Company formation and structure guide

A sole trader has no separation between the individual and the business: simple to run, but personally liable for every debt. A general partnership extends that unlimited liability across the partners. Neither can issue shares, grant options or attract equity investment.

A private company limited by shares is a separate legal person. Shareholders' liability is limited to any unpaid amount on their shares, the company can raise equity, grant EMI options, and qualify for SEIS and EIS relief. An LLP suits professional practices and ventures wanting limited liability with transparent taxation. A company limited by guarantee suits not-for-profit and membership organisations.

Incorporation at Companies House requires a company name, a registered office address in the relevant UK jurisdiction, at least one director aged 16 or over, at least one shareholder, a statement of capital, articles of association and details of people with significant control.

Check the name properly: search the Companies House index, check trade mark registers and secure the domain and social handles. Companies House will reject names that are the same as or too similar to an existing name, but registration confers no trade mark rights — a separate registration is what protects the brand.

Most startups issue ordinary shares of £0.0001 to £1 each. Keep the nominal value low so future issues remain flexible, and issue enough shares that the cap table can accommodate percentages without fractions.

Multiple classes may be useful: alphabet shares for differential dividends in an owner-managed company, non-voting shares for passive holders, growth shares for incentivising staff without upfront tax cost. Remember that share rights carrying preferences can disqualify SEIS and EIS relief, so if investment is planned, keep the structure simple.

Model articles are a reasonable default for a single-owner company but are silent on much of what a multi-owner business needs. Bespoke articles typically add pre-emption on transfer, compulsory transfer provisions for leavers, drag-along and tag-along, share class rights and clarified director conflict authorisation.

Articles are public. Anything commercially sensitive belongs in the shareholders' agreement instead, with the articles carrying only what needs to bind the company constitutionally and future shareholders.

Directors take on the statutory duties in the Companies Act 2006 from appointment. People with significant control — generally those holding more than 25% of shares or voting rights, or exercising significant influence — must be identified and registered, and identity verification requirements introduced by the Economic Crime and Corporate Transparency Act 2023 now apply.

Maintain statutory registers from day one: members, directors, secretaries, PSCs and any charges. They are the evidence of share ownership and are examined in every funding round and sale.

Register for corporation tax within three months of starting to trade, consider VAT registration (mandatory above the threshold, voluntary below it), and set up PAYE before the first payroll. Open a business bank account in the company's name and keep company and personal money strictly separate.

Then put the commercial basics in place: your standard terms of business, contracts for any employees and contractors with IP assignments, appropriate insurance including employers' liability, a privacy notice and ICO registration, and a founders' or shareholders' agreement if there is more than one owner. Doing this at the start costs a fraction of unpicking it later.