Limited company formation

[Pies]

Hi guys,

New to the forum and just about to setup a new business. I was hoping you could offer some advice for me on the formation of a limited company.

It is worth using a company formation company to setup for me or would I manage just fine on my own?

From what I gather the formation is fairly straight forward and all that these formation companies offer is the memorandum of association and articles of association (maybe back accounts etc) but nothing I cannot do on my own.

I'm currently a director of a successful web development company, I was not too heavily involved in the formation of that company but could I just take our articles etc and modify them to suit my new business? These were prepared by solicitors. I assume there would be no legal issues in doing that?

I would like to avoid using an expensive formation company but would just like to know if there are any pros that I've not considered.

Thanks for the help!

 

[OldWelshGuy]

hi Pies,

it costs pennies to set up a company these days, so it is no real big deal. most come with standard articles etc.

As an aside, you need to verify your account by cicking on the link in the email sent when you joined. Otherwise all your posts will need manuall approval (as per this oen)

 

[Pies]

Thanks for the reply. I didn't seem to get the activation email... strange as I registered with a gmail account - it's not in spam and I just confirmed i entered it correctly.

 

[InPrintImaging]

You might potentially be in breach of the copyright if you modified and re-used your existing articles without an appropriate license. Also bear in mind, company law changes regularly, so best advice previously may need to be re-evaluated. What is there out there that you don't know about?

 

[Pies]

I guess I just wondered, whether these custom articles etc were required. I'm aware of the standard documents but for my other company we got some quite in depth additions to them.

I guess I should read the standard articles.

The main concern is that both me and my new business partner will be protected (potentially from each other). However I would imagine that would be covered in our directors contracts?

So it seems I should just set it up myself?

 

[Cashisreality]

Whatever you do, get a Shareholders and a Directors Agreement about what happens if you fall out. Do it NOW while you are friends; do not delay until you fall out. It is not the directors contracts of employment, but an agreement between the pair (or more) of you, and set up to be binding on future directors/shareholders.

Also make sure you think now about stalemates in decision making, employing family or giving out more shares. How you buy each other out if one of your circumstances changes. Who is responsible for what. Some of this should be in legal language, some is more day to day procedures, so different documents.

As to the company lark, the standard Memorandum and Articles are all you need. They are pretty all encompassing nowadays. Have side agreements that matter.

I think you can achieve much the same as a partnership. The key issue that most people think of for a company is protection for the individuals. But company directors will have to sign guarantees to their banks, and often to suppliers, and can be sued if they enter into contracts while the company is insolvent. Strangely some suppliers actually LIKE to deal with companies.

There is more paperwork and cost annually for a company, but it continues on even if one director dies or leaves.

If you are planning to leave profits in the business to grow it, then you get the advantage of lower tax, and eventually only capital gains when you sell the shares. But you pay as normal on salary, and there is company car taxation. You MIGHT be able to vote dividends and save some NI, but a wise old client of mine once said that it is NEVER A GOOD IDEA TO DO SOMETHING JUST TO SAVE TAX.

 

[Pies]

Hey thanks for that reply, you outline all the kind of things we need to cover against, very helpful. Would I not need to get these kind of things drawn up by a professional?

So I am able to setup the company now but get these shareholder and directors agreements sorted later?

Thanks again!

 

[Ozzy]

Hello Pies
I run one of those "formation agents" that you refer to as "expensive" and I wouldn't consider it expensive ;-)
Basically you have had some important things answered above which you should consider. Obviously much of it is optional but very highly recommended and I would suggest you consider them all.
I would personally never enter into business without a shareholders agreement when with someone else, and get it drafted as mentioned already, when you are still friends.

Yes you can form the company first and it's fine to do so, just get the agreements done soon afterwards if you do. Ideally before trade starts.

Now the sales pitch, my https://www.quickformations.com business does all these agreements and company formation stuff

 

[Cashisreality]

Hi Pies. If you use a professional you know it is done right. You can do the formation on your own but for the extra that a formation agent charges...
Do NOT delay getting the agreements, just think about what you want before going to someone like Ozzy (who i don't know) thiugh he will probably have some goog ideas thta you would not think of. Don't wait till you have started trading as you will never have time.

 

[webgeek]

Or, you can use a formation company which handles the company reg, vat reg, company tax filings, company vat filings, director tax filings, and offers an online portal for inputting expenses, invoices, deposits, to help with the accounts.

There's a number of these all-in-one packages which take the accounting drudge work out of the company, leaving you time to run the business.

 

[SetupaCompany]

As others have said - you can do it yourself but for the amount of money you will save vs doing it yourself (which will still incur a £15 Companies House filing fee - more if you do it via paper forms) it probably isn't worth it.

I would echo the advice of echoisreality though - a shareholder agreement is a must to help protect you both and set out a clear understanding of what is expected from you both.

If you wish to form a company then we can handle that for you from £19.99 and our application form only takes about 4 minutes to complete - http://www.setupacompany.co.uk

Let me know if you have any questions or need any further advice and I will be happy to help

 

[Alan R Price]

Hello Pies
I run one of those "formation agents" that you refer to as "expensive" and I wouldn't consider it expensive ;-)
Basically you have had some important things answered above which you should consider. Obviously much of it is optional but very highly recommended and I would suggest you consider them all.
I would personally never enter into business without a shareholders agreement when with someone else, and get it drafted as mentioned already, when you are still friends.

Yes you can form the company first and it's fine to do so, just get the agreements done soon afterwards if you do. Ideally before trade starts.

Now the sales pitch, my https://www.quickformations.com business does all these agreements and company formation stuff

I wholly endorse what Ozzy says. His service is very good and excellent value for money (he has done one for me); and never, ever go into business with somebody (relative, spouse, pal, business contact, bloke from the pub) without a properly-drafted (i.e. not from an online template but done by a real lawyer) directors' and shareholders' agreement.

 

[mrmatt]

never, ever go into business with somebody (relative, spouse, pal, business contact, bloke from the pub) without a properly-drafted (i.e. not from an online template but done by a real lawyer) directors' and shareholders' agreement.

I've had multiple businesses/joint ventures,etc based on just a handshake for years and they're still going strong, so not always the case. Obviously gut feeling/trust comes into this in a big way. Of course this will differ from one person to the next, and this is just my opinion, not advocating someone should do one or the other, just what is right for them

 

[Alan R Price]

I've had multiple businesses/joint ventures,etc based on just a handshake for years and they're still going strong, so not always the case. Obviously gut feeling/trust comes into this in a big way. Of course this will differ from one person to the next, and this is just my opinion, not advocating someone should do one or the other, just what is right for them

I accept that there are many businesses that exist on this basis very happily. But there again, there are many marriages that start off fantastically and end up horrifically. A shareholder agreement is just the commercial equivalent of a pre-nup: business partners and colleagues do fall out from time-to-time and if the break-up procedure is clearly stated from the outset it can save years of internecine fighting and £10,000s in wasted legal and accountancy costs when a relationship turns sour. The pages of this forum are littered with posts about fallings-out between directors that are bringing their companies down.

The cost of a shareholder agreement should be no more than a few hundred pounds. What's the old saying: "Don't spoil the ship for a ha'p'orth of tar"?

 

[Scalloway]

An IP once told me that you should take more care in choosing a business partner than a marriage partner.

 

[mrmatt]

I accept that there are many businesses that exist on this basis very happily. But there again, there are many marriages that start off fantastically and end up horrifically. A shareholder agreement is just the commercial equivalent of a pre-nup: business partners and colleagues do fall out from time-to-time and if the break-up procedure is clearly stated from the outset it can save years of internecine fighting and £10,000s in wasted legal and accountancy costs when a relationship turns sour. The pages of this forum are littered with posts about fallings-out between directors that are bringing their companies down.

The cost of a shareholder agreement should be no more than a few hundred pounds. What's the old saying: "Don't spoil the ship for a ha'p'orth of tar"?

Yep all good points

An IP once told me that you should take more care in choosing a business partner than a marriage partner.

Think that says more about the IP themselves than their advice...

 

[Alan R Price]

Yep all good points



Think that says more about the IP themselves than their advice...

Hahahaha! I think that sums us up!

 

[Jet Virtual]

Don't waste too much time thinking about how to setup the business. You can incorporate a business for as little as £5 these days. Focus your energy on getting some clients. The sooner you do the sooner you actually HAVE a business.