One of the main challenges for the entrepreneur is choosing the right type of company to incorporate in the UK. This way you will minimise costs, speed up profits and your integration into the new business environment. It is often difficult to do this on your own without the help of qualified legal professionals who understand all the nuances of the country’s legislation. That’s why it’s a good idea to seek the advice of competent lawyers if you decide to register a company in England.
The type of commercial organisation in England determines how it will interact with the tax authorities and other state bodies, what reporting will need to be done at the end of the tax period, how labour relations with employees will be structured and many other issues. The company’s intended field of activity and your personal preferences are also decisive.
A commercial organisation in the UK can be corporate, such as a limited company, or unincorporated, such as a sole trader or partnership. Let’s look at each of these options separately.
As a sole proprietor, you can work for yourself and at the same time be employed. Running a business in this status is relatively easy because sole proprietors are not burdened with complicated paperwork and reports.
Self-employed citizens and permanent residents of the United Kingdom can register as a sole trader. It is worth considering formal registration for those whose business activities have started to bring in more than £1,000 a year.
Unfortunately, the liability of individual entrepreneurs in England is not separate from their business. And if the business activity of such a businessman fails, the debts incurred will have to be paid out of his own pocket.
This type of commercial organisation is a legal entity separate from its founders. LTD in its own name can conclude contracts, take loans, buy real estate and other assets. All responsibility for the results of its activities is borne by the private company, and not by the private individuals who founded it. The owners of such a company are liable for its debt obligations only within the limits of their personal guarantees or the amount of their investment in the authorised capital.
The most common type of British company is also characterised by the fact that one and the same person can be both its owner and director. There are no restrictions on nationality or place of residence for the founders. There are two types of such structures in the United Kingdom:
In both cases, the founders’ liability is limited to the nominal value of the shares they hold or a fixed sum of money they guarantee to pay in the event of bankruptcy.
Whereas the limited liability company discussed earlier can only issue registered shares belonging to specific persons – co-owners of the company, any person or company can become a shareholder of an English PLC. If, of course, the founders of such a company decide to place the company’s shares on the securities market.
The material liability of UK PLC shareholders is equal to the market value of the shares held.
Basic PLC requirements
A public limited company registered in England must:
It is a legal entity independent of its members, capable of owning physical assets (e.g. commercial property) and entering into contractual relationships with other companies.
Partnerships in England are not subject to corporation tax. All LLP partners are self-reporting and paying tax on profits arising from partnership activities.
In the event of bankruptcy, each member is liable only for the amount they contributed when the partnership was formed. If the members of an LLP are tax residents of another country and the company does not carry on business in the British Isles, they pay tax only in their country of residence and not in England. In some circumstances a partnership may not have to pay stamp duty on the acquisition of immovable property.
Basic requirements for LLP
This type of commercial organisation is similar in its main characteristics to the previously discussed LLP. However, there are still some differences:
Like a normal limited liability partnership, a Scottish partnership must have a unique name. It requires at least 2 partners, either natural or legal persons. At least one partner must be a general partner.
A branch of a foreign company is registered in England if it so plans:
Branch, unlike the previously discussed types of company, has no legal personality of its own, so any debts incurred as a result of its bankruptcy will be paid by a parent company registered outside the United Kingdom.
In recent years it has become much easier for foreign nationals to set up a company in England. With the help of experienced registration agents of Imperial & Legal in London, you can do it remotely, without leaving your own office. The procedure of registering a business in the British Kingdom can be divided into 5 short stages:
The key word here is “original”. Your company name must not repeat or be similar to the names of business entities already registered in the country. Nor should you use words that resemble copyrighted trademarks, or obscene and offensive words or phrases as your company name.
In this step, the following parameters are defined:
Under new rules, a PO Box can no longer be used as the registered address of a UK company. The British authorities want even multinational companies that have no economic presence in the country to list a real office as their registered office. Ideally, there should be a company representative at the registered office who will respond promptly to all official correspondence. In most cases, the corporate secretary based in England will be responsible for liaising with the authorities and administration. A huge advantage of Imperial & Legal is that we have our own office in London, which we are prepared to provide to the entrepreneur as a legal address, and our package deals for businesses already include a corporate secretarial service. A company can be managed by its owners or by hired managers. If a company has several directors, they all form a board, with the chairman in charge of overall management. Regardless of whether the director, founder or salaried employee, Companies House requires directors and founders with significant control to be qualified. A qualified director and founder with the ability to make management decisions in the firm cannot be bankrupt. Nor can a business insolvency and injunctions to hold the position of director and/or run the business.
For the most common forms of business in England, limited companies, the memorandum of association and company charter will be the articles of association.
When our specialists check and approve the name of the company, discuss with the client and fix in the constituent document the company’s structure and managers, the application for registration is sent. Imperial & Legal does this using a special programme, filling in the relevant form for the entrepreneur, paying the fee and uploading the supporting documents. As you were assisted by professionals during the preparation stage, it will take no more than 2 working days for the Registration Chamber to make a decision on your application.
If you have not set up a dormant company, your worries do not end with the issue of the Certificate of Incorporation. The UK company will need to open a bank account to settle accounts with partners and customers. If your business has a significant turnover, you will need to register for VAT. Those foreign entrepreneurs who plan to employ British staff will need to register separately with the tax office.
The format of this short publication does not allow for a more detailed consideration of tax optimisation issues. However, the corporate and tax legislation of the British Kingdom has a lot of hidden opportunities to reduce the tax burden on business.
These tasks and many more are successfully solved by our specialists, both as part of our standard integrated business solutions and individually.
For many years, Imperial & Legal’s qualified lawyers have been successfully providing legal support for business projects in the UK. Having analysed the accumulated experience, we have prepared for you three unique products that comprehensively solve the problems of a start-up UK business: the Basic, Basic Plus and Imperial Maximum packages.
When you choose the right package for you, you get support from the basic minimum for company incorporation and initial administration to assistance with entry visas for employees and help with opening a UK bank account.
You can find out more about the costs of starting and running a business in the UK, as well as Imperial & Legal’s offerings for company incorporation and support for your business in the UK and other countries in this article.
It can be difficult for an untrained person to understand the intricacies of British law on their own, as well as to choose a suitable type of company or partnership for doing business in England. Therefore, in order to protect yourself from future questions from the tax inspection authorities, it is recommended that you consult a competent lawyer in advance.
Book a consultation with one of Imperial & Legal’s specialists and we will help you choose the type of company in the UK and provide you with all the additional information you need. In addition, our qualified lawyers will provide the necessary assistance in registering a company in the UK, opening a bank account, tax planning and payment and other matters related to running your business in the UK and other countries.
According to statistics, the LTD– limited liability company – is in the greatest demand among entrepreneurs. English and foreign entrepreneurs are attracted to such a commercial structure:
limitation of liability to shares in the share capital;
lack of complex requirements for founders;
no restrictions on minimum share capital and no requirement to pay for share capital;
relatively simple registration procedure;
the low cost of maintaining such a company.
In the modern UK, the standard rate of corporation tax is 25%. It applies to all corporate structures whose profits in the reporting year exceeded £250,000.
If a business earned less than £50,000, corporation tax will be calculated at 19%. More fortunate companies whose total income ranges between £50,001 and £250,000 will be charged corporation tax on a progressive scale from 19% to the standard 25%.
Certain UK companies are subject to a special tax regime involving:
higher corporate tax rates, such as in oil and gas extraction;
a reduced percentage of tax, as when charging corporation tax on residential property builders’ income in excess of £25million, in which case the rate of corporation tax will be just 4%;
a fundamentally different way of calculating corporate tax, such as the tonnage tax regime for ship carriers.
The principle of pass-through taxation or, as it is also called, single-tier taxation implies that a business structure does not pay corporate tax on the profits earned. First, the income received is distributed among the founders, and then the owners of the company submit tax returns and pay income tax at their tax residence.
UK registered partnerships, whether they are general partnerships, limited partnerships, limited liability partnerships or Scottish limited partnerships are subject to the principle of pass-through taxation, where tax on profits is only payable at partner level.
Such a business structure will not pay taxes in the UK, either at the level of the organisation or at the level of its individual members, if all business activities are carried on abroad and all partners are tax resident in other countries.
As mentioned above, the involvement of a competent registration agent ensures that a favourable decision on the registration application will be made within 48 hours. How do you realise that your company has been officially registered?
Firstly, a corresponding entry about your company must appear in the public register of companies, and the company itself is assigned a unique identification number by the Registration Chamber.
Secondly, once the company is registered, you will receive a Certificate of Incorporation electronically, which will also be available on the website of the Registration Chamber.
Thirdly, official letters and notices will start arriving at your registered office.
As we know, in the UK, a company is dormant if it does not carry on any commercial activity either in or outside the country and there are no significant transactions in its current account.
A new company is made “dormant” in order to prepare in advance a ready-made corporate structure in England for a business project to be launched in the foreseeable future. Another common reason for registering such companies is the desire to secure a favoured original name for the company.
Finally, we should not forget about situations when, for whatever reason, commercial activity is temporarily suspended and the existing company is made “dormant” until better times.
This is not necessary. The fact is that all limited companies in England are automatically registered for corporation tax when they are formally registered at Companies House.
UK entrepreneurs register separately for VAT and also for PAYE when they take on employees or set their own salaries, for example as a company director.
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