A good idea is not a business, and a business is not yet a company. Between the spark and the trading entity lies a set of legal choices that will shape your liability, your tax position, and your relationships with co-founders for years to come. Getting these foundations right from day one is far cheaper than fixing them later.
In England and Wales, "starting a company" can mean several different things in law. You might trade as yourself, join forces with others under a partnership, or create a separate legal person — a company — that exists independently of you. Each route carries a distinct balance of simplicity, cost, protection, and obligation. This article walks through the principal options and the legal steps that follow once you decide to incorporate.
None of what follows is a substitute for tailored advice, and tax in particular is a specialist field — but understanding the landscape lets you ask the right questions and avoid the mistakes that catch out most first-time founders.
Choosing a structure
Your first decision is the legal form your venture will take. There is no single "best" answer; the right choice depends on how many of you there are, how much risk the business carries, and how you intend to raise money and draw profits.
A sole trader is the simplest form: you and the business are legally the same person. You keep the profits after tax, but you are personally liable for every debt the business incurs. A traditional partnership under the Partnership Act 1890 extends this to two or more people, who share profits and — importantly — share unlimited personal liability for the firm's obligations.
A limited liability partnership (LLP), governed by the Limited Liability Partnerships Act 2000, is a separate legal entity that combines the flexibility of a partnership with limited liability for its members. It is registered at Companies House and is common among professional firms. A private company limited by shares — the familiar "Ltd" — is also a separate legal person, owned by shareholders and run by directors, and is the structure most growing businesses ultimately adopt.
A high-level comparison of the main options under the law of England & Wales:
- Sole trader — easiest and cheapest to start; no separate legal entity; you bear unlimited personal liability for business debts.
- Partnership — two or more people trading together; profits and unlimited liability shared; ideally governed by a written partnership agreement.
- Limited liability partnership (LLP) — a separate legal entity registered at Companies House; members enjoy limited liability; flexible profit-sharing.
- Private limited company (Ltd) — a separate legal person owned by shareholders and run by directors; liability limited to unpaid share capital; greater formality and reporting.
Two legal concepts sit at the heart of why founders so often incorporate. The first is separate legal personality: a company is, in the eyes of the law, a person in its own right, capable of owning property, entering contracts, and suing or being sued in its own name. The principle was settled more than a century ago in Salomon v A Salomon & Co Ltd and remains foundational today.
The company is at law a different person altogether from the subscribers — and the business belongs to the company, not to those who own it.
The second concept is limited liability. Because the company is a separate person, its debts are its own. A shareholder's financial exposure is generally limited to the amount unpaid on their shares; once those are paid for, their personal assets are, in the ordinary course, protected if the business fails. That protection is not absolute — directors who give personal guarantees, or who breach their duties, can still be exposed — but it is the central reason the limited company is so widely used.
Incorporating at Companies House
Forming a private limited company means registering — incorporating — it at Companies House, the UK's registrar of companies. The process can be completed online in a day, but the decisions you make during it have lasting legal effect.
Every company needs a constitution. This comprises the memorandum of association, a short document recording that the subscribers wish to form the company, and the articles of association, the rulebook governing how the company is run — covering directors' powers, decision-making, and the issue and transfer of shares. Many companies adopt the statutory "model articles," but founders should consider whether bespoke articles better suit their plans.
You must appoint at least one director, who must be a natural person aged 16 or over and who takes legal responsibility for running the company. The company is owned by its shareholders (also called members), who hold shares representing their stake. You decide the company's initial share capital — the number of shares and their nominal value — which need not be large; many companies are formed with a handful of £1 shares.
You must also identify and record anyone who is a person with significant control (PSC) — broadly, an individual who holds more than 25% of the shares or voting rights, or who otherwise exercises significant influence over the company. The PSC register is part of the transparency regime designed to reveal who really owns and controls UK companies, and the information is filed at and published by Companies House.
The founders' essentials
Incorporation creates the company; it does not, on its own, protect the relationships inside it. Where there is more than one founder, the single most valuable document is usually a shareholders' agreement. The articles are public and largely procedural; a shareholders' agreement is private and can address what really matters between you — how decisions are made, what happens if a founder leaves, how shares may be sold, and how disputes are resolved before they escalate.
It is worth understanding that the articles of association and the shareholders' agreement work together: the articles bind the company and all its members and prevail on constitutional matters, while the agreement governs the contractual bargain between the shareholders who sign it. Sensible founders align the two from the outset.
Directors carry real legal responsibility. The Companies Act 2006 codifies the general duties owed by directors to the company — including the duty to act within their powers, to promote the success of the company, to exercise independent judgement and reasonable care, to avoid conflicts of interest, and not to accept benefits from third parties. Breaching these duties can expose a director to personal liability, so they deserve attention from the first board meeting, not just when something goes wrong.
Finally, attend to intellectual property. Where founders, contractors, or early employees create code, designs, branding, or other IP, the company should ensure that ownership is properly assigned to it in writing. Without an assignment, key assets may rest with the individual who created them rather than the business — a problem that surfaces, expensively, during investment or sale.
Ongoing legal obligations
A company is a living legal entity, and keeping it in good standing means meeting recurring obligations. Neglecting them can lead to penalties, the loss of limited-liability protection in practice, or even the company being struck off the register.
- Confirmation statement. At least once a year you must file a confirmation statement with Companies House, verifying that the publicly held information about the company — directors, shareholders, registered office, and PSCs — remains accurate.
- Annual accounts. Companies must prepare and file annual accounts at Companies House and, separately, file a Company Tax Return with HMRC. Smaller companies may qualify for reduced reporting, but the obligation to file does not disappear.
- Statutory registers. A company must keep proper internal records — including its register of members and register of directors — and maintain the PSC information, updating Companies House when things change.
- Tax registration. The company must register for Corporation Tax with HMRC, and you should consider whether registration for VAT and PAYE is required depending on turnover and whether you employ staff. Tax is a specialist area: read our guide to self-assessment and filing, and take tailored tax advice before relying on any particular treatment.
- Your structure — sole trader, partnership, LLP, or private limited company — determines your liability, formality, and how you draw profit; choose deliberately.
- A company is a separate legal person (the Salomon principle), and limited liability generally caps a shareholder's exposure to the amount unpaid on their shares.
- Incorporating at Companies House means settling your articles, directors, shareholders, share capital, and PSC register from the outset.
- Where there is more than one founder, a shareholders' agreement plus a written IP assignment are the documents most likely to prevent costly disputes.
- A company carries ongoing duties — confirmation statement, annual accounts, statutory registers, and tax registration — that must be met to stay in good standing.
How Crejj & Partners can help
Our Corporate & Commercial team guides founders from the first decision to the long term — advising on the right structure, incorporating the company correctly, drafting bespoke articles and shareholders' agreements, putting directors' duties on a sound footing, and securing the intellectual property the business depends on. We work alongside our tax colleagues where specialist tax advice is needed, and we are there when the harder questions arise, from raising investment to resolving a shareholder dispute. Whether you are forming your first company or restructuring an established one, we can help you build it on foundations that hold.
This article is provided for general information only and does not constitute legal advice or create a solicitor–client relationship. It describes the law of England & Wales, which may change; seek tailored advice for your circumstances. Crejj & Partners is a fictional firm presented for illustrative purposes on this website.