Franchising

August 6th, 2011

The advantages of owning your own business are obvious but so too are the risks.

A franchisee is taking less of a risk than starting his or her own business because they are operating under an established and proven business model and supplying or producing a tested brand name.

Franchising is essentially the permission given by one person, the franchisor, to another person, the franchisee, to use the franchisor’s name, trade marks and business system in return for an initial payment and further regular payments.

Each business outlet is owned and managed by the franchisee. However, the franchisor retains control over the way in which products and services are marketed and sold, and controls the quality and standards of the business.

Advantages

1  it is your own business
2  someone else has already had the bright idea and tested it too
3  there will often be a familiar brand name which should have existing customer loyalty
4  there may be a national advertising campaign
5  some franchisors offer training in selling and other business skills
6  some franchisors may be able to help secure funding for your investment as well as discounted bulk buy supplies.

Disadvantages

1  it is not always easy to evaluate the quality of a franchise especially if it is relatively new
2  extensive enquiries may be required to ensure a franchise is strong
3  part of your annual profits will have to be paid to the franchisor by way of fee
4  the rights of the franchisor, for example to inspect your premises and records and dictate certain methods of operation, may seem restrictive
5  should the franchisor fail to maintain the brand name or meet other commitments there may be very little you can do about it.

The Costs

The franchisor receives an initial fee from the franchisee together with on-going management service fees. These will be based on a percentage of annual turnover or mark-ups on supplies and can vary enormously from business to business. In return, the franchisor has an obligation to support the franchise network with training, product development, advertising, promotional activities and a specialist range of management services.

Raising money to finance the purchase of a franchise is just like raising money to start any business. All of the major banks have specialist franchise departments. You may need to watch out for hidden costs of financing. These could arise if the franchisor obtains a commission on introducing you to a business providing finance or a leasing company for example. Of course these only represent true costs if you could have obtained the finance cheaper elsewhere.

Choosing a Franchise

There are many factors you may need to take into account when choosing a franchise. Consider the following:

1  your own strengths and weaknesses – make sure they are compatible with the franchise
2  thoroughly investigate the business you are planning to buy
3  research the local competition and make sure there is room for your business
4  give legal contracts careful consideration
5  last but not least, talk to us about the financial projections for the business – cash flow, working capital needs and profit projections will form the core of your business plan.

The Contract

The contract will form the basis of all franchise agreements. It should ensure that you run your business along the lines set out by the franchisor. The following areas should be covered:

1  the name and nature of the business
2  the geographical territory where the franchisee can use the name
3  how long the franchise will run
4  the fees (both initial and on-going) that will be charged
5  what happens if the franchisee wants to sell or either the franchisee or franchisor want to end the agreement
6  the terms of the relationship, specifically that the franchisor will provide training, advertising etc and that the franchisee will abide by the rules laid down by the franchisor.

Posted in Business Planning, Business start up, Business Types, finance, Franchise Specific, franchising, Legal, Miscellaneous, owning a company, Starting in Business, types of business | | Comments: Comments Off

Types of Business

July 28th, 2011

To put your business on a proper footing with HM Revenue & Customs (HMRC) and other authorities, you need to make sure that it has the right legal structure. It’s worth thinking carefully about which structure best suits the way that you do business, as this will affect the tax and National Insurance that you pay, the records and accounts that you have to keep and your financial liability if the business runs into trouble.

There are several structures to choose from, depending on your situation.

Self-employment

To be a sole trader, a partner, or a member of a limited liability partnership as an individual rather than a company, you must be self-employed – and registered as such with HM Revenue & Customs (HMRC).

This does not mean that you can’t also do other work as an employee, but the work you do for your own business must be done on a self-employed basis.

If you are not sure whether your work counts as self-employment, ask yourself these questions:

• Do you present your clients with invoices for the work that you do for them?
• Do you carry out work for a number of clients?
• Are you responsible for the losses of your business as well as taking the profits?
• Can you hire other people on your own terms to do the work that you have taken on?
• Do you have control over what work has to be done, how the work has to be done and the time and place where the work has to be done?
• Have you invested your own money in your business or partnership?
• Do you provide any major items of equipment which are a fundamental requirement of the work you carry out?
• Do you have to correct unsatisfactory work in your own time and at your own expense?

If you can answer ‘yes’ to most of these questions then you are probably self-employed already, and should let HMRC know this immediately if you have not already done so.

You may be fined £100 if you fail to register within three months of becoming self-employed. There is no fee for registration.

If you answer ‘no’ to most of the questions above, you will normally be an employee.

Sole trader

Being a sole trader is the simplest way to run a business – it does not involve paying any registration fees, keeping records and accounts is straightforward, and you get to keep all the profits.

However, you are personally liable for any debts that your business runs up, which make this a risky option for businesses that need a lot of investment.

You need to register as self-employed with HM Revenue & Customs (HMRC) and will probably have to notify HMRC that you will have to submit Self Assessment Tax Returns

• As you are self-employed, your profits are taxed as income.
• You also need to pay fixed-rate Class 2 and Class 4 National Insurance contributions on your profits.

Class 2 is normally paid by direct debit and is a fixed weekly amount. Class 4 is variable and a percentage based on profits.

Partnership

In a partnership, two or more people share the risks, costs and responsibilities of being in business. Each partner is self-employed and takes a share of the profits. Usually, each partner shares in the decision-making and is personally responsible for any debts that the business runs up.

Unlike a limited company, a partnership has no legal existence distinct from the partners themselves. If one of the partners resigns, dies or goes bankrupt, the partnership must be dissolved – although the business can still continue.

A partnership is a relatively simple and flexible way for two or more people to own and run a business together. However, partners do not enjoy any protection if the business fails.

Each partner needs to register as self-employed and will be responsible for compiling Self Assessment Tax Return.

The partnership itself is also required to file a Self Assessment Tax return

It’s a good idea to draw up a written partnership agreement.

As partners are self-employed, they are taxed on their share of the profits. Each partner also needs to pay Class 2 and Class 4 National Insurance contributions.

Creditors can claim a partner’s personal assets to pay off any debts – even those debts caused by other partners. In England, Wales and Northern Ireland, partners are jointly liable for debts owed by the partnership and so are equally responsible for paying off the whole debt. They are not severally liable, which would mean each partner is responsible for paying off the entire debt.

Partners in Scotland are both jointly and severally liable.

However, if a partner leaves the partnership, the remaining partners may be liable for the entire debt of the partnership. Also, a creditor may choose to pursue any of the partners for the full debt owed in the case of insolvency.

Limited liability partnership

A limited liability partnership (LLP) is similar to an ordinary partnership – in that a number of individuals or limited companies share in the risks, costs, responsibilities and profits of the business.

The difference is that liability is limited to the amount of money they have invested in the business and to any personal guarantees they have given to raise finance. This means that members have some protection if the business runs into trouble.

Each member needs to register as self-employed

There must be a minimum of two designated members – the law places extra responsibilities on them. If the LLP reduces in number and there are fewer than two designated members then every member is deemed to be a designated member.

LLPs must register at Companies House.

It’s a good idea to draw up a written agreement between the members.

The LLP itself and each individual member must make annual self-assessment returns to HM Revenue & Customs (HMRC).

All LLPs must file accounts with Companies House.

Members of a partnership pay tax and National Insurance contributions on their share of the profits.

The profits of a member of an LLP are taxable as profits of a trade, profession or vocation and members remain self-employed and subject to Class 2 and Class 4 National Insurance contributions.

Limited liability companies

Limited companies exist in their own right. This means the company’s finances are separate from the personal finances of their owners.

Shareholders may be individuals or other companies. They are not responsible for the company’s debts unless they have given guarantees – for example, a bank loan. However, they may lose the money they have invested in the company if it fails.

Must be registered (incorporated) at Companies House.

Must have at least one director (two if it’s a plc) who may also be shareholders. Directors must be at least 16 years of age. At least one director must be an individual, rather than a company.

Private companies are not obliged to appoint a company secretary but if one is appointed this must be notified to Companies House. Plcs must have a qualified company secretary.

A director or board of directors make the management decisions.

Accounts must be filed with Companies House before the filing deadline to avoid a late filing penalty.

Accounts must be audited each year unless the company is exempt.

When you file your annual return for the first time a letter will be issued to the Registered Office containing the company’s authentication code and instructions for use of Companies House web filing services. You should follow the instructions in the letter.

Directors are responsible for notifying Companies House of changes in the structure and management of the business.

If a company has any taxable income or profits, it must tell HM Revenue & Customs (HMRC) that it exists and is liable to corporation tax.

Companies liable to corporation tax must make an annual return to HMRC.

Company directors are an office holder of the company and therefore regarded as an employed earner for National Insurance. As such, company directors must pay both income tax and Class 1 National Insurance contributions on their director’s earnings. However, while regular employees’ Class 1 NICs are calculated on their monthly or weekly earnings separately, directors’ NICs are calculated on an annual cumulative basis.

Shareholders are not personally responsible for the company’s debts, but directors may be asked to give personal guarantees of loans to the company.

Overview of legal structures

Sole trader

Advantages
independence, ease of set up and running, and all the profits go to you.

Disadvantages
lack of support, unlimited liability and you are personally responsible for any debts your business runs up.

Partnership

Advantages
ease of set up and running, and the range of skills and experience different partners can bring to the business.

Disadvantages
problems can occur when there are disagreements between partners, unlimited liability and you are personally responsible for any debts that the business runs up.

Limited liability partnership (LLP)

Advantages
retain the flexibility of a partnership, personal liability is limited. At least two members must be ‘designated members’ – the law places extra responsibilities on them.

Disadvantages
the formation is more complex and costly and problems can occur when there are disagreements between the members. If the number of partners is reduced, and there are fewer than two designated members, then every member is deemed to be a designated member.

Limited liability company

Advantages
your personal financial risk is restricted by how much you invest and any guarantees you give in order to obtain financing.

Disadvantages
this type of company brings a range of extra legal duties, including the maintenance of the company’s public records, eg for the purpose of the filing of accounts.

Posted in Business Planning, Business Types, company, Guidance notes, Legal, Limited Companies, Limited Liability Partnership, LLP, Partnership, Self employment, Sole Trader, Starting in Business, tax, types of business, Xebox | | Comments: Comments Off

Shares and Shareholders

July 28th, 2011

Shares in a company represent ownership. When an individual buys shares in a company, they become one of the owners of the business. This entitles them to a share of the profits of the company – the dividends.

What are shares and why are they issued?

When an individual buys shares in your company, they become one of its owners.

Small companies issue shares in their company in return for a lump sum investment. This investment may either come from friends and family or, for businesses that are looking for capital to fund high growth, through formal equity funding finance.

These investors are willing to put up capital for a share in a growth business. The advantage of raising money in this way is that you don’t have to pay the money back or pay interest to the investors. Instead, shareholders are entitled to a share of the distributable profits of the company, known as dividends.

How are shares issued?

When you set up a company with share capital, you can decide on the level of share capital and the number of shares of a fixed nominal value.

A statement of capital and initial shareholdings must be delivered to Companies House as part of the incorporation of the company and this will set out:

• the amount of share capital the company will have
• the division of the share capital

The founders of the company must sign form IN01 and the memorandum of association and state the number of shares they want. These are then issued upon incorporation and are called subscriber shares.

Family or friends

You may choose to issue shares to family or friends in return for making investment in your business, rather than accepting the offer of a loan from them. That way you’re not obliged to make repayments.

It is important to formalise any agreement with family members or friends as this can help you avoid or resolve any disputes that may arise in future.

Employees

Employee share ownership schemes offer employees a stake in the business, encouraging loyalty and helping you to retain key staff.

They also provide an incentive or reward for performance and can help recruitment.

Issued capital

A company need not issue all its capital at once. Issued capital is the nominal – rather than actual – value of the part of the share capital that has been issued to shareholders.

For example, a company that issues 500 shares at £1 each has an issued share capital of £500.

A Private limited company only needs to issue one share of any value, but Public limited companies (plcs) must have at least £50,000 worth of issued share capital before they are allowed to trade. Initially they must satisfy this requirement by means of shares in sterling or in euro shares (and not by a combination of the two).

Further shares can be issued in the company by the directors, subject to the rules set out in the Articles of Association, but typically by being authorised to do so by ordinary resolution of the company’s existing members.

An exception to this is that the directors of a private company incorporated under the Companies Act 2006, which will only have one class of shares, do not need any prior authorisation from the company to allot shares.

The directors set the price of these shares.

Limited companies must notify Companies House of any new shares issued.

Types of shares

A company may have many different types of shares that come with different conditions and rights.

There are four main types of shares:

1. Ordinary shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are the last to be paid if the company is wound up.
2. Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. Shares in this category receive a fixed dividend, which means that a shareholder would not benefit from an increase in the business’ profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Also, where a business is wound up, they are likely to be repaid the par or nominal value of shares ahead of ordinary shareholders.
3. Cumulative preference shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preference shares must be paid, despite the earning levels of the business, provided the company has distributable profits.
4. Redeemable shares come with an agreement that the company can buy them back at a future date – this can be at a fixed date or at the choice of the business. A company cannot issue only redeemable shares.

 Transfer of shares

In a private company, shares are usually transferred by private agreement between the seller and buyer, subject to the company’s rules and approval of the directors.

Certain taxes apply when you transfer or sell shares:

• If you are transferring shares yourself using a paper stock transfer form Stamp Duty may be payable when the value is over certain limit
• Any gains you have made on selling shares may be subject to Capital Gains Tax.

When a shareholder dies or becomes bankrupt, their shares and the rights associated with them must be given to a personal representative or executor.

Paying dividends and paying tax

A dividend is a part of the company’s profits that is given to shareholders.

Small companies often pay dividends after the annual accounts are prepared, or often where directors are also shareholders at regular times during the year.

The dividend is calculated per share, so the more shares you own, the more money you get.

Dividends attract income tax, but not National Insurance charges.

When paying dividends, the company must send a dividend voucher to the shareholder . This shows the amount of the dividend and the amount of tax credit. The tax credit indicates the amount of tax paid by the company on the shareholder’s behalf. Companies can pay dividends electronically if a shareholder agrees to it. Companies no longer need to send a dividend voucher in such cases

Dividends are paid after tax has been deducted at the basic rate. If you pay a higher rate of tax, you may be liable to pay additional tax on your dividend.

Making changes to share capital

Companies can alter their share capital through a number of routes.

Since 1 October 2008 private companies have been able to reduce share capital by means of a special resolution and a statement by the directors confirming the solvency of the company. The procedure is subject to any provision in the company’s articles prohibiting or restricting the reduction of capital. There is a fee of £10 for this procedure.

Issuing shares to a new shareholder

A company can issue shares to a new shareholder by authorising the directors to allot shares. The authority can be in the articles or given by an ordinary or elective resolution.

Allotment creates a right to be issued with the shares.

Changing the shares

A company can consolidate or subdivide its share capital if authorized to do so by the articles.

Consolidation is when the shares are put together and then divided into shares of larger amounts, e.g. 200 shares of £1 are consolidated to create 100 shares of £2.

Subdivision is when shares are divided into smaller amounts.

To consolidate or subdivide shares, a company must pass an ordinary resolution, then send the resolution and a completed form SH02 to Companies House within a month of the change.

Posted in Accounting and Bookkeeping, companies, company owners, Directors, Guidance notes, Legal, Limited Companies, owning a company, shareholding, shares, Starting in Business, Xebox | | Comments: Comments Off

Liability of a director during company insolvency

July 28th, 2011

Directors owe a duty of care to the company’s creditors. If a company continues to trade when it is insolvent, its directors can be held personally accountable if their actions cause financial loss to any of the company’s creditors.

You will also be liable under any personal guarantees.

What do I do if my company is in financial difficulty?

Directors must use their judgement and known facts to establish whether the company is, or is about to become or is insolvent

They must establish whether or not a problem is only on a short-term basis and will be rectified by trading on, or means terminal failure, or something in the middle ground. Directors must be cautious, they should not do anything (writing cheques, committing the company to any action, paying creditors, taking deposits etc) without seeking professional advice.

In many situations one of the direct or indirect causes of insolvency is management failure. This may be accompanied by a lack of control, poor record keeping and a lack of accurate financial information.

Accurate and up-to-date accounts are vital in determining a company’s solvency.

How do I tell if my company is insolvent?

A company is insolvent on a cash-flow basis if it is unable to pay its debts as they fall due, or fails to satisfy a judgment debt. There is a second balance sheet test for solvency which asks.

The cash-flow test

Many companies will fail the cash-flow test on a short-term basis at some time in their existence. Temporary cash flow problems may be caused by

• The failure of a customer to settle a debt on time.
• Overtrading (having too much cash tied up in stock and debtors).
• As a course of a delay in refinancing.
• Not making the required sales to break even.
• Having to make unscheduled payments.

Short-term cash flow problems can be corrected by trading on or after rearranging overdrafts or loan finance.

The balance-sheet test

Very simply do the business liabilities exceed the business assets, taking into account the value of assets with the company in a distressed financial position and providing for all contingent costs, losses and provisions.

If a company does fail its balance sheet test, the directors must act to protect the interests of its creditors to avoid any allegations being made of wrongful trading under the Insolvency Act.

If the company is insolvent directors should take the following steps:

• Obtain and document professional advice and their actions and responses.
• Ensure that the company’s accounts are up to date with a full list of assets, debtors and creditors
• Consider whether any part of the company is worth saving.
• Discuss whether it will be possible to make a formal or informal arrangement with creditors.
• If the company cannot be saved the directors should put it into liquidation.

The accounts should be prepared on a break-up basis which means the fixed and current assets are valued to their net-realisable value.

To avoid personal liability for their actions when a company is in financial difficulties its directors should be careful not to:

• Dispose of company assets at undervalue.
• Show one creditor preference to the detriment of another.
• Accept customer deposits or payments on account if completion is uncertain.

Most important of all if a company is insolvent directors need a licensed insolvency practitioner

Posted in bankruptcy, companies, company, Corporation Tax, Directors, Employment, Guidance notes, insolvency, Legal, Limited Companies, owning a company, Personal Tax, receivership, shareholding, shares, Xebox | | Comments: Comments Off

Companies House deadlines and late filing penalties

July 28th, 2011

All limited companies and limited liability partnerships (LLPs) must file copies of their financial accounts at Companies House. Every company and LLP has an accounting reference date, which determines the date that its financial year ends. This is also the date that determines when accounts are due for delivery to Companies House.

All limited companies and LLPs must also provide copies of their audited accounts to Companies House, within a specified period of time – the filing deadline – following the end of its financial year, also known as the accounting reference date.

This requirement to file annual accounts applies to all companies and LLPs, including small companies such as flat management companies.

This guide explains how a late filing penalty is imposed on a business if its accounts are not filed in time, how you can avoid these penalties, what happens when a penalty has been imposed and how to appeal.

Late filing penalties explained

All limited companies – public and private – and limited liability partnerships (LLPs) must file their annual accounts and reports on time. If they fail to do so, they face an automatic fine. The time allowed for filing depends on whether the accounts are the first or subsequent ones and whether it is a private limited or public limited company.

Filing first accounts

For private companies and LLPs, if the first accounts cover more than 12 months, they must be delivered to Companies House within 21 months of the date of incorporation, or three months from the end of the accounting reference period, whichever comes later. If the accounts are for 12 months or less, they must be delivered within nine months of the end of the accounting reference period.

For public limited companies, if the first accounts cover more than 12 months, they must be delivered to Companies House within 18 months of the date of incorporation.

Subsequent accounts

In subsequent years, private companies and LLPs have nine months from the end of the accounting reference period to file the accounts, and public limited companies have six months. If the accounting reference period is changed, the filing time may be reduced.

Late filing penalties

The amount of penalty charged depends on when the accounts are filed.

The penalties are doubled for late filing in two successive financial years beginning on or after 6 April 2008 (for companies) or 1 October 2008 (for LLPs).

Fines on directors and designated members of LLPs

Failure to file accounts is a criminal offence which can result in directors, companies or designated members of LLPs being fined personally. The Registrar may also strike the company or LLP off the public record. If a late filing penalty is not paid, it can result in enforcement proceedings.

How to avoid a late filing penalty

It’s important to allow enough time for your accounts to reach Companies House within the period allowed. If the filing deadline expires on a Sunday or bank holiday, you need to take this into account. To help you file on time:

• make a diary note of the filing deadline to remind you in good time
• read the filing reminders Companies House send to your registered office
• tell your accountants and remind them as appropriate to prepare and deliver your accounts on time

First-class post does not guarantee next-day delivery, so it is worth thinking about using guaranteed delivery methods such as couriers. The most secure and cost-efficient way of filing company documents is to use the Companies House WebFiling service.
If there is a special reason why your accounts may be filed late, you can apply to extend the period allowed, but an extension will only be granted if the reasons are exceptional.

What happens when a penalty has been imposed?

If you deliver accounts for a company or limited liability partnership (LLP) late, Companies House automatically issue a penalty notice to the registered office address. This gives details of the penalty, including the last date for filing, the date of filing of the accounts and the amount of the penalty. It also includes information about how to pay the penalty.

If you don’t pay the penalty, Companies House will ask debt collectors to take action. If you still fail to pay, they will take action in the County Court or Sheriff Court, where you will be given the chance to file a defence. You may want to avoid legal action, because Companies House will seek to recover their legal costs if the court finds against you.

Restoring a company or LLP to the register

If you restore a company or LLP to the register after it has been struck off and dissolved it will not have to pay penalties for the period it was dissolved. However, you will still need to pay any penalties:

• outstanding on accounts from before it was dissolved
• for accounts delivered on restoration if they were overdue at the date the business was dissolved

Late filing penalty appeals

You can always appeal against a penalty, but it will only be successful if you can show that the circumstances are exceptional, because the Registrar has very limited discretion on collecting a penalty. An example of exceptional circumstances could be a fire destroying the financial records of the company or limited liability partnership (LLP) a few days before the filing deadline.

The following situations are outside the Registrar’s discretion and cannot be considered for an appeal:

• your company is dormant
• you cannot afford to pay
• your accountant was ill
• you relied on your accountant
• these are your first accounts
• you are not familiar with the filing requirements
• your company or its directors have financial difficulties (including bankruptcy)
• your accounts were delayed or lost in the post
• the directors live or were travelling overseas
• another director is responsible for preparing the accounts

If you still want to appeal, you must do so in writing to the address shown on the front page of the penalty notice. You will normally get a reply within ten working days, and any recovery action will be suspended while the appeal is considered.

If your appeal is rejected, you can write to the senior appeals manager in the Late Filing Penalties Department at the appropriate Companies House office (shown on the penalty notice). If the senior appeals manager upholds the penalty, you can ask for the Independent Adjudicators to review your case, but you should not contact them until you have heard from the senior appeals manager

Paying by instalments

If you have difficulty in paying the penalty in a lump sum, you can usually pay in four monthly instalments – in exceptional circumstances you can pay in up to ten instalments, depending on the amount you have to pay. You must ask in writing to pay in instalments, explaining the reasons why you can’t pay the penalty outright.

Posted in Business start up, companies, companies house, company, compliance, Guidance notes, late filing fees, Legal, Limited Companies, Limited Liability Partnership, LLP, non compliance, penalties, Xebox | | Comments: Comments Off

Basic Company Administration

July 28th, 2011

Company administration: the basics

For all companies, there are regular administrative tasks that need to be completed to keep the information about your company held at Companies House up to date.

This guide considers who is legally responsible for getting the tasks done, what you must send to Companies House and where you may risk a penalty or other legal sanctions if you don’t do things in the right way (or on time).

Meetings and company records

There are various types of formal meeting that a company needs to consider, each with different notice periods and responsibilities.

Annual general meetings (AGMs) – under the Companies Act 2006, most private companies are no longer required to hold an AGM. Private companies can positively opt to do so if they wish. Shareholders can also demand an AGM if at least 5 per cent wish to hold one. In such circumstances, private companies will need to give 14 days’ notice.

However, all public companies and any private companies with traded shares are still required to hold an AGM. Under these circumstances the company must hold an AGM and give 21 days’ notice before the AGM is due to take place.

Companies are also no longer required to send out annual accounts prior to an AGM. Under new rules, they must now be sent to members by the time they are filed with the Registrar of Companies.

Other meetings – for most limited companies the notice period is 14 days. For unlimited companies, it is seven days. For limited companies with traded shares (public and private) the notice period is 21 days unless the company offers all shareholding members the opportunity to vote electronically and it has passed a resolution to reduce the period of notice to no less than 14 days.

When important decisions have been taken at meetings, Companies House has to be notified within 15 days.

Minutes must be kept of directors’ and general meetings.

These tasks are usually carried out by the company secretary; Private companies are not obliged to appoint or retain a company secretary, the onus then falls on the directors. However, public companies are required to appoint a company secretary.

Keeping official records for the company

Companies must keep official records of:

• shareholders and the shares they own, ie a register of shareholders
• directors and secretaries, ie a register of directors and secretaries
• the usual residential addresses of the directors
• directors’ other commercial interests
• loans or other obligations that affect the company’s financial health
• who, other than the registered owner, has an ‘interest’ in the shares – if it’s a public company

Making records accessible

Some people must be sent particular company records; others are entitled to look at them. The following is a brief summary of the key rules that you must follow:

• Anyone can ask to inspect your company’s register of members. However, since 1 October 2007, a company may ask the requester to provide their name and address, the purpose of the request and whether they intend to share the information with anyone else. If you think the request is not for a proper purpose, you have five days to go to a court to get permission not to allow the inspection.
• No one may inspect the register of directors’ usual residential addresses – unless under a court order.
• Anyone can ask to inspect your company’s register of directors and its register of company charges, ie mortgages, if any.
• Members of your company are entitled to inspect and have copies of the minutes of the general meetings.
• Only directors are entitled to see minutes of directors meetings – but others may ask for copies of a particular meeting.

Filing yearly accounts and the company’s annual return with Companies House

Directors are personally responsible for submitting yearly accounts and the company’s annual return to the Registrar of Companies.

A letter is issued to the company’s Registered Office each year just before your annual return is due. If you file, or would like to file, online via the Companies House website, the letter provides all the necessary information to enable you to do so.

However, if you want to file on paper, telephone the number provided on the letter and a paper form will be issued. It is a record of general information about your company, e.g. the address of your registered office, details of your directors, secretary, shareholders and share capital.

Companies House WebFiling service is quick and secure.

Also the cost of filing an annual return online is £14

Your company’s annual accounts must also be filed. If you do not submit accounts to Companies House on time you will be liable to a late filing penalty.

Protect your corporate identity

The Companies House PROOF (PROtected Online Filing) scheme provides additional security when delivering your directors’ details and registered office address electronically.

Company directors hold an important position in a company. They have power to make purchases and enter into credit arrangements on behalf of the company. Similarly, the registered office address is important because it is the address to which all official communications is sent.

Records held at Companies House are sometimes used to check the legitimacy of a company and its directors before credit or loans are made. Therefore, it is important that the records are correct. Companies are vulnerable to fraud if people fraudulently enter themselves on record as company directors or file a bogus registered office address.

To combat fraudsters posing as legitimate directors, Companies House offers companies a free, secure, online system for notifying changes to directors and the registered office address. If you opt to notify electronically, Companies House will not accept notices from your company in any other format.

You can register for the scheme using the company authentication code to access the WebFiling service. Before opting in, you must agree to the terms and conditions which state that any future changes will only be accepted by Companies House using the secure electronic method.

This service is voluntary, you may opt out at any time and Companies House will revert to accepting notices from your company delivered electronically or on paper forms.

Penalties for late returns and informing Companies House

About 150,000 companies are penalized each year because they file their accounts late. The penalties range from £150 to £1,500 for a private company and £750 to £7,500 for a public company. These penalties are doubled if accounts are filed late in two successive years.

Directors and secretaries may be prosecuted if the annual return is delivered late or not at all. A conviction would mean a criminal record, and usually a fine of up to £5,000.

If no return or accounts are filed at all, Companies House may also strike the company off the register.

Other events you have to tell Companies House about

Companies have to inform Companies House about changes to important company information. For example, you must notify Companies House if:

• you have changed your accounting reference date
• you have appointed a new officer
• an officer has departed
• an officer’s personal details have changed
• you have made a share issue

You should also inform Companies House if any important decisions are made at a company meeting or if the company incurs any financial charges that affect its assets.

If you want Companies House to change your registered office, you must file a request using form AD01

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