{"id":6697,"date":"2019-09-02T14:31:13","date_gmt":"2019-09-02T13:31:13","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=6697"},"modified":"2024-05-17T15:48:43","modified_gmt":"2024-05-17T14:48:43","slug":"company-formation-myths-debunked","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/company-formation-myths-debunked\/","title":{"rendered":"Company formation myths debunked"},"content":{"rendered":"
\n Last updated: 17 May 2024<\/strong>\n <\/div>\n \n

There are many widely-held misconceptions about UK company formation. We know this because of our years dedicated to providing incorporation and company secretarial services.<\/p>\n

Much of these commonly held beliefs are simply not true. What’s more, they discourage new and existing businesses from incorporating and benefiting from the many advantages of trading as a limited company.<\/p>\n

In this blog, we cut through the fiction and get to the truth concerning company formation in the UK.<\/p>\n

It costs too much to form a limited company<\/h3>\n

In the past, it was expensive to set up a limited company in the UK. In 1975, for example, the cost of company formation was \u00a350.00, which is equivalent to approximately \u00a3400 in 2023 – and around the same as a weekly wage.<\/p>\n 5 things you need to form a limited company<\/span><\/a>\n \n

In the UK today, you can register a limited company for less than \u00a352<\/a>. However, please bear in mind your company will need a registered office address.<\/p>\n

If you don\u2019t want to use your home address for this purpose, you can invest a little more and also protect the privacy of your home by using a virtual registered office and service address – see our Privacy Package<\/a> costing \u00a367.99.<\/p>\n

It takes a long time to register a company<\/h3>\n

The time required to register a company in the UK ranges from a few hours to over a week, depending on which method of incorporation you choose.<\/p>\n

Online registration through a company formation agent takes the least amount of time \u2013 the application form takes around 5 minutes to complete, and most companies are registered and ready to trade within 24 hours.<\/p>\n How long does it take to set up a limited company?<\/span><\/a>\n \n

At the other end of the scale, Companies House postal applications take 8-10 working days to process and the chances of rejection are considerably more than with online applications.<\/p>\n

You need an accountant to form a limited company<\/h3>\n

In the past, most people used an accountant or a solicitor to set up a limited company. Thanks to the advancement of technology, company formation is now much quicker, easier, and affordable.<\/p>\n

Today, the vast majority of people set up their own companies online using a company formation agent or the Companies House website.<\/p>\n

You can certainly use an accountant to set up a limited company, but it will cost more \u2013 usually around \u00a3250.00.<\/p>\n

It is better to issue a lot of shares<\/h3>\n

Every share has a nominal value, which represents a shareholder\u2019s personal liability for company debts. Therefore, the more shares that a company issues, the higher the financial liability of its shareholders.<\/p>\n

A company that is set up with just one shareholder and one director need only issue one share. There is no real benefit to issuing more shares than you need, unless you\u2019re planning to sell them in exchange for investment, or a higher quantity makes it easier to apportion ownership between multiple shareholders.<\/p>\n

Our Issue of Company Shares Service – only \u00a379.99<\/a><\/p>\n

If you are at all unsure about the share structure of your company, it is important to speak to an accountant.<\/p>\n

The value of shares issued reflects the size of a company<\/h3>\n

The nominal value of shares that a company issues during and after incorporation do not reflect the size of the business. This \u2018nominal\u2019 value simply reflects the limit of the shareholders\u2019 liability for company debts.<\/p>\n

For example: if a company issues 100 shares with a nominal value of \u00a31 each, the total personal liability of the company\u2019s shareholders is \u00a3100.<\/p>\n What does it mean to have shares in a company?<\/span><\/a>\n \n

The true value and size of the company, however, will usually be completely different.<\/p>\n

A huge company worth millions of pounds may have just one or two shares that are owned by one or two individuals. Whereas, a tiny startup which has yet to make a profit could have 1000 shares split between 100 shareholders.<\/p>\n

Shares need to be paid for – at the time of incorporation<\/h3>\n

It is not always the case that shares need to be paid at the time of company formation. It depends entirely on what is stipulated in the company\u2019s articles of association<\/a> and\/or shareholders\u2019 agreement.<\/p>\n

Under the \u2018model articles\u2019<\/a>, which the vast majority of private companies adopt, shares issued at the time of incorporation do not require being paid. However, all shares allotted thereafter, require being paid in full at the time of issue.<\/p>\n Company shares \u2013 paid, unpaid and partly paid<\/span><\/a>\n \n

If a company wishes to include different provisions for the payment of company shares, it must alter the model articles, create bespoke articles, and\/or draw up a shareholders\u2019 agreement.<\/p>\n

Shares can only be issued in British Pounds Sterling (GBP)<\/h3>\n

Most UK companies, especially small ones, issue shares in British Pounds Sterling. However, companies are permitted to issue shares in any denomination or currency.<\/p>\n

This may be beneficial or necessary for one or more share classes if a company carries out significant trading activities in a different country or has major investors in non-UK countries.<\/p>\n

Anyone can register a company<\/h3>\n

There are very few bureaucratic barriers to registering a company in the UK, which is of great benefit to many small business owners, entrepreneurs, and the economy as a whole.<\/p>\n

Most people can register a company in the UK; however, you cannot do so if you are:<\/p>\n