Company formation is the term for the process of incorporating a business. It is also sometimes referred to as company registration.
The cost to incorporate a company differs depending on the type of entity and the jurisdiction. It will also depend on whether you intend to establish the company yourself or whether you will be engaging a professional service provider to do it for you.
Setting up a company can be relatively simple if you understand the local regulatory requirements and know what information and documentation is required.
Whilst the processes may differ slightly from one jurisdiction to another, they are largely similar in the information they require to incorporate a company.
Most will require:
• An approved company name
• A local registered office address
• The name and address of any director(s)
• The name and address of any company secretary (if applicable)
• The name and address of any registered agent (if applicable)
• The share capital and the number of subscriber shares to be issued
• The name and address of the subscribers
• A copy of the Memorandum and Articles of Association
Filing requirements differ slightly from jurisdiction to jurisdiction, be that the type of filing required or the frequency and time period in which it must be submitted. The majority of companies around the world are required to file the following or a local equivalent:
• An annual return
• A company tax return
• Vat returns (if VAT registered)
• PAYE/Social Security/Self Assessments (if an employer)
• Accounts (in some jurisdictions they just need to be prepared and not filed, other jurisdictions require them to be audited and then filed)
• Beneficial Ownership
A company may also be required to file specific documents with the local companies registry to reflect any changes to the company, its shareholding or officers, as and when such changes occur.
A share in a business sense, is defined as one of the equal parts into which a company’s capital is divided, entitling the holder to a proportion of the profits. It effectively signifies the amount of ownership the holder has in a company.
Depending on the jurisdiction, a company can be incorporated in as little as a few hours up to 7 days. However, this timescale is for the physical incorporation of a company by the companies registry and does not include arranging and collating any CDD, information and documentation required for onboarding and compliance purposes, prior to the incorporation documents being submitted. Incorrect and incomplete information/documentation can also result in longer processing times and delays.
The Memorandum of Association (‘MOA’) is a mandatory legal document that is prepared during the formation and registration process of a company to define its relationship with shareholders. It states the company’s name, physical address of registered office, names of initial shareholders (subscribers) and the distribution of shares. It effectively serves as the constitution of the company and demonstrates the shareholders agreement for the company to be formed.
The Articles of Association (AOA) are written rules of a company that outline how a company should be ran run and governed, as agreed by its shareholders, directors and company secretary.
The minimum number of directors required is dependent on the local requirements of the jurisdiction in which you are looking to set up a company. It may also differ depending on the type of entity to be established. Every company will require at least one director but some jurisdictions may require a minimum of two. It is also worth noting that depending on the jurisdiction or entity types, corporate directors may, or may not, be allowed. Check out our Company Comparison by Jurisdiction for more information.
A director is responsible for the management and control of a company; its finances and making sure any legal filing requirements are met. For this reason, it is important that any person(s) appointed have the knowledge and experience to fulfil the role effectively.
Some business owners prefer to be the director on their own company, alone (if permitted) or with a spouse or business partner. However, depending on the type of company being established, its purpose and jurisdiction of incorporation, an owner may wish to engage a licensed corporate service provider, such as Sentient International, to provide director services.
There are a number of Reasons to Engage a Professional Service Provider not least that it offers a cost effective solution as well as access to highly qualified professionals, it fulfils any statutory requirements for local officers and also provides the company with substance, which is important in jurisdictions where economic substance legislation is applicable.
A company secretary is not a statutory requirement in every jurisdiction so it depends on where the company is incorporated and under what Companies Act. For example, a company incorporated in the United Kingdom or Jersey will require a company secretary, whereas in Guernsey it does not. In the Isle of Man, a company incorporated under the 1931 Act requires a company secretary but a company incorporated under the 2006 act does not.
A company secretary will act as the chief administrative officer of a company, sharing responsibility with the directors for ensuring that all of the company’s statutory administration is in order and filing obligations are met.
Whilst most Companies Acts do not generally specify the role of the company secretary, responsibilities usually include maintaining the company’s statutory books including the registers of members, directors and secretaries, filing annual returns, arranging and taking minutes of general and board meetings etc.
A holding company is created the same way as any other company in your chosen jurisdiction but becomes a holding company by definition of its principal company activity.
A holding company is simply a company that is created to buy and own the shares of other companies, which it then controls.
When you no longer want your company, there are a few different options available. You could cease trading and sell any assets, you can sell your company and its assets, you can dissolve/liquidate it or you can leave it to be struck off (although we would not recommend the latter). It is advisable to get the appropriate advice on how to exit your business in a way that meets your needs and objectives of your company effectively.
The rates of corporate tax differ from one country to another. In certain jurisdictions dormant companies do not file tax returns and are therefore not required to pay corporation tax.
In the Isle of Man, whilst the corporate tax rate is 0% for most businesses, Isle of Man companies are still required to submit a company tax return whether or not any corporate tax is due.
It is always recommended that you get appropriate local tax advice to ensure that your company is not only tax efficient but able to meet any local tax obligations.
There are many factors to consider before choosing a jurisdiction in which to set up a company. Different jurisdictions have different benefits and limitations. The choice of jurisdiction is often determined by factors such as the ultimate beneficial owner(s) tax status, the principal activity, fiscal benefits available, applicable licensing requirements and of course costs.
Why not check out some of the other content on our website to help you make your decision.
Why make Malta your business address?
Why choose the Isle of Man for business?
Malta Companies – A statutory overview
Isle of Man Companies – 1931 vs 2006
Setting up a Company in Malta
Alternatively, visit our Resource Library.