Setting Up a Company - 8 Things To Know

We are seeing lots of examples of companies being set up incorrectly.

Incorporation agents and companies house let you set up your company without many checks and balances.

Here are 8 things you need to know:

1. Nominal Value of Shares Has no bearing on the value of your company. What is a Nominal Value? Helpfully, it's what it sounds like: Nominal. You can set up a company with £1 Nominal Value of Shares or 10 £0.10 shares or other combinations.
2. Number of Shares Again, has absolutely no bearing on the value of your company. The value of your company will depend on several factors like Profit and Assets, not on the number of shares issued when you set up the company.
3. Share Capital The Nominal Value of Shares x Number of Shares eg If you decide to have a £1 Nominal Value, and to issue 10 shares, say 5 shares for you and 5 for your spouse, your company's Share Capital is £10.
4. Amount You Pay Aside from the £15 charged by companies house, you also owe your company the total Share Capital referred to in 3. Eg £10.
5. Directors and Company Secretary You only need to appoint one Director and you do NOT need a Company Secretary.
6. Registered Office Any postal address, very commonly your home address.
7. Articles Of Association Your Company's Rule Book. If the companies house standard doesn't deal with a situation which may occur eg you don't want a shareholder to be able to sell his shares to anyone outside of the existing shareholder family, you need to build in a procedure either through amending the Articles or by setting up a Shareholders Agreement.
8. HMRC Consequences As soon as you set up your company, companies house informs HMRC corporation tax. Instantly you have both companies house and HMRC deadlines to deal with. Make sure you know what they are.

One client who had set up his company with 1,000 £1 shares, therefore now owes his company £1,000, said that he couldn't believe how easy it was to set up his company.

Our client has to either pay £1,000 to the company, strike the company off and start again, or once the company is profitable, sign a statutory declaration that the company will be able to pay its debts as they fall due and reduce its share capital. If the company isn't profitable this is a further cost he can do without.

It is great that we can easily set up companies, but do be aware of these pitfalls.