Every Saturday, I'll try to post an article that covers some practical aspect of starting a business which is essential, and necessarily all that complicated, but which many people shy away from simply because they don't know the steps involved. This is not a "how to run a successful business" - the whole of swombat.com is not enough to explain that wholly. The idea is to take away a lot of the uncertainty from specific aspects of starting and running a business that might be putting people off not because they're difficult, but simply because they don't know.
As I argued last year, step 1 in starting a business is, quite simply, to register your business. However, there are also a number of responsibilities that you need to be aware of if you want to do this safely, and not end up being deemed irresponsible and fined by Companies House, HMRC, and other friendly government bodies.
1. Registering the business
Contrary to some people's opinions, registering a business in the UK is straightforward and cheap. There are many sites that automate the process of interacting with Companies House. I've used two of them, the last one being Companies Made Simple, specifically this subpage.
2. A Limited Company
If you're trying to create a business, rather than just create a legal outlet for your freelancing, you will need a Limited Company. The only reason to create any other type of trading entity (Sole Trader, Partnership, Limited Liability Partnership, PLC) is because your accountant advises you to. But even if they do, typically it is possible to transition your business affairs to whatever more complicated setup they propose - and often that setup will involve at least one Limited Company anyway, so there's no good reason not to registed a Limited Company, or Ltd for short.
But before you can do that, you need to figure out which package you want. The crucial factor is that in order to open a bank account, you will need a printed Certificate of Incorporation. God only knows why that is, but it seems to be the standard amongst most banks. This means you need the Bronze Plus package at a highly affordable £29.99.
Update: It seems that banks no longer require a printed certificate.
Why not get one of the other packages? Because the only thing of value there is, maybe, the registered address - but that is mostly useless unless you also get the mail forwarding, so just go with Bronze Plus.
Finally, I haven't tried it myself, but you can also register directly with Companies House here. That costs £18, so it's even cheaper, and is probably just as straightforward. If someone can try it out and let me know, I'll update this post.
Update: it seems that CompaniesHouse is indeed more straightforward, but if you use the bank account offers from a place like CompaniesMadeSimple, it works out in your favour financially.
3. What's in a name?
Before you can buy the package, you need to choose a company name. This can be anything you like, but shouldn't be rude, or you might be forced to change it. You should name your company something generic enough that it will cover what you plan to do with it, but specific enough that it conveys what you plan to do with it. So, unless you're creating a joke company or operating in a dynamic, youthful market like Ruby on Rails consultancies, avoid exotic names like "Rapid Lobstersnake Ltd".
What's a good name? It's related to your intended trade, it's pronounceable, it doesn't bring to mind something stupid or negative, even when pronounced rapidly (a very early idea of a name for GrantTree was WeClaim... which, on the phone, comes across as WeakLame; no good); it should convey the right impression when spoken on the phone, so that you actually get through to people you want to speak to. If you're struggling to find a great name, don't worry about it. Not only you can change the name later (it's only a minor hassle), but you can also trade under a different name than your company name. So, for example, Irrelevant Ltd could have a website relevant.co.uk and sell a product called iAmRelevant.
One final note about names: they can't duplicate someone else's company name, and there are some words (like UK) which don't count as a difference, so that, for example, Example Ltd and Example UK Ltd are the same company name, as is Example UK Limited.
4. Shares, shareholders, directors
As part of the company registration process, you might be tempted to come up with a lofty valuation for your shares. Don't. You'll only cause yourself hassle. Create 100 shares of £1 each and assign 1 share to each equal cofounder. You can change those numbers to reflect however you decided to set up the company. If you want to implement vesting, close this web page and get in touch with a solicitor.
Directors - anyone who should be able to speak for the company legally should be a director. You need at least one Director, and since a few years back you no longer need a Company Secretary (that was previously required). Contrary to what you may think, being a Director of a company is not all that glamorous. It just means you can be fined or put in jail for fraud if you really screw up badly. So, before you name half your family Directors to make them feel good, consider that they could end up in jail because of it. Scary? It should be. Whoever is a Director is responsible for making sure the company doesn't screw up its legal obligations to the government. It's worth adding that making someone a legal Director of the company and printing "Director" on their business card are two completely different and independent matters.
5. Registered address?
Contrary to what some people will tell you, you can have your business registered at your home address. You can do so even if your tenancy agreement doesn't allow it (obviously, don't actually go out of your way to tell your landlord about it). I don't know anyone who has gotten in trouble because of this (though I'm sure you can find some rare examples if you try).
In theory, you're supposed to display the company name somewhere in the entrance of the building, or outside your flat. In practice, nobody cares and they're unlikely to ever check that unless you've screwed up something else really badly (like not fulfilling the obligations described in the next section). So, basically, you can use your home address. That's the easiest thing to do, and recommended unless you have a reason to do otherwise.
What's a good reason to do otherwise? Well, if you're planning to deal with other businesses, being registered at "123 Nowhere Grove, Holington, SE31 TLD" doesn't quite carry the same prestige as being registered at "123 St James Street, London W3 456" or the like. The latter will be more convincing, so if you need it for your public image, you may wish to set up a registered office at a different address - but this can be done separately.
There should not be any other difficult questions in the registration process. Just complete it, and the company should be created within a few working days. You'll get the Certificate of Incorporation soon after. Don't frame it yet - you'll need it to open a bank account.
6. Well done, you now have legal obligations
The main effect of going through these steps is to end up legally liable for an entity other than yourself. You know how buying a car means that suddenly you need to sort out insurance, MOTs, tax discs and all that? The same is true for a business (but it's a hell of a lot cheaper than a car!).
The main obligations that you've taken on are to file what's called an Annual Return, to file your accounts, and to file a Corporation Tax Return (affectionately known as CT600).
If your company isn't trading, you may get away with not filing some of those, but you should probably keep it active anyway since it doesn't cost much and looks better if, 3 years down the line, you decide that having a 3-year old company is useful to your credibility.
The Annual Return is basically a form where you confirm to Companies House that the directors/shareholders/registered address/etc details of your company are still correct. It's a quick formality, takes a few minutes a year, and costs, if I recall correctly, about £14 to file.
The Accounts need to be prepared twice: once abbreviated, and once full. You need abbreviated accounts, because otherwise Companies House will publish your full accounts (including turnover figures, etc). Abbreviated accounts give away a lot less about your company. Full accounts give away more, and are lengthier to prepare. If you have a decent accounting system in place, preparing your accounts should be straighforward, and contrary to common belief, you don't actually need an accountant to do it for you (though it can help if you want to do complicated stuff).
Finally, the CT600 can also be generated automatically by any decent online accounting system, such as FreeAgent (includes referral link). We'll cover getting the accounting set up in a later article (in the next few weeks).
All those things can be filed either via CompaniesMadeSimple, or via HMRC's and Companies House's own online systems. I recommend signing up for Companies House and HMRC directly. Be aware that it take a few weeks for them to send you the various authentication tokens, so register there as soon as you can. The pages to register are: HMRC, Companies House.
That's enough for today. Congratulations, presumably, on setting up your first company! It wasn't that hard, was it?
The series so far:
1. How to register a company in the UK
2. How to: deal with your Corporation Tax (UK)
3. How to: track your expenses (UK)
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