Welcome to this startup incorporation guide for startups and businesses thinking about registering their company in the UK. This guide provides a step-by-step explanation of how to register a private limited company (LTD) in one of the most popular jurisdictions for tech businesses.
We’ll explore all the steps you need to take to prepare for registration and also cover any post-incorporation requirements, so you’ll have a clear understanding about the process. Setting up a limited company properly will help you attract the right investors in future fundraising rounds and avoid the consequences of non-compliance with applicable laws.
This guide is for founders who are exploring the United Kingdom as a possible location for registering their startup business. The guide is especially useful if you are a founder who is located outside of the UK and needs guidance on the registration process in the UK and how it might affect your circumstances.
To get the maximum benefit from these resources, we recommend familiarizing yourself with them gradually, in the same order as they are presented here.
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Checklist for founders registering their startup in the UK
This checklist covers the main tasks that you and your team need to complete to ensure a successful company registration. It is divided into 2 stages: Incorporation and Post-Incorporation.
Incorporation:
- Create and approve cap table for the future company
- Choose the form of the company. In this article we will cover private limited company (LTD), the most common form of UK company for incorporation
- Choose a name for your company
- Identify the directors of your company
- Choose the type of activities that the company will engage in
- Select a company formation agent and file with them an application for company registration
Post-Incorporation:
- Open a bank account
- Collect and securely store all the documents after the registration in the virtual data room and/or physically at your office
- Sign IP Assignment Agreements with the founders
- Finalize and sign agreements with the team (NDAs, Service or Employment Contracts, and IP Assignment Agreements)
- Approve the share option scheme and sign option agreements with the team (optional)
- Engage service providers to help with accounting, tax matters, etc. (optional, but highly recommended)
🔍 Explore solutions: Discover how Legal Nodes helps with tax planning for global companies and handling personal tax matters in the UK as a non-UK founder
Part 1: Incorporation in the UK
So, you’ve chosen to incorporate in the UK! Next, you’ll need to figure out your cap table and arrange for additional services to get sorted. In this section, we’ll explore these in more detail.
What is a cap table and why do you need one?
Before registering your private limited company, you and your founders will have to prepare a Capitalization Table, frequently called a “cap table” or a "captable". This is a document that will include information on:
- Who the shareholders of the company will be.
- What class of shares each shareholder will have.
- The number of shares to be issued to each shareholder.
- The percentage of ownership for each shareholder.
If you have multiple classes of shares, you should also document the rights associated with each class to provide to the company formation agent. The cap table will always remain an internal document, requiring no external submission or public disclosure. Further, we strongly recommend that you do not commence your company registration without collecting and organizing the required data for your cap table. Failure to do so could lead to various problems down the line, including ownership disputes among co-founders and complications concerning corporate governance within the company.
What does a typical company's cap table look like?
Your cap table will typically look like this:
How to prepare your cap table
Founders will typically establish some sort of understanding of ownership in the initial phases of launching their business. Yet, formalizing this through a comprehensive cap table, including outlining the option pool size, is critically important. While attempting a DIY cap table is an option, we recommend seeking expert assistance to ensure your cap table is completed accurately. Professionals can assist you with navigating share classes and addressing any queries that may arise. For guidance or refinement of your cap table, speak to Legal Nodes today.
What is a share class?
A company can have different classes of shares, which can grant specific rights to shareholders that hold shares of a certain class. Share classes can be named and assigned rights at the discretion of the company, but typically include:
- Ordinary Shares: These provide equal rights to all shareholders.
- Preference Shares: These provide greater rights to their owners (usually by receiving assets and dividends of the company first in line) compared to Ordinary Shares.
Example:
Shareholder 1 holds Ordinary Shares, which entitle them to dividend payments and voting rights at shareholder meetings.
Shareholder 2 holds Preference Shares, which entitle them to dividend payments before Shareholders owning Ordinary Shares and voting rights at shareholder meetings.
This is just an example of how shares might be granted. Share rights are determined at the discretion of the company, except for those mandated by law.
Information required for company registration in the UK
Before registering a limited company, you’ll need to gather the following information:
- The name of the company to be registered.
- The number of directors and their details (name, address, contact information).
- The total number of shares to be issued to each shareholder (it is standard practice to issue a total of 100,000 shares that are then distributed among all shareholders during the company registration process).
- The share classes and the rights associated with each class (you can use your own cap table for this).
- The nominal value per share. We recommend setting the value at GBP 0.001. This way, you can issue shares to potential new shareholders (e.g. new co-founders) at a very low price (unless the shareholder is expected to pay a significant amount for the shares). This does not affect the amount of money the company will receive in future investments.
- Details about the activities the company will engage in (to assist the registrar in assigning an SIC code).
- The main contact person for the company and their contact information.
Once you’ve begun working on these matters, make sure that you securely store all the documents for each shareholder of the company in a virtual data room, such as Google Drive.
Important documents that are required for company registration include:
- Passports
- Bank statements or utility bills (as proof of address). Note that the address on the documents will be used as the respective shareholders’ address in the documents of the newly formed company.
👉 Register a company in the UK
Legal Nodes can help with your shares and directorship questions
If you’re not sure how best to issue shares or choose directors for your company, Legal Nodes can help. We’ll explore all your different options, including looking at the different ways you can structure your share classes that might be best for your use case. Speak to us to get started.
Choosing a company formation agent and registering a company
Once you have gathered all the information and documents, you’ll need to contact a company formation agent (a company registration service provider) to register your company.
The information and documents that you have prepared in advance should be provided to the company formation agent. Sometimes, the company formation agent may also ask you to fill out a KYC (know your customer) form. This is done to understand who their client is. When filling out this form, use the information / documents that you gathered earlier.
Additional services we recommend obtaining during company registration
At this stage, there are a couple of other services that you can set up to keep you ahead of the game.
- Registered Address. Get your own office for your newly formed company to receive correspondence, store documents and act as your official registered address. Usually, the company formation agent will offer this service when helping you to register your company.
- Mail Forwarding Service. If you’ve set up a registered address, you may also want to set up a mail forwarding service, so that you can receive your correspondence at that specific address and then immediately have your important mail forwarded, scanned, or emailed to you.
- Engage an accountant. With a newly formed company, you’ll need help with financial reporting, tax matters, and payments. Via your Legal Nodes subscription, we can connect you with registered agents, accountants, and other necessary service providers and manage their work for you.
Banking
After registering your company, we recommend opening a bank account as soon as possible in order to start making/receiving payments. UK companies can use Wise or Revolut.
Companies House register
Once the company is registered, you can check its information on the Companies House register website at any time: https://find-and-update.company-information.service.gov.uk/
Part 2: Post-incorporation
Now that you’ve successfully registered your company in the UK, the post-incorporation process can begin. This includes sorting important documents and figuring out your share option scheme and agreements.
Documents you will receive after your company is registered
- Certificate of Incorporation. This is a one-page certificate issued by the company registrar, confirming that the company has been successfully registered.
- Memorandum of Association. A document that confirms that founders wish to form a company and become its first shareholders.
- Articles of Association. These are the company's bylaws. Essentially, this is a collection of rules that govern the company, its directors, and its shareholders.
- Share Certificate (for each shareholder). This document confirms the shareholder's ownership rights to the shares.
- Minutes of the First Meeting of the Board of Directors. These are the minutes of the company's board of directors meeting, stating that the company is issuing its shares to the shareholders.
If you are registering the company online, you can receive the documents in digital format (PDF) to your email address (please note that this should be communicated directly to your company formation agent). Since these are the essential founding documents of your company, there are many scenarios where you may need them, for example, when opening a bank account or during due diligence processes prior to selling shares to new investors.
Commercial Documentation for company registration in the UK
After successfully registering the company you’ll now need to prepare the company's commercial documentation, which will be completed with help from employees, advisors, and others.
The following documents will need to be prepared.
Service Agreement
This is a contract that can be signed with individual contractors who will provide services to the company.
Don't forget to include in the document:
- Details of the services provided
- Details of the remuneration received by the individual entrepreneur/person. For individual entrepreneurs, only monetary remuneration can be provided. It can be either a fixed monthly rate or hourly payment.
Employment Contract
If you’re planning on hiring employees (different from hiring contractors) then you’ll need an employment contract, specifically one that suits the UK employment practices and regulations. Note that this agreement will only be suitable for employees in the UK. .
The document should include:
- Details of the services provided by the employee
- Details of the remuneration received by the employee. For employees, a fixed, flexible or zero-hours contract must be stipulated.
- Details of employer-employee obligations as required by law, such as pension contributions.
Non-Disclosure Agreement
A template contract that will establish the obligation of your employee / contractor / other counterparties to keep the company's confidential information confidential.
IP Assignment Letter (as an annex to the Service Agreement or Employment Contact)
A template letter document by which the employee / contractor transfers intellectual property rights to any developments related to the company's product to the company (intellectual property assignment can also be stipulated directly in the Service Agreement or Employment Agreement).
Legal Nodes can help with your documentation questions
If you need help figuring out which documents you need and making sure that the templates you’re using protect you, your company and any third party you’re engaging as an employee or contractor, Legal Nodes can help.
We support founders with understanding which document is best for each situation. We also explain when to sign NDAs with contractors and how to handle IP assignment-related queries.
Additionally, with your Legal Nodes subscription, your Virtual Legal Officer can provide you with templates for each of these documents and customize them for you.
Share option agreements with employees and advisors in the UK
At the post-incorporation stage, you can also establish an option scheme and enter into option agreements with your employees or advisors.
What is an option scheme?
An option scheme is a document created by the company according to which participants of the scheme (individuals to whom the option was granted) can purchase shares or, in certain cases, rights associated with shares. Typically, an option scheme consists of shares that have been reserved for the initial employees or advisors of the startup.
To grant a specific employee an option from the company's option scheme, you need to:
- Authorize the company's option scheme.
- Enter into an option agreement with that employee.
An option agreement is an agreement in which an employee is granted the right (but not the obligation) to purchase company shares at a pre-agreed price within a certain period of time. The purchaser of such shares has the contractual right to become a shareholder of the company.
In the UK, option schemes can be approved or unapproved. Please note that some of the option schemes are required to be registered with authorities, with the unapproved option scheme being the exemption under this requirement.
Why is an option scheme necessary?
Option schemes can help you attract employees and advisors. By offering employees or advisors ownership in the company, you incentivize them to act as owners and do everything possible to help the company succeed, so that they can ultimately share its success.
Ultimately, once they have a financial stake in your company, they will want your business to succeed as much as you do.
Additionally, certain option schemes may have legislative tax advantages, making them a very cost-effective way to provide long-term rewards.
What key terms are included in option agreements?
- Shares: These will be issued as options.
- Option price and its calculation method: The option price indicates whether the employee should pay the company for the grant of option rights. This should be considered separately from the exercise price - the price to be paid for the acquisition of shares under the option agreement. The price for granting option rights is often a nominal amount.
- Exercise date: The date by which the employee can exercise their options.
- Exercise price: The price the employee will pay to acquire the company's shares.
- Exercise period: Option plans usually require employees to wait for a certain period of time before they can exercise their options and purchase shares. Typically, this period is three years. Additionally, the right to exercise the option may also be triggered by the occurrence of a certain event. This is often used as an incentive to retain employees for a longer period.
- Approval: A condition in the option agreement indicating whether shareholder, board, and/or any third-party (e.g. creditors or HMRC) approval will be required for granting such an option. HMRC approval may be necessary for granting options to employees.
- “Good leaver” / ”Bad leaver”: These are different scenarios provided for in the option agreements when a person ceases to be an employee of the company. A good leaver usually means the termination of employment with the company for honorable reasons, such as death, disability, retirement, or the occurrence of a certain event. If a person is recognized as a good leaver, they retain the right to the option shares that have already vested. In contrast, a bad leaver usually refers to the justified dismissal of an employee on grounds that have caused harm to the business and where evidence of such harm is already evident. The concept of a bad leaver may be associated with factors such as employee fraud or breach of contract with the company (including NDA provisions). If an employee is considered a bad leaver, they lose their rights even to the shares that have already vested.
Tools for setting up option programs
Setting up stock option plans can seem a little overwhelming, which is why we regularly support founders via our Legal Nodes subscriptions, and with free resources available on the Legal Nodes Resource Center. You can learn more by exploring:
- Our detailed options guide for founders
- Our handy pocket guide on stock options
You can also find some popular tools online that allow you to set up an option plan and generate option agreements for your UK company, such as:
Get your new UK company up and running with Legal Nodes
Whilst there are many templates and free guides available online, sometimes it's easier to speak to an expert. At Legal Nodes, we can assess your situation against best practices used by successful businesses who once were in your shoes. We regularly help founders by answering key questions such as:
- How many shares should be reserved for the option pool, considering our future plans?
- Are our option agreements suitable for use and is there anything else we need to include?
- At what stage of post-incorporation should we sign option agreements with key employees?
- Which accounting services should I be setting up?
- Where can I get tax advice from? Do I need to pay tax? What is CFC and double taxation and should I be taking action on these matters?
Whether you're a first-time founder or a seasoned entrepreneur, you can use our integrated online platform to manage all your legal, tax and compliance tasks for your business. From registering a new UK company to launching and operating, we help you achieve all your goals by providing the right legal support when you need it.
Our network of global industry experts deliver consultations, documentation, templates, and support you with company registration tasks, all via the integrated online platform. Start with a Legal Nodes subscription and unlock the add-ons you need to help you register and operate your company with ease. Speak to us to get started!
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