Company formation in brief
The United Kingdom corporate legislation has always attracted entrepreneurs who have the right to establish in UK enterprises of various organizational and legal forms, the most popular of which are:
UK Establishment of an overseas company
The UK companies can be incorporated in four types:
1) Company limited by shares - a company where the shareholder's liability is limited to the value of the shares for which he/she subscribed (or paid for);
2) Company limited by guarantee - a company in which the shareholder's liability is limited only to the amount with which he/she knowingly agreed;
3) Unlimited company - a company with unlimited shareholder liability for the company's debts and obligations;
4) Community interest company
In turn, companies limited by shares are subdivided into:
Private Limited Companies
Public Limited Companies
A public company (as opposed to a private one) has the right to offer its shares for public, as well as to quote its shares on the stock exchange.
Company limited by shares is entitled to issue various types of ordinary, non-voting, preference and redeemable shares.
Company limited by guarantee is usually set up for non-profit enterprises.
Company of this type has the right to engage in commercial activities, but all profits must be distributed for the purposes that have been fixed in the company's charter upon incorporation.
Unlimited company differs from a limited company only in that the shareholder's liability for the company's debts and obligations is not limited.
A Community interest company, in its legal form, is a combination of a private limited company and a company limited by guarantee. This is a charitable company with the right to engage in commercial activities, but all profits must be distributed for charitable purposes, the needs and interests of a particular Community or other charitable organizations.
On a case-by-case basis, the Registrar of UK Companies and its designated Appeals Officer could decide whether a prospective company's activity meets the charity test in UK or not.
One person has the right to establish a UK company and be its sole director (the exception is a public company, the minimum number of shareholders and directors in which is 2).
A minimum amount of capital paid up upon incorporation of a company is £ 1 (except for a public company, the authorized capital of which cannot be less than £ 50,000, and a quarter of this amount must be paid upon incorporation).
Shareholders, directors and officers are not required to be UK residents.
All companies are required to have at least one director - an individual (at least 16 years old). If a company requires a corporate director, it can be appointed subject to the appointment of at least one more director - an individual.
The Registrar of Companies (UK COMPANIES HOUSE https://find-and-update.company-information.service.gov.uk) maintains records of shareholders, directors and persons with significant control of and this data is available for public.
UK Partnerships can be established as:
Limited Partnership (LP)
Limited Liability Partnership (LLP)
Partnerships must have at least two members (partners) who are not required to pay any amount of capital upon incorporation. The maximum number of members (partners) is 20.
There is no fundamental difference between these two types of partnerships, except that LP is created by one or more partners with limited liability and one or more partners with unlimited liability for the debts and obligations of the partnership. LP partners can be both individuals and legal entities, and only individuals can be managers of LP. Also, it should be noted that the Registrar of Companies will refuse to create an LP if all of its members are non-UK residents.
In LLP, all members bear limited liability for the debts and obligations of the LLP. Partners and managers in an LLP can be both individuals and legal entities of any residency.
LLP registration formalities will require to appoint at least two partners as so-called designated members. Despite the fact that rights and obligations of all partners are in principle the same, there are several additional obligations imposed only on designated partners, namely:
- to appoint accountants and auditors;
- to sign and submit the accounting reports of the partnership to the registrar of companies;
- to notify the registrar of companies about all changes in the composition of partners, change of address or name of the partnership;
- to act as the liquidator of the partnership upon dissolution.
LLP itself is not a subject to taxation in the UK, and its members pay taxes on the partnership income (in proportion to their shares in it) at their place of residence. If the partners are non-UK residents, they don’t pay taxes in the UK, respectively. It is important to note however that the UK double tax treaties generally do not apply to partnerships.
Regardless of whether an LLP conducts business in the UK or not, the law requires from LLP to submit annual financial statements to the UK Companies House.
A UK Club is an association of individuals joined by any common interest or common purpose which is not related to earning of income. An association of individuals can only be called a club if its income is incidental and not derived from a permanent source.
There are two main types of clubs in UK:
In a Members club, its activity is managed by the members themselves. In a Proprietary club, to a greater extent, its activity is managed by the owner/s, who has/have the right to transfer any part of his/her/their responsibility to other members, without giving up a control over the club’s affairs.
Membership clubs have strict rules for admission of members, appointment of committees; these rules govern the rights of club members to manage.
Establishment of an overseas company in UK is a registered place of business (branch) which is not an independent legal entity but is entitled to engage in economic activities and may be of interest to those offshore companies which need a prestigious UK address for signing contracts or invoicing.
Every business registered in UK must submit to the Registrar of Companies an annual report (confirmation statement) containing information on directors, secretary, partners, shareholders, share capital and registered office.
Another prerequisite for all companies, partnerships and affiliates is bookkeeping and filing annual financial statements duly certified by a UK public accountant or auditor.
In UK there is a concept of a small company, for which a simplified form of annual financial statements is provided. A company is considered small if it meets at least two of the following three conditions:
- annual turnover - not more than £ 6,500,000
- total balance - no more than £ 3,260,000
- average number - no more than 50 employees
If the annual turnover of an English company (regardless of its organizational and legal form) exceeds £ 6,500,000, then such an enterprise will need to undergo an audit.
In order for a UK company to be registered for VAT, the company must actually trade in goods or services in the UK and have an annual turnover of at least £ 60,000.
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