I. 1 Legal and Regulatory Matters
I.1.1 Create a company
Consideration is needed as to the nature of the legal entity that you are creating, and this is a decision that is personal to you. There are various legal structures that might be suitable for your plans and you might want to consider the following:
- Sole trader
- Limited company
- Limited liability partnership
It would be good practice to seek legal advice when deciding the company format to ensure that it is created in a robust and appropriate manner. At this point it is also good practice to agree shareholder and partnership agreements which again might benefit from external legal input.
It is worth noting: the ‘sensitive word’ – insurance cannot be used in the name of a legal entity before FCA approval. This means that a name change will be required, post FCA approval, if the word “insurance” is to be included in the name of the business.
I.1.2 Draw up a Memorandum and Articles of Association and register your company
Limited companies and limited liability partnerships must be registered at Companies House and, in order to register, they must have a Memorandum of Association and Articles of Association.
The Memorandum of Association, which needs to be signed by all shareholders in the business, contains all the information necessary to formally create the company.
The Articles of Association relate to the governance, management and ownership of the company as agreed by the shareholders, directors and company secretary.
More information can be found on the Gov.UK website – https://www.gov.uk/limited-company-formation .
Model articles of association can be found here.
In addition, the voting rights of shareholders need to be established and how a party might exit from its shareholding is usually considered at the formation stage of the company.
I.1.3 Establish the company board of directors
The board of directors is responsible for the governance of the company in accordance with the Articles of Association. The board’s function is to steer the company and look after the interests of shareholders. Its structure and size can be set out in the Articles of Association. For some firms, it may be good practice to include non-executive directors (bearing in mind that they will need remuneration in line with expertise) to provide additional expertise and impartiality. For more information, refer to the Governance Section of the Good Practice Guide: B1: The duties of directors and function of the board.
I.1.4 Establish funding structure
Many start-ups will require some sort of financing, potentially from private equity investment or through loan arrangements. It is good practice to seek appropriate financial advice before committing to one solution or provider over another.
It is good practice to obtain legal advice in respect of any equity allocation between shareholders and who may or may not have any financial liability
I.1.5 Insurances including PI and D&O
It is an Financial Conduct Authority (FCA) (the insurance regulator) requirement for insurance brokers to have a minimum level of professional indemnity insurance(PI) in place and it is good practice to discuss your needs with a specialist PI broker to help avoid being under-insured on PI, Directors & Officers and Errors & Omissions risks. BIBA offers members access to three accredited PI brokers with preferential schemes for members. More information for members can be found here.
I.1.6 Appoint an accountant
As well as auditing and preparing relevant annual report and accounts for a business an accountant can file the accounts. All private limited and public companies must file their accounts at Companies House. Penalties will be levied if accounts are not filed with Companies House by the relevant deadline. The penalty is doubled if accounts are filed late for two years in a row. Ultimately directors can be fined, and the company struck off the register if accounts are not filed. For more information visit: https://www.gov.uk/government/organisations/companies-house
The relationship with an accountant can be long-term and can be essential to the business and it is good practice for a broker to choose an appropriate professional firm with experience of financial services including Financial Conduct Authority and Retail Mediation Activities Rules as well as an understanding of client money requirements.