A guide to forming your business

So, you have the business idea, you've done the research and made the decision to be your own boss. Congratulations! Now you need to make it official.

Forming a new company can appear to be a daunting, confusing task. To clear the fog, we asked our friends over at Company Formation MadeSimple for their expert advice.

Jump to a section

• Choosing a name for your start-up
• Which business structure is right for you?
• Sole trader
• Limited company
• Limited liability partnership (LLP)
• Company limited by guarantee (LBG)

Choosing a name for your start-up

Your company name is a major part of your brand. It will be the first impression potential customers receive about you and your company, so choose wisely. Do you want to use a location in your name? This can be good for a local business and online visibility, but less so if you want to expand or relocate in the future.

Think about your competition. Who are they and what are they doing? You want to show you are part of the industry, but also need to set yourself apart. You certainly don't want a name that will allow your brand to be confused with a competitor.

Companies House has a few rules about naming your company, most of which are common sense, such as not using sensitive or offensive words, and your name must be sufficiently different from an existing company.

Practically, you may also want to consider how easy your company name is to say, spell and remember. Don't forget to have a look at domain names and social media handles as this may influence your name choice.

Which business structure is right for your start-up?

Now that you have a name, the next thing to consider is your business structure. This will depend very much on the nature of business you're forming, so take some time to investigate the pros and cons of each type of structure. You might find that your initial thinking isn't necessarily the best way forward for you.

Most start-ups don't begin as a stock exchange listed public limited company (PLC). While a PLC may well be in your future, for now it is most often a four-way decision: you can become a sole trader, form a limited company (Ltd), incorporate a limited liability partnership (LLP) or create a company limited by guarantee (LBG).

The four main business structures at a glance

Sole trader

Working as a sole trader is an attractive option for many start-ups, especially if you're not looking to employ people straight away. You can go out and get started immediately with little red tape and little cost. However, the law makes no distinction between you and your business so any business debt will be collected from your personal wealth. Liability is unlimited. As your business grows and your profit increases you will be subject to higher tax brackets and, at that time, you may want to consider a different business structure.

To become a sole trader, you will need:

• Your National Insurance number
• Contact details
• Nature of the business
• Business address

Limited company

Unlike a sole trader, under a limited company your business is owned by its shareholders and personal finances are kept separate. You will have to register your limited company at Companies House and it will include more reporting and management responsibilities, along with a little more cost, but you can keep it as simple as you want. You can be the sole shareholder and director.

The tax regime is more favourable when the business begins to grow, as limited companies pay corporation tax on profits and company directors are taxed as employees. This could be your phase two or starting point, as limited company status does add credibility to the business.

To set up a limited company, you will need to provide:

✓ Registered office address Where all statutory mail from Companies House and HMRC will be sent. It appears on the public Companies House register, so if your business is home-based you may want to use an external registered office service.

✓ SIC code The Standard Industrial Classification code notifies Companies House of the industry your company will operate in. You can select up to four codes from the list provided during registration.

✓ Director details Minimum of one director aged 16 or over. You will need to provide name, date of birth, nationality, occupation, country of residence and residential address. A company can also act as a director, provided there is at least one natural (human) director.

✓ Shareholder details Minimum of one shareholder (can also be a director). For each shareholder you will need full name, residential address, share currency, number of shares and value per share.

✓ PSC details (Person of Significant Control) Introduced in April 2016 to increase transparency in limited companies. The PSC is ultimately the person controlling the company and must be confirmed at registration.

Limited liability partnership (LLP)

An LLP is a partnership with limited liabilities for its members. It is most suited to professional services companies and is a hybrid between traditional partnerships and limited companies, limiting the partners' liability to however much they have invested into the business and offering the flexibility of a partnership.

To set up an LLP, you will need to provide:

• Registered office address
• SIC code
• Member details (minimum of 2 designated members, aged 16 or over)
• PSC details

For each member you will need name, date of birth, nationality, occupation, country of residence and residential address. A company can also act as a designated member, provided there is at least one natural (human) member.

Company limited by guarantee (LBG)

Companies limited by guarantee are mainly used for non-profit organisations such as charities, which retain their profits within the business or use them for some other purpose. They do not distribute to their members.

The main reason for choosing this structure is to protect the people running the company from personal liability for any debts. It is very similar to a limited company, however instead of shareholders it has members who control it.

To set up a company limited by guarantee, you will need to provide:

• Registered office address
• SIC code
• Director details (minimum of 1, aged 16 or over)
• Member details (minimum of 1, also known as a guarantor)
• PSC details

Members can also be directors, though this is not a requirement. Other companies can act as members.

About Company Formation MadeSimple

Founded in 2003, Company Formation MadeSimple has formed over 500,000 companies and helped thousands of business owners start, run and grow their business. Call 0207 608 5500 or visit companiesmadesimple.com for more information.

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