How to Register A Business

During this section of the Business Start Up course we will explore the options that are available to you when Registering a Business.

THE DIFFERENT TYPES OF COMPANY AND HOW TO REGISTER

SOLE TRADER

Sole trading (on your own) is the simplest way to run a business.

One of the major benefits is that you do not have to pay any registration fees and you get to keep all of the profits! However, you will have to keep all of your own records and accounts, which will mean you need to employ a bookkeeper and an accountant unless you carry out these functions yourself.

The only real downside to a sole trader business is that you are personally liable for any debts that your business runs up. This can make sole trading a risky option for businesses that need a lot of investment.

Setting up and registering a sole trader business is relatively simple. All you need to do in order to register as a sole trader is download and complete form CWF1 from the HM Revenue & Customs (HMRC) website (PDF) which can be found here.

THE DIFFERENT TYPES OF COMPANY AND HOW TO REGISTER

PARTNERSHIPS

In a partnership there are always two or more people who share the risks, costs and responsibilities of the business. The benefit of a partnership is that they are a simple way for two or more people to own and run a business together. Partners are personally responsible for any debts that the business incurs and they are all self-employed.

The difference between a partnership and a limited company is that the partnership has no legal existence apart from the partners themselves.

If one of the partners resigns, dies or unfortunately goes bankrupt, then the partnership will have to be dissolved. If any of these situations occur then the business can still continue to trade.

Setting up and registering a partnership

There are 3 different types of partnership as follows:

General partners

In this type of partnership general partners invest in the business. They also take a share of the profits and are involved in the day-to-day running of the business.
The risk with a partnership of this nature is that each partner is fully liable for any debts that the partnership may have. Therefore, each partner could lose all that they have invested and still be liable for more than their initial investment if the partnership gets into trouble. Every partnership must have at least one general partner.

Sleeping or dormant partners

Sleeping partners invest money in the business and share in its profits. However, they do not take part in the day-to-day running of the business. Like general partners, they are still fully liable for the partnership’s debts.

Companies

It is possible for a company to be an officer of a partnership. If this happens then the company has the same rights and responsibilities within the partnership as the other partners. Partnerships whose officers are all companies have to prepare “partnership accounts” and send these to Companies House or the Northern Ireland Companies Registry every year. The officers of these partnerships must also attach a copy of these accounts to their own company accounts when they submit these to Companies House.

LIMITED LIABILITY PARTNERSHIP

A limited liability partnership (LLP) is similar to an ordinary partnership in that a number of individuals or limited companies share in the risks, costs, responsibilities and profits of the business.

The difference here is that the liability is limited to the amount of money the LLP invested in the business and to any personal guarantees they have given to raise finance. This means that members have limited protection if the business runs into trouble.

Setting up a Limited Liability Partnership (LLP)

A limited liability partnership (LLP) is very similar to a normal partnership agreement. The added benefits of an LLP are that it offers a reduced personal responsibility for business debts. This is something that is worth taking into consideration when starting your business.

Unlike sole traders and partners of ordinary partnerships, the limited liability partnership itself is responsible for the debts that it incurs. However, this does not apply if individual members have personally guaranteed a loan to the business.
Limited liability partnerships have to meet similar requirements to limited companies and are therefore not easy to run.

The main purpose of an LLP business structure is to be used for profit-making businesses. It is advised that non-profit making businesses should not use this type of business structure.

To register an LLP please visit the Companies House website here.

LIMITED COMPANY

Limited companies exist in their own right and are registered through Companies House.

This means the company’s finances are distinct from the personal finances of their owners.

Shareholders may be individuals or other companies. They are not responsible for the company’s debts (unless they have personally guaranteed a bank loan, for example). However, they may lose the money they originally invested in the company if it fails.

Setting up and registering a Limited company (private or public)

Basically there are 2 different types of Limited company. These are as follows:

• Private Limited Company

• Public Limited Company

Many small businesses that start out choose to become a private limited company. The main differences between a private limited company and a public limited company are as follows:

• Public limited companies can raise money by selling shares on the stock market whereas private limited companies are not permitted to do this.

• Public limited companies must have share capital of at least £50,000.

• Public limited companies must have two shareholders, two directors and a qualified company secretary.

• At any point a private limited company that is limited by shares can convert into a public limited company, but it must re-register with Companies House in order to do so.

Limited by shares or by guarantee?

Private limited companies are limited by shares and they are owned by their shareholders. The benefit of this ruling is that the shareholders who paid in full for their shares are not liable for the company’s debts. However, any shareholders who have part-paid for their shares (if applicable) are liable for the outstanding amount owing to the company for their shares.

It is also possible to set up a private limited company that is limited by guarantee. In this type of company the people who form it agree on liability limits when it is established. This structure is often used by social enterprises to limit the personal liability of their directors and trustees.

To register or set up a private or public limited company please visit the Companies House website here.

Once you have applied to set up your company you will receive notification as to whether your application has been successful or not.

In addition to registering your private business as a company you must also:
• Display the company name clearly on the outside of all its offices or other places of business.

• Display the company name clearly on all your business stationery, including letters, invoices, receipts and cheques.

• Detail your company’s place of registration, registered number and registered office address on all its business letters and order forms.

• Send all the necessary registration documents and forms, fully completed and signed, to the Registrar of Companies.

• Contact HM Revenue & Customs for advice to ensure that you are acting within your legal responsibilities.

Registration documents and forms required to set up your Limited company

In order to set up as a limited company within the UK, you must send several documents and completed forms to Companies House. If you are setting up your company in Northern Ireland you will need to register with the Companies Registry for Northern Ireland. Here is a list of the documentation you will have to complete and register:

• A Memorandum of Association, giving details of the company’s name, location and what it will do.

• Articles of Association, describing how the company will be run, the rights of the shareholders and the powers of the company’s directors.

• Form 10 (Statement of the First Directors, Secretary and Registered Office), giving details of the company’s registered office and the names and addresses of its directors and company secretary. The equivalent of this form in Northern Ireland is Form 21.

• Form 12 (Declaration of Compliance with the Requirements of the Companies Act), stating that the company meets all the legal requirements of incorporation. The equivalent form in Northern Ireland is Form 23.

Here is the link to a list of Companies House statutory forms.

To move on to the next section of the Business Start Up Course entitled 'Business Franchise Information', please click here.