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5 Mistakes To Avoid When Forming An UK Company

Discussion in 'Businesses' started by Daniel#MD, Jun 23, 2016.

  1. Daniel#MD

    Daniel#MD Invest Open Administration Team Administrator

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    Forming a new company is an exciting time for anyone. Over the years, the UK authorities have made it easier than ever to open a company. You dont need to fill in lots of forms and send them to Companies House. Its a matter of using their online portal to form your company.

    Once you have finished, and your company has been accepted, you will be requested to print out various forms. This is will confirm that your company has been officially incorporated. It may sound too easy, but there are no hidden catches here.

    But what are the biggest mistakes people make when doing this?

    1. Forming the Wrong Company

    There are many company types you have to take into account. The average small business will be better off forming a company that allows them to trade as a sole trader. It may be good to have a limited company, but limited companies come with far greater reporting responsibilities, and this extra work doesnt always pay dividends.

    You can form practically any type of company online. Make sure you do your research and dont form a certain type of company on a whim.

    2. Not Specifying the Shareholders

    Technically, you can have as many people as you like working for your company, but if they own any part of that company they have to be mentioned. Shareholders dont work in the same way as they do in other parts of the world. With a private limited company, for example, the shares are valued at what you say they are valued at, and you can dole them out as you please.

    Only public companies have shares that are traded on the open market, and the company needs to generate enough revenue in order to become this type of company.

    If you are sharing the company with someone else, they must be mentioned when you form your company, or at least added afterwards. Adding them before the company is formed will involve them placing their names on the Memorandums of Association, which is essentially an agreement to form the company.

    3. How the Company is Run

    This is where people tend to start making errors. Dictating how the company is run is a deceptive task because people assume it refers to the day-to-day running of the company. For most companies, they will use whats known as standard article. These are a basic legal model that can be inserted via the Companies House website.

    You can change this, but by doing so you are waiving your right to register your company online. The vast majority of companies have no business changing these.

    4. Choosing the Wrong Company Address

    The company address is more important than you think. Its where official communications between the UK government and you will be sent. It doesnt have to be the offices you are operating out of. You can use your home address. The only restrictions are that it must be in the companys home country, and it has to be a physical address; so you cant use virtual addresses.

    What a lot of people dont realise is that this address is available to the general public via the official register of the companies of the UK. Make sure you are comfortable with this before choosing your home address.

    5. Failing to Register for Corporation Tax

    Sole traders dont have to worry about corporation tax, which is why most prefer to register as this type of company. If you have decided to start a private limited company, you have a legal duty to register for corporation tax within three months of forming your company so you can begin trading.

    Without registering for it, you are legally unable to begin trading. And even if you never earn enough to actually pay corporation tax, you still have to be registered for it and you still have to file.

    The responsibilities of a company director are to file your company right. By avoiding these mistakes, you can avoid running into trouble. What are the biggest challenges you have faced when trying to form your company?
     
  2. bluemac

    bluemac Registered

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    This is quite valuable information and really suited my interests, thanks for you time and i hope receiving certain good contributions from your side regularly.
     
  3. HMS Naveen

    HMS Naveen Registered

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    Great text @Daniel#MD. Everyone, Who planned to open a business in the UK should read and aware of this.
     
  4. andreausa

    andreausa Registered

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    thank you for detailed information.
     
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