Incorporating a private company limited by shares, how hard can it be?

Starting up a new business can be exciting and involves a myriad of decisions, including the business structure. The type of business structure you choose will depend on many factors such as the type of business you intend to run, what you aim to achieve and how the business will be funded. A private company limited by shares is the most common form of company. If you, as an entrepreneur wish to incorporate a company, this blog will help.

There are two ways a company may be incorporated; using a hard copy form which is posted to the Registrar of Companies (taking 8-10 days) or, by electronic filing, which usually allows the company to be registered within 24 hours.

To register a company, you must file all the necessary documents (see below) and pay a fee to Companies House.

Choosing a company name

You must choose a name for your new company. However, certain rules must be adhered to. For example, the name cannot be the same as, or too similar to, another registered company's name, or contain sensitive words or be offensive.

More information on choosing a company name can be found here.

Principal business activity

An IN01 is the form to be completed to register your new company. On the IN01, you must provide at least 1 standard industrial classification of economic activities code (known as a SIC code). A SIC code describes the nature of business of a company. If you are unable to find a suitable SIC code to match your company's activities, you must provide a short description of what your business does.

A list of SIC codes can be found here.

Registered office

You must provide a registered office address; this is where all written communications will be sent.

If you choose to register your company in Scotland, you must have a registered office in Scotland. Find out more about registered offices here.

At Brodies, we offer a registered office service.

Company directors

When incorporating a private company, you must appoint a minimum of one director and must always have one natural person (and not a corporate entity) appointed as a director throughout the company's life.

A director must be at least 16 years of age and must not be disqualified from acting as a director.

Company secretary

Private companies no longer need to have a company secretary, but you may appoint one if you wish.

Shareholders

If you wish to incorporate a company limited by shares, at least one initial shareholder (also known as a subscriber), holding a minimum of one share is required. There is no maximum number of shareholders; however, this may be restricted by the company's articles of association.

Issuing the initial shares

When registering your company, you must provide a statement of capital. This sets out the total number of shares each subscriber will take on incorporation of the company, the total nominal value of the shares and the total amount to be unpaid on such shares (if any).

The "prescribed particulars" states the rights that attach to each type/class of share. A company may have various classes of shares with different rights. For example, a certain class of shares may hold more voting rights or an entitlement to a greater share of profits.

Person with significant control ("PSC")

A PSC is someone who significantly influences or controls your company. Their details must be recorded on your company's PSC register and must be included on the application to incorporate your company.

Normally, PSCs are those holding:

• more than 25% of shares in the company
• more than 25% of voting rights in the company
• the right to appoint or remove the majority of the board of directors
• the right to exercise, or actually exercises, significant influence or control over the company

It is possible that your company may not have a PSC, but this must be stated on your application.

Constitutional documents

In order to register a company, it must have a memorandum of association and articles of association.

A memorandum is a statement that the company's subscribers wish to form a company, agree to become members and to take at least one share each. If you register your company using an electronic method, this will be created automatically.

Articles of association are essentially a company's rulebook, setting out how the company must be run.

On incorporation of a start-up, you may wish to adopt model articles, which are the standard default provisions that regulate how a company is run. Alternatively, you could adopt the model articles with amendments or entirely bespoke articles. These two options allow the shareholders wishes to be reflected in the company's articles but will require more work, incurring additional expense.

If you are considering incorporating a company, please get in touch with your regular Brodies contact or one of the contacts listed below.