Let’s get started with the challenge

Day 19: Register Your Company

Today's Prompt:

Familiarize yourself with the Companies House website (UK businesses) or the Small Business Association website (US businesses). Register your business if you haven’t already.

Registering your business may seem daunting, but in reality, it is a simple and quick process. It is also a rewarding one, will be a concrete step in the process that is worth celebrating. The process varies by country, so today we will be addressing how to complete the process in both the UK and the US.

Registering in the UK

Registering your company with the government may seem like a complicated, long, and expensive process. It is not. It costs £12 and can be done online in around 10–20 minutes.

We mostly want to communicate the ease of setting up a company. We want to dispel the idea that registration/incorporation is a block to setting up your business.

There are three types of companies in the UK: sole-trader, limited company, and partnership.

Today, we'll be discussing sole-trader and limited companies only, and we’ll focus on limited companies.

But first…registering as self-employed

You may have already registered as self-employed. It’s possible to do when you are first starting out, even if you are employed by someone else. If you have not done this, see this easy guide:

http://www.bytestart.co.uk/register-self-employed.html

http://www.bytestart.co.uk/set-up-sole-trader.html

Telling HMRC (the taxman in the UK) that you are self-employed and in charge of your tax returns is necessary even if you are doing some freelancing on the side of your normal job. We'll be looking at taxes more in a later session.

A sole-trader is a self-employed person; he or she is the sole owner of the business. The difference is mainly that "self-employed" is primarily a tax category and "sole-trader" is a business structure.  Because one-man-bands are basically both, the terms are usually interchangeable.

Unlike a limited company, a sole trader doesn’t have to register with Companies House, which we'll be discussing next. This applies to many types of businesses, whether you’re running an online shop, doing freelance design work, or working as a self-employed copywriter.

Once you have registered as self-employed (as above in that more detailed article), you are, by default, already a sole trader.  "Registering as a sole trader" is therefore very simple – you simply register as self-employed; then, you are automatically set up as a sole trader.

Registering a company creates a legal entity outside of you individually and is a natural next step for many businesses, because being a sole-trader is not flexible enough. If you need more than one owner of the business, you'll need to register as a company or partnership. Also, by registering as a company, you can protect yourself from personal liability – instead, your company is a separate legal entity. Finally, the tax treatment of companies tends to be preferential to individual taxes. Again, this is something we'll be touching on later.

Right now, we want to get you onto the Companies House website and show you how simple the process of registering a company is.

Requirements for registration as a company  

The Companies House website is very easy to use and has most of the information you need "translated" into easy-to-understand language.

A great place to start is here:

https://www.gov.uk/topic/company-registration-filing/starting-company

The site above runs through everything you need to know to register a company in the UK. We are going to use this prompt to summarize the main points of the page, but we definitely recommend reading through the information there and bookmarking the page for later use.

To register a company in the UK (according to Companies House), you need…

  • the company’s name and registered address
  • £12 (credit card or PayPal)
  • names and addresses of directors
  • details of shareholders and share capital
  • details of people with significant control over your company – for example, anyone with more than 25% shares or voting rights
  • your standard industry classification (SIC code – the number that identifies what your company does)

If the company is just you, then a lot of this is very simple – just fill in your personal details! You are the 100% "shareholder" because you own the whole company. If you are registering the company at your home address (which you can), then the "registered address" is simply your home address. Like we said: all very simple.

If your company involves more members beyond yourself, then it becomes slightly more complicated, but not because of the Companies House system. It's complicated because this is when you and your partners/shareholders need to decide who owns what in the new company. This is a discussion that is beyond the scope of today, but it is something we can return to. For further information at the moment, this resource has some great information about forming a partnership:

http://www.bytestart.co.uk/set-up-partnership.html 

How to register a company

At this point, it’ll be useful for you to head to the Companies House website and follow along so that you get used to the system. You don't need to register your company right now, but, if you are ready to do so, we recommend you go ahead. The act of registering makes your new company seem very "legit" and is a positive step towards making your company a reality.

Head over to https://www.gov.uk/register-a-company-online, and we'll walk through the steps together.

  1. The company name

First, you'll need to choose your official company name. This doesn't need to the be the same as your website or social accounts at all. It will be the official name on your invoices and official documentation, though.

Companies House has a tool that allows you to check the availability of company names. Bizarrely, it's separate from the actual registration process, so you'll need to head to another site to use it:

http://wck2.companieshouse.gov.uk//wcframe?name=accessCompanyInfo

Here, you can type in the name of the company you want to register to confirm that there's not already a company with this name. Once you've found a unique name, you can use it on the Companies House registration system. Go ahead and do that.

  1. Business address

You will next need to give the official address of your company. For a lot of you, this will be your home address. If you are renting your flat, you likely won't be allowed to register a business at the address – you need to check this with your rental contract. (Especially if you move around a lot between rental flats, it is probably better to consider one of the options mentioned next.)

Alternatively, you can register the business at a virtual office (Google "virtual office registered business address” for a number of choices), a PO box, or directly with your business accountant if you have one. You could also use a friend's house if you don't have a permanent address in the UK. The purpose of this permanent address is for HMRC (the taxman!) to send you mail.

  1. SIC – i.e., what does your company do?

Next up, you'll need to select your SIC. SIC stands for Standard Industrial Classification, which is just a fancy way of saying "business type."

For example, the code 01440 is the "Raising of camels and camelids," 0520 is "Manufacture of ice cream," and 93210 is "Activities of amusement parks and theme parks."

Okay – most SICs are a lot less fun....

There's a full list here: http://resources.companieshouse.gov.uk/sic/

You can find your category and then narrow it down from there. Have a look, and work out what makes the most sense for your proposed business activities. You can have up to 4 SICs if you need some variation.

Do not stress about the aforementioned step too much. It is relatively simple to change your company's SIC later. In fact, you can change everything that we are discussing today. My (Kyle’s) main company used to be called Hanzi WallChart Ltd, and its main activities were "Other education n.e.c.” That's when my company was primarily selling my own educational products helping people learn Chinese. As I moved towards consultancy, I've changed the business activity (SIC) and the name of the company. Alternatively, I could have registered a new company for the new activities, but I preferred to keep it all together under a very broad SIC 63990 –  "Other information service activities n.e.c."

So, like most everything in life, do not be afraid to make a decision now. If it is wrong, you can fix it later! That is better than not making a decision at all.

  1. Officers Details

Next up, you need to register the people who are part of the company. The website primarily needs names and addresses, so this section is simple enough.

  1. Shareholder details

This is the more complicated section related to who is part of the company. Previously, we just named and gave the addresses of the officers. Now, we need to specify what each of these people owns.

If the company is just you (for now), then add your personal details, and give yourself 100% of the shares.

You can specify a number and value for the shares. This is a nominal value – you can initially set it to 100 shares of £1 each for a total of £100.

If you are doing anything more complicated (especially involving more members) then this is the time when you should be seeking professional help. We recommend finding local business meetups – you can often find a lawyer who can provide free/low-cost legal advice or at least point you in the right direction.

There are also a number of charities, government bodies, and private groups who can help you get this information.

http://www.greatbusiness.gov.uk/where-to-get-start-up-advice/ is a good place to start for this sort of information and support.

  1. Persons with significant control

The final section is where you state the people with significant control over the company. These are usually people with 25%+ of the share capital or voting rights. Again, if you are a one-man company, then this is you.

  1. Pay

....and that's it!

Name of company, what you do, who is involved, and how much they own.

Those are the main components of registering a company!

This has been a long chapter, so take your time working through it, checking out the Companies House website and the additional links provided.

Registering in the US 

Sole proprietor or limited liability company (LLC)

Registering your company with the US government is quite different than registering with the UK government. You will likely be operating as either a sole proprietor or an LLC

You may already be operating as a sole proprietor if you’ve taken on the 30 Day Challenge while already conducting business. If you’ve taken on any paid freelance work, you’re already a sole proprietor. You’ll want to make sure that you obtain the necessary licenses and permits to operate as such – and these requirements vary by state. Since we don’t have time for (nor does anyone want to read through) each requirement for all 50 states here, we’ll refer you to the Business and Licenses page of the Small Business Association’s website, where they outline the regulations for you (https://www.sba.gov/starting-business/business-licenses-permits).

Additionally, if you’re operating as a sole proprietor, you’ll want to consider operating under a “Doing Business As” (DBA) name. This name, which you can choose, simply differentiates your business dealings from your personal dealings. You can register your DBA with your town or county clerk’s office or with your state government office.

While there are many advantages to being registered as a sole proprietor, such as simple tax preparation and the little expense required to register, there are also disadvantages. You can and will be legally held personally responsible for any debts or obligations of the business. It will also be hard to raise any capital (money) for your business. As a sole proprietor, you cannot sell stock in your business to investors, and banks are also leery of loaning to one.

An LLC is more expensive and more complicated initially but is worth considering when officially establishing your business.

While LLCs are often made up of many “members” (owners of the business), you can be the sole member of an LLC. To form an LLC, you’re required to complete several steps, including choosing a business name. There are three rules for choosing the name of an LLC:

  1. Your name must be different from any other existing LLC in the state (can be researched on your state government’s website).
  2. Your name must include “LLC” or “Limited Company” in it.
  3. Your name must not include any words restricted by your state (such as “bank”).

You must file the “articles of organization” with your state (usually with your Secretary of State. This will be a legal document noting your business information such as your member name(s) and the business address.

Additionally, it is suggested (in most states, it is not required) to form an operating agreement. This document will usually include information such as what percentage each member owns of the company, how profits will be divided up, and each member’s rights.

Finally, you must obtain any required licenses and permits (again, varies by state), and, in some states, you are even required to announce your business in a press statement.

Clearly, there are many details and requirements for registering as an LLC. We recommend that, if you’re considering this as an option, you first browse the Small Business Association’s guide to LLCs (https://www.sba.gov/starting-business/choose-your-business-structure/limited-liability-company) and then seek the advice of a licensed attorney.

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