There are two principal routes that most follow when setting up a business overseas in the UK (both “permanent establishments”), a private limited company or a UK establishment (branch). We explore the key characteristics and benefits of each:
Private Limited Company:
- Separate legal identity.
- Liability is limited to the extent of the share capital (minimum £1); it can own property, sue and be sued, contract in its own right, and is liable for its own debts.
- Registration is required with the UK companies registry, Companies House.
- The company can be limited by shares (owned by shareholders) or by guarantee.
- Companies are usually incorporated within 24 hours of application submission.
- Inexpensive and quick structure to set up.
- New documents (Memorandum and Articles of Association) are created under which the new company is to be operated.
- At least one director and a UK-registered office is required. You may also appoint a Company Secretary.
- The director(s) and shareholder(s) do not have to be a UK citizen.
- At least one director must be a natural person, i.e. not a corporate entity.
- A statutory audit is a legal requirement if two of the following thresholds are exceeded for the worldwide group:
i) a revenue of £10.2m;
ii) total assets at the reporting period end total £5.1m;
iii) average employees through the reporting period of 50.
- The statutory accounts of the UK company (but not the overseas parent) must be filed at Companies House (public information).
- A UK company portrays a more reputable local image and profile.
- Persons of significant control (PSC) must be publicly disclosed along with company accounts and director details. In general, PSCs are the holders or controllers of a substantial minority (over 25%) of the company’s shares or voting rights or may have or control the right to appoint a majority of the company’s directors.
- The authority of the officers of the UK company is set out by statute, case law and the company’s own constitution.
- Service of documents can be made to the registered office.
UK Establishment (Branch):
- A legal extension of an existing overseas company.
- No legal identity distinct from the overseas parent company, which is liable for debts which may be enforced against overseas assets (subject to international laws).
- Unlimited liability for the branch.
- Registration as an establishment is only required if there is a degree of physical presence in the UK such as a place of business or a branch. An establishment must register with Companies House, within one month of commencing business. Tax advice should be sought as to whether registration is required.
- Registration involves an application to Companies House.
- The registration process does not usually take more than 3 weeks.
- A copy of the constitutional documents of the overseas parent company along with the accounts must be filed at Companies House making them public.
- A statutory audit is not a legal requirement. No annual return filing to Companies House is required in relation to the establishment itself.
- An establishment may be perceived as being less committed to the UK market.
- A fixed place of business in the UK is required.
- A UK based Permanent Representative (individual) can be appointed. The authority of the Permanent Representative is set out in the application to register the establishment. Note: even if the authority is limited, it will not necessarily affect a third party who relies on any actions of the Permanent Representative in good faith.
- Service of documents can only be made to a UK based Permanent Representative or to a UK based person authorised to accept service if the former is not based in UK.
NOTE: the tax and accounts information of both UK limited companies and UK establishments are open to public inspection so any overseas companies for whom this would cause problems should explore other options.
International businesses looking to start their operations in the UK typically opt to establish a subsidiary private limited company as their operational entity. Depending on the nature of the undertaking and objectives of the founders, alternative legal structures may be preferable. These include:
- Limited liability partnership (LLP)
- Each partner has separate liability but shared control.
- LLP offers a shield of protection to each partner’s assets.
- Holding company
- Process of acquiring a UK business as a means of entering the market.
- A holding company with multiple subsidiaries could act as a good way of ring-fencing intellectual property rights from risk bearing trading activities.
- Unlimited company
- Provides limited liability while trading but protection is lost on liquidation or dissolution.
- Privacy from public scrutiny and against competitors.
- Companies Act restrictions on return of capital and distribution of dividends to shareholders do not apply meaning greater flexibility in group structures to transfer capital between entities.
- Mergers and acquisitions
- Acquiring a UK business as a way to enter the UK market.
- “Flip Up” process
- Moving the parent company/HQ to a new jurisdiction.
- Where a company incorporated in X country reorganises by transferring ownership of its shares to a new company in Y country. The existing company becomes a wholly owned subsidiary of the new company.
- Remote Working
- The risk with remote working is that the employee can be classified as a dependency agent thus giving the company Permanent Establishment and taxable status.
- In addition, there are various tax and immigration issues to consider.
- Professional Employment Organisations (PEOs)
- Where a third party manages HR, payroll and compliance obligations.
We at Redfern Legal can assist you in making the right decision at the outset for any type of undertaking being established in the United Kingdom. We additionally offer registered office and company secretarial services to our clients.
Madeleine Rhodes email: Mrhodes@redfernlegal.com
