Forming a company is a thrilling step that anyone can take. Companies House has simplified the process of forming a company by making it online instead of having to complete a lot of forms and mail them by post. One can also complete a confirmation statement filing online without having to go through paperwork and extra costs. Read here about filing a companies house confirmation statement.
Submitting a confirmation statement to Companies House may look easy, but businesses frequently make some common errors that can be difficult to handle in the overall business administration.
In this blog post, we will discuss these mistakes and provide tips on how to avoid them. By being aware of these pitfalls, companies can ensure accurate and error-free filings, saving time and potential penalties. So, let’s get started!
Mistake 1 – Choosing the Wrong Company Address
A proper company address in an area where business can potentially bloom can make or break the entire big picture. Picking the right address is more crucial than you may think, as it is where all official communications will come from HMRC and Companies House.
You don’t need to use the offices you are working from. You can use your home address. But the address you pick will be public via the Company Register, so make sure the address you pick is one you are happy to have in the public eye.
If you don’t have another address to use, like an office or workplace address, you can get a virtual address for your business that is unique and attracts a good part of your target customer base.
Mistake 2 – Not Providing Proper Documents for Sensitive Name
Some words and expressions are regarded as ‘sensitive’ when used in company names. If you wish to include any ‘sensitive’ words or expressions, you will need to submit supporting documentation from the relevant body with your company formation application. For instance, if you want to form a company that contains the word ‘Bank’, you will require written permission from the Financial Conduct Authority.
Companies House offers guidance on company name rules and restrictions, including ‘sensitive’ words, so please spend some time to review this before filling out your application form.
Mistake 3 – Forming the Wrong Type of Company
You might choose to begin as a sole trader for the initial days and become a limited company later in the business’ life, which is a usual scenario.
But besides sole traders and limited companies, you can form many different forms of company, so do your homework and make sure you’re making the right choice.
The most common types of companies are limited by shares and limited by guarantee. Altering the legal structure of a business can be a complicated and expensive process after company formation, so it is essential to know the differences between these types of companies to make sure that you pick the most suitable one for your needs.
Mistake 4 – Not Registering for Corporation Tax
As a sole trader, you don’t need to care about Corporation Tax, but if you register to become limited it’s a very crucial part of running the company. When you become incorporated, you have a legal obligation to become registered for Corporation Tax within 3 months.
If you fail to register then, legally, you cannot start trading. Even if you never make enough money to pay Corporation Tax you still have to be registered and you have to file for it. That’s when you need to file confirmation statement online and maintain that every year.
Mistake 5 – Not Specifying the Shareholders
You can have as many people working for your company as you want, but they need to be mentioned if they have any ownership or influence over the company. With private limited companies, you assign a value to the shares you give out and they will stay at that value. But with a public limited company, the shares are sold in an open market, and for this to happen, the company needs to make enough revenue.
Anyone who has shares of your company should be mentioned when you form your company (in the Memorandums of Association), if you miss this, you can do it later, but doing it from the start can mean there has always been a record of them being there. If you are giving them shares after you have formed them, you will need to fill out the form SH01, and you also have to tell HMRC when you do your next Confirmation Statement filing.
Mistake 6 – Adopting the Wrong Articles of Association
Most companies use Model articles of association when they form, a default set of articles given by Companies House. There are three versions of Model articles – one for private companies limited by shares, one for private companies limited by guarantee, and one for PLCs. Your application will be denied if you pick the wrong one for your company type.
Model articles will not work if you want to change any of the standard provisions, including issuing multiple types of shares. In such cases, you must modify the Model articles accordingly or make bespoke articles.
If you do not choose Model articles or state that you want to use altered or bespoke articles (and attach a copy), your application will not be accepted.
Mistake 7 – Issuing too Many Shares
The number of shares shows how much of a company is owned and managed by each shareholder and the portion of profits they can get. Shares also determine each shareholder’s liability level for the business’s debts if it goes bankrupt. Therefore, it’s essential to:
- give the right number of shares to each person based on their investment, profit share, and/or degree of control
- refrain from giving out too many shares when there is no valid reason to do so
Mistake 8 – Not Planning How to Run the Company
This doesn’t mean the company’s daily management but rather who will have the most voting power or the ultimate duty of running the company and ensuring that all decisions are lawful. This will be stated in the Articles of Association when you form the company. For most companies, the Standard Article will apply. You can modify this and create your own if you want, but you cannot register online.
Online company formation is the most preferred, effective, and fruitful way of incorporation in the UK. Companies House says that 99% of companies are now registered online. This reduces the chances of making silly entry mistakes, but some are because of a lack of understanding of how business works.
It’s essential to think carefully about some choices, not rush through the company formation process, and verify all of the information given on the application form before submitting it to Companies House. The above-mentioned 8 mistakes can help you make informed decisions about your business.