Before establishing a presence in a particular overseas country, a company may choose to appoint an agent or distributor. However, if the product and/or service is well received it is tempting to take the next step and trade directly without the use of a third party.
The two main options for overseas companies wishing to trade directly in the UK are to
- Register a UK establishment (this used to be known as opening a branch). This means that the overseas company must comply with the Overseas Companies Regulations 2009 (the “Regulations”) which includes a requirement to register any establishment the company has in the UK, and it also imposes certain accounting requirements and requirements to deliver returns; or
- Incorporate a subsidiary in the form of a limited company. An overseas company can choose to set up a UK subsidiary; however, this may increase the regulatory burden. The company also has to go through the process of incorporation.
Please see below for the main differences between setting up an establishment and incorporating a subsidiary.
An establishment is defined broadly as: (1) a place of business that a company regularly conducts business; or (2) premises that indicate that a company may be contacted there. The UK establishment is not a separate legal entity but rather the same legal entity as the overseas company it is derived from.
Registration of particulars
Within a month of an overseas company opening a UK establishment, it must register the particulars of the overseas company and the UK establishment with the Registrar of Companies (the “Registrar”) together with a standard registration fee (currently £20). This is done using Form OS IN01 and the form includes the following information:
- Details of incorporation of the overseas company.
- The company’s name (which can be a name other than the company’s corporate name).
- Details of directors of the overseas company.
- Details of the UK establishment (name, address, nature of business, details of authorised permanent representatives and the extent of their authority (that is, whether they are authorised to act alone / jointly, and whether their power is limited / unlimited) and the names and addresses of any person authorised to accept service of documents on behalf of the overseas company). Note that regulation 7(e) of the Regulations requires “name and service address of every person resident in the United Kingdom authorised to accept service of documents on behalf of the company in respect of the establishment, or a statement that there is no such person…”
- The return should also include a certified copy of the overseas company’s constitutional documents and a copy of its latest set of accounts (and certified translations if applicable).
The main advantages of setting up an establishment in the UK are as follows:
- If the business is unsuccessful, the establishment may be closed by simply sending a notice of closure, using Form OS DS01, to the Registrar.
- The filing requirements and continuing obligations are much less onerous than when dealing with a UK limited company and involve the following:
- An overseas company which is required by its home jurisdiction to prepare, audit and disclose its accounts, and an overseas company incorporated in the EEA must file copies of its accounts (together with a translation, if applicable) at Companies House within 3 months of the disclosure of the accounts in accordance with its home jurisdiction.
- If an overseas company is not required to prepare and disclose its accounts under its home jurisdiction (and not incorporated in the EEA), it still has a duty to prepare, sign and deliver accounts to Companies House in accordance with the accounting requirements of the Companies Act 2006 – this requires the preparation of accounts for the overseas company as a whole, not just for the UK establishment.
- If there is a change to any of the registered particulars, a return setting out the change must be delivered to Companies House within 21 days of such change.
- A permanent establishment may be converted into a limited company at a later date if required.
The main disadvantages of setting up an establishment in the UK are as follows:
- It is not a separate legal entity but is an extension of its parent company wherever that is established.
- Overseas parent company remains liable for the establishment’s obligations and liabilities.
- Potential UK customers may not feel happy just dealing with an establishment rather than a UK incorporated subsidiary.
Incorporation of a Limited Company
The majority of companies in the UK are private limited companies. A private company must have at least one member / shareholders, and one natural officer (a director). There are no requirements as to the amount of share capital or value of each share, and the appointment of additional directors or a company secretary is optional. A UK company does not exist and cannot operate and/or commence trading until a certificate of incorporation has been issued by Companies House.
To register a private limited company, Form IN01 (application for registration), the articles of association and memorandum of association must be lodged with the Registrar, together with a standard registration fee (currently £30 if submitted electronically and £100 if submitted in hardcopy). Form IN01 includes the following information:
- The proposed company name.
- Details of the registered office. A company is required to have a registered office at all times to which all communications and notices may be addressed.
- Articles of association. Section 18 of the CA 2006 provides that every company must have articles of association which it must register otherwise a set of the model articles apply in default of registration.
- Details of directors and secretary. The application for registration must contain a statement of proposed officers of the company. Private companies must have at least one director. A company must have at least one director who is a natural person and all directors must be at least 16 years of age. Form IN01 sets out the particulars of directors that must be provided as being full name and title including any former names, date of birth, country or state of residence, nationality, occupation (if any), and service and usual residential addresses. Private companies do not have to have a company secretary (section 270, Companies Act 2006) but public companies must have at least one. The details of the first secretary that must be provided are the full name, title and any former names and the service address for the secretary (which does not have to be their residential address). In addition to the above, additional information will need to be provided if the Company is to have access to web-filing (which, for the most part, greatly reduces the burden of filing documents at Companies House).
- Statement of capital and of initial shareholdings. If the company to be registered is to have a share capital, it must deliver a statement of capital and of initial shareholdings under section 10 of the CA 2006.
- Shareholders – apart from (a) paying up the agreed value of the subscribed shares and (b) potential “operator” liability under new “polluter pays” legislation, there should be very little financial exposure for shareholders.
- Directors – the fact that it is a limited company should protect directors from personal liability. The main risks of personnel financial exposure are (1) failure to file accounts/annual return at Companies House; (2) breaches of Health and Safety Legislation; and (3) trading the company when it is insolvent.
The main advantages of setting up a limited company in the UK are as follows:
- It is a legal entity, so is perceived as having more substance than an establishment.
- It has limited liability so liabilities can be ring fenced from other companies in the group.
The main disadvantages of setting up a limited company in the UK are as follows:
- Closure requires a formal procedure – which can take six months or longer.
- It is required to be operated in accordance with English company law leading to greater filing requirements and procedures, procedures that are much more onerous than when dealing with an establishment.
Fox Williams LLP has plenty of experience and is uniquely positioned to help set up and grow your UK business. We are experts at advising entrepreneurs and businesses setting up new companies, and have a specialist Start Up team on hand who can assist you with all legal aspects of your venture.