Top 5 tasks when opening a company in the UK
Setting up your own company can be extremely rewarding, but a successful business requires a lot of planning and hard work. This guide will walk you through what we consider to be the key operational and strategic tasks when preparing to incorporate your own company.
1. Corporate Governance considerations
Your corporate governance is the set of rules that determine how the company will be run and should be decided on before formally establishing your company.
What type of company will it be?
The type of company that you choose will have a direct implication on how you can employ staff, pay tax, and run your business.
- limited company
- business partnership
- social enterprise
- overseas company
- unincorporated association
Each of these business types have different requirements. For the purpose of this guide, we will be looking at the requirements of the most common company type: a Limited company.
Who will the director(s) and company secretary be?
- The director is responsible for ensuring that the company remains compliant with its own rules and the requirements of the UK Government. Many early-stage companies have just one or two directors, and many of these directors absorb the responsibilities of the company secretary until they increase in size. See Gov.UK’s page for details on your responsibilities as a director.
- If you’re unsure if you or other potential directors / company secretaries are eligible for the roles, ensure to review the Gov.UK website’s guidance.
What documents do you need to create?
As Gov.UK explains “When you register your company you need:
- a Memorandum of Association: a legal statement signed by all initial shareholders or guarantors agreeing to form the company
- Articles of Association: written rules about running the company, as agreed by the shareholders or guarantors, directors, and the company secretary
A full list of the company and accounting records you must keep can be found here. Unsure about how to create these? Join QCap for free and receive our free boilerplate company documents.
2. Build your Business Case
Before you formally register your company, take stock of your ambitions for this business. It can be helpful at this point to pull together a high-level business case to consolidate your thoughts. Here are some pointers to get you started:
What is your mission?
- What is your immediate 1-5 year goal for the business?
What is your vision?
- What is the Utopian world you want to create through achieving your business’ goals?
What solution are you bringing to the world?
- What is your product or service and who is it for?
- What is your unique selling proposition?
- Why are you going to win where others have lost?
- Why is now the right time for your solution?
Who are your competitors?
- How are you different from them?
- How do you plan to out-compete them?
How are you planning to market and grow your solution?
- How will you make your business financially viable?
What are your values as a company?
- What does the company and its team stand for?
Take this business case to friends, family, and business mentors. Test it with them. Be open to criticism and really understand what you’re aiming to achieve with this business. Try to fully understand your biggest risks and opportunities.
It can also be helpful at this point to write down why you are setting this business up, then store this safely for your own reference. It can be a helpful prompt at a later date when you need reminding of what inspired you to change the world.
Read, read, read!
Learning from others by reading and researching at this stage can really help you refine your business concept. Some of our favourite books for first-time founders include:
- The Checklist Manifesto by Atul Gawande
- Obviously Awesome by April Dunford
- Getting Real, or really anything by Basecamp (formally 37Signals)
- High Output Management by Andrew Grove
- Turn the Ship Around by David Marquet
3. Pick a name
While you don’t want to spend weeks dithering over which name to go with, it’s important to allocate time to this task to avoid future headaches associated with copyright infringement or SEO challenges. When deciding, ensure to consider:
- The official guidelines for naming your business
- Whether the name is available on Companies House
- What narrative can you build around that name? You can explore different options through sites such as VisualThesaurus and Naminum which allow you to experiment with keywords related to your business. But don’t go too specific if you plan to diversify your company at a later date – you don’t want to limit your future growth!
- The names of your successful competitors – whether you want to imitate them or go for something completely different!
- Whether the name has links to or associations with any pre-existing groups, companies, ideas, people – through internet searches and speaking to friends and family.
- Whether the name is intuitively pronounced and spelt – try getting your friends and family to write and pronounce the company name and give their feedback.
- Whether you like the name – spend some time playing with it and talk to your friends and family about their views.
- Is the trademark for this name available across any of the jurisdictions you plan to operate in, e.g. the UK, or Europe.
- Whether the word means something rude or unexpected in a different language – check with sites like Word Safety.
- Whether the social media and website domains are available – check with sites like Namech_k.
4. Calculate your shareholding
This is arguably the most important consideration when establishing your company. The initial shareholding (or equity structure) determines who owns what percentage of your company.
Before issuing your company shares, think about what your shareholding structure should look like today and what it may look like in the future.
How many shares should I issue?
You can issue as many shares as you would like, but you must assign at least one share per shareholder. The number of shares owned by any one shareholder
If you are a one-person operation and not looking for investment any time soon, you may simply create 100 ordinary shares issued to yourself for 1 pence per share. This means that the company and its assets are worth £1 and you own 100% of the company and its assets.
If you want each founder to have the flexibility to buy and sell their shares in the future, you may want to issue between 1,000 and 1,000,000 shares to allow for this future liquidity.
Tip: make sure the founding shareholders pay for their shares at the time of the share distribution, even if the amount owed is less than £1. You need to ensure the money is transferred contemporaneously with the share distribution (and that this transfer is recorded in the company accounts) to avoid future administrative headaches!
What percentage of shares should each founder receive?
If you have multiple founders then the shares will have to be distributed amongst the founding team. Each company calculates the equity split between the founding team differently, but the amounts will likely depend on a number of factors, including (but not limited to):
- The amount of funds they are putting into the company
- The amount of value (expertise, IP, network, etc.) that they bring to the company
- The amount of time they will be committing to the company
When working this out, try creating a basic cap table. You can use QCap for free to visualise how the equity split would look.
What if I change my mind at a later date? Can we switch around the shares?
While you can’t retrospectively change the allocation of shares, you can issue new shares to adjust the percentage ownership of the company.
However, do bear in mind that the company’s value will increase as you grow the company, meaning that the shares will be worth more and therefore the tax to be paid on the shares will increase over time.
What if someone leaves the business right after we assign our shares? Do they get to keep their equity?
If you assign standard ordinary shares, it doesn’t matter whether the shareholders leave the company on day 2 or remain employed with the company for its entire lifetime – they still own the shares that they were granted when the company was established.
To avoid this potential risk, many companies apply terms and conditions to their shares – e.g. you may decide that they have to sell their shares back to the company when they leave. Many companies also opt for vested shares, where you ‘earn’ the shares by working with the company over a certain period of time, e.g. you may have a vesting period of 2 years, so if they leave the company after 12 months they only receive 50% of their shares.
5. Operational and administrative considerations
You will doubtless grow and improve your operations in a way tailored to your specific business needs, so here is a list of operational and administrative considerations that are relevant to every founder when starting their business.
Before starting your application on Gov.UK, ensure that:
- You can pay the £12 fee online – via PayPal or debit/credit card.
- You know whether the new company is taking over another business or not (including whether you’re buying another limited company, changing a sole trader business into a limited company, or changing a partnership business into a limited company).
- You know if any directors or ‘persons with significant control’ are listed on the Companies House secure register. The secure register is for victims of threatening behaviour or violence who cannot risk having their home address information on the public register.
- You have an active email address.
- You have decided what SIC code(s) your company will be listed under.
- You have decided what company address you will use, ensuring that it complies with the rules for company addresses.
- How are you planning to finance your business? Do you have your own funds? Do you plan to fundraise? Do you plan to take out a loan? Do you expect to have income from day 1?
- Work out what operational costs you will bear. A good list to start your calculations can be found here.
- Take a look at our operational HEALTH checklist for inspiration on establishing your equity, access control (physical and digital), liquidity (accounting), technology (systems and services), and HR (employee handbook, documentation).
- The Government’s Business Support teams can help assist you in all aspects of establishing and running your business. They are now available across a range of platforms so don’t hesitate to reach out for free assistance: https://www.gov.uk/business-support-helpline?step-by-step-nav=37e4c035-b25c-4289-b85c-c6d36d11a763.
Setting up your company
Congratulations! You’re now ready to formally register your company with Companies House.
Once you have done this, ensure to:
- Register with HMRC for Corporation Tax (if you didn’t already do this when registering your company)
- Register for VAT (if applicable for your business)
- Put a reminder in your calendar for when you are due to submit your first Confirmation Statement
- Decide on what lawyer, bank, and accountant you will be using, if you choose to outsource these services
Good luck with your business and enjoy some of our favourite quotes for first-time founders:
“Trust your instincts.” –Estée Lauder
“If you’re going through hell, keep going.” –Winston Churchill
“I’m convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance.” –Steve Jobs
“Remember to celebrate milestones as you prepare for the road ahead.” –Nelson Mandela
“The critical ingredient is getting off your butt and doing something. It’s as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer.” –Nolan Bushnell, Entrepreneur
Disclaimer: Please note that this article and all content posted on this domain is intended to inform rather than advise. As such, it should not be construed as financial, legal, or tax advice.