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What is a company and how do I incorporate one?

A company is owned by its shareholder or shareholders, each of whom hold a share or shares in the company. 

Each share has a designated number and generally entitles the holder to one vote per share in the affairs of the company.

Many early stage designer companies have only one share in issue, which is owned by the designer.  Thus, that company is said to be 100% owned and controlled by the designer.

If others wish to invest in the company, they too can be issued shares (or “equity”) in return for investing cash into the company (or, in other words making an equity investment).  If the designer held 10 shares originally and an investor invested money and was issued with 10 shares also, then they would each be said to own 50% of the company.

It is relatively easy these days to incorporate a company.  Like many things, you just jump onto the internet and find one of a variety of firms whose business is to incorporate brand new companies, called “shelf companies”, which are companies that have been incorporated (i.e. set up) and are ready to trade but have not yet done so.

You merely contact a shelf company provider, give them the required information, pay the required fee (which can be as low as £250) and they will transfer the first issued share (called the “founder’s share) to you, thus delivering ownership of the company to you.

At the same time, you would change the name of the company to your desired trading name and then you are off and running.

Now that I have a company, what else do I need to do?

As a separate legal entity, a company has all the powers of a natural person.  For instance, a company can borrow money, give another person, enter into contracts such as leases, bank loans, guarantees, supplier agreements and so on – all in the name of the company.

In order to do so however, the company needs a director or, if more, a board of directors, who are given the power to manage the day to day trading of the company.

Thus, where a designer has decided to trade using a limited liability company, the designer will typically be the sole director of the company, meaning that they will control the direction of the company and make all decisions about how the company should trade.

There are certain additional obligations that come with owning and trading as a company.  You will have to register for VAT, complete an annual return and may need to prepare annual accounts (but note that you may be able to avoid that requirement if your turnover and size remain modest).

You may also need to use lawyers at this stage as they will be able to advise you on the role of the board, the legal obligations of the company to file certain information with the company regulator in the UK (Companies House) as well as help to draft and tailor the articles of association of the company (which are a set of rules which govern the day to day functions of the company, set out the rights and obligations of the shareholders to the company and to each other and so on). 

There is a lot of information about companies on the Companies House website which is always a good starting point.  Why not look up this very useful page on the Companies House website designed to answer many of your initial questions:

www.companieshouse.gov.uk/about/gbhtml/gp2.shtml

For more information about Olswang go to http://www.olswang.com/main.asp?sid=193

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