It is not uncommon for a person forming a UK company to mistakenly incorporate one limited by guarantee instead of one by shares (or less commonly, visa versa).
In situations where this happens, it can lead to a number of problems for the registrant.
Unfortunately, there is no quick solution to this problem and it is likely that additional expense will be necessary to correct the position and to provide the desired outcome.
Retrieving the Company Name
One of the issues is that a company name is usually selected after careful thought and consideration. Assuming that the registrant still wishes to use it, they could not then incorporation another business with that name as it would be returned from Companies House as unavailable.
The first incorrectly formed entity is already using it and the rules governing existing company names would apply.
Statutory Obligations for Unwanted Company
Even if a second company incorporation was to be carried out using a different name, the original entity would still exist and be under the ownership of the registrant.
They would remain liable for the fulfilment if that entities statutory obligations which would accompany it. The preparation of yearly accounts, the annual return and so on will still be required for the first company.
In addition, the registrant would have already incurred formation costs on a company which they can not use. On the basis that they required a trading entity, an entity limited by guarantee would be completely unsuitable for that purpose.
Changing the Type of Company
Changing the type of company is not a possibility as there is no mechanism by which the alteration from guarantee to shares can be carried out.
The registrant has two options with regards to this situation:
Option 1 involves the dissolution of the company limited by guarantee and thereby releasing its name.
Once the entity has been dissolved, a new company of the correct type could then be incorporated using the newly available name.
There are several disadvantages of choosing this method, namely:
- Dissolving a limited company might take as long as three months which would probably cause a significant delay in the planned business activities.
- Although perhaps a minor risk, there is no assurance that when the first company is dissolved another person would not then appear and register the name which the original registrant was keen to use.The allocation of company names is carried out on a first come first served basis and there is no means of reservation without actual purchase.
- There would be dissolution fees payable to Companies House (currently £10). In addition, there would be resources used in the preparation and submission of the required documents..
The second option would be to change the name of the company limited by guarantee which would take a considerable shorter time period compared to that of dissolving the entity.
The express service is able to change a name on the same day and once this is completed, a new incorporation of the correct type can be initiated.
The disadvantage with this option is that the company name change is an additional expense on top of the dissolution and second company purchase.
There is still a slight change that the name will be registered in the period between the time it is changed and the time when it is then re-used.
Although the following comments will be of little comfort to those who will make this mistake in the future, when forming a company always check and double check all aspects of your application thoroughly.