Incorporating your startup: 10 things to know (or do)

Starting a business is an exciting prospect. But it is not as simple as having a great idea, and hitting the ‘incorporate’ button—there are a few things you should straighten out first. 

Incorporating isn’t just about making things official—it’s about laying down the groundwork for a business that can grow, secure investment, and avoid messy admin headaches down the line. 

Vestd has helped countless businesses incorporate, secure investment, and grow to be thriving entities. In short, we know what it takes to build a business that lasts. So, before you dive straight into incorporation, here are 10 things to consider:

1. Understand what incorporation actually means

Incorporating your startup means creating a separate legal entity for your business. This legal entity ties you to responsibilities—such as submitting accounts, paying corporation tax, and keeping a public record of shareholders.

If you’re unsure whether incorporation is right for you now, consider starting out as a sole trader to test the waters with your business idea, before you cement it within the legal framework of incorporation.

2. Pick a business name that won't restrict you

Your company name needs to be unique, available (check Companies House, and the domain availability of your brand), and free from restricted terms. It should be versatile, relatively easy to pronounce, and scalable for your business goals. 

Additionally, consider how your name fits within your branding strategy. A name that is too generic might make it difficult to stand out, but a name that is too niche could restrict future expansion.

Checking trademarks and ensuring your name is available across social media platforms will also save you a costly rebrand down the road.

3. Choose the right company structure

For the majority of startups, incorporating a limited (Ltd) company is the way to go. It provides limited liability—meaning your personal assets are protected, should things go awry in future.

A limited company may also be preferred from an investor standpoint, and so could boost your chances of securing funding down the road.

However, there are alternative structures to choose from:

• Sole trader: A simple business structure that offers no distinction between personal and business liabilities, but offers a greater degree of flexibility.
• Partnerships: Available for businesses with two or more founders, but offers limited legal protections for personal assets.
• Limited Liability Partnerships (LLPs): A hybrid between partnerships and companies, offering the same asset protection as in a Ltd business, but require similar individual tax filings as partnerships.

4. Nail down ownership early

Who owns what in your prospective business? If you’re starting with co-founders, get clear on equity splits before you incorporate.

All too often, founders decide on an even split as it ‘makes the most sense’, but this may not make be the case when you begin to dig into business input and workload.

Consider implementing a vesting schedule for co-owners, both to tie individuals into the long-term success of the company from the get-go, and to ensure people don’t walk away with more than they have earned, should they leave prematurely.

You can set up your ownership and vesting structure in the Vestd app, to set the benchmarks early on, ensuring full transparency as the business grows.

5. Pin down your cap table

A cap table isn’t just important for your future—nailing it down early will help you to keep it as clean as possible, and smoothen out upcoming funding rounds. It is a record of who owns what in your company, and this will only get messier as your business grows.

Messy cap tables scare investors away, so it is important that you have one eye on keeping yours as streamlined as possible, from the beginning.

Vestd’s digital cap table tools will help you keep your cap table clean and transparent, enabling you to update it with ease and immediately file to Companies House with our two-way integration.

6. Keep future funding goals in sight

Even if you aren’t looking for funding right away, or are bootstrapping your business initially, you should consider how you plan on growing your business from the start. Structuring your company correctly early-on will ensure you are able to grow with minimal hurdles.

This is especially important if funding rounds are going to be pivotal to your company’s success—you don’t want to inadvertently exclude options because of decisions you made early in your journey. 

Ensuring your business is set up to support the right growth strategy will make it easier to scale using the most suitable funding methods when the time comes.

7. Consider S/EIS early-on 

Honing in on the points mentioned above, if you intend to raise investment through the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS), it’s essential to ensure your company meets the eligibility criteria at incorporation.

Structuring your business within HMRC’s guidelines will improve your chances of qualifying for these tax-efficient schemes. 

For instance, if your business operates in an excluded trade, you should be aware from the outset that you won’t be eligible for SEIS or EIS unless you adjust your operations—ensuring that restricted activities make up no more than 20% of your overall business activity.

8. Keep tax requirements in mind

Once you incorporate your business, you will have tax obligations that must be adhered to in order to stay above board. Keeping your finances in shape from day one will help you to stay compliant as your business grows. 

Some of the tax requirements that may be applicable to your business are:

• Corporation Tax at 25% for profits over £250,000 (from April 2023)
• VAT registration, if revenue exceeds £85,000 annually
• PAYE and National Insurance is mandatory if employees are hired

This is also useful to keep in mind, as you may be entitled to tax reliefs, depending on your business.

For example, R&D tax credits are available to businesses who are developing innovative products in science and technology—establishing your eligibility for such schemes early-on will save you money in the long run!

9. Think about your growth and exit strategies

You may just be starting out, but thinking about your long-term vision now can save you headaches in future. Do you plan to sell the company one day? Or do you have sustainable growth plans? 

These decisions affect how you structure your ownership, the rights and obligations of shareholders, and raise investment. Establishing a clear roadmap that considers both growth and exit strategies will also help you to onboard investors, even if it changes down the road.

10. Protect your business with the right agreements and contracts

Before incorporation (or soon after), you should get your founder’s agreement sorted. This will outline specific rights and responsibilities, and will include leaver clauses to protect yourself and your business from potential hiccups. 

Other documents you will need to consider:

• Shareholder agreements: Clarifies the rights and obligations of shareholders
• Employment contracts: Set clear terms for future employees
• Articles of association: A set of rules that outline the company’s internal affairs

Ready to set up your company?

If you’re confident that you’ve got the above covered, you can start making things official. Incorporation is just the beginning, but making sure you have your ducks in a row from the outset will set you up for long-term success.

With Vestd, you can incorporate your business directly on our platform. You can also clean your cap table, apply for S/EIS, and issue shares all through your account. And with two-way Companies House filings, there is no more messy paperwork. 

Book a call and learn more about how Vestd can help you to build a business that lasts.