Establishing an Entity in the United Kingdom
The United Kingdom – one of the largest European and most mature global economies, is a major destination for businesses expanding their global footprint. It is also one of the most populous countries in Europe, making it an ideal market for businesses looking to establish a new market.
Both B2B and B2C companies have to jump through several hoops to establish a business in the UK, but the first and most important step for all companies that are looking to expand their business in the UK (unless they are opening a branch), is to establish a local business entity.
Business Entities in the UK
There are four recognized business entities in the UK, though one of them is not classified as a “business structure.”
A sole trader in the UK, like in most other countries, is the sole owner and operator of the business. They have no legal separation from the business, and the owner is personally liable if their business incurs a loss or is legally responsible for something. The business is taxed as personal income, but if the business income exceeds £85,000, it will have to be registered for value-added tax (VAT). An individual doesn’t necessarily need to be a resident to become a sole trader. They just need the right license.
This type of entity is not useful for a business that’s already present in another country and is seeking to establish a local entity in the UK to enter the market.
For them, the ideal choice is:
UK Limited Company
A Limited Company (an LLC equivalent) is the most common type of business entity in the UK. This entity exists independently of its owners/stakeholders, and there is a corporate veil between the individuals running the company and the company itself. It’s quite easy to set up and has minimal requirements, i.e., a director and a shareholder (neither of them has to be a UK citizen), and there is no capital requirement. It can also be established quite quickly. The income of a Limited Company is taxed at a corporate tax rate of 19%.
Partnership and Limited Liability Partnership
Partnerships and Limited Liability Partnerships (LLP) are quite similar business entities in the UK and both can be used for expansion. For example, a business or an individual in another country can form a partnership or LLP with an individual or company in the UK. The main difference between the two entities is the liability.
In partnership, like in solo businesses, any financial or legal liability of the business passes through to the partners. In an LLP, partners are relatively shielded. The taxation is the same, i.e., pass-through, so individual partners are taxed and not the business itself. This may be the right business entity for some companies and individuals who wish to establish a presence in the UK, but not all.
Another recognized business entity can be a UK Establishment, which is a branch or a place of operation of a foreign company within the UK. This entity does not need to pay taxes in the UK but may need to file its accounts and convey its financial information to the Companies House every year. It also doesn’t have any liability protection like LLCs or LLPs get, so it may need relevant insurance. It has relatively lax visa requirements but there may be trouble when opening a business bank account without local employees in decent positions.
There is another corporate entity, i.e., UK Public Limited Company, which may register in the local stock market and issue shares to raise funds.
How to Establish an Entity in the UK?
There are a few steps you will need to follow to establish a business entity in the UK. The following steps are for a Limited Company, but there is a lot of overlap with LLPs as well.
Choose The Right Entity: A limited company may be the most pragmatic choice for most businesses trying to expand to the UK, but you may look into other options that may fit well with your business models and goals. You should also analyze it from a regulation and taxation perspective.
Pick A Name: There are several rules associated with naming a company in the UK, but they boil down to this: the name should be unique and may not confuse people about your association with another business (due to similarity). You can easily run an online search to ensure that the name you are looking for is available.
Designate a Director and Company Secretary: A director doesn’t need to be a UK citizen, but you will need a director to establish your business. A secretary is important but not necessary for establishing a Limited Company. A director’s name and correspondence address are publicly available, and they are responsible for running the company. A secretary may take on some of the responsibilities allocated by the director. When looking for the right talent to fulfill these roles, visit Aadmi’s guide to employing workers across borders.
Decide Shareholder/Guarantor and Identify PSC: Each Limited Company in the UK must have at least one shareholder who will own 100% of the company and its profits. The director can be the sole shareholder or one of the shareholders in the company. A Guarantor is an individual who may not have a financial stake in the company but gives a guarantee that if the company has any debt, the guarantor will pay a certain amount toward it. This is usually the case with non-profits. A PSC is a Person with Significant Control of the company, which is essentially any shareholder with a 25% or more stake in the company (or voting rights).
Prepare Relevant Documents and learn about Record Keeping: Memorandum of Association is the legally required document that declares that a company is being formed with the agreement of all the shareholders/guarantors and directors. Articles of Association basically dictate how the company will be run, and you will need to establish a Limited Company in the UK. It’s also important to learn about the documents and information (usually accounting documents and board meeting minutes) a company must keep when filing with the Companies House.
When navigating business expansion and formation in the UK, Aadmi’s corporate establishment services can support your business with expertise to ensure a successful experience.