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There are two ways to form a UK limited company. A paper application can be made to Companies House or you can make an electronic application through a third parties software, usually via a website.
Paper application to register a limited company
Less than 25% of companies are formed in this way now. The reason being it is a time consuming and complex task, the slightest error on the paperwork submitted during application will result in a rejected application.
Electronic company formation
This is the most popular and simple way to form your limited company. It is not possible for the general public to form a company electronically with Companies House directly. To form a limited company electronically you will need to use a Company Formation Agent. Company Formation Agents have designed their own software to interface with Companies House systems. By paying the agent a small fee they will give you access to their systems allowing you to form your new company.
Why do I have to use a Company Formation Agent to form my company
electronically?
Companies House have designed their systems to allow agents to create their own electronic interface with the back office at Companies House. Without this electronic interface it is not possible to access the system. The reason Companies House have done this is because they are not able to offer advice to individuals on how best to form their company. It is therefore the Agents job to advise you on how to form your company based on your circumstances and then form the company on your behalf using their own interface.
Why is it simpler to form a company electronically?
There are a number of reasons why it is simpler:
- System defaults – electronic systems are designed with a number of default settings and fail safes which prevent inaccurate information being supplied to Companies House. Paper applications do not have this benefit and are therefore more likely to contain human errors.
- Reduced cost – the government fee for electronic applications is £15, this is
£5 cheaper than a paper application. There are no legal fees involved with electronic incorporations, this has been replaced by a simple authentication process built into the electronic system.
- Standardised documents – the agents system contains tried and tested documents such as memorandum and articles of association which do not contain errors. Paper applications often used newly drafted memorandum and articles of association which may contain numerous errors.
Is there a down side to electronic company formation?
There are very few downsides, the only real issue arises for more complex incorporations. For example, if you require multiple share classes it is currently not possible to incorporate electronically. As the systems in use are constantly evolving this shortfall is likely to be overcome very soon.
If you require specific objects or clauses in your memorandum and articles of association many formation agents will not be able to assist you with electronic company formation. More experienced agents will still be able to assist but will charge additional fees for the time and expertise required to amend standard documents.
How do I chose a Company Formation Agent?
There are a number of considerations when choosing your Company Formation Agent. The following list is by no means exhaustive but covers the main points to consider.
Price
Prices can vary from as little as £25 up to £200 plus. This is obviously a considerable difference and the price you pay will usually determine the level of service provided and the type of documents issued to you post incorporation.
The Cheap Formation Service
The cheap end of the market is usually an internet based company that requires you to enter all your information and pay online with virtually no human interaction with the Company Formation Agent. Once the company has been formed you will be emailed a Certificate of Incorporation and your Memorandum and Articles of Association. You will then need to purchase company registers (legally required) and share certificates in order to complete your documents. Typically registers cost £25 and a book of share certificates a further £15..
The Expensive Formation Service
Typically the more expensive company formations are offered by solicitors and Accountants. The higher fees are usually based on the time it takes to advise you on your specific requirements. Often this type of Agent will use a cheaper provider to form your company so you are actually paying for their professional advice prior
to formation. You should also receive all the documents you require, post incorporation, when using an expensive service.
What you really need
The key points to look for in your Company Formation Agent are:
- Free advice both via the internet and over the telephone - This is usually a good indicator the agent is professional and capable of offering useful advice.
- Level of documentation - The minimum documents a new company requires are 1) Certificate of Incorporation 2) Memorandum of Association 3) Articles of Association 4) Statutory Books also know a Combined Register 5) Share Certificates
- Company Registration within 24 hours - Most electronic applications to Companies House are completed the same day. If the Agent offers a 5 day service then they are more likely to be making a paper application to register your company.
What to look out for
- Deceptive pricing – Check the advertised price includes vat, delivery and the £15 government fee.
- Documents provided – Ensure the package will provide everything you legally need to avoid having to buy further documents post incorporation.
- Unnecessary Add ons – Free websites, these are often not ideal for a commercial enterprise and will soon incur charges when you want something changing. Free 0870/1 numbers, these types of numbers actually generate income for the agent once you start using them and your customers will be paying around 8 to 10 pence per minute to call you.
Recommended Company Formation Agents
The following Company Formation Websites are recommended Agents.
Simple Formations, provides
online company formation
for exceptional value
and include all legally
required documents –
Company
Formation Agent
Simple Formations
Small Firms Services,
provides a personalised
service with free phone
support and telephone
ordering – Company
formation by SFS
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