Starting a Business in the UK

Type of Legal Presence: Choice of Entity

There are two principal ways for a foreign investor or company to carry on business in the UK. You may:

1. register a UK establishment or
2. incorporate a private limited company

Before making your choice, you should consider the following questions:

• How substantial will your business activity in the UK be?
• What risks do you anticipate during the initial set-up?
• How long do you expect to do business in the UK?
• What are the associated regulatory costs?
• What are the disclosure requirements?
• What are the tax implications?
• What are the commercial considerations?

UK establishment

A UK establishment is:

• a branch within the meaning of the Eleventh Company Law Directive or
• a place of business that is not a branch.

Every overseas entity that has established a place of business in in the UK from which it does business must register a UK establishment. Within a month, you must submit the following documents to the UK Registrar of Companies:

• a completed form (Form OSIN01) that provides such information as: 
  • the official name of your company
  • the country of incorporation
  • the address of the establishment in the UK and overseas
  • details of the directors and secretaries including the extent of their authority to represent your company
  • details for the person authorised to accept service of process on behalf of the company
  • details of the permanent representatives of your company in respect of the business of the UK establishment and the extent of their authority to represent the company
• a certified copy of your company’s constitutional documents
• a certified translation of those documents (if they are not in English)
• a copy of the company’s latest set of audited accounts (if the company is required to file accounts publically in its country of incorporation)
• a certified translation of those accounts and the company’s constitutional documents (if they are not in English)
• the registration fee (£20 for the standard service; £50 for same day registration).

You have the option of establishing a UK establishment through a new overseas subsidiary of your company. This has two benefits:

• you would not have to register your company’s accounts, merely the subsidiary’s
• your company’s liability would be limited.

Private Limited Company

A private limited company is:

• a separate legal entity
• with its own limited liabilities

If you choose to set up a private limited company as a UK subsidiary, your company will not be liable for the debts and other liabilities of the subsidiary beyond the amount of the subsidiary’s share capital, unless your company has provided an express guarantee in respect of the subsidiary’s liabilities.

On the one hand, a private limited company:

• is much more substantial than a UK establishment and thus offers far greater assurance for customers and others who come into contact with the business
• offers flexibility of ownership (it can have one or more shareholders).

On the other hand, it must comply with accounting, audit and regulatory requirements. The main compliance obligations for a private limited company are:

• filing an annual return with the Registrar of Companies. This contains information about the company as at the anniversary of incorporation, such as share capital and officers
• filing statutory accounts for the company for each financial year/period and circulating those accounts to its members
• notifying the Registrar of Companies of any event-driven changes to the company (for example, resignation and appointment of directors, a change in the share capital and a change of registered office address)
• maintaining statutory registers for the company

Other options

It is also possible to form:

• limited partnerships
• limited liability partnerships in the UK or in a European country
• a European company Societas Europea (or SE)

Legal and Registration Requirements

A business seeking incorporation as a private limited company must file the following with Companies House:

• signed Memorandum of Association – a statement that the subscribers wish to form a company and have agreed to become shareholders of the company
• signed Articles of Association – the rules under which the company will be run
• completed Form IN01 – details of the Registered Office, director(s) and secretary if you wish to appoint one (appointment of a secretary is optional for a private limited company), share capital, initial shareholders and a statement of compliance confirming the various requirements relating to the incorporation have been met
• the registration fee (£14 for the standard service via electronic means; £40 for the standard service in paper format and £100 for same day registration in paper format)

When satisfied that all formalities have been followed, the Registrar of Companies issues a certificate of incorporation.This is conclusive evidence that the company is duly incorporated and established, so the company may commence trading immediately.

• For the information you must provide when commencing the formation process, please refer to Checklist Appendix A

Additional requirements

Every company must:

• have at least one natural director (i.e. an actual person rather than a corporation)
• appoint auditors, unless its turnover and balance sheet total are below specified thresholds
• keep a register of its shareholders (known as members), including their names and addresses, the number and class of shares they hold, details of the rights attaching to the different classes of shares and the date when they became members of the company
• keep a register of charges (mortgages and other secured interests)
• keep a register of its directors and secretary - if it chooses to have a secretary (see below) and a register of directors' and secretary's residential addresses
• deliver to the Registrar of Companies (on Form AR01) an annual return, no later than the filing deadline, which is 28 days from the made-up date of the annual return
• deliver to the Registrar of Companies statutory accounts for each financial year/period, no later than the filing deadline for delivery of the accounts, which is nine months from the end of the accounting reference date

There are penalties for not meeting these obligations including automatic financial penalties for the failure to file statutory accounts by the due date. Continued non compliance can lead to the compulsory dissolution of the Company by the Registrar of Companies with potential liability for the directors.

There is no longer a requirement to appoint a company secretary. However, a company may still appoint a secretary if it so wishes.

Corporate Name Availability

You may not choose a name for your private limited company that has already been registered on the UK companies register.

If you choose a name that:

• is identical to; or
• is similar to or incorporates the registered trade mark of a third party

You may be in danger of infringing that trade mark if you choose a company or trading name that is identical to or similar to that of another company, you also risk becoming the target of a ‘passing off’ action by that other company.

Trade mark infringement and passing off is usually limited to situations where the two businesses are in a similar trade. However, it can occur even where the businesses are not in a similar trade.

To avoid these problems, you should conduct a series of searches, including searches at Companies House and the UK Intellectual Property Office, as well as wider searches, for businesses using the relevant name. It is recommended that you employ the services of a professional firm that specialises in this area of the law.

Your company’s name may not include such words as ‘International’, ‘British’, ‘Holdings’ or ‘Group’ without the prior approval of the Registrar of Companies. Certain other words, such as ‘Pharmaceutical’, require third party consent.

It is not generally possible to form a company with a name that is similar to another that is already registered (for example ABC GB Limited and ABC Limited) unless your company is part of the same group as that company. In such cases approval is required from the Registrar of Companies.

Duties of the Directors

As a director, you are responsible for the day-to-day management of the company and you are subject to various statutory duties that, if breached, can result in personal liability. The duties, which are set out in the Companies Act 2006, include the requirement to:

(a) act in accordance with the company’s constitution and only exercise your powers for the purpose for which they were conferred and

(b) act in a manner that you consider, in good faith, to be the most likely to promote the success of the company for the benefit of its members as a whole. When exercising this duty, you must have regard to a number of issues, including:

• the likely consequences of any decision in the long term
• the interests of the company's employees
• the impact of the company's business on the community and the environment
• the need to foster the company's business relationships with suppliers, customers and others
• the desirability of the company maintaining a reputation for high standards of business conduct
• the need to act fairly between members

In discharging your duties, you must also exercise:

• reasonable skill, care and diligence and
• independent judgement

You also have a duty to avoid a situation in which you have, or may have, a direct or indirect interest that conflicts with the interests of the company and to disclose the existence of any interest in any proposed or existing contract with the company. You also have a duty not to accept benefits from third parties if they could give rise to a conflict of interest.

In cases of actual or prospective insolvency, your duties are still owed to the company but you must act in the best interests of the creditors, rather than its shareholders.Personal liability is also imposed in certain situations for permitting an insolvent company or prospectively insolvent company to continue trading unless you can demonstrate that it is beneficial for the creditors to continue to do so.

The above is a merely a summary of a director’s duties. For a comprehensive statement, you should seek legal advice or refer to the Companies Act 2006.

Companies Act 2006

The formation, management and organisation of a company in the UK are largely governed by the provisions of the Companies Act 2006. Whether you choose to establish a new company or acquire an existing one, the provisions of the Companies Act 2006 will have a significant impact on your company.

The Act governs:

• the establishment of companies
• how they are operated, owned, governed and managed
• the extent to which they are required to publish information relating to their affairs (including their financial affairs)
• their liabilities and duties to their members and other stakeholders.

It addresses among other things:

• how share capital is organised, reduced and increased (and the records that must be kept of the company's ownership)
• how directors must regulate their affairs
• the requirement for a company to be audited
• how creditors of a company can protect themselves (and how their competing claims shall be dealt with in the event of insolvency)
• how a company can be wound up and its affairs brought to an end

The 2006 Act has, in many areas, materially changed the rules that apply to companies. These are too numerous and complex to cover here. However, it is important to note that, as a result of these changes, previous knowledge or advice may be out of date. Consequently, expert legal advice should be taken to ascertain the current position.

Purchasing a New PLC

To put a new company in a position to commence business, you will require the following information:

Directors

In respect of each new director of the company:

• full name (i.e. first names, surname and former name – if used for business purposes in the previous 20 years) or, in the case of a corporation, its corporate name
• nationality
• residential address (or, in the case of a corporation, its registered office or principal place of business). This address will not be made publically available
• service address, such as the registered office address of the company
• business occupation (if any) and
• date of birth

Each director must sign a consent to act as a director or provide his or her electronic pin details.

Secretary

In respect of the new company secretary:

• full name including any former names used for business purposes in the previous 20 years
• residential address. This address will not be made publically available
• service address, such as the registered office address of the company.

There is no requirement to have a secretary. If a company chooses to appoint a secretary, that person must also sign a consent to act or provide his or her electronic pin details. The secretary is an administrative officer and does not have the same responsibilities or liabilities as a director.

Registered office

The full postal address of the proposed registered office. The registered office determines the tax district that will deal with the company’s affairs. It must be in (England or Wales Scotland or Northern Ireland), depending on where the company is incorporated.

Share capital

The classes of shares to be created (for example ordinary or preference) and the rights attaching to those share classes, such as voting rights and rights to dividends, the amount to be paid up on each share including any premium and the nominal value.

Shareholders

In respect of each shareholder:

• an address (or in the case of a corporation, its registered office or principal place of business. In the case of an individual it does not need to be a residential address)
• the number of shares he or she will be allotted and
• the amount guaranteed

Each subscriber must sign a statement of compliance that the necessary requirements to form a company have been complied with or provide electronic pin details of the individual or of a director of a corporate shareholder.

Private and public companies need have only one shareholder.

Name

The proposed name of the company.

Articles of Association

Whether any special provisions are required (e.g., special rights attached to different classes of shares or pre-emption rights on allotment or transfer of shares).

Auditors

The name and address of the firm that will be appointed.

Accounting Reference Date

The date to which the company's annual accounts are to be prepared. (This would generally be the same as the date to which the parent's accounts are prepared).

Bankers

The name and branch of the bank that will act as banker to the company and instructions as to the proposed signing arrangements (e.g. names of signatories and how they will sign).

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