Starting a new company – the time is now?

Posted on August 25, 2020
Posted by Harry Birmingham

Last week, HSBC became the latest bank to significantly downgrade its forecasts for the UK economy in 2020 and 2021. As many existing businesses focus on consolidation and survival, on the surface the ‘new normal’ might appear to be a hostile and unwelcoming place for any new companies to inhabit. 

Perhaps surprisingly, however, the weekly statistical releases from the ONS are continuing to show a sustained increase in the number of new UK companies being incorporated each week, in comparison to the summer of 2019 and previous years. Whether it’s existing sole-traders seeking to limit their liability, furloughed workers experimenting with their own side-hustles, or speculators seeking to ride a ‘V-shaped’ recovery wave, more people are starting a new company now than in any year prior to 2012.

The benefit of limited liability is likely to be a key driver for the uptick in incorporations, particularly in light of the increasingly gloomy economic forecasts for the UK. The risks of doing business as a sole-trader, with your personal assets at risk, are accentuated in a volatile and uncertain trading environment. The increase may also be partly due to businesses incorporating in order to access finance or other support which is only available to companies.

Whatever the motivation, if you have decided that now is the time for you to start a new company, it is important to get things right from the start. In the first of this two-part blog series on starting a new company, we’ve gathered the six key decisions and choices you will need to make before you set up a new company, so that you are armed with all the information and knowledge you need to hit the ground running. In our follow-up blog in September, we will look at the key legal obligations for you to be aware of once you have started a company. 

For more detailed guidance and resources to help you set up a new company, consolidated into a single handy bundle, you can use our comprehensive Starting a Company toolkit.

1. Decide who will own the company

Also known as your shareholders. When setting up your company, you will need to specify how many shares you have and who they belong to. Who owns your company’s shares, and in what proportions, determines who owns the company. Even if you will be the sole-shareholder of your own company, you still need to make important decisions about how many shares your company will have and what they will be worth.

2. Decide who will run the company

Also known as your directors. All companies must have at least one director. Your directors do not own the company (unless they are also shareholders), but they are responsible for day-to-day management and decision-making. Most company founders will be both shareholders and directors of their company if they are involved in day-to-day management.

Whoever you choose, it is crucial to ensure that your directors understand what their duties are before they are appointed. All directors owe duties to their company, which regulate how they should carry out their role. These include avoiding situations where their personal interests conflict with those of the company, and ensuring their actions promote the success of the company and benefit its shareholders. You can find detailed guidance in our Q&A on Directors’ duties, liabilities and insurance. 

3. Choose a company name

Every company must have a registered name. There are certain legal requirements your name must meet to be accepted by Companies House. It cannot be too similar to any existing company name, and it cannot contain certain restricted words and characters. You should also ensure any name you intend to trade under will not infringe on the rights of other businesses.

4. Choose a registered office

Every company must have a registered office. This is your official address for correspondence. You don’t need to actually run your business from the address you choose, but it is important that you access the post there regularly.

5. Choose your articles of association

All companies must have articles of association. These are the rules by which your company will be managed internally. Most new companies use the ‘default’ articles of association under company law, which are known as the model articles. For a summary of what the model articles say, see Quick guide to the model articles.

6. Decide how to incorporate your company

It is easiest and cheapest to incorporate a company online. See our handy Comparison table of different methods of incorporation for the different costs and timeframes of each option to help you decide. 

For detailed guidance on completing the form to set-up a company online and register your business with HMRC at the same time, see Step-by-step guide to incorporation (online including registration with HMRC).

For detailed guidance on all of the above, and helpful supporting documents and templates, use our Starting a Company toolkit. Look out for our follow-up blog in September, when we will take a closer look at the key legal obligations for your company to comply with once it has been registered at Companies House.

The content in this article is up to date at the date of publishing. The information provided is intended only for information purposes, and is not for the purpose of providing legal advice. Sparqa Legal’s Terms of Use apply.