Common Mistakes When Setting Up A New Company
When setting up a new company there are sometimes common errors which people make if they don’t take the right advice. Here are just a few of them to avoid but it is best to take advice to make sure you have structured your business in the best way for your longer-term ambitions.
It isn’t uncommon to see incorrectly spelt company names, incorrect director names or addresses, so make sure you triple check everything before you submit the forms.
The company name must be available, in that it is not being used by anyone else. In addition, there are a number of words which are restricted and Companies House only allows them to be used in certain circumstances, so check the name is available before you go any further.
All UK companies must have a correct address for the registered office and an application with a PO Box or an incomplete address may be rejected.
The wrong type of company
Most businesses will be set up as limited companies with the objective of making a profit and they will be limited by shares. If you intend to run a ‘not for profit’ organisation, a company limited by shares is not the right structure. Typically, a company limited by guarantee is used for non-profit making purposes such as charities or clubs. It is not possible to switch from being a share company to a guarantee company, so this can be a costly mistake to rectify.
Under the Companies Act, a company director cannot be under 16 years old. It is advisable for directors to be aged over 18 as younger persons cannot legally enter into a contract. The Board of directors can be impractical with too many directors and not every shareholder needs to be a director. It is very important to make sure anyone appointed as a company director is aware of and capable of fulfilling their responsibilities.
Conversely not all company directors will be shareholders and again it is possible to have too many shareholders. Also, two directors with a 50:50 interest is a recipe for a deadlock situation in the event of a disagreement in the future, so a shareholders’ agreement providing for a solution to a deadlock should be put in place.
When you form a company, you can have different share classes with different rights and issue different percentages of shares to the shareholders. It is therefore important to give consideration to this and how to structure it correctly.
Sarah Astley comments: “It is always best when forming a company to take advice first, to make sure that you avoid these common and avoidable mistakes. Taking advice will help set you on your path to success by allowing you more time to concentrate on establishing and running the business without having to worry about future issues about the company formation.”