Company Formation Terms Demystified: Every Term from A to Z

Company Formation Terms Demystified: A Glossary of Essential Terms

There are a few company formation terms to consider when setting up a limited company in the UK. It is essential to understand them amidst the excitement, to ensure legal and administrative steps are taken while maintaining a smooth setup. There is quite a lot of Company formation jargon involved in the entire business setup process Terms like Articles of Association, SIC codes, or Persons with Significant Control can often confuse new entrepreneurs.

121 company formation has created a comprehensive A-Z guide to simplify the language of company formation. Whether you’re a first-time entrepreneur, an overseas investor, or a seasoned professional, this glossary will help you understand every step of the process and confidently navigate UK company registration.

 

Articles of Association: 

Articles of Association, as the rulebook for your company, it is a vital legal document that dictates how everything will be run. It is the internal constitution that all directors and shareholders must follow. This document covers everything from the number of directors the company will have to the procedures for holding board meetings and voting. It also defines the rights and responsibilities of shareholders and outlines the rules for issuing and transferring shares. Think of it as the blueprint for your company’s governance, ensuring transparent, fair operations for everyone involved.

Accounting Period

This is the time frame a company uses to prepare its financial accounts. These accounts are sent to Companies House and, if the company is active, to HMRC as well. The period usually matches the company’s financial year. Accounts must be filed within 12 months, but Corporation Tax is due within 9 months and 1 day. That’s why most businesses send both together before the earlier deadline.

Accounting Reference Date (ARD)

This marks the end of a company’s financial year. The first ARD falls on the last day of the month in which the company was formed. After that, the ARD stays the same each year unless changed. For example, if a company is set up on 15 June 2025, the ARD will be 30 June 2026. From then on, the financial year runs from 1 July to 30 June.

Active Company

As soon as a company is formed, Companies House considers it “active.” This status remains until it is dissolved or liquidated. For HMRC, “active” means the business is actually trading, investing, or earning income. Even if the company is not trading, Companies House will still show it as active until it is formally closed.

 

Board Meeting

This is a formal meeting of directors to discuss the company’s progress and make crucial decisions. Private companies are not legally required to hold them, but they help review strategy. Every board meeting should be recorded in official minutes. These records must be kept for at least 10 years.

Board Resolution

This is a written record of a decision made by directors. It can be agreed upon during a board meeting and written into the minutes, or passed in writing without a meeting. Board resolutions are essential for documenting formal approvals and company actions.

Board of Directors

This is the group of people legally responsible for managing the company. They oversee operations, finances, and strategy. In a small company, there may be only one director. Some directors may also be shareholders. A company secretary can be appointed to support them, though this is optional for private companies.

 

Company House

It is a government agency responsible for incorporating and dissolving companies, as well as maintaining a public record of information about all limited companies and LLPs Limited Liability Partnerships (LLPs)

Certificate of Incorporation

This is an official document issued by Companies House to a business upon registration. This document shows the company name, registration number, and date of incorporation. It also confirms the company type (e.g., limited by shares or limited by by guarantee) and its UK registration. The certificate proves that the business is legally recognised.

 

Confirmation Statement

This is an annual filing with Companies House, the UK’s registrar of companies. It’s a snapshot of your company’s information on a specific date and confirms that the details on the public record are accurate and up-to-date. Think of it as a yearly health check for your company’s public records.

Capital

Capital is the money and assets that fuel a business, enabling it to grow, operate, and generate profits.

 

Designated Member (LLP)

A member of a limited liability partnership (LLP) with extra legal duties under the LLP legislation. They must register the LLP for Self Assessment Tax and file the accounts and confirmation statement. Every LLP must have at least two designated members. They are responsible for ensuring the partnership stays compliant.

Director’s Loan

This is when a director borrows or lends money to the company. It is not the same as salary or dividends. These loans are tracked in a special record called the “director’s loan account.” If the director owes money, it is recorded as an asset; if the company owes money, it is recorded as a liability.

 

Dividends

A dividend is a payment made out of a company’s profits, the amount of which is determined by the board of directors, and is distributed among a specific class of its shareholders. Consider this payment a return for holding an ownership stake in the business. When profits are generated, a company must choose between two strategies: reinvesting the money for future growth or sharing the earnings directly with the owners (shareholders).

Dormant Company

A dormant company is a business registered with Companies House that is not currently trading or engaging in any significant business activity. It is essentially a company that is legally “asleep” but still exists on the official register. Companies can be kept dormant for a variety of reasons, such as a founder wanting to secure a company name for future use or taking a break from business operations. While a dormant company doesn’t need to file annual accounts in the same way an active one does, it still has certain legal obligations, like filing dormant company accounts and an annual confirmation statement, to maintain its status.

 

Electronic Filing (E-Filing)

This is a modern and efficient way to submit company and tax documents to official bodies like Companies House and HMRC. Rather than printing and posting physical paperwork, you transmit the information securely over the internet.

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Equity

Equity represents the ownership stake an investor or founder holds within a company. It signifies the residual value of the business, which is calculated by taking the company’s total assets and subtracting all liabilities. To put it simply, equity is the net funds remaining for shareholders after the business has sold all its holdings and fully settled all outstanding obligations. This ownership can originate either from a founder’s initial capital contribution or from direct investment, such as purchasing shares.

Financial Year

A financial year is the 12-month period that a business uses to keep track of its income and expenses for accounting and tax purposes. For a new company, the first financial year begins on the day it’s formed and ends on its Accounting Reference Date (ARD).

After the initial period, a company’s financial years typically run in consistent 12-month intervals. While this is the standard practice, a company can sometimes choose to make its financial year shorter or longer if needed, a process that requires a formal notification to the relevant authorities.

Filing deadlines

Filing deadlines are the official, legally mandated dates by which companies must submit their statutory documents to a regulatory body, such as Companies House or HMRC. These deadlines are not suggestions; they are strict and missing them can result in penalties, including fines and prosecution.

Think of them as due dates for your company’s homework. Just as a student must hand in an assignment by a certain date to avoid a lower grade, a company must file its annual accounts and other forms by specific deadlines to remain in good standing. Missing these dates can lead to a company being struck off the register, essentially ceasing to exist as a legal entity.

General Meeting

This is a meeting of shareholders (also called members) where they vote on important company matters. Private companies don’t have to hold them unless required by their rules. If a general meeting is held, the rules in the Companies Act 2006 must be followed. These meetings allow members to debate and make formal decisions.

HMRC

HMRC stands for Her Majesty’s Revenue and Customs. It is the UK’s tax authority responsible for collecting taxes and enforcing tax laws. Businesses deal with HMRC for Corporation Tax, VAT, PAYE, and other tax matters.

Holding Company

This is a company that owns shares in other companies, known as subsidiaries. It doesn’t usually trade itself but controls the operations of the companies it owns. Many large groups use holding companies for management and tax efficiency.

 

Incorporation

The formal legal procedure of forming a company under the laws of a specific governing jurisdiction.

Indemnification

A  provision that offers financial protection to its directors, officers, and employees. This shield covers liabilities and expenses resulting from lawsuits where they are accused of breaching a duty while serving the company.

 

Involuntary Dissolution 

The non consensual termination of a company’s legal existence, imposed either through an administrative process or a formal judicial ruling, rather than a decision made by the company itself.

Insolvency

This happens when a company can’t pay its debts. At this point, creditors can take action, and the company may go into liquidation. Insolvency is often managed by licensed insolvency practitioners.

 

Joint Venture

Two or more companies form a Joint Venture when they collaborate on a defined project. The fundamental nature of this partnership involves the mutual distribution of profits, costs, and risks. Its duration is adaptable, based purely on the agreement made between the participating entities.

 

Journals

In accounting, journals are records of all transactions. They provide the first entry before information is transferred to ledgers. Keeping accurate journals is important for correct financial reporting.

 

Jargon

This refers to specialist words used in an industry. In company formation, jargon often confuses new business owners. Breaking it down into simple terms makes it easier to understand.

Key Accounts

These are the most important customers or clients of a business. They usually bring in significant revenue and require special attention. Many companies have account managers dedicated to looking after them.

 

Limited Liability Company (LLC) 

A distinct legal entity, formed and governed by specific state laws, that typically offers its owners the limited personal liability of a corporation while allowing for the simplified pass through taxation structure of a partnership.

Limited Partnership 

A Limited Partnership (LP) is a statutory model composed of two distinct tiers of partners. The entity must include a general partner (who manages the business and accepts unlimited liability for its obligations) and one or more limited partners (who provide investment capital but whose liability is restricted to that contribution).

 

Memorandum of Association

 

This is a legal document signed by shareholders when a company is formed. It confirms their intention to create the company. It is a short but essential document in company formation.

 

Micro-entity

A micro-entity is a very small company. It benefits from simpler accounting rules and can file shorter accounts. This reduces costs and paperwork for small businesses.

 

Name Registration: 

The administrative filing of a document in a jurisdiction outside the state of incorporation, intended to legally protect the company name, often as a preparatory step before officially qualifying to transact business there.

Name Reservation: 

A procedure that enables a corporation to secure the exclusive right to use a specific name for a set duration, holding it until the company can formally complete the incorporation process.

Ordinary Shares

These are the standard shares most companies issue. They give shareholders voting rights and a share of dividends. The more shares you own, the greater your control.

Officers:

Individuals appointed by the board of directors (e.g., CEO, Treasurer, Secretary) who are responsible for executing the board’s established policies and managing the company’s day-to-day affairs.

 

PSC (Person with Significant Control)

A Person with Significant Control (PSC) is defined as any individual who holds or otherwise commands over one quarter (25%) of a company’s shares or voting power. Companies have a legal requirement to record and report these individuals to Companies House, which ensures greater transparency regarding the true ownership of the business.

 

Quorum

A quorum is the minimum number of people who must be present for a meeting to be valid. Without it, any decisions made cannot be legally accepted. The number required is usually set in the company’s Articles of Association.

 

Registered Office

The official, statutory address of a corporation on file with the state. This address is usually the same as the address of the Registered Agent in states where one is required.

Reinstatement

The formal process of restoring a corporation that was previously terminated (either administratively dissolved or had its certificate revoked) back to good standing on the state’s official records.

Resolution

A formal, written statement documenting a specific action, motion, or item of business that has been officially proposed and approved by a vote of the shareholders or the board of directors.

 

Share Capital 

This is the total value of shares a company issues to its owners. It represents how much money shareholders have invested. The amount of share capital affects ownership and control in the company.

Shareholders 

The owners of a corporation, whose ownership is determined by the number of shares they hold. Their ownership is an interest in the company as a whole, not in its specific property.

 

Subsidiary 

A corporation that is controlled by another business entity (the parent corporation) through either total ownership or the ownership of a majority of its voting shares.

Self-Assessment

This is a tax system used by HMRC for individuals and business owners. It means you calculate and report your own tax due each year. Directors or shareholders who earn income outside PAYE often use Self-Assessment.

Statutory Accounts

Statutory accounts are the set of official annual financial records that every company is legally required to produce. These documents, which typically consist of the balance sheet, profit and loss account, and accompanying notes, must be submitted electronically to Companies House and HMRC.

 

Trade Name

A trade name is the name a business uses in public, which might be different from its registered name. For example, “Bright Ideas Ltd” might trade as “Bright Marketing.” Trade names must still follow business naming rules

Tax Return

A tax return is a document that businesses or individuals send to HMRC to report their income and spending. It’s used to work out how much tax needs to be paid or if a refund is due. Companies usually file a Corporation Tax Return, while individuals complete a Self-Assessment tax return for their personal income.

 

Unique Taxpayer Reference (UTR) 

A Unique Taxpayer Reference (UTR) is a 10-digit number given by HMRC to identify a business or individual for tax purposes. Once a company is registered, HMRC automatically creates this number and sends it to the company’s official registered address. The UTR is required for registering for business taxes, submitting tax returns, and paying Corporation Tax on company profits.

Unlimited company

Unlike a limited company, an unlimited company offers its owners no financial protection. This means that if the business structure fails or enters bankruptcy, the owners must use their personal assets to cover the entirety of the company’s debts. This business model is unusual in the UK and is generally preferred by those prioritizing the perpetual existence of the business over limited financial risk. It can be formed either with or without share capital.

 

WebFiling 

WebFiling is an online service provided by Companies House that allows companies and Limited Liability Partnerships (LLPs) to electronically file forms and other necessary information. Here’s a breakdown of what WebFiling enables you to do.

• File Annual Accounts: Submit your company’s annual accounts electronically.
• File Confirmation Statements: File confirmation statements to update company information.
• File Director/Secretary Changes: Notify Companies House of changes to your company’s directors or secretaries.
• Digital Authorisation: Authorise individuals to file on behalf of the company online.
• Email Reminders: Set up reminders for upcoming filing deadlines.
• WebFiling aims to streamline the process of interacting with Companies House, making it more efficient for companies to meet their statutory obligations.

Written resolution 

A written resolution allows directors or shareholders of a private company to make and record key decisions without holding a formal meeting. Provided that the company’s Articles of Association or shareholders’ agreement do not restrict it, most decisions that usually require an ordinary, special, or board resolution can instead be agreed upon in writing.

 

XBRL (eXtensible Business Reporting Language)

XBRL is a digital format used for submitting financial data online. Companies use it to file accounts to HMRC and Companies House electronically. It enforces consistency and improves data accuracy.

 

 

Year End

A company’s year end marks the final day of its financial year often called the accounting reference date (ARD). This date signals when the company’s annual financial records close. After the year end, the business must prepare its yearly accounts and submit them to Companies House within nine months. These accounts show how the company has performed financially during that period.

 

Year-End Accounts

These are the financial reports prepared at the end of a company’s financial year. They show the company’s income, spending, and overall performance. They must be filed with Companies House and HMRC.

 

Thank For Reading

The language of company formation doesn’t need to be intimidating. With this A–Z incorporation glossary, you can confidently have a smooth startup process navigate every stage of starting a company in the UK. Whether you’re registering your first business or expanding internationally, understanding these terms will save you time, money, and stress.
We will continue to integrate more UK company formation terms in subsequent blog to curate better understanding.

Ready to take the next step? Explore our company formation guide and begin your journey with clarity.