Company formation for online business

Setting up an online business in the UK will depend on the company structure you decide to take. There are a variety of types of company and different ways to form a company in the UK.

Company formation for and online business can be done by the individual running the business or you can use a company formation agent to set up a company and complete all the paperwork needed when forming a limited company.

Starting a digital company is no different to starting any other company. In this blog we will look at different types of company structures you can use for an online business and if you choose to form a limited company, we will give you all the information you need on company registration and company formation.

What company type or structure should I choose?

Sole trader

This is the most straightforward way to begin an online company and is the way that many freelancers or contractors begin their business life. All that is required is to register with HMRC as self-employed within 3 months of trading and then pay National Insurance and Income Tax. This structure requires minimum administration and involves submitting a self-assessment tax return every year.

Its worth noting that a sole trader structure can be less tax efficient than a limited company for many people. Also, you carry liability personally for any business losses as there is no legal distinction between your personal and business finances, therefore personal assets can be considered to settle business liabilities like debts or loans.

To find out more about the difference between a sole trader vs limited company click here.

Limited Company

A Limited company structure can be the most tax efficient way to trade and minimise your personal liability. A limited company is considered as a separate legal entity from the business owner and hence the liability is limited, so you are not personally responsible for any liabilities incurred by the company.

Any profits generated are retained by the company, after it pays Corporation Tax. Only then can the profits be distributed to shareholders in the form of dividends. Limited companies can be limited either by shares or by guarantee and they have annual reporting and filing requirements with both Companies House and HMRC.

Partnership

A Partnership involves two or more individuals that agree to share in the profits or losses of the business. They share the risks, costs, benefits and responsibilities of running the business. Partnerships are similar to being a sole trader as they are unincorporated entities and the partners are self-employed and are personally responsible for the losses or debts that the business incurs.

Each partner is also responsible or liable for other partner’s negligence or misconduct. The profits or losses from a partnership will be shared between the partners. This will be in the agreed profit sharing ratio and each partner pays tax on their share of the profits.

Limited Liability Partnership (LLP)

An LLP is similar to a partnership except that the partner’s liability is limited to the amount of money they invest in the business. The LLP must be registered at Companies House and with HMRC. As with a limited company an LLP requires annual reporting and filing requirements with both Companies House and HMRC.

An LLP can be incorporated with 2 or more members and a member can be an individual or a company. Members responsibilities and share of the profits are set out in an LLP agreement and all members must submit a personal Self Assessment Tax Return every year, pay income tax on their share of the partnership’s profits and pay National Insurance to HMRC. Limited liability partnerships do not file company tax returns or pay Corporation Tax.

The information you need for the limited company formation process

Registered Office

This is the official address of your company and it must be a full postal address in the country in which your company is incorporated. You cannot use a PO Box Number.

Companies House and HMRC will use this address to deliver all statutory company mail and it will be displayed on public record.

Business Activity

You are required to provide Companies House with your new companys business activity. This is done by choosing a SIC code (Standard Industrial Classification code) which describes and classifies business activities.

Our online company formation process includes a SIC code search facility, however, you may wish to find your companys SIC code prior to starting your order, by having a look at the SIC code list.

Director’s Details

• Full name
• Date of Birth (must be at least 16 years old)
• Occupation
• Nationality
• Residential address (not on the public register)
• Service address (residential or other address)

Shareholders’ Details

Where the shareholder is a Person with Significant Control (PSC)

• Full name
• Date of Birth
• Residential address (not on the public register)
• Service address (residential or other address)
• Nationality
• Nature of control (e.g. The person holds more than 50% to 75% of shares.)
• Three Security Details (these act as an online signature)
  • First three letters of mother’s maiden name
  • First three letters of father’s forename
  • First three letters of town of birth

Shareholders’ Details

Where the shareholder is NOT a Person with Significant Control (PSC)

• Full name
• Date of Birth
• Residential address (not on the public register)
• Service address (residential or other address)
• Nationality
• Three Security Details (these act as an online signature)
  • First three letters of mother’s maiden name
  • First three letters of father’s forename
  • First three letters of town of birth

Secretary Details (Not Compulsory)

• Full name
• Date of Birth (must be at least 16 years old)
• Occupation
• Nationality
• Residential address (not on the public register)
• Service address (residential or other address)

Person with Significant Control (PSC) Details when the PSC is not a director, shareholder or secretary

• Full name
• Date of Birth
• Residential Address (not on the public register)
• Service Address (residential or other address)
• Nationality
• Nature of control (e.g. The person holds more than 50% to 75% of shares.)

Company Details

• company information, for example registered address and date of incorporation
• current and resigned officers
• document images
• mortgage charge data
• previous company names
• insolvency information

You can also set up free email alerts to tell you when a company updates its details (for example, a change of director or address).

How to set up a limited company

1. Choose your business name

Before you can register your new business as a limited company, you’ll need to decide on a company name. The new company cannot have the same name as another registered company, or one that’s too similar. Whatever name you choose it must end in either Ltd or Limited.

Search the Companies House register for a list of companies with similar names.

There are some rules that restrict the types of name you can use for your business. The registered name cannot contain potentially misleading words such as Chartered, Bank, Royal, British, English, Scottish, Commission or words that imply professional qualifications that you don’t hold.

Check the government guide to the rules on choosing a company name.

2. Choose company officers

All limited companies must have at least one company officer or at least one director who is responsible for the business at all times. This is usually the person starting and running the limited company.

• Company directors- A company director is responsible for ensuring annual accounts and annual returns, as well as all notices of change such as the registered office address, are received by Companies House. You cannot be a company director if you’re an undischarged bankrupt or have been disqualified by a court from holding a directorship, or are aged under 16.
• Company secretaries - They are responsible for maintaining statutory registers, keeping minutes of board meetings, and ensuring all statutory filings are completed. It is often useful to have another person named as a company secretary who can deal with business matters such as shutting down the company should something happen to you.

3. Choose how to register a limited company

You can register a limited company with Companies House yourself but you’ll need to complete a series of documents. Alternatively, you can pay an agent such as dns accountants to complete the company registration process for you, which is quicker, easier, and can minimise mistakes being made on the company formation process.

4. Registered office address

All Directors must give their residential address. However, you may choose to keep this confidential from the public record. Directors may choose to a registered office address to show on public record instead of their home address at Companies House. Their residential address must still be given to Companies House, but this will then only be available to law enforcement or licensed credit reference agencies. Accountants such as dns offer registered office address services to allow you to use their address as your companys registered office address.

5. Business bank account

If you run a limited company, you are required to have a separate business bank account. A business bank account is similar to a personal bank account, but it is used purely for business transactions.

Business bank accounts are a legal requirement if you want to set up a limited company. If you’re a sole trader or partnership, opening a business bank account can be an easy way to keep your business finances separate from your own personal finances.

What documents are needed to form a limited company?

Registration documents for your limited company will need to be submitted to Companies House before you can start trading.

• A Memorandum of Association is a legal statement signed by all parties forming the company including the names and addresses of directors and shareholders.
• The Articles of Association is a legal document that states shareholders rights and the powers of company directors over the business.
• Form IN01 is a document listing the details of the company directors, company secretary if applicable, shareholders and details of the shares issued and the share capital.

How will I know when my company registration has been accepted?

If the documents sent in with your company formation paperwork satisfy all the appropriate checks and company name checks, Companies House will incorporate the company, issue a certificate of incorporation and place the documents on the public record. Please note the incorporation does not take effect until Companies House has issued the certificate of incorporation.

When can I start trading with my new company?

You can start trading as soon as youve received your certificate of incorporation. Wait for your certificate before trading, ordering company stationery or creating a business bank account. The incorporation certificate will be attached to the email in PDF format confirming your company incorporation has been accepted.

I dont live in the UK, can I still open a UK company and bank account?

Yes, a non-resident can start a business in UK. Non-UK residents can open a business bank account in the UK.

A non-resident can start a business in UK by following the 4 steps:

• Step 1: Register your business with Companies House
• Step 2: Register for Corporation Tax
• Step 3: Open a Bank Account
• Step 4: Register VAT and PAYE with HMRC, if required

How dns accountants can help with your limited company formation

Knowing what business structure to use when you set up a business needs some thought, but if forming a limited company is right for you then using dns accountants to register your limited company is easy and can be done in 24 hours.

Our company formation package and accounting packages are designed for business owners and offer free company formation, a free business bank account, accounting services, bookkeeping, tax advice, tax returns and expert advisors to lead the way.

Whatever type of business you’re setting up, dns accountants can help. Setting up your limited company with dns, will give you access to:

• Company formation specialists
• Business bank account
• Accounting services
• Bookkeeping services
• Self-assessment
• VAT returns
• Year-end accounts
• Registered office address
• Filing confirmation statement
• Free accounting software & apps

So why not set up your company using one of our company formation packages today? For help and advice on forming a UK limited company, to register a company, use our registered office service and find out about additional services such as accountancy and tax advice contact dns accountants today.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.