What is a Private Limited Company?

Starting up a company can be liberating, as a bit of substance around your fabulous money-making idea, but it can also be overwhelming. The jargon can be confusing, the various options mystifying, and the prices can be atrocious! All the while all you’re really thinking is, I just want to set up a company, and why is this so complicated? Well, it doesn’t have to be.

There are numerous structures and types of companies which you can use to set up your business, but almost certainly if you’re reading this you are thinking about a private company limited by shares – that is the most common type of company set up in the UK, and by a huge margin for startups that are looking for investment.

A limited company is a separate legal entity from its shareholders and directors, in that duties of the company are not treated as personal duties of the members. It can own its own property, employ people, sue people, and do everything that a human can do – all without the shareholders being personally liable for its debts. At the same time, the company’s cash and assets are not available to its shareholders unless the company decides to pay them out.


How can I Incorporate a Company?

A limited company must be incorporated at Companies House, the governmental body in charge of the regulation and incorporation of limited liability partnerships and companies in the United Kingdom.

You can set up your new company, customised to meet your requirements, either yourself or using a company formation agency or other adviser. This typically takes no more than a few days, or could even be done on the same day.


What do I Need to Consider when Setting Up a Company?

Name of Company

You must decide on the name of your company as that will be the legal registered name on all your official business documents. This can be entirely different from your business name however – read our FAQ’s on  Naming a UK Company here for further clarity on what you can and cannot do, and the difference between these two names.

Shareholders

A shareholder is a member of the company who owns at least one share in the company - a company must have at least one shareholder holding a single share. Shareholders can be individuals and corporate entities. It’s fine for your only shareholder to be your only director too, and lots of companies are set up that way.

The shares must be identified as a share class, which is a set of shares with a particular set of rules or characteristics applying to it. Usually, unless there are specific requirements, companies use ordinary shares which all rank equally with respect to voting, dividends and distributions so that each shareholder’s entitlements tracks their percentage ownership of the company.

It is possible to vary those rights in other share classes – so for example you might have a class of share with full economic rights but no votes, or a class of shares with heavily-weighted voting rights on certain issues. Do note however that anything out of the ordinary will have to be explained to anyone looking to take equity (e.g. an investor), and most share-related tax reliefs will have requirements as to the shares involved which must be observed.

Directors

An English private company is legally required to have at least one director, which must be an individual. Any individual can be appointed as a director by the members, or any other way written into the articles of association (often the remainder of the board). The directors act collectively to manage the business of the company on behalf of the members. There are no UK residence or nationality requirements for directors.

An individual cannot be a director if they are: (i) disqualified from acting as a director (unless you have court permission to do so for a specific company); (ii) an undischarged bankrupt (unless you have court permission to do so for a specific company); or (iii) under the age of 16.

Note that being a director of the company does not automatically make you an employee of or consultant to that company. Directors are therefore usually required to enter into some sort of contract with the company setting out the terms of engagement, including the duties and responsibilities, termination provisions and any other requirements (e.g. a non-compete obligation for a period after they leave).

Secretary

A private company does not need to have a secretary, unless required by the company’s articles of association. This is entirely optional, but whether or not a company secretary is appointed company secretarial work (filing at Companies House, keeping the company’s records up to date, etc.) will still need to be done. Many incorporation agents and other service providers offer this as a paid service.

People with Significant Control

A person with significant control (or “PSC”) is a human person or corporate entity who owns or controls the company.  A company can have one or more PSCs. If a PSC cannot be identified, or the company does not have one, the company must confirm that to Companies House.

A PSC must state its nature of control, and there are certain conditions it must meet to illustrate its nature of control. Usually control is measured through the percentage of shares someone owns (25%+ makes you a PSC); the percentage of voting rights owned (same); the right to appoint or remove a majority of the board of directors; or some other right to exercise significant influence or control of the company.

A PSC will either be a human individual or a corporate entity.  As a general rule, if a company has a PSC which is a corporate entity, that entity will only be a PSC if it is also a UK-incorporated company or if the PSC is listed on a stock exchange – basically, any company which has its own PSC (or similar) requirements.  For example, if a company is 100% owned by a private company in the US, that US company is unlikely to be a PSC and you would need to trace through company structures and identify the ultimate controlling person.

Registered Office Address

Your registered office address must be a physical address, in the same part of the UK where your company will be registered - for example a company registered in England must have a registered office address in England. You can change your registered office address later, but you can’t change its jurisdiction. Your registered office does not need to be the place where the business carries on its day-to-day activities.  Bear in mind that your registered office must be an address where a human person can accept a document on the company’s behalf – so no P.O. boxes or unmonitored addresses. 

Note that the registered office address will be made available to the public, so think carefully before you use your home address as the registered office.

If you do not have a relevant address you can use, there are service providers which offer a registered office address service. You must make sure the service includes sending all of the company’s mail to you, however, as any mail that is sent to the registered office (including court papers, if someone is suing you) counts as received by the company.

Registered Email Address

Companies House requires companies to provide an appropriate registered email address, i.e. an address where emails would be expected to come to the attention of a person acting on behalf of the company.  Companies House will use this email address to communicate with the recipient about the company.  The email address won’t be publicly available. 

Service Address and Residential Address

Directors will need to provide to Companies House a service address that they can receive communications to about the company. The service address will be publicly available information, as mentioned above.

This can be the same as the company’s registered office address, the director’s personal residential address, or a different address entirely – but again, ensure that you will be able to access the address or get all mail sent on to you.

When incorporating the company, a director will have to disclose his residential address, however this will not be available for the public to see (unless it is also their service address).

Capital Requirements

There are no minimum capital requirements or a certain amount of money you need to put into your company before you can register it and get it up and running. The only requirement is that you need to issue at least one share, and that share will need to have what is called a nominal value.

A nominal value is the lowest price someone can pay to subscribe for a newly-created share from the company, and must always be above £0. By default a share’s nominal value is £1, but it can be higher or (more usually) lower – just note that the nominal value will have to be paid to the company. People can pay more than the nominal value (which is called “share premium”), but never less.

Startups often like to have very low nominal values, so that share numbers can be calculated in the tens or even hundreds of thousands without founders or other new shareholders having to pay substantial capital to the company.

Statement of Capital

Once you’ve figured out who your shareholders are, what their shareholding will be, and what the nominal value of those shares will be, this will allow you to set out your statement of capital. This illustrates the total shareholding of the company multiplied by the shares’ nominal value. So, for example, if you have 100 shares in total in issue, and each share has a nominal value of £1.00 each, your statement of capital will sum to £100.00. If each share has a nominal value of £0.01 each, it will sum to £1.00, and so on.

Company’s SIC Code & Business Activity

You must disclose the nature of the business activity your company intends on doing, but don’t worry – this doesn’t lock you in or prevent a pivot later on, it’s just for government record-keeping. This is translated through a standard industrial classification code (also known as “SIC”). A company must list at least one SIC, and can choose up to four, and Companies House provides a list to choose from.

Memorandum of Association

This confirms the subscribers’ intention to form a company and become members of that company on its formation. It’s a really short one-page document that will be included in your incorporation documents, and will be created automatically as part of your registration (provided the company is incorporated electronically and not via post).

Articles of Association

This serves as the company’s rulebook and sets out how the company is to govern all its matters. The shareholders choose what rules to put in place, the purpose being to ensure the company is run smoothly, decisions are taken effectively by the shareholders and directors, and general governance of shareholding and decision-making takes place. The Articles are a legal requirement of every company, and they are legally binding on the company and all of its members.

If you’re lost as to where to start, there is a set of standard Model Articles that are a default position and set out a useful, if vanilla, set of rules. On incorporation, your company can adopt Model Articles in its entirety, Model Articles with amendments, or it can draft up its own unique set of Articles. If not indicated, Model Articles will automatically be applied.

Keep in mind that after the company is up and running, you must notify Companies House each time the Articles of your company are amended/updated – and investors will almost certainly want to make some changes, when they come along. So long as the provisions are not illegal, you can amend your internal rulebook to reflect anything.

Certificate of Incorporation

This is proof that your company has been successfully registered. This will be sent to you once the incorporation of your company has been completed and will be signed or authenticated by the registrar. The certificate states that this is a private company limited by shares, and:

  • The name and registered number of the company;
  • The date of its incorporation; and
  • Whether the company’s registered office is situated in England and Wales, Wales, Scotland or Northern Ireland.

Accounts

Full accounting records of all trading and financial activities of the company must be kept and for each financial year annual accounts must be prepared. The annual accounts must be filed each year at Companies House.  The precise accounting requirements for each company will vary according to a number of factors and in particular whether it qualifies as small, medium-sized or large company. Specialist accounting advice will always be needed.

Statutory Records and Filings

The board of directors will usually have meetings that will be recorded in board minutes, and shareholders will vote on matters either live in person at a general meeting or in the form of written resolutions. Shareholder resolutions can either be special resolutions or ordinary resolutions or a combination of both.

Special resolutions require the approval of 75% of the votes at a meeting, or 75% of the shareholding if in writing (i.e. shareholders owning a collective total of 75% of the shares which have voting rights attached to them), and ordinary resolutions require the approval of a majority of the votes at the meeting or a majority of the shareholding in writing.

A company will also need to create statutory registers (sometimes called statutory books) which record details of the company’s registered office address, directors, secretary (if applicable), shareholders, share capital, PSCs, new shares created, any share transfers that may occur, and any charges the company may create as security for its debts.

All these documents must be kept at the company’s registered office, or if they are kept somewhere else that address must be notified to Companies House.

Filings must be made with Companies House on an ongoing basis in relation to the company. These would include:

  • any changes in relation to its directors or its PSCs;
  • any changes to the Articles of Association or registered office;
  • certain shareholder resolutions and changes to share capital; and
  • the registration of mortgages or charges created.

The company must also file annually at Companies House a confirmation statement confirming the up to date details of its corporate information.

Stationery

The full corporate name of the company must be displayed at any of its business addresses and its registered office. All business correspondence and documents, whether in hard copy or electronic form, and the company’s website, must show the full name of the company. 

All business letters (including emails), order forms and the website of the company must also show its registered number, place of registration (England and Wales) and registered office address.  Names of the directors need not be provided but if the name of one director is shown (other than in the text or as a signatory) then the names of all directors must be shown.



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