything up. Note that this is a required step for limited companies.
Issue Shares, Create Agreement
Once you have the capital, you can start issuing shares. Ensure your director has authorisation over this process or call a meeting with shareholders to decide the question.
After offering shares to your intended shareholders and receiving payment from them, submit the information to Companies House. Take extra vigilance and ensure that everything is reported in the business records.
Register for Taxes, Licences
Taxes are high up in the priorities of getting a new business organised. So are licences. You can’t sell food or alcohol without the proper licences, for example.
Registering taxes such as PAYE is usually done with the HMRC, but limited companies may be automatically registered for corporate taxes when they register with Companies House. Make sure to confirm and verify that all is in order with your tax obligations.
Taxes need to be filed every year as usual. Upkeep records throughout the year to make it easier for future you.
New businesses are focused on one thing above all others: turning a profit. To help you balance your income with expenses, keep a close eye on your finances. A Chief Financial Officer (CFO) is an asset in this regard.
Open a Business Bank Account
A business bank account is essential for even sole traders. Though business income belongs to you, keeping it separate from your personal accounts is still important to clearly identify which money belongs to what.
As a general rule, it’s important to not overlap personal and business expenses.
Establish Financial Processes and Procedures
This includes deciding how you store your records, pay your employees, set your prices, and so on. Get these processes and procedures into writing and make sure that everyone in your company is duly informed.
As this will also often require the use of contracts, it’s not a bad idea to use a platform such as Legislate where you can keep all your data in one place and save yourself the headache of having all sorts of papers flying around.
Understanding and Meeting Reporting Requirements
Owning a company means you need to consistently work to meet standards. Don’t think of the paperwork as a one-time thing at the very beginning; rather, it’s a continuous process that needs your attention.
Check the official UK Government website if you need clarification or to see if legal changes have been made.
The Bottom Line
Opening a company is daunting – but exciting, too! Don’t be put off by all the legal formalities, as they’re necessary to ensure that your business is safe and above board.
You’ll get into the swing of things soon enough. Once you’ve ironed everything out, the next stop is to start racking up profit through the roof!
The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.