Launching your first business is an exciting step – but one that must be prepared for thoroughly to avoid any problems and mitigate risks.
It is relatively easy to set up and run a limited company in the UK. However, it is essential that you take proper advice and comply with relevant legislation.
Here’s our quick guide to setting up your first business in the UK.
Naming the company
As a first step, you should choose a company name.
You cannot choose the same name as an existing company, or a name which is sufficiently similar so as to cause confusion. You can check whether the name you would like is already registered by accessing the Companies House website at: www.companieshouse.gov.uk.
You should also be careful that you do not use purported “sensitive words” in your company name. For example, you cannot have offensive words in the name, or words that imply an erroneous association, such as “Royal” or “Chartered”.
As a limited company (limited by either shares or guarantee), your company name must also end with “Limited” or “Ltd,” or the Welsh equivalent where applicable.
Our expert corporate solicitors can advise you on naming your company according to the rules and carry out a search of the Companies House register on your behalf.
The legal basics
Once you have chosen your name, it is time to incorporate your company.
A business cannot operate as a limited company until it has been incorporated at Companies House under the Companies Act 2006.
Once registered, you will receive a certificate of incorporation with your company number to show that your company has been incorporated together with your company’s articles of association (the “Articles”).
The Articles act as an internal rulebook for the company and describe how the company will be run, shareholders’ rights, any restricted objects, and details of what the directors may and may not do.
You can either choose to adopt “model” Articles, which contain certain default provisions for companies limited by shares or guarantee, or you can tailor your company’s Articles to include specific provisions – for example, you may wish to have different classes of shares with different voting rights.
Our corporate team is equipped to incorporate private companies and draft bespoke Articles to meet the specific needs of your business.
Officers of the company
All private limited companies must have at least one director.
The director/s run the company on behalf of the shareholders and have a number of legal duties towards the company. These duties are contained in the Companies Act 2006 and include:
- A duty to promote the success of the company.
- A duty to avoid conflicts of interest.
- A duty not to accept benefits from third parties.
- A duty to declare an interest in a proposed transaction or arrangement.
- A duty to exercise reasonable care, skill and diligence.
Apart from making business decisions, the directors are responsible for preparing and delivering documents on behalf of the company to Companies House and HM Revenue & Customs (HMRC), such as the company’s accounts and the annual return.
The role of the director is defined by case law and confirmed by the Companies Act 2006. Effectively a director should always act in good faith and in the interests of the company as a whole by declaring any conflicts of interest and not making personal profits at the expense of the company.
If in doubt, you should always seek professional advice, as acting outside the scope of applicable legislation can lead to fines, disqualification from acting as a director, personal liability for the company’s debts or even, in some cases, a criminal conviction.
Registered office and record keeping
It is a requirement of the Companies Act 2006 for every company to have a registered office at all times, and this must be a physical location where notices and letters can be sent to the company, and also where the company’s records that are required for inspection should be held.
You need to make sure that the address of your company’s registered office is on business letters, order forms and the website.
Employing staff
If you are going to be employing staff, you will need to be aware of the relevant law in relation to their employment.
This will cover not only their rights whilst employed, but also during the recruitment process and after their employment has ended.
You will need to consider what will be in your recruitment and employment contracts, how you will ensure compliance with employment law, and understand PAYE and National Insurance Contributions (NIC).
We can work with you to ensure you are aware of your responsibilities and obligations as an employer and to ensure you have the appropriate documentation and procedures in place in what can be a very complex area.
Insurance
Insurances is a legal requirement for most businesses and is vital to protect companies against claims made by staff and members of the public.
The three main insurances which you may need are:
- Employers’ Liability Insurance: This protects your company against claims made by employees if they believe that an accident or illness they have suffered has been caused as a direct result of their work. It is a legal requirement to have cover of at least £5 million – your company could be fined if you do not have sufficient insurance in place.
- Public Liability Insurance: This protects your company against claims brought by members of the general public or customers who claim to have been injured or had their property damaged while on company premises.
- Professional Indemnity Insurance: This covers your company against claims for loss or damage made by a client or third party if your company has been found to have been negligent in some or all of the services provided. Many professions and companies – such as solicitors, accountants, and architects – are required to have professional indemnity insurance cover as a regulatory requirement, or as part of their professional authorisation. Other consultants also choose to have this type of insurance.
We can advise you on your business’s requirements and help you decide which protections are suitable for your company.
Bribery
You must be aware of the risks of bribery and take every step to protect your business.
Under the Bribery Act 2010, it is a criminal offence for an individual or commercial organisation to offer or receive a bribe to bring about or reward the improper performance of a function or activity.
This includes bribing a foreign public official, even if that person has demanded a bribe.
It is important for you to ensure that you have adequate procedures in place and can demonstrate this through record-keeping and audit practices. The areas you should concentrate on are procurement, sales, marketing, hospitality, cash or credit handling and charitable activity.
We can advise you about how best to protect your business from infringing the Bribery Act.
Supporting your business ambitions
Starting out on your business journey is an exciting time, but one that is fraught with potential legal risks.
Our company and commercial law experts at Palmers Solicitors deal with all aspects of company law, advising you and your business at all points in its lifecycle, from incorporation to sale or dissolution.
We will help you handle your legal obligations, leaving you more time to focus on growing your business.
For tailored advice on setting up your first business, please contact our company and commercial law specialists today.