What is company formation?
Setting up a company may sound like an overwhelming task, but with the help of a formation agent, this can be done in just a few simple steps.
So, what is a formation agent?
Well to understand that, we need to understand what company formation is. Company formation is when you incorporate your business, meaning you register it as a limited company. This process involves selecting a company name, registering it (either by yourself through the Companies House website or through a formation agent), adding your company information, understanding what documents and records you will need to keep for your company, and then registering it! A formation agent just helps make these steps manageable by incorporating the company on behalf of the business, usually for a small fee.
But what does it mean to be a limited company?
If you are unsure about what a limited company is, here is a little more information. A limited company can either be limited by shares or limited by guarantee. When registering as a limited company, it becomes legally separate from those who run it, meaning that your personal and business finances are separated. The main difference between a limited by shares company and a limited by guarantee company is that a limited by shares company are allowed to keep the profits that they have made after paying tax, whereas a limited by guarantee company must invest its profits back into the company.
What are the benefits of incorporating my business?
There are a number of positives to incorporating your business into a limited company, one of the main ones being that it offers you some financial protection. As stated previously, being a limited company means that your personal and business finances are separated, so, if in the unfortunate event of your company becoming insolvent (meaning you cannot pay any debts that you owe), then you are not liable to pay the debts yourself from your personal bank accounts, unless there are extenuating circumstances (such as fraud).
So how do I register my company online?
So, to break down the process of registering your company into more detail:
If you were to incorporate your business by registering it through either the Companies House website or through a formation agent (such as Easy Digital Company) these are the steps you would follow:
Step 1: Select a name.
- You will need to check that the company name you have selected has not already been chosen by another business and that it aligns with the governments’ rules for choosing a company name. This can be checked using the government website, or if you are using a formation agent, they may be able to provide that service for you as part of the registration process, such as with Easy Digital Company.
- This article on Easy Digital Company can offer guidance with this process.
- Once selected you can start the registration process.
Step 2: Company information.
- At this stage you will need to input the Company information, which may include the companies’ address, the email address associated with the company, the principal activity of the company, and the number of shares or guarantors.
- If registering through Companies House, you will need to provide extra information on the shareholders or guarantors which may include their phone number, national insurance number, passport number, or more.
- If registering with a formation agent, such as Easy Digital Company, there is often an option to register your company at their address in order to separate your personal address from your company’s address.
Step 3: Choose a director.
- At this stage you need to appoint a director for the company. A director is in charge of managing the activities and finances of the business, and ensuring that all the required filings are completed (either through an accounting service or on your own). You can choose to appoint yourself as the director, but that is not required as long as someone is appointed.
- You will need to have the director’s information in order to proceed to the next step, which may include their name, date of birth, place of birth, nationality, phone number, address, and also either their passport or national insurance number.
- If you wish to appoint a company secretary as well, you can do that at this stage, but it is not required.
Step 4: Prepare a ‘memorandum of association’ and ‘articles of association’.
- The next step is to create a memorandum of association and the articles of association. A memorandum of association is a document explaining the companies’ principles and objective, whereas the articles of association outline the operations of the company which means how the business will be run on a day-to-day basis.
Step 5: Keeping records.
- This step is just about understanding what records you are expected to keep for your company. These include all money received and spent by the company, all goods bought and sold, assets and liabilities of the company, loans the company must repay, and many more. This can be completed either by the company itself, typically through an accounting software, or outsourced to an accounting firm who will then prepare your reports for you, such as a Profit and Loss or Balance sheet.
You’re done! Once you have completed all of the steps above, you will have successfully incorporated your business!
It is important to note that you must file a confirmation statement to Companies House annually from either the date your company was incorporated, or the date you filled in your last confirmation statement. Once again, using a formation agent may make this process easier for you by completing the submission for you and ensuring it is on time to prevent you from being fined.
Once incorporated, you must also file your company accounts annually to Companies House, which will include a balance sheet with the current accounting periods' figures in and, if applicable, the last accounting periods' figures in. While this may sound like a lot, Easy Digital offers a Managed Filing service where you provide us with company's financial figures and one of our account specialists will create and submit the filing for you! We also provide a Self-Filing service where you can input the figures into the templates yourself and submit through us!
