Forming a Business

The specifics - registering a business or forming a partnership

By The Stationery Office

Registering a business FAQ

How do I form a company?

To form a company you need a name, an office address, a definition of its business purpose and regulations establishing the running of the company. These details must be sent to the Registrar of Companies at Companies House in the form of a 'memorandum of association' and 'articles of association'. To register your company you also need to complete forms 10 and 12. Form 10 gives the names and addresses of the company's officers, and each director must also give their date of birth, occupation and details of directorships held within the past five years.

There are some exceptions to who can become a director of a company - for example, undischarged bankrupts. Form 12 is a declaration of your compliance with company law. It must be signed and dated (in the presence of a commissioner for oaths, a notary public, a Justice of the Peace or a solicitor) after all the other required documents have been signed and dated.

A private company must have at least one director and one secretary (a sole director cannot also be the company secretary). A public company must have at least two directors and one formally qualified secretary. The formal duties and qualifications of directors and secretaries are given in literature available from Companies House. You need to inform Companies House if a new director or secretary is appointed at any time (within 14 days of any such appointment).

Professional advice on forming a company is available from solicitors, accountants and company formation agents. Company formation agents, for example, will do the paperwork associated with forming a company for a set fee; their names and addresses are listed in the Yellow Pages.

Relevant Online Forms

Forms 10, 10cs (Continuation sheet for form 10) and 12 from Companies House.

How do I register a company?

To register a company yourself (rather than use a company formation agent and ready-made company), you must use a name approved by Companies House, and send four documents to the Registrar of Companies. The documents are:

•	A memorandum of association
•	Articles of association
•	Form 10
•	Form 12

A memorandum of association states:

•	the company's name
•	where the registered office is
•	what the company aims to do

A company's aims do not have to be specific and may simply be to carry on business as a general commercial company.

Other parts of the memorandum of association vary according to the type of company being registered. They are calculated using The Companies (Tables A-F) Regulations 1985 (SI 1985 No.805, amended by SI 1985 No.1052). Before being delivered to the Registrar, the company's memorandum must be signed by each subscriber and each signature witnessed.

Articles of association is a document which must be registered by all companies that are limited by guarantee or unlimited. It sets out the rules for running the company's internal affairs. Model articles of association are set out in the The Tables and a company may adopt the whole of Table A or any part of it as its articles. A company limited by shares and which has adopted the whole of Table A without modification does not need to send a copy for registration, but must include in its application a letter saying this. If Table A is used in a modified form, the articles must be sent in with your registration.

There are different Tables for different types of company and they should be used as follows:

•	Company limited by guarantee without share capital-Table C
•	Company limited by guarantee with share capital-Table D
•	Unlimited company with share capital-Table E

Form 10 contains details of the first director, secretary and intended address of the company's registered office. Directors must gives their names, addresses, dates of birth , occupations and details of other directorships they have had during the last five years. Each officer appointed and each subscriber must sign and date the form. The same person can be both director and company secretary provided there is another director.

Form 12 is a statutory declaration that you have complied with all the legal requirements relating to the incorporation of a company. It must be signed either by one of the people named on Form 10 as company director or secretary, or by a solicitor who is forming the company. Form 12 must be signed in the presence of a notary public (for example, a doctor), or a commissioner for oaths, or justice of the peace or solicitor.

The fee for registering a company ('incorporation') is �20 (2005), or �50 for same-day incorporation. Fees are cheaper for electronic incorporation (�15 and �30 respectively, and operated through the Electronic Incorporation Service), and further fees for processing documents such as the Annual return are also at a reduced rate when done electronically.

Relevant Online Forms

Forms 10, 10cs (Continuation sheet for form 10) and 12 from Companies House.

Do all businesses need to be registered?

Under the Companies Act 1985 and later additions, only limited companies need to be registered with Companies House. If you are a sole trader or private partnership you do not need to register, but people running these businesses should notify the Inland Revenue and National Insurance Contributions Agency about their change in employment status so that the relevant contributions can be made. There are four different types of limited company:

•	Private company limited by shares - In this type of company, members are only liable for the amount unpaid on shares that they hold
•	Private company limited - by guarantee Members are only liable for the amount they have agreed to contribute to the company's assets if it is wound up
•	Private unlimited company - There is no limit to a member's liability
•	Public limited company (PLC) A PLC's shares may be offered for sale to the general public and members' liability is limited to the amount unpaid on shares held by them. PLCs must have an authorised share capital of at least �50,000 and consist of at least two members and at least two company directors

Relevant Online Forms

Forms 10, 10cs (Continuation sheet for form 10) and 12 from Companies House.

How much does it cost to incorporate a company?

The registration fee for incorporating a company is �20 (2005). Companies House also operates a premium service, costing �50, allowing incorporation to take place on the same day as delivery of the incorporation papers, provided they are delivered before 3pm. Companies House also operates an Electronic Incorporation service; fees for electronic incorporation are cheaper at �15 and �30 for the same-day service.

Main Companies House offices are located in Cardiff, London and Edinburgh, and there are regional offices in Birmingham, Leeds and Manchester.

Ready-made companies are available from company formation agents. They charge a fee to cover registration costs. Agents are listed in the Yellow Pages.

Relevant Online Forms

Forms 10, 10cs (Continuation sheet for form 10) and 12 from Companies House.

Does my business need to be licensed?

Certain types of business need to be licensed with a government agency.

Any company that keeps information about people on a computer must be registered, and applications should be made to the Information Commissioner.

The following need to apply to their Local Authority Licensing Department:

•	childminders
•	cinemas and theatres
•	hackney and other private hire vehicles
•	indoor sports venues
•	pet shops and boarding kennels
•	public entertainment
•	nightclubs
•	nursing and residential homes and nursing agencies
•	scrap metal dealing
•	sex shops
•	street trading

These types of businesses should be licensed with the Environment Agency:

•	waste management
•	abstraction of water
•	discharge of effluent
•	scrap metal processing

The following business areas require licensing with their Local Authority Environmental Health Department:

•	hotels and restaurants
•	hairdressers
•	massage
•	skin piercing
•	mobile food shops
•	abattoirs
•	work with asbestos

Sale of alcohol in any establishment requires a licence available from the local magistrates and the sale of weapons needs one from the police. Heavy goods or public service operators must be licensed with The Area Office of the Vehicle and Operator Services Agency . Under consumer credit legislation, credit licences available from Office of Fair Trading (Consumer Credit Licensing Bureau) are required by the following businesses:

•	lending money
•	debt collecting
•	issuing credit cards
•	offering or arranging credit
•	credit reference agency
•	hiring, renting or leasing out goods

Can I choose any name I want for my company?

You cannot choose any name you want for your company; certain rules apply when registering a company name, and a name will not be registered in the following instances:

•	If it is the same as a name already registered
•	If it includes the words 'limited', 'unlimited' or 'public limited company', other than at the end of a name (this also applies to abbreviations or the Welsh equivalent of the words)
•	If it is offensive
•	If its use would be a criminal offence

Also, company names need to be approved by the Secretary of State for Trade and Industry before they can be registered if they contain words that, for example, suggest pre-eminence in a particular area of expertise, or a connection with government. Details of what would be considered a name already being used, of offensive words and of names needing approval by the Secretary of State are available from Companies House.

Once you have established that your company name is acceptable, you should send your incorporation documents (or 'special resolution' if an existing company is changing its name) to the Registrar of Companies for England and Wales or to the Registrar of Companies for Scotland.

In theory, you could receive an objection to the name you have chosen within 12 months of its incorporation if it is too similar to a name already registered. If this is the case, you may be required to change your company name. The objection will have been raised through the Secretary of State for Trade and Industry, either for England and Wales or for Scotland.

Relevant Online Forms

Forms 10, 10cs (Continuation sheet for form 10) and 12 from Companies House.

Can I deal directly with Companies House to form my company?

It is possible to deal directly with Companies House when forming a company. Companies House can give guidance on such things as filling in forms and company names, but not advice about the specific content of your memorandum and articles, or about whether forming a limited company is the best option for your business.

Forms 10 and 12 are necessary for registration and are available free from Companies House. Memorandum and articles of association documents can only be obtained from legal stationers, accountants, solicitors or company formation agents. They can also supply forms 10 and 12.

For urgent registration, Companies House runs a premium service which will provide incorporation on the same day it receives incorporation documents, if it gets them before 3pm. This costs �50 (�30 if done electronically) and cheques must be made payable to Companies House.

Relevant Online Forms

Forms 10, 10cs (Continuation sheet for form 10) and 12 from Companies House.

How do I contact the Registrar of Companies?

The Registrar is based at Companies House and documents may be delivered by hand or by post. Acknowledgments of receipt will only be sent if you provide a stamped, self-addressed envelope.

See Companies House for details of their addresses in England, Wales and Scotland.

Relevant Online Forms

Forms 10, 10cs (Continuation sheet for form 10) and 12 from Companies House.

When does a business need a Consumer Credit Licence and how does it get one?

Businesses offering credit (for example, selling on credit, lending money, offering hire purchase terms, collecting or helping people with debt) must have a consumer credit licence, as well as businesses that give their customers time to pay. However, a business will not need a licence if it only deals with limited companies, just accepts credit card payments, or just allows customers to pay in instalments within one year.

A licence costs �110 for a sole trader and �275 for a partnership (and other organisations) – it lasts five years. Unlicensed trading is a criminal offence carrying fines and prison sentences. The Consumer Credit Bill 2004 changes the rules under which consumer credit businesses trade. The Office of Fair Trading (OFT) has increased powers to check businesses and place special requirements on licence holders if they see fit. The Bill also allows consumers, including small businesses, to challenge lenders who are behaving badly through an 'Alternative Dispute Resolution' scheme. The scheme, run by the Financial Services Ombudsman, gives small businesses borrowing up to �25,000 the same rights as consumers, effectively giving them easier access to credit. The price of licences for sole traders is expected to double to �220 as part of the Bill; and there will be a fee of around �360 for businesses subject to complaints under the dispute scheme.

Relevant Online Forms

The Office of Fair Trading (OFT) issues application forms, and they are also available from local trading standards offices.

What is the Electronic Incorporation Service?

Since 2001 it has been possible to incorporate electronically private and public limited companies in England, Wales and Scotland. Companies House has agreements with a number of authorised users who have access to its Electronic Incorporation technology, which allows incorporations to be sent as emails with attached Memorandums and Articles of Association. Companies House charges �15 for electronic incorporation (�30 for same-day, both charges effective from February 2005).

Details of company formation agents who are authorised users of the service can be found by searching the web or the Yellow Pages. Fees and services differ between agents.

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Sole traders / partnerships FAQ

What are a business partner's duties?

The Partnership Act 1890 lays down some specific duties for business partners, the most important of which are as follows:

•	The duty of disclosure, which means that partners must provide full and true financial accounts relating to the partnership.
•	The duty to account, which means that partners must account for all benefit derived, without consent, from any transaction concerning the partnership, its property, including information derived from membership of the partnership, its name or its business connection. For example, a doctor who undertakes medical insurance outside surgery hours can be made to account to the partnership for any profits he makes.
•	The duty not to compete, which means if a partner does compete with the partnership, he must account for any profits made in the course of that business

Alongside these duties are general duties of trust between partners, meaning that all partners must act in good faith and for the benefit of other partners.

Relevant Online Forms

Forms are available from Companies House, and some are in Welsh.

What are a business partner's rights?

A business partner's rights are set out in the Partnership Act 1890. Under that Act partners have the following rights:

•	To share equally in the capital and profits of the business. However, if evidence exists that one partner contributes most or all of the initial capital, there are grounds for unequal profit sharing.
•	To be compensated by the firm for any liabilities incurred or payments made in the course of the firm's business
•	To take part in the management of the business, although this is not the case for limited liability partners, who give up authority in the business to get limited liability.
•	To have access to the firm's books
•	To prevent the admission of new partners or any change in the nature of the partnership business

Relevant Online Forms

Forms are available from Companies House, and some are in Welsh.

What is an illegal business partnership?

An illegal business partnership is any partnership that is formed in order to carry out an illegal activity or a legal activity in an illegal way. In such cases the law does not recognise the rights that partners would normally have. However, a third party that is unaware of the illegality of a business may still have grounds to sue it.

Partnerships with more than 20 people are also considered illegal. Under section 717 of the Companies Act 1985 certain professions are exempt from this restriction, including solicitors, accountants, surveyors, estate agents and insurance brokers.

Relevant Online Forms

Forms are available from Companies House, and some are in Welsh.

What types of partner are there and what restrictions apply to them?

•	A general partner is someone who is actively involved in the everyday running of the business. General partners are liable to the full extent of their wealth to help pay off any debts that their partnership has. This means that they could be liable for an amount greater than their initial financial investment; they are considered to have unlimited liability.
•	A limited partner is liable for debts only up to the amount of their initial financial investment. They are not allowed to participate in the day-to-day running of the business, neither can they withdraw their financial investment in the course of ordinary events.
•	A dormant or sleeping partner is someone who merely invests their money into a partnership enterprise and does not participate in the management of the business. While dormant partners are similar to limited partners, they do not have to comply with the formalities required for establishing a limited partnership, in that they do not register themselves (with Companies House) as limited partners.
•	Sleeping partners are considered to be general partners as regards liability, however, and hence have unlimited liability for any partnership debts

Further Information

For further information see the Companies House web site.

Who can join a business partnership?

Anyone can join a partnership, but if a partner is under the age of 18 any partnership agreement can be annulled while the partner is under this age and for a short period after turning 18. Such a partner is not bound legally by a partnership agreement and so third parties cannot recover debts from them. Once a partner has reached the age of 18, if they do not repudiate a partnership agreement, they become liable for the debts of the partnership.

Mental incapacity does not restrict someone from joining a partnership, but if a partner later suffers mental incapacitation it may be used as a reason for dissolving it.

Relevant Online Forms

Forms are available from Companies House, and some are in Welsh.

Does taking a share of a business' profits make a person a partner in that business?

Under the Partnership Act 1890, receiving a share of a business's profits is not conclusive evidence of that person being a partner in the business and so liable for any partnership debts. For example, an author who is given a percentage of total sales value of a book would not be considered a partner in the publishing firm, and hence not be liable if losses were made on the sale of the book.

However, if an agreement is made to share both the profits and losses of a business, this can be taken as evidence of a partnership agreement. This is because an undertaking of losses represents an acceptance of risk, which is usually seen to imply that the individual concerned participates fully in the business.

Relevant Online Forms

Forms are available from Companies House, and some are in Welsh.

What are the tax arrangements for sole traders and partnerships?

Sole traders are taxed as self-employed individuals, paying income tax on the profits of the business. Sole traders pay flat rate Class 2 national insurance contributions (NICs) (�2.05) and Class 4 NICs at 8% on profits between �4,745 and �31,720 per year and at 1% on profits above �31,720 (2004/5). The Class 2 rate rises to �2.10 and the Class 4 thresholds rise to �4,895 and �32,760 for 2005/6. There is also tax relief to individuals for losses incurred by their business.

Individual partners in partnerships are taxed in the same way as sole traders, that is, on their share of profits they take as part of their partnership agreement.

The Inland Revenue lists current tax rates.

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Legal Requirements FAQ

What rules govern company stationery?

Under the Companies Act 1985, unless you trade in your own name, the company name must be displayed and be clearly legible on all stationery and publications.

Company letterheads and order forms must include:

•	The full company name in its full legal form, printed in legible lettering
•	The company's place of registration (for example, registered in London) and registered number
•	The company's registered office address (the address to which official letters to the company are sent)

Certain types of company have to display additional information on their letterheads and order forms:

•	Investment companies must state that they are an investment company
•	Companies that are limited but exempt from using the word 'Limited' in their company name must state this
•	If companies with share capital state this on their stationery (this is not obligatory), they must state their paid-up share capital rather than their authorised capital
•	Under the Charities Act 1993 (The Companies Act [Scotland] 1989), charities without the word 'charity' or charitable' in their name must state that they are charities in all their stationery and publications
•	Companies that open a place of business in Great Britain but which are incorporated elsewhere must state this
•	A company does not have to display the names of its directors on its letterheads, but if it includes some of them, then it must display them all

Further Information

For further information see Companies House web site.

What insurance must a business have by law?

By law, a business must have employers' liability, motor insurance for vehicles used for business, any insurance demanded by contractual agreements, and insurance for certain equipment that a business uses.

Employers' liability is necessary so that a business can meet its legal obligations if an employee is injured or made ill by work and there has been negligence by the employer. A certificate of employers' liability must be displayed in the workplace.

There are other types of insurance a business can get, but which are not legal obligations, and these include insurance against fire, loss of profits, loss of goods in transit, public and product liability, and credit insurance.

Further Information

See the Department of Trade and Industry for further information.