Setting up and Advising on your Company or LLP

We will help you to take the necessary steps to establish your business in the UK, whether you wish to set up a new venture or expand an overseas operation. We know that funds may be tight for you, so we’ll provide you with competitive quotes and give our view on what you should prioritise and what can wait.

In setting up your new business, you will be faced with a number of key choices with regard to structuring, funding and taxation. We will explain the differences between operating as a sole trader or partnership, or incorporating as a company or limited liability partnership (LLP). As tax and accounting considerations are often the primary drivers behind this decision, our lawyers work closely with our other practice areas and other advisers to ensure that you get the right advice at the very beginning.

Once you have chosen a business structure, we will advise on the best means of regulating relationships between a company, its directors and its shareholders, and between an LLP and its members. We will draft bespoke documents to reflect your priorities and to best protect your interests, including your shareholders agreement, articles of association, LLP agreement and all ancillary agreements and resolutions.

Our lawyers regularly advise companies on corporate governance issues, and advise directors, shareholders and LLP members on their ongoing obligations, duties, and potential liabilities.

In conjunction with our employment department, we can also advise you on the options for incentivising your employees and on the drafting and implementation of an appropriate scheme. We regularly draft bespoke HMRC approved employment management incentive (EMI) scheme rules and option agreements.

As well as providing technical legal advice, our lawyers will give you their commercial view (and will not provide you with lots of options and sit on the fence). Our aim is to be the corporate/commercial legal team for all your current and future business interests.

Setting up and Advising on your Company or LLP FAQs

How much does it cost to incorporate a company, how long does it take and what costs will I need to pay in the future?

Before you decide to set up a company, it is important to consider what legal structure is right for your business. The time and cost required to set up a company will depend on the degree of customisation required. A simple ‘one size fits all’ company can be set up for under £100, and in some cases on the same day. However, this approach can lead to costly issues in the future. We would recommend that you take careful advice at an early stage on the capital structure of the company (ie on the rights which are associated with each share class, the denomination of the shares in each such class and the parties to whom shares will initially be issued) and on the nature of the articles of association (a public document which is filed at Companies House) which are adopted.

Once your company is up and running, there will be administrative costs and obligations which will vary with the size and nature of the business. These will include tasks such as keeping accurate records, submitting annual accounts and other returns to Companies House, registering for VAT and completing a tax return.

End

What are the risks in operating as a sole trader or partnership?

Operating as a sole trader or in partnership may be the right choice for many businesses, particularly when they start trading. However, operating in this way may give rise to significant personal financial risk. For sole traders and partners, there is no distinction between the assets and liabilities of the business and personal assets. The owner or owners of a business may have unlimited liability if anything should go wrong.

For example, if a contract with a third party is breached and damages are awarded in favour of the third party by a Court but the business has no means of paying these out, then the third party may well pursue the partners for the debt. It is therefore important to ensure that all contracts include appropriate limitations of liability, and also that insurance is put into place to cover all areas of potential risk. Even if such measures are taken, there can be no guarantee that they will be effective in shielding the partners from all personal liability.

In partnerships, a further risk can be the death of a partner. In the absence of a suitably drafted Partnership Agreement, the partnership is automatically dissolved.  Further, a beneficiary of the deceased’s estate may demand the sale of business assets or force the business to adopt an unwanted approach.

End

If I do choose to incorporate, what are the main differences between a company and a Limited Liability Partnership (an LLP)?

The key differences between a limited company and an LLP include how they are taxed, how they allocate profits and how they can obtain capital.

Unlike a company, an LLP is tax transparent. This means that the members of the LLP will be taxed on the profits and gains of the entity as if they were self-employed. On the other hand, a company will be subject to corporation tax on its profits and shareholders pay income tax on any dividends. Choosing the most tax efficient structure will depend on the nature of the business and its owners.

An LLP can offer greater flexibility in how it allocates profits, losses and rights over capital to its members. Members can agree on how the income and capital profits and losses are distributed in an LLP agreement, and what happens to capital on a sale or liquidation, the terms of which which can easily be varied if required. Conversely, companies must declare the same dividend for each share of the same class and varying the rights relating to different share classes will require shareholder approval.

Companies are able to raise capital by offering external investors the opportunity to subscribe for shares. An LLP can also offer investors rights over its capital, but the executive board of the LLP often has discretion to vary such rights, and they are less easily transferred between members and third parties.

End

Why do I need to have both articles of association and a shareholders agreement? What is the difference between these documents? 

A company’s articles of association and a complementary shareholders’ agreement set out how a company is run and the means by which directors and shareholders may make decisions. The documents may deal with similar issues, and it is important to understand how they relate to one another.

Articles of association are required by law for a company formed in the UK. They are filed with Companies House, and are therefore a public document, and are relevant to any person who may be a shareholder or director of the company, whether now or in the future. The articles include the procedural requirements for board and shareholder meetings, removing or appointing members of the board and issuing or transferring shares.

Unlike the articles, a shareholders’ agreement is a private contract between those signing it which is not required by law. As well as being confidential, a shareholders’ agreement offers the ability to treat individual shareholders of the same class differently. Common provisions include enhanced rights for minority shareholders, a right for certain shareholders to remain as directors, a mechanism for resolving disputes and safeguards against the sale of shares. A shareholders’ agreement may also impose restrictive covenants on shareholders which may well run for a period after they have sold their shares. New shareholders may be required to sign a deed of adherence, whereby they agree to be subject to the terms of the shareholders’ agreement.

To find out more, read our blog 'Articles of Association, Shareholders' Agreements and Investors' Agreements - what's the difference?'.

End

What is the difference between the issue of a share and the grant of a share option?

A share will be issued once the directors of the company make a valid decision to take such action, and the statutory registers of the company (known as the “company books”) have been written up to show the new issue. The individual to whom the share has been issued will then be a registered shareholder of the company. They will therefore have an ownership stake in the company.

However, when a company grants a share option, the holder of the option merely has the right to acquire shares at a specified price at some point in the future, provided other criteria (such as the performance of the company) have been satisfied. Therefore, the holder of the option does not become a shareholder unless and until they are able to exercise the option, and choose to do so.

End

Why set up a share option scheme and when is the right time to do it?

A share option scheme can be used to incentivise key employees and to encourage them to remain involved with a company.  Further, they are highly flexible, easy to implement and avoid some of the complications which may arise if shares are held by employees directly. Importantly, share option schemes can also bring significant tax advantages for both the employer and the employee.

There is no ‘right time’ to set up a share option scheme and every company is different. A scheme can be a useful tool for all businesses, large and small. For example, startup businesses can use an option scheme to provide a means of attracting talent by granting rights to subscribe for shares when the company valuation is low, and as an alternative to paying high salaries and bonuses. Nonetheless, careful consideration should be given to the rules of the scheme and how these fit with the future of your business.

End

 

"...sensible, realistic view of cases - seizing only the points worth arguing..."

Chambers UK, A Client's Guide to the Legal Profession

"We have worked with James and his team for many years and whenever we refer a client across we know they will be well looked after.  Not only are James and his team highly technically able, they understand the importance of working to get a deal done.  We always know we can trust their judgement."

Janet Paterson, Charter Tax

 

Latest blogs and news

Lifecycle of a tech startup series: Directors' Duties

KNow Wear Limited has used the investment received to date to further develop the wearable tech product to the extent that it now has a minimum viable product with basic features to introduce to the market. The company has identified a test group of 100 consumers who will test this version of the product and provide feedback. Following the test phase the company will collate the feedback and further develop the product before releasing a final version of the product to the market.

Economic Crime (Transparency and Enforcement) Act 2022 – The Long-Awaited Introduction of the Register of Overseas Entities

The Government has for some time promised to introduce a register requiring overseas entities holding UK property to identify its beneficial owners, in its effort to increase transparency in UK property ownership and reduce the attraction of the UK’s property market to money launderers. Indeed, we last blogged about the potential overseas entities register in May 2019. With UK-based entities subject to strict information-sharing requirements since 2016 (in the form of the register of People with Significant Control or “PSC Register”), many have been calling for an equivalent overseas entities register to be implemented to provide a way of tracking overseas owners who ultimately own and control UK land.

Employment related securities – returns and reasonable excuses

In an Employment Related Securities (ERS) Bulletin for March 2022 (bulletin 40), HMRC has linked to helpful guidance on what it considers to be a reasonable excuse for failing to meet submission deadlines for annual ERS returns (due on 6th July following the end of the tax year to which they relate) and notification of EMI options (due within 92 days after grant).

Software support helpdesk services – key contracting principles

In our recent blog, we explored why a Framework Agreement structure is typically the most appropriate customer contracting model for IT managed services providers (“MSPs”) and IT consultancies which offer a diverse product and service offering. Whilst our initial blog focussed on the purpose and terms of the Framework Agreement itself, that document is merely the starting point, given that a Work Order is also needed to document specific terms relating to each product or service offered by an MSP or IT consultancy. A typical service offering is a dedicated software support helpdesk, usually provided to support each of the software products offered by the MSP or IT consultancy to its customers. This blog considers a handful of the key issues to bear in mind when documenting the terms of a Work Order relating to the supply of a software support helpdesk service.

Does a sole director have authority to act?

Articles are a set of rules which determine how a private company is run and they represent a contract not only between the company and its shareholders but also between the shareholders themselves. Examples of what is covered in a company’s Articles include the liability of shareholders, how shareholders make decisions and how directors operate. The Model Articles are a set of default standard articles which, unless modified or excluded, apply automatically to a private company incorporated on or after 1 October 2009.

Do you want to phone a friend?

Picture Rishi Sunak as a game show host. The spotlight is on the contestant, an employee, and Rishi asks them if they would like to: a) Keep their pay rise; b) give it all to the government; or c) give it all to charity. I expect many of us would say “Keep it please!” but, in certain situations, without some action on the employee’s part the default answer is that none of it is kept and the government enjoys it all. This post briefly discusses one such issue, and offers other suggestions for the tax year end (which are, unfortunately, unlikely to make you a millionaire).

Spring Statement 2022 Update - Did you see that coming?

Despite the rumours of a reduction in income tax, you may have expected that the Chancellor would keep this in his back pocket for now...

Lifecycle of a tech startup series: Obtaining a Sponsor License

KNow Wear Limited have identified some overseas talent that they would like to hire to help to expand the business. This candidate does not currently have permission to work in the UK and therefore KNow Wear Limited is considering whether it can apply for a sponsor licence from UK Visas & Immigration (“UKVI”). Obtaining a sponsor licence, will then enable the company to go on and sponsor individuals to apply for immigration permission to work in the UK.

FCA’s Updates to the Financial Promotion Rules

The FCA has published its proposals to strengthen the financial promotion rules for high-risk investments and for authorised firms which communicate and approve financial promotions in its recent Consultation Paper.

Framework Agreements: the customer contract model for technology service providers

Many businesses lack comprehensive in-house IT expertise and resources to fully implement and manage all of their IT infrastructure requirements. IT managed services providers (“MSPs”) and IT consultancies plug the gaps by typically offering a diverse range of IT services and products to lighten the burden on their customers’ in-house IT teams (or to even remove the need to have an in-house IT team). 

Lifecycle of a tech startup series: R&D tax relief

Having raised £500,000 and, in episode 8, hired a software developer, KNow Wear Limited is starting to flourish. As Ben Franklin wrote when the USA was in its infancy, nothing is certain except death and taxes. Knowledge of the UK tax system is valuable for any UK business owner, start-ups can dramatically improve their chances of success by ensuring they claim the various tax reliefs and incentives available. Episode 4 looked at the valuable tax reliefs a company can offer its investors, your focus today is on the tax relief (or repayment) available to companies carrying out research and development activities.

The journey from social media influencer to tech entrepreneur

Social media has revolutionised the way in which we interact with businesses and each other and has shown that it can be a generous friend to business owners and entrepreneurs, helping them to harness a following, build their brand and grow a worldwide customer base. 

Lifecycle of a tech startup series: Employees and Consultants

In our previous blog in our Lifecycle of a tech startup series, KNow Wear Limited secured investment of £500,000. Having completed the raise, you, Sarah and Chris have decided that you need more help in developing and marketing the product. You are looking to create two new roles in the business - the first is a Software Developer to support Sarah’s work and the second is a Head of Marketing.

BEIS White Paper on Audit Reform: will directors take on more personal liability?

In Part 1 of our two-part series on the Department for Business, Energy and Industrial Strategy's (BEIS) White Paper on audit and corporate governance reform (Restoring Trust in Audit and Corporate Governance), we focussed on whether the proposals regarding corporate governance are likely to make the UK a more or less attractive destination for investors.

The end of Standard Listings?

Yesterday the FCA  announced new rules, the majority of which come into force today (3 December 2021), which are intended to prevent smaller companies obtaining admissions to the Standard Segment of the Official List.  

FCA Crackdown on Fundraising Exemptions

In its Perimeter Report for 2020/21 the FCA has raised concerns that unauthorised persons are increasingly using, or purporting to use, exemptions from the Financial Promotions Order (FPO) to sell high risk investments and potential scams to ordinary consumers without their rules applying.

The new cookie conundrum

Potential reforms to UK data privacy laws will change the way that cookies work on websites - businesses need to prepare now.

 

AQSE To Change SPAC Rules

AQSE is consulting the market about some changes to its rules relating to SPAC admissions.  

Currently  SPACs are eligible for admission to the Access segment of the AQSE growth market, as long as they have a minimum capitalisation of £700,000 and a free float of 10%.  AQSE is concerned that this can result in a disorderly market and excessive volatility because a lack of liquidity arising from low market capitalisation and limited shareholder numbers.

 

Press release: Kingsley Napley creates new tax practice

We are pleased to announce that Matt Spencer has joined the firm as a partner to help build a new Tax practice. Matt joins from DAC Beachcroft where he has worked for the last 9 years. He advises on the efficient structuring of a wide range of corporate and real estate transactions including M&A, land transfers, developments and leases.  He is also expert in employment tax issues and the structuring of employee incentive schemes as well as VAT issues in the public and private sector.

Lifecycle of a tech startup series: Seed raise

Having decided in episode 4  of our lifecycle of a tech startup series on targeting angel investors to raise £500,000 investment in the business, the founders of KNow Wear Limited researched various angel investor networks which aimed to connect start-ups like yours with angel investors. You applied to pitch at a couple of events and were invited by one network to interview with them in person. The network was very impressed with the business and invited you to pitch at their next event.  

Related Insights

Close Load more

Skip to content Home About Us Insights Services Contact Accessibility