Setting up a new business is incredibly exciting, and a key part of the process is deciding on whether you should set up as a sole trader, a limited company or a partnership.
Each vehicle has its own pros and cons however in practice most businesses ultimately decide to create a new company by filing a form IN01 with Companies House.
However, this must not a tick box exercise – a bit of thought needs to go into how best to set up your company to avoid potential pitfalls in the future.
We often, for example, come across owners who having issued one share or one share per shareholder when initially setting up their company subsequently want to issue shares to their spouses or children. The allotment of new shares is relatively simple, but the hassle can be avoided if sufficient shares are issued in the first place….
When setting up a company, many business owners also agree to adopt the default model articles of association without truly appreciating what this means. Simply put, a company’s articles of association are its internal rules. For the majority of businesses the model articles are adequate and can be modified over time to suit the business as it grows and develops. However, not all businesses should adopt them. Certain businesses may have complicated investment requirements or want weighted voting rights which the model articles do not ideally accommodate. Also, it is important to note that for sole director companies, the model articles contain a contradiction that may cause a problem. Whilst they at one point allow a sole director to make decisions for the company, a few paragraphs later the model articles confusingly state that the quorum for any board meeting must be two directors. As such the safest thing to do – always make sure you have two directors!
Beyond all this, there’s also the fact of course that a business’ responsibilities in relation to Companies House do not end once a company has been created. There are two annual filing requirements, the company annual accounts and the confirmation statement, not to mention ad hoc filing duties, for example, if you change your share structure, company name or registered office address.
And, importantly, let’s also not forget your company registers including the allotment of shares register, the register of directors, the charges register, the register of company secretaries, the register of share transfers and others. These registers or ‘company books’ need to be created from day one and continuously updated when any changes occur.
When it comes round to selling your company, your company books will be the first thing the purchasers’ solicitors ask for. They serve to independently confirm that the share capital, shareholdings and company officers as reported at Companies House are correct and that there are no glaring errors or potential problems which the purchaser would inherit if they brought the company
If all the above complexities are giving you palpitations then rest easy because at WCL we are well equipped to assist with our company secretarial, registered office and year end accounts services. Just give us a call we’d be happy to help.