Company Formation: Step-by-Step Guide

Starting a business is exciting; it begins a new chapter full of opportunities and growth. But before you can focus on your first sale or client, you need to get the fundamentals right. That’s where proper company formation comes in.

In this guide, we’ll walk you through each step of forming a company, with practical accounting insights to keep your business compliant and financially healthy from day one. Whether you’re seeking support from small accounting firms in London or looking for specialised Accounting Services London, this guide will give you the clarity you need.

Understand What Company Formation Means

Company formation, also known as company registration or incorporation, is the legal procedure for establishing a business that is recognised by Companies House, the UK’s registrar of companies. Once registered, your business becomes a separate legal entity, distinct from you as the owner.

This means your company can:

• Own assets
• Enter into contracts
• Employ staff
• Be responsible for its own debts and obligations

Establishing a business gives you legal protection and credibility that a sole proprietorship does not. However, it’s crucial to comprehend the various company structures that are available and select the one that most closely matches your business objectives before registering.

Step 1: Choose the Right Business Structure

Your business structure determines your legal responsibilities, tax obligations, and financial flexibility; it’s the foundation that shapes how your company operates and grows.

In the UK, these are the primary choices:

1. Sole Trader

• Easiest to set up.
• Being self-employed, you manage the company on your own.
• After taxes, you keep all of your earnings, but you are personally responsible for any debts.
• Must register with HMRC for Self Assessment.

2. Partnership

• Like a sole proprietorship, but with two or more owners.
• In addition to sharing profits, partners bear personal liability for company debts.
• A partnership agreement helps clarify responsibilities.

3. Limited Liability Partnership (LLP)

• Offers flexibility like a partnership but with limited liability protection.
• Partners (known as members) are not personally liable for business debts.
• Must register with Companies House and file annual accounts.

4. Limited Company (Ltd)

• A separate legal entity from its owners (shareholders).
• Limited liability protects personal assets if the company runs into debt.
• Must register with Companies House and follow stricter reporting rules.

A limited company is the most popular option for new business formation due to its legitimacy and legal protection. Additionally, it makes it simpler to draw in future partners or investors.

Step 2: Select a Company Name 

Your company name represents your brand and must meet legal and registration standards. It’s often the first impression potential clients or investors will have of your business, so choose a name that’s professional, memorable, and aligned with your values. Beyond branding, your company name also appears on every official document, from invoices to tax filings, so accuracy and consistency are essential.

Before finalising a name:

• Check it’s unique on the Companies House register.
• Avoid restricted words or misleading terms.
• Confirm it doesn’t infringe trademarks.

Using consistent naming across all records simplifies business accounting and makes filing taxes much smoother.

Step 3: Decide on Your Company’s Registered Address 

All UK companies are required to have a registered office address, which serves as the official address for all government and legal correspondence from Companies House and HMRC.

Here are some things to be aware of:

• The address cannot be a P.O. Box; it must be a physical location in the UK.
• Anyone can see it since it will be on the public record.
• You can use a virtual office, your accountant’s office, or your home address.

If you prefer to keep your personal address private, you can use a registered office address service offered by many accountants or company formation agents. This ensures that all official mail is securely delivered to you while maintaining the confidentiality of your information.

Step 4: Appoint Company Officers

All limited companies are required to have a minimum of one director. Legally, the director is responsible for managing the business and ensuring that it fulfills all financial and legal requirements.

Key responsibilities of a director include:

• Keeping accurate and up-to-date financial records
• Submitting confirmation statements and annual accounts to Companies House
• Behaving consistently in the company’s best interests

For private limited companies, hiring a company secretary is not required, but it can be beneficial. A company secretary can manage official filings, perform administrative tasks, and ensure that the business complies with legal requirements.

Step 5: Decide on Shareholders and Share Capital

A private limited company requires a minimum of one shareholder, who may also serve as the director. The company is owned by its shareholders, whose shares indicate the proportion of the company that they own and control.

When setting up your share structure:

• Determine the number and value of shares to be issued (the majority of new businesses begin with 100 shares, each worth £1).
• Determine the ownership percentage of each shareholder by counting the number of shares they own.
• Indicate which rights, such as the ability to vote or the right to receive dividends, are associated with each share.

Your share structure dictates how profits are allocated and who gets to make important decisions. A shareholders’ agreement should be drawn up if there are multiple shareholders in order to specify roles, responsibilities, and what will happen in the event of a dispute.

Step 6: Prepare the Required Documents

Prior to registering your business, ensure that the necessary paperwork is prepared. These form the legal foundation of your business and are required by Companies House during the registration process.

• Memorandum of Association
A legal statement signed by all initial shareholders (or guarantors) confirming their agreement to form the company.

• Articles of Association
A document that sets out the rules for how your company will be run. If you want more control over management and decision-making, you can either use the standard model articles that Companies House provides or make your own customised version.

• Shareholder Details
Give each shareholder’s complete name, address, and number of shares.

Preparing these documents ahead of time guarantees a seamless and error-free registration process.