Incorporation of a company is a process by which a company is registered. Here we show you exactly how the process works and what laws apply in the UK.
Incorporation of comapny: Meaning
Incorporation of a company is the formal, legal process of setting up a corporation. This can be a company, a club or a non-profit organisation. However, it usually refers to the formal process of setting up a company, whereby the company does not have to be new but may have existed for some time, e.g. when a sole trader decides to register his company.
As soon as the company is registered, it functions as its own entity. The owner of the company is therefore only liable to a limited extent. The collateral that must be set aside for liability purposes is shares, common stock, or guarantees, depending on the form of enterprise.
Incorporation of company: Law in the UK
The law makes clear specifications on how the incorporation of a company must proceed. Anyone wishing to register a company must be at least 16 years old. In addition, the desired name of the company must not yet be registered and it must be impossible for the name of the company to be confused with the name of another company.
There are four different ways in which a company can be registered in the UK:
- Private company limited by shares: The liability capital is contributed by the owners in the form of company shares. In a private company, the company shares cannot be sold to the public.
- Private company limited by guarantee: Instead of company shares, the owners secure the company by guarantee. The amount of the respective guarantee shares is determined by the owners.
- Private unlimited company: The owners have unlimited liability, but can contribute liability capital to the company.
- Public limited company: The capital is provided by the owners. In addition, company shares can be sold to the public in the form of shares and traded on the stock exchange.
Incorporation of company: Procedure
When incorporating a company the procedure is as follows:
- Filling out the necessary documents
- Paying the registration fee
- Providing the memorandum of association and articles of association
- Receipt of the certificate of incorporation
To register a company, form IN01 must be completed. This form contains information on:
- Company name
- Physical location of the company (England, Scotland, Northern Ireland, Wales)
- Registered office address (may be different from the address of the company, but must be registered in the same country as the company: e.g. a company physically located in Scotland must also have its registered office address in Scotland).
- Indication of whether the company is private, public or unlimited
- Description of the company business
- Elected articles of association
- Details of the company director (and secretary if public company)
- Proof of liable capital, guarantee or company shares
2. Registrar fee
Depending on whether the company is registered online or a paper application is submitted, the registration fees differ:
- Electronic Software Filling: £10 (£30 for same day service)
- Web service: £12
- Paper filling: £40 (£20 if company is unlimited, or company is Welsh and documents are filed in Welsh language)
3. Memorandum of association and articles of association
Memorandum of association
In the memorandum of association, the intention to establish a company is declared. If the company is secured by shares, proof must also be enclosed that all owners have at least one share in the company.
A template for the memorandum of association can be downloaded here. The wording must not be changed, otherwise the application will not be approved.
Articles of association
The articles of association are the "company rules" set by the owners. It is mandatory that a company has such a set of rules and that these are accepted by all owners. The rules must be compliant with UK law. Among other things, they contain information on how the company shares are divided among the owners.
The owners can either draw up their own rules or use standard rules - the model articles. They are submitted together with the application for incorporation of a company.
4. Certificate of incorporation
If all documents are complete and compliant with UK law, the company receives a certificate of incorporation. This serves as proof that the legal requirements have been met and that the company is now officially registered in the UK.
The certificate of incorporation shall contain the following information:
- Company name
- Date of incorporation
- Indication whether limited (by shares or guarantee) or unlimited company
- Indication whether public or private company
- Registered office address
- Benefits of incorporating a company
The biggest advantage of incorporpoarting a company is that the private assets of the owners are separate from the company assets. In the case of a limited company, the owners are only liable with their respective share of liability, not with their private assets.
A registered company also has an easier time obtaining subsidies. In addition, by becoming employees in their company, the owners can receive a tax-deductible pension.
Drawbacks of incorporation of a company
The bureaucratic effort to manage a registered company is higher than when one operates as a sole trader. In most cases, accounting services have to be used, as the owners cannot take care of this themselves due to the higher complexity. Since the company is a separate entity, a separate tax return must also be prepared.
As the owner of a registered company, you also have more obligations: You have to prepare annual accounts, which are publicly available in the case of a public company.