You may have come across advertisements which make forming a company sound very easy, but before you go ahead there are a few essential elements to consider.
If a company is the best vehicle for your new venture here is a checklist that should help:
Decide what to include in the Memorandum and Articles of Association. These documents lay down how the company is to be structured and what its operating procedures will be.
Determine who will be the shareholders, what proportion of shares will be held and what rights will be attached to the shares, changing this later on is fraught with potential tax traps.
Check that any proposed name for the company is available.
If you own trademarks you need to decide whether to keep them or sell or lease them to the company.
If the company will use a property owned by a director you need to decide whether or not you should have a lease. There are many tax considerations attaching to this, so take advice before you act.
Cars can be a major source of friction in small businesses. Take advice on whether cars should be owned by the company or kept out, how they are financed, insured and how you are going to meet travelling expenses.
Give thought to what the ‘corporate look’ is going to be. If you plan to use a trade name, carry out a search to ensure the company name AND trade name can be used without legal ramifications. Companies House produce a free guidance on many company issues including basic guidance on the Companies Act 2006.
Your stationery, website and emails must show your registered number and other details. Adding your VAT number is usually a good idea (particularly if stationery will be used for invoices) so you will need to sort out these details before you can get your stationery printed. There is helpful information in the guidance issued by Companies House on company formation.
If your turnover is more than the VAT limit (currently £83,000) you must register for VAT. You must also tell HM Revenue and Customs (HMRC) that the company is trading. Failure to do so within the time limit may lead to a fine. Even if you do not need an audit, you will probably have to appoint accountants to make sure your accounts comply with the Companies Act 2006.
By law employers must have employers’ liability insurance. However, very small companies which employ only their majority shareholder are exempt from the requirement to carry employers’ liability compulsory insurance. This has brought them into line with sole traders who do not employ anyone else.
Also, contact your local HMRC office for the employer's PAYE pack. The HMRC website has helpful leaflets.
Normally, you will not be able to open a corporate bank account until your bank has seen the company’s certificate of incorporation. If you need borrowing, consider what security can be offered and who will give guarantees if necessary.
Employees have numerous rights and it is important to know which laws apply to you and to be ready for forthcoming legislation. For example, all employees are entitled to a written statement of their terms of employment and almost all to have a pension scheme provided for them under the 'Auto-enrolment' scheme.
Starting up a business can be a steep learning curve and you’re likely to come across a variety of challenging situations. But remember, you’re not on your own.
We understand the demands and complexities of running a business and our dedicated and experienced team of Commercial lawyers are always on hand to provide essential advice and analysis.
For more detailed information on any of the areas outlined above please contact a member of our Commercial team who would be delighted to share their expertise with you.