Don’t get caught!

Have you thought about setting up a new business?

One of the first steps for many is to incorporate a company. For most businesses this will be a private limited company. Years ago the options were more limited and many people bought shelf companies from their accountants. Now its (apparently) very simple, with many on-line options which are inexpensive and very fast.

To get it right however, you need to think about a few key things first and make sure you take the correct first steps. In some ways, creating a baby company is not so different to creating a human baby – YOU need to take certain steps to make it happen! The key point is this. You don’t turn up at Companies House and ask them to give you a company, you register a company you have created with Companies House. Just like the Registry of Births Deaths & Marriages doesn’t hand out babies, but you know you need to register yours within the required time frame to be compliant and get the certificate.

There is a growing problem with people thinking that just by filling out the form on the Companies House website they have incorporated a company. This misses out a number of the vital steps, most importantly passing the required resolutions to actually create the company, as well as setting up all the statutory registers that English companies are required by law to keep.

What’s the big deal you may say? Well, firstly, you as a director won’t be complying with all your obligations as a director. Secondly, it could get tricky if you want to open bank accounts, obtain debt funding, seek external investment, or having built up a successful business, sell your company. Then you may suffer the indignity of falling at the first hurdle of the dreaded due diligence process, looking a bit disorganised and unprofessional, and having to spend a lot more in fees with your advisers to rectify / reconstitute your company records. The costs multiply of course if you are selling a portfolio of companies you have created with the same inherent flaw. And the embarrassment factor potentially turns into liability if you are an investment manager or other service provider who has ‘created’ these companies for your clients.

Probably not the first impression you want to create, or what you want your clients to remember you for!