Are you considering starting a business in the United Kingdom? If you are an oversea company or HK company planning to start expand your business to UK, you might be curious to know how to open a company in UK. This article is a breakdown of the possible business structures you could adopt, how to start a business in the UK, and why you should consider having a business in the UK.
Content Outline
Doing Business In The United Kingdom
Let’s explore the idea of doing business in the UK and what kind of business might work well in the British business environment.
The economy of the UK is among the biggest in the world which is why many people dream of starting a business in this country. Currently, the United Kingdom’s major economic activities include service industries as well as public services though there are certain industries such as the manufacturing industry, the construction industry as well and the agriculture industry.
These are some of the major areas of economic activity in the UK:
- Real estate – 12.5%
- Retail being – 10.4%
- Manufacturing – 9. 4%
- Finance – 9%
Another important aspect of the United Kingdom is the fact that it is also home to small business owners most of who run independent companies and contribute immensely to the success of the economy. This has led to the establishment of policies that ease procedures for the formation of businesses so that more small business owners can venture into the country in the future.
Different Types of Business Structures In The UK
Starting a business in the United Kingdom can be done in various forms of legal entities which are mentioned below. Depending on the kind of job you do, your future goal, and your specific needs, there will be suitable entities for you. Your key options include:
- Sole trader (self-employed)
- Partnership
- Limited liability partnership
- Limited liability company
These options can be broken down into the following points and analyzed in more detail.
Sole trader
A sole trader is considered to be the least complex business structure in the United Kingdom. In a sole trader business, the owner has used his or her personal money to finance the business hence personal finance and business finance are not separated. This means that registering is very simple. All you have to do is inform the HMRC that you will be paying tax through the self-assessment system which means that you are at personal risk if your business encounters some financial problems as you are held responsible for the costs.
Partnership
In a simple UK partnership, you will be linking with one or even many people (or even entities like limited companies) and become equally responsible for managing your business. This means that each of the partners will bear the losses of any company in proportion to its share and at the same time will receive the profits in an equal proportional percentage. Partners must be legally responsible for managing their own affairs in terms of taxation.
Limited Liability Partnership (LLP)
Similar to a simple business formation in the UK, an LLP can be formed with at least 2 members or entities. Every partner still has equal rights to company profits and can control his/her taxes – yet partners’ losses are limited. This means that although the partners are funding the business if the company experience some problems, partners are financially secure as the LLP is considered to be an entity apart from its owners.
Limited liability company (Ltd)
A private limited company can be of two types which are a limited company by shares or a limited company guarantee. Most profit-making corporate businesses are limited by shares. The legal structures of an Ltd company separate the owners and directors.
A legal Ltd company is a body, which is separate legally from the owner and the directors. This means that the company’s finance and your personal finances are not related therefore you won’t be held personally responsible if your company has financial issues. If your company is limited by shares, you may often get to keep the profits you earn after paying taxes or reinvest them into the business.
Step-by-step Procedure For How To Open a Company in UK
The steps you need to go through in the process of forming your business in the UK vary depending on the business type you want to form.
If you are registering as a sole trader, you will need to inform HMRC that you will begin to pay the taxes through self-assessment.
The literal meaning of simple business partnerships simply implies that you are in business on your own but you are formally and personally responsible for the business venture with all the other named partners. First of all – as with becoming a sole trader – you need to register with the tax authority and declare that you are self-employed. This means you can run the business on your own and be taxed as an individual while an agreement on profit sharing can be reached among the partners.
The procedures to follow to form a limited company in the UK take a little longer as compared to the other two. You need to:
- Choose a name, and register a business address that is in the United Kingdom
- Choose shareholders or guarantors, and directors ( according to the type of business entity)
- Prepare your documents (see below)
- Your business needs to be registered with Companies House.
- Register Your Company For Corporation Tax
Establishing a business means that you will be required to present a set of documents that may be different depending on the type of entity you are going to start. Some of the documents that will be required in the process include:
- Standard industry classification coding
- Memorandum of association
- Statement of capital
- Standard industry classification coding
If you plan to form a limited liability company, you will have to register the company (incorporate it). UK-based companies can register at Companies House online and this process takes 24 hours at most. Online registration only costs £12. There are also other postal registration options although they may have higher charges than the usual online registration option. Additionally, there are third-party agent services that you can use to support your registration needs such as FastLane. Our team of experts is ready to help in every step of the formation of a company. Contact us now for more details.
Frequently Asked Questions About Starting A Business in the United Kingdom
Here are answers to some of the frequently asked questions about opening a UK business.
You are normally allowed to start a business in the UK provided that you have the following.
- a unique company name
- a UK company address
- at least one director is necessary – the person doesn’t need to be a resident of the United Kingdom.
- at least one shareholder – an individual, another company
If you are uncertain whether you can start a new business in the UK, you can also seek professional services who can provide help and advice depending upon the specific circumstances.
The Department of Business and Trade website has a wealth of useful guidance from the UK government, including tools to assist in establishing a business in the UK.
You can also hire a company formation agent service as they can facilitate the entire process of the formation of the company from start to end.
In general, to open a business bank account in the United Kingdom, you will need some documents, identification, the address of the business owner, directors, and the management boards of the company, and the required amount of the opening deposit. Most banks have a provision to open an account online, although in many cases you will need to physically be at the bank for verification.
Typically, these are the steps to go through when applying for a business account from a particular bank:
- Once your account has been verified, you will receive all the details you require to operate your account and you can start transacting.
- Find out whether you are qualified to open the account and check where and how to apply
- Collect the necessary documents – typically the identification and proof of address of an owner, directors, and major shareholders, as well as business registration documents
- Application can be made online or by visiting the relevant bank personally.
- Once your account has been verified, you will receive all the details you require to operate your account and you can start transacting.
The costs of starting your business in the UK depend on how you want to start but it is very, very low which makes registering your business easy. These are the kinds of prices you may be asked to pay to incorporate your UK business:
- Directly, through using the online registration on the Companies House Web Incorporation Service – £12
- Directly, by post, using the Form IN01 – £40
- Through an intermediary such as a company formation agent – various prices
- Through an accountant – various prices can be free if you become a client of the service
Finally, you need to keep in mind that there are other unavoidable costs for instance, a compulsory form of indemnity insurance which could vary between £300 – £400 a year and covers £1 million or more.