By Brian McLelland (pictured), solicitor and Managing Director at Business Lawyers Ltd.
You may have come across advertisements which make forming a company sound very easy, but before you go ahead there are some serious issues to think through.
If you have decided that a company is the best vehicle for your new venture then here is a checklist:
Before you go ahead there are some serious issues to think through
- Decide what to include in the Articles of Association and Memorandum of Incorporation. These documents lay down how the company is to be structured and what its operating procedures will be. Include the names of the director(s) and company secretary (if necessary). Include any positions that have special names or rights (e.g., managing director) and any specific limitations on directors.
- Determine who will own the shares and in what proportions. Changing this later on is fraught with potential tax traps.
- If you own trademarks you need to decide whether to keep them, or sell or lease them to the company.
- If the company will use a property owned by a director you need to decide whether or not you should have a lease. There are many tax considerations attaching to this, so take advice before you act.
- Cars can be a major source of friction in small businesses. Take advice on whether cars should be owned by the company or kept out, how they are financed, insured and how you are going to meet travelling expenses.
- Give thought to what the ‘corporate look’ is going to be. If you plan to use a trade name, do a search to make sure the company name AND trade name can be used without legal ramifications. Companies House produces a free guidance booklet on company names.
- Your stationery must show your registered number and other details. Adding your VAT number is usually a good idea (particularly if stationery will be used for invoices) so you will need to sort out these details before you can get your stationery printed. There is helpful information in the guidance issued by Companies House on company formation.
- If your turnover is over the VAT limit you must register for VAT. You must also tell HM Revenue and Customs (HMRC) that the company is trading. Failure to do so within the time limit may lead to a fine. Even if you do not need an audit, you will probably have to appoint accountants to make sure your accounts comply with the Companies Act.
- By law employers must have employers’ liability insurance. However, since 28 February 2005 very small companies which employ only their majority shareholder are exempt from the requirement to carry employers’ liability compulsory insurance. This has brought them into line with sole traders who do not employ anyone else.
- You can contact your local HMRC office for the employer's PAYE pack. The HMRC website has helpful leaflets.
- Normally, you will not be able to open a corporate bank account until your bank has seen the company’s certificate of incorporation. If you need to borrow, consider what security can be offered and, if necessary, who will give guarantees.
- Employees have numerous rights and it is important to know which laws apply to you and to be ready for forthcoming legislation. For example, all employees are entitled to a written statement of their terms of employment.
By Brian McLelland, MA Hons(StA),CELTA, Solicitor, LLM(Company Commercial), ACIS, Associate Lecturer(Contract and Tort), Director.
Brian can be emailed at brian.mclelland@business-lawyers.org.
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