When setting up a new business in the UK, there are several factors that need to be considered to ensure that the business is operating in compliance with the law, and to protect the interests of the business owners. Here are some of the key considerations:
Business Structure: The first and most important factor to consider is the legal structure of your new business. The most common types of legal structures in the UK are:
- Limited Company: A limited company is a separate legal entity from its shareholders. It offers limited liability protection to its shareholders, meaning that their personal assets are not at risk if the company encounters financial difficulties. This is the most common type of company in the UK and can be either private (Ltd) or public (PLC).
- Limited Liability Partnership (LLP): An LLP allows a member’s liability to be limited to an agreed amount and offers limited liability protection to its members, meaning that their personal assets are not at risk if the LLP encounters financial difficulties. The members of the LLP are also responsible for managing the business. This structure is often used by professional service firms.
- General Partnership: A general partnership exists where two of more individuals carry on a business in common with a view to profit. Unlike an LLP, under English law, a general partnership has no separate legal personality and the liability of the partners for each other’s actions will vary depending on the actions in question.
- Sole Trader: A sole trader is an individual who runs a business as a self-employed person. There is no legal separation between the business and the individual, meaning that the individual is responsible for any debts, and this can mean personal assets are at risk.
If you have decided that the prefer structure would be a Limited Company, some of the further key considerations are:
Company Name: An essential element when setting up a new company in the UK is to choose a distinctive name that is not already registered. The availability of a company name can be checked using the Companies House name availability checker. The name must also meet certain requirements, such as not being offensive or misleading.
Appoint directors and a company secretary (if required): A company must have at least one director, who is responsible for managing the company. A company secretary is optional but may be required depending on the type of company.
Decide on the share structure: The share structure, including the number of shares and their value will need to be decided. Many companies also have different share classes which enables the company to vary the rights of different groups of shareholders, for example voting rights or rights to dividends.
Shareholders’ Agreement: Although not a requirement, it is recommended that a shareholders’ agreement be put in place. This is an agreement entered into by some or all the company shareholders and is beneficial as it regulates the relationship between the parties to the agreement and protects the rights of the individuals as shareholders of the company. For further information, see our blog post on 5 reasons why you should put a shareholders’ agreement in place.
Memorandum and Articles of Association: The Articles of Association are a legal document that includes information on the company’s purpose, directors’ rights, and responsibilities, and how profits and losses will be distributed. The Articles of Association are an essential document for ensuring the smooth and efficient operation of the company. The Memorandum of Association is a legal document that outlines the fundamental details and objectives of a company during its formation. It defines the company’s name, registered office address, purpose, and initial shareholders. The Memorandum of Association is a requirement when incorporating a company in the UK, and it serves as the company’s constitution.
It is important to note that this is not an exhaustive list and that legal requirements can vary depending on the specific circumstances of the company. Please contact Blacks Solicitors’ Corporate Law team by email or on 0113 207 0000 if you would like to discuss your new business.
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