Company Formation
  

Common mistakes to avoid when forming a company

 

We are pleased to successfully form tens of thousands of companies for accountants, bookkeepers, tax advisors and individuals starting their own business. However, whilst nearly all of these companies are formed without any errors we do see the occasional company get rejected or formed incorrectly.

If you are registering your own company online we suggest you try to avoid the common mistakes that we highlight below.

Appointing under age directors

In the UK all company directors must be at least 16 years old. If you try to form a company with a director less than 16 years of age Companies House should reject the application.

Issuing shares to all directors

 

Many companies have directors that are also shareholders. It is important to separate running the company as a director from owning the company as a shareholder. Only issue shares to individuals that you intend to ‘own’ a share in the company.

A shareholder has rights within the company. These are typically - 

 Voting rights at meetings

 The right to receive distribution of profit by dividend (a share of the profits) 

 The right to profit from the sale of the company

 Rights detailed by the Companies Act 2006

Forming a limited by shares company instead of a not for profit company

Unfortunately this is more common than you would imagine. A company limited by guarantee is typically a ‘not for profit’ company and is not created by owners to generate wealth for themselves. A company limited by shares is usually created with the intention of making a profit for the owners of the company.

It is not possible to switch between the two types of company. If you incorrectly register the wrong company then you will need to dissolve/strike off the company and register the correct type of legal entity.

Issuing too many shares

Most of the companies we form for customers have small nominal amounts of shares issued at the time of incorporation. For example, a company owned by one person may be registered with just one single £1 share. Occasionally we hear from customers that have issued a million £1 shares to a shareholder. This is generally not advised. Issuing a large volume of shares increases the liability of the shareholder and you will need to consider how the shares are paid for or accounted for.

When a company is created and too many shares were issued in error there is no simple fix. You cannot simply phone Companies House and tell them a mistake was made. Whilst you may look at a company buy back (unlikely if the new company has no money) or continuing with a large number of shares in issue, a simple solution is to dissolve/strike off the company and register a new one correctly. Let us know if you need assistance changing shares in a UK company.

Typos in your company name and details

Misspellings and typos are one of the most popular errors we help customers to fix. If the error is simply the misspelling of a name or address then rectifying this is easy with online filing at Companies House. If the typo appears in the company name then this is still easy to fix but it does incur costs at Companies House. We provide a company name change service if this happens to you.

 

If you have formed a company using simple formations and made a mistake we can usually assist you in fixing the error. Our team of advisors can point you in the right direction and suggest the best way to correct your company’s details. We can also file documents on your behalf at Companies House for a small administrative fee where applicable. We can also help even if we did not form your company. Please contact us to discuss your requirements.

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Simple Formations is a trading name of Small Firms Services Limited. We have been trading since 1998 and are one of the UK's longest standing Company Formation Agents

Small Firms Services Ltd The Apex 2 Sheriffs Orchard Coventry, CV1 3PP