What is company formation?


Hi, guys. Riley from London, here. I am looking to start a new company, but have got no clue how to do it. I always assumed you just did business as you saw fit, and then registered with HMRC for taxes etc. But now that I’m ready to start my first business, it is looking like there are quite a lot of rules and a very rigid legal path you must follow to do what is called “company formation”. But what exactly is company formation? Is it the same as incorporation? And how does it work? Thank you!



Hi Riley,

If you were to set up in business as a sole trader, you just have to register with HMRC for tax purposes as soon as possible before or after you start trading. However, there are more rules and regulations when it comes to registering a company, but it is still quite an easy and straightforward process.

Company formation is the process of legally registering a business as a limited company. And yes, it is the same as incorporation. This must be done through the UK registrar of companies, which is a government department known as Companies House. When a company is incorporated, it becomes a legal individual with rights and responsibilities, hence the stricter legislation!

It’s easier if you set up a company through an online company formation agent. To do so, you must:

  1. Decide what you want to call your company and make sure no one else has a company with that name.
  2. Decide what kind of company you want to form - limited by shares (ideal for a profit-making business) or limited by guarantee (perfect for nonprofits and charities).
  3. Complete an online application form with information about your business and the people who own and manage it (you).
  4. Send it online to Companies House via your agent.
  5. Companies House will check and approve your application within a few hours.
  6. Start trading any time.

The rules and regulations you must follow to complete the above process are dictated by the Companies Act 2006. They are as follows:

  • Company name must be unique - it cannot be the same as, or too like, the name of an existing company.
  • Company name must end with ‘Limited’ or ‘Ltd’.
  • Company must be incorporated in either England and Wales, Scotland or Northern Ireland only.
  • Must have a registered office address (official company address) in country of incorporation.
  • Require a minimum of one director and one shareholder.
  • Each director must have a service address.
  • Must submit financial accounts and an annual return to Companies House every year.
  • Must register for and pay Corporation Tax once trading - you do this through HMRC.
  • Report all company changes to Companies House.
  • Maintain up-to-date records of corporate information at the registered office and allow the public to inspect them.
  • Display registered office details on business stationery and websites.
  • All corporate details will be disclosed on public record at all times.
2 years ago

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