What is company formation? (2023)

Last updated: 26 Jun 2023

Company formation is the process of incorporating (registering) a business in the form of a limited company. When a company is registered, it becomes a separate legal entity; a ‘person’ that is completely distinct from its owners and responsible for its own finances, assets, and liabilities.

This means that, if the company becomes insolvent, the owners (shareholders or guarantors) are not held personally liable for any of its debts or liability claims beyond the sums they have invested in shares or committed to pay in guarantees (except in rare cases, such as fraud). This financial protection is known as ‘limited liability’.

  • Our Company Formation Packages - from only £12.99
  • Guidelines on limited company names
  • A guide to company shares
  • Business bank accounts for non-UK residents
  • A guide to the Register of People with Significant Control (PSC)

Sole traders do not enjoy the financial protection of limited liability. There is no distinction between their business finances and personal finances. This means they have unlimited liability and are wholly responsible for all business debts and claims.

Once incorporated, companies must adhere to strict accounting practices and reporting requirements in accordance with the Companies Act 2006. All corporate details are placed on public record to ensure full disclosure and transparency for the benefit of the public. is one of the foremost reasons for setting up a limited company rather than running a business as a sole trader.

How to form a company in England and Wales, Scotland, or Northern Ireland

Limited companies formed in the UK are incorporated under the Companies Act 2006. However, Companies House (the Registrar) operates in three separate jurisdictions throughout the UK – England and Wales (one jurisdiction), Scotland, and Northern Ireland.

Companies must register in one of these jurisdictions. This decision will determine the location of their registered office address. They are only permitted to incorporate in one jurisdiction. This cannot be changed at any time. However, they can base their operations anywhere and can trade throughout the whole of the UK and overseas.

You do not have to register your company in the part of the UK in which you live. It is entirely possible to set up a company in England and Wales, for example, if you live in Scotland and run your business there. However, your registered office must be situated in England or Wales.

The quickest and easiest way to incorporate a limited company is through an approved online company formation agent like 1st Formations. Application forms are completed online and submitted electronically to the Registrar in Cardiff (England and Wales), Edinburgh (Scotland) or Belfast (Northern Ireland). Typically, most applications are approved by Companies House in 3-6 working hours.

Our 5-step company formation process

1. Choose a company name

To find out the availability of your proposed name, simply enter it into our online company name-check tool. This system will compare any name you enter against the Index of Company Names at Companies House.

Results are instant, so you will find out immediately if the name is available or if you need to make adjustments. You will also be alerted if the name requires supporting documentation for the use of any ‘sensitive’ words or expressions.

GOV.UK provides full guidance on choosing a company name, so it’s worth checking out these rules beforehand.

2. Select a company formation package:

We offer a wide selection of packages for companies limited by shares, in addition to tailor-made packages for Non-UK Residents, companies limited by guarantee, Public Limited Companies (PLCs), and Limited Liability Partnerships (LLPs).

3. Add company address services:

All limited companies must provide details of a registered office. A service address must also be supplied by each director, subscriber, company secretary, and Person with Significant Control (PSC).

1st Formations provides a London Registered Office Service for companies registered in England and Wales, as well as a Service Address and Business Address Service.

4. Complete the online application form:

Our online application form is really easy to complete, requiring only a few minutes of your time. You must provide the following information:

  • Company name
  • Registered office address
  • Description of main business activities (SIC code)
  • Director’s details (minimum of one, must be least 16 years old)
  • Shareholder’s or guarantor’s details (minimum of one)
  • Secretary details (optional)
  • Information about People with Significant Control
  • Statement of capital (this outlines the share capital of a company limited by shares)
  • Supporting documentation (required if your company name contains any sensitive words or expressions, or is similar to the name of another company)
5. Submit your online application to Companies House:

We will check your company formation application before sending it to Companies House, where it will be processed within approximately 3-6 working hours (weekends excluded). You will be notified by email as soon as your company registration is approved.

Your confirmation email will contain digital copies of share certificates (if applicable), a certificate of incorporation, and the memorandum and articles of association. You can download and print these documents any time you wish.

If your company formation package includes paper incorporation documents, we will post these out to you within 24-48 hours.

How many people are required to form a limited company?

Whilst you must have a minimum of one director (officer) and one shareholder/guarantor (member), it is entirely possible for one person to assume both roles and incorporate a company on their own. This is beneficial for many people, particularly existing sole traders who wish to retain complete ownership and full control of their business.

Alternatively, you may appoint multiple directors and members during and after company formation.

How long does it take to incorporate a private limited company?

Most companies are incorporated online through a company formation agent because it is the easiest and quickest option. Generally, it takes no longer than 3-6 working hours for Companies House to approve these applications. Your company will then be ready to trade as soon as this happens.

Aside from this option, you can incorporate online or by post directly through Companies House. Online applications are processed within approximately 24 hours; postal applications are completed in around 8-10 days.

How much does it cost to set up a company?

The cost of forming a limited company through 1st Formations starts at just £12.99 plus VAT. There are no additional incorporation charges applied by us or Companies House.

Limited companies can also be incorporated using Companies House Web Incorporation Service or postal application. These methods cost £12 and £40, respectively.

Is there a minimum age requirement to form a company?

Company directors must be at least 16 years old at the time of company formation. There is no statutory provision prohibiting any persons under this age from owning shares.

Family-owned private companies often give shares to child family members as a long-term tax planning strategy for inheritance and capital gains purposes. However, there are potential contractual issues for companies with minors as shareholders.

Can I form a UK company as a non-UK resident?

Provided all legal requirements are met, almost anyone can set up a private limited company in the UK, irrespective of where they live. The accessibility of online company formation services makes it easy to incorporate from anywhere in the world. If you have a computer, an Internet connection, and a credit card, you’re good to go.

Application forms can be completed online within a few minutes, submitted electronically to Companies House, and approved in less than 3-6 working hours. Registration documents are emailed to you in digital (PDF) format and your new company is then ready to trade. There is absolutely no need to be in the UK, nor do you have to sign anything in person or send documents by post.

We provide specialist online company formation services for non-UK residents, which include a London Registered Office Address, a free UK business bank account for non-UK residents, and a number of additional features that are of great benefit to overseas clients.

The difference between a company limited by shares and a company limited by guarantee

Companies limited by shares are owned by shareholders (members) and managed by directors (officers). The limited by shares structure is by far the most popular choice for any business that intends to make a profit for the benefit of its owners.

Companies limited by guarantee are controlled by guarantors (members) and managed by directors. The limited by guarantee structure is primarily used by non-profit organisations and charities that wish to generate income to promote and achieve their non-profit objectives. Generally, profits are not distributed to guarantors.

1. About companies limited by shares
  • Usually set up by profit-making businesses
  • Must be incorporated at Companies House with at least one shareholder and one director
  • Each shareholder must agree to take at least one share
  • The number and value of issued shares creates the company’s share capital
  • The value of each member’s shares determines how much of the company they own, the amount of control they have, the limit of their liability for debts, and the percentage of profits they receive as dividend payments
  • Usually adopt Model articles of association, unless multiple share classes are issued
2. About companies limited by guarantee
  • Usually set up by charities and non-profit organisations like sports clubs, social clubs, members’ organisations, and co-operatives, but they can also be set up by profit-making businesses
  • Must be incorporated at Companies House with at least one guarantor and one director
  • Each guarantor must agree to contribute a certain amount of money toward company debts. This is known as a ‘guarantee’.
  • The sum of a guarantee is the limit of a guarantor’s liability for debts
  • Profits are normally reinvested in the business to promote and achieve the company’s non-profit objectives

What does ‘limited liability’ mean?

The term ‘limited liability’ refers to the reduced financial responsibility of the company owners. Limited companies exist as separate legal entities, which means that shareholders and guarantors are only required to contribute the value of their shares or guarantees toward company debts if the business becomes insolvent.

The personal finances and assets of members are protected beyond what they invest in shares or guarantee to the company, except in rare cases such as fraud.

What addresses do I need to form a company?

Companies House requests the details of a number of different addresses at the time of company formation, some of which are placed on public record.

Registered Office Address

  • Required by all limited companies
  • Official address of the company
  • Placed on public record
  • Must be situated in the country of incorporation – England and Wales, Scotland, or Northern Ireland
  • Statutory government mail from Companies House, HMRC, and other agencies is delivered to this address
  • Company registers should be stored there and kept available for public inspection
  • It can be a residential or non-residential address

Service Address

  • Required by company directors and secretaries, subscribers (first shareholders or guarantors who form the company), and PSCs
  • Address where each individual receives their personal statutory mail from UK government agencies like Companies House and HMRC
  • Can be located anywhere in the world
  • Address is placed on public record
  • It can be a residential or non-residential address

Usual Residential Address

  • Must be provided by directors, company secretaries, and PSCs
  • Address is not placed on public record, unless it is also used as a registered office, service address, or SAIL

SAIL Address

  • A SAIL address is a Single Alternative Inspection Location
  • Used as an alternative to the registered office for storing statutory registers and making them available for inspection
  • Must be in the same UK country as the registered office
  • It is optional
  • Address is placed on public record
  • It can be a residential or non-residential address

Business Address

  • A business address is optional
  • Companies may use one or more business addresses as a contact address for clients, suppliers, lenders, members of the public, and all other third parties
  • Can be located anywhere in the world
  • Companies House does not require details of business addresses
  • Not placed on public record
  • It can be a residential or non-residential address

What documents are required to form a company?

1. Company formation agent services

If you incorporate through an online company formation agent, there is no need to sign any paperwork in person or send any documents by post. All necessary information is completed and delivered online.

If you have to provide any supporting documentation for Companies House, you can simply attach it to your online application.

2. Companies House Web Incorporation Service

The online incorporation service from Companies House does not require any paper documents in the first instance. However, if you need to sendany additional documentation after submission, you will have to post it.

Furthermore, if your application contains errors, you will have toresubmit your amended application by post, regardless of the fact youoriginally delivered itonline.

3. Companies House postal application

To form a company using Companies House postal application, you will be required to submit the following paperwork:

  • Form IN01 ‘Application to register a company’
  • Memorandum of association – you can download a memorandum template document from Companies House
  • Articles of association – unless you choose to adopt unaltered Model articles
  • Supporting documentation if your company name contains any sensitive words or expressions

What happens if Companies House rejects my application?

The most common reasons for rejected company formation applications are:

  • Supporting documentation is required for to register the company name
  • Supporting documentation has been incorrectly presented
  • A ‘sensitive’ word or expression has been included but no supporting documentation has been provided with the application
  • Director’s details are incomplete
  • A residential property is believed to be a commercial property
  • Incorrect share structure
  • An error is detected in a director’s authentication details
  • A director does not meet the minimum age requirement of 16
  • PSC information is missing

The chances of an application being rejected are statistically higher if you file an online or postal application directly through Companies House. Amended applications must then be resubmitted by post, regardless of whether the original application was filed online.

By registering a company online through 1st Formations, the chance of rejection is greatly reduced because all applications are reviewed by a specialist agent before being submitted to Companies House.

If your application is rejected, we will notify you immediately and you will be able to make the required changes online in a matter of minutes.

If supporting documentation is requested, you can submit this electronically. There will be no additional charge and there should be no significant delay to your company registration.

When can my new company start trading?

You can begin trading as soon as Companies House approves your application. If you incorporate through 1st Formations, you will be able to start trading within approximately 3 working hours of submitting your application.

Do I need to tell HMRC when I register a company?

HMRC is notified by Companies House as soon as any new company is incorporated, so there is no need for you to contact HMRC in this instance.

When you start trading, your company must register as ‘active’ for Corporation Tax purposes. This should be done within 3 months of starting to trade.

If your company is dormant (not trading), you must notify the Corporation Tax office by phone or in writing. Your dormant company will not be required to register for Corporation Tax until it begins trading.

What company details are displayed on public record?

Companies House maintains an official register with details of all limited companies (including LLPs) incorporated in the UK. This information is made available to the public to create openness and corporate transparency, reduce tax evasion and money laundering, and eliminate corruption.

This enables the public to monitor the performance of businesses, find out who owns and controls them, and check whether or not they are adhering to their statutory requirements.

Where applicable, the following information is disclosed on public record:

  • Name of company
  • Previous company name(s)
  • Registered office details
  • SAIL address
  • Date of incorporation
  • Nature of the business (SIC codes)
  • Company structure
  • Company status – (e.g. live, dissolved)
  • Insolvency details
  • Key filing dates
  • Annual accounts
  • Annualconfirmation statement (previously known as an annual return)
  • Details of directors and secretaries
  • Details of shareholders or guarantors
  • Details of LLP members
  • Details of PSCs

The public register also contains details of all dissolved companies and disqualified directors. All of this statutory information is retained on the register indefinitely. When a company or LLPis dissolved, the information will be archived 20 years after the dissolution date.

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