Doing business in the UK: choice of business structure

This is part 1 of 7 of our guide: 'Doing business in the UK'.

There are a number of alternatives open to an overseas business which wishes to do business in the UK. These include:

• opening a UK establishment
• incorporating a UK company
• acquiring an existing UK company
• entering into a joint venture or partnership arrangement
• putting in place an agency, distributorship or franchise arrangement.

As well as legal, tax and regulatory considerations, there are a number of commercial factors to consider when deciding which of these alternatives is the most appropriate, such as, product origin, available funding/ resources, size and permanency of the UK operation and the level of risk to be incurred. Many overseas entities wishing to do business in the UK set up an establishment or branch or incorporate company as a subsidiary. Further details on each of these are set out below and a comparison of the two business structures can be found in the Appendix.

UK establishment

An overseas company may choose to open a UK establishment (such as a branch or place of business where it trades). There is a requirement for an overseas company to register any establishment it has in the UK. This means that certain particulars of the overseas company and details of the UK establishment have to be registered with the Registrar of Companies together with a fee. If any of the original information filed changes, an amended return must be filed. The main point to note about operating a branch is that it is not a separate legal entity. This means that the overseas company is directly responsible for the operations, liabilities and obligations of the UK establishment. It is important to note that UK establishments are subject to certain trading disclosures and will usually be required to file annual accounts with the Registrar of Companies. The UK establishment may also be subject to UK tax.

Subsidiary company

A company is a separate legal entity, distinct from its shareholders and directors. This makes it is an attractive proposition for an overseas company looking to establish a business in the UK. Separate legal entity status enables the company to enter into contracts directly and generally offers the parent company protection from the subsidiary’s liabilities (although recent case law has set out certain exceptions to this). On incorporation, all companies must be registered as either private or public. Private companies can be limited by shares, limited by guarantee or be unlimited. This guide deals only with private companies limited by shares. The main benefit of a company limited by shares is that the liability of the shareholders is limited to the amount, if any, unpaid on the shares held by them in the company. It follows that if the shares are fully paid, shareholders
will not normally be liable to contribute further amounts in the event of the company becoming insolvent, although of course the initial investment would be lost. Incorporating a private company limited by shares is a straightforward process which can usually be completed within one business day. To do so, certain forms need to be completed and filed with the Registrar of Companies along with a fee.

The details currently required to set up a company include:

• a suitable name for the company. There are some restrictions on the choice of name and a company cannot use a name that is already registered at Companies House
• details of the proposed director(s) including full name, date of birth, nationality, address and occupation. A private company can have just one director (who is a ‘natural person’ over 16 years of age). A director does not have to be a UK national but must consent to act as a director
• the official address of the company, called a ‘registered office’. If the company is set up in England, the registered office must also be in England. For companies registered in Wales, Scotland or Northern Ireland, the registered office address must be in Wales, Scotland or Northern Ireland (as appropriate). A company is required to have a registered office at all times
• the names and addresses of the company’s initial shareholders and details of any ‘person with significant control’. Shareholders can be individuals or other legal entities, such as another limited company
• articles of association (which govern the company’s administration). A company can choose a simple set of articles of association (called ‘Model Articles’) or it can create its own articles of association. Many companies start off with the Model Articles and change them later on.

A UK company must keep certain registers and records as well as being subject to stringent filing and reporting requirements. Whilst a private company is no longer required to have a ‘company secretary’, an overseas parent company may want to consider appointing one for a UK subsidiary company, as the company secretary can then ensure these registers are kept up to date and all statutory filing requirements are complied with. The directors are responsible for the day-to-day management of the company’s affairs and may be salaried executives or have non-executive status. The requirements for appointment of directors will usually be set out in the company’s articles of association.