The world of company formation can appear to be a sophisticated place once you’re unfamiliar with the terminology. That’s why we’ve created this guide to company formation jargon – to show you how to familiarize yourself with the special words and expressions utilized by Corporations House and agents like Rapid Formations.
This primary installment covers the common terms that you simply’re more likely to encounter when organising a limited company or limited liability partnership within the UK. Why not bookmark the page so that you’ve got a handy reference at any time when you would like it.
Articles of association
A legal document that sets out the principles and procedures for running an organization. Every company is required to adopt articles of association in the course of the incorporation process.
Typically, recent firms use the default ’model’ articles issued by Corporations House, that are suitable for many small firms.
Nonetheless, some firms find it mandatory to change the model version or create bespoke articles to fulfill their particular needs.
Certificate of incorporation
An official certificate that Corporations House issues to each recent company or LLP when it’s registered. It verifies that the corporate has been legally formed under the Corporations Act 2006 or LLP Act 2000.
The certificate of incorporation also states the corporate’s official name, registration number, date of incorporation, and the UK jurisdiction during which it’s registered.
Company formation
Company formation is the means of legally forming (incorporating) recent or existing businesses as a:
- Public limited company (PLC)
- Private company limited by shares
- Private company limited by guarantee
- Unlimited company
- Limited liability partnership (LLP)
- Limited partnership
Once incorporated, the business becomes a legal entity in its own right. Because of this its identity, income, assets, and liabilities are legally separate from those of its owners and directors.
Company name
The official name that an organization is registered with at Corporations House. There are strict rules when choosing a company name, so it’s necessary to make yourself aware of those prematurely.
Company secretary
An officer of a limited company. They’re chargeable for necessary administrative functions and advising directors on matters related to corporate governance and compliance.
Appointing an organization secretary is optional for personal firms but mandatory for PLCs.
Company registers
Official lists contain details about an organization’s past and present members, directors, secretaries, and PSCs.
By law, every company is required to keep up company registers at its registered office or SAIL address. They need to be kept up to this point and made available for public inspection.
Company registration number
A novel number that Corporations House assigns to each recent company upon its incorporation.
Company registration numbers (CRNs) are made up of 8 numbers or 2 letters and 6 numbers – it is determined by the form of company and where it’s incorporated.
Your CRN might be shown in your certificate of incorporation and disclosed on public record. It must even be displayed on your organization’s website and official correspondence.
Correspondence address
Also often called a service address. This kind of address should be provided by subscribers (founding shareholders/guarantors), directors and secretaries, PSCs, and LLP members in the course of the company formation process. It’ll be disclosed on public record.
After incorporation, the requirement to offer and maintain a correspondence address applies to all of those company roles, except for shareholders and guarantors.
Designated member
By law, limited liability partnerships (LLP) should have two designated members in any respect times. They’re chargeable for overseeing the LLPs’ statutory obligations, corresponding to preparing confirmation statements and accounts, maintaining statutory registers, and reporting changes to Corporations House.
Director
An organization director is a one that is appointed by members (shareholders or guarantors) to administer the corporate’s activities and funds, meet all compliance requirements and check out to make the business a hit.
Guarantor
A guarantor is a member of a limited by guarantee company. The role of a guarantor is to offer a financial guarantee to the corporate (to be contributed within the event of its insolvency), make decisions in regards to the business, and assume ultimate control over the corporate.
Incorporation
Incorporation is the means of forming/registering an organization as a legal corporation – a definite entity that’s legally separate from its members and directors.
Issuing shares
The means of creating recent shares in an organization limited by shares. Also known as ‘allotting’ shares.
Shares should be issued in the course of the company formation process. Additional shares may be allotted at any time after incorporation.
Jurisdiction
The a part of the UK where an organization is formed. You’ll be able to select to include in considered one of the next legal jurisdictions: England and Wales, Wales, Scotland, or Northern Ireland.
Your registered office address should be situated in your organization’s jurisdiction of incorporation.
Limited company
A limited company is a form of business structure that’s incorporated as a legal ‘person’ and provides limited liability to the individuals who own it.
This kind of company has its own legal identity, exists individually from its owners and directors, and is chargeable for its own debts.
There are two forms of limited firms – public limited firms (PLCs) and personal limited firms.
Limited liability
A legal condition whereby the non-public liability of company members (shareholders or guarantors) and LLP members is restricted to a set amount.
Company members are chargeable for company debts as much as the nominal value of their shares or personal guarantee. LLP members are chargeable for LLP debts as much as the sum they agreed to contribute within the event of insolvency.
Limited liability partnership (LLP)
A limited liability partnership (LLP) is a special form of business partnership that gives limited liability protection to its member (partners) whilst maintaining the pliability of a standard partnership structure.
An LLP is incorporated as a legal ‘person’. Because of this it has its own legal identity, exists individually from its members, and is chargeable for its own debts.
Member
A term that refers to a shareholder or guarantor of a limited company, or a partner in a limited liability partnership (LLP).
When an individual decides to form an organization or LLP and/or turn out to be a shareholder/guarantor/partner, they’re agreeing to turn out to be a member of that company or LLP.
Memorandum of association
The memorandum of association is a legal statement that the founding shareholders or guarantors of a limited company sign in the course of the company formation process. By doing so, they signify their agreement to form and turn out to be members of the corporate.
Model articles
The usual default articles of association that limited firms can use. This version is prescribed by the Corporations Act 2006 and The Corporations (Model Articles) Regulations 2008.
Model articles are suitable for many small private firms. They’re applied by default unless alternative articles are supplied by the corporate.
Nominal value
This term pertains to company shares. Sometimes known as the ‘par value’ or ‘face value’, it’s the worth assigned to a share when it’s issued by the corporate.
The nominal value, which is often £1, reflects the shareholder’s ‘limited liability’. It’s the quantity that the shareholder agrees to pay for the share and/or contribute to the corporate if it becomes insolvent.
To not be confused with the ‘real value’ or ‘market value’ of a share, which may fluctuate in response to inflation and the way much the corporate is definitely price.
Officer
The term ‘officer’ is one other name for a director or company secretary. Collectively, they’re often called the officers of a limited company.
Person with significant control (PSC)
A person with significant control, or PSC, is anyone who owns or controls a minimum of 25% of an organization. For instance, a shareholder who owns 25% of the corporate’s issued shares, or a guarantor or LLP member who holds greater than 25% of the voting rights within the business.
Prescribed particulars
Prescribed particulars are the precise rights attached to an organization’s issued shares. Essentially, they describe the rights and entitlements that a shareholder gets once they buy a share.
Different share classes have different prescribed particulars attached to them, which may include the correct to:
- dividends (a distribution of company profits)
- vote on company matters (make decisions for the corporate)
- receive a portion of the corporate’s capital
- be redeemed (reclaimed) by the corporate
Prescribed particulars should be outlined in an organization’s articles of association and included as a part of the statement of capital.
Registered office address
The official address of a limited company or LLP, where official correspondence from Corporations House, HMRC, and other government bodies is delivered.
An organization’s registered office should be situated within the jurisdiction of incorporation and might be displayed on public record at Corporations House.
‘Sensitive’ and ‘restricted’ words and expressions
Certain words and expressions are regulated at Corporations House and require prior approval before they may be utilized in an organization name.
Service address
Also known as a correspondence address. That is an official address where certain individuals receive statutory correspondence about their role in an organization or LLP.
Service address details are displayed on the general public record and should be provided by every subscriber, director, company secretary, PSC, and LLP member.
SIC codes
SIC codes (Standard Industrial Classification codes) are five-digit numbers that outline the trading activities of an organization or LLP.
In the course of the company formation process, you could provide a minimum of one SIC code to explain what your recent company does.
Shareholder
A shareholder is any person (human or corporate) who owns a minimum of one share in an organization limited by shares. They’re also known as ‘members’, and the founding members are known as ‘subscribers’.
Shareholders normally receive a portion of the corporate’s profits and may make decisions in regards to the company and the way in which it’s managed. Nonetheless, these rights rely on the forms of shares they hold.
Shares
Shares are units of ownership in an organization limited by shares. Each represents a percentage (portion) of the corporate.
Company shares are owned by shareholders (members), who conform to contribute a sum of cash in exchange for a percentage of ownership in the corporate.
Share capital
The amount of cash (capital) that an organization obtains by issuing shares. For instance, if an organization issues 10 shares with a nominal value of £1 per share, the entire share capital of the corporate is £10.
Share capital also represents the ‘limited liability’ of the corporate’s shareholders. That’s, the entire sum of cash they personally stand to lose if the business fails and may’t pay its debts.
Share classes
The ‘types’ of shares issued by an organization. Different classes provide different rights and privileges to shareholders, e.g. the correct to profits, and the correct to vote on company decisions.
Most firms issue Strange shares, which implies that each share carries the exact same rights. Nonetheless, you possibly can issue different classes if you ought to vary the rights or privileges of certain members.
Statement of capital
An official statement that gives an summary of an organization’s share capital at a selected date. This information should be provided in the course of the company formation process and as a part of the confirmation statement if the corporate’s share capital changes.
Subscriber
A founding shareholder or guarantor of a limited company. A one that agrees to form and turn out to be a member of the corporate by subscribing their name to the memorandum of association in the course of the company formation process.
So there you might have it…
Our guide to company formation jargon explains the meaning of many common terms that you’re going to come across when organising an organization or LLP within the UK. Our blog also features a lot of posts covering each of those topics in additional detail.
In the following installment, we’ll take care of limited company terminology that you simply’ll encounter after incorporation – once you’re actually running your recent company or LLP.
If you might have any questions on company formation or the words and expressions mentioned on this post, please leave a comment below.
