So, you want to set up your own Company – What do you need to consider.
You’ve taken tax advice and have decided that limited liability status will work best for you.
If you are going to incorporate as a limited liability company or as a limited liability partnership (LLP) here are a few pointers on what you need to consider next in the run up to incorporation.
Who will be your officers – ie your directors/company secretary or designated members. Note a private limited company can, since the Companies Act 2006 came into force, operate with a sole director only. A limited liability partnership must have at least 2 designated members. It is important to remember that the officers have responsibility for the day to day activities of the business they have obligations to fulfil and ultimately “the buck stops” with them. So choose your officers wisely and ensure that they are capable of fulfilling those duties and obligations.
Who will be the shareholders/members –these are the investors in the business. They are entitled to certain information about the Company/LLP, they have (in some cases) the right to vote on certain matters, receive dividends on their investment (where appropriate) and a right to return of their capital investment (as appropriate) but they do not have any further obligations to the Company/LLP other than under the terms of any shareholders/members agreement and the payment of any capital that remains unpaid by them. In some cases shareholders/members are the directors/designated members and/or employees as well but it is important to remember what “hat” that particular person is wearing at a particular time.
In today’s climate of tightened regulations regarding anti-money laundering and beneficial ownership, it is important for businesses to know where their investment is coming from so officers should carry out due diligence on prospective shareholders/members even at incorporation stage. Lenders, banks and others will also want to know who your shareholders/members are at various times throughout the life of your business.
Articles of association (limited companies only) – A limited company is governed by its articles of association as well as the provisions of the Companies Act 2006. If a company’s structure is simple and has one class of shares then the government’s model articles may be suitable for the Company to adopt. However, if there are to be different classes of shares (or different designations of shares), numerous directors with different responsibilities or if the company’s structure or business activities are more complex, then a bespoke set of articles should be put in place or at the very least a general trading set of articles which are more explanatory than the government’s model articles.
Will the business have a trading address? If so, will this be the registered office address or will you need to nominate a different address as the registered office? Every company and LLP must have a registered office address at which the company/LLP can be contacted, official post can be sent to etc however this need not be the trading address of the business or an officer’s home address. Many professionals including lawyers and accountants will offer their own offices as registered office address and will charge a fee for doing so – it is important that you check the different services that they offer within their fees before taking such a service.
Statutory Registers – Every limited company/LLP must keep a set of statutory registers which can be inspected at any time. These must be held at the registered office or at a nominated single alternate inspection location (SAIL). These registers (with a couple of exceptions) are not kept at Companies House so you need to ensure you have a set on incorporation and that you keep these up to date and available for inspection. The requirements as to which registers are statutory are set out within the Companies Act 2006 but include the register of directors, register of director’s residential addresses, register of members and register of charges.
Do you require a shareholders/llp agreement – If a Company has more than 1 shareholder even if they are all family members or close friends it is advisable to have a shareholders agreement setting out everyone’s understanding of their responsibilities and obligations – all too quickly things can get negative when people have different ideas once the business has begun to trade. If the Company can’t afford to have a legally binding shareholders agreement drafted at its inception then it is important that all parties have a written agreement of their understandings and obligations which they sign to avoid future conflicts. Once the company is in a position to have a legally binding shareholders agreement drawn up then it would be advised to do so. If you are operating an LLP then it would be strongly advised to have a membership agreement drawn up, particularly as an LLP has no other governing constitutional documents and is bound only by the provisions of the Limited Liability Partnership Act and the relevant provisions of the Companies Act.
Once you have made your decision on officers, shareholders/members etc you will be ready to incorporate.
If you require assistance with the incorporation process or with the decision making process leading to incorporation then please do not hesitate to contact Michelle Lamberth in our specialist corporate governance team (michelle.lamberth@herrington-carmichael.com) or on 0118 977 4045.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
