A to Z of company formation terms

Starting a limited company can be an exciting step, but if you’re new to the process, the terminology involved might feel overwhelming. From acronyms to legal jargon, understanding these terms is key to a smooth setup and staying compliant once your company is formed.

To make things clearer, 1st Formations has created this A to Z guide covering some of the most important terms you’ll come across during company formation. Whether you’re just getting started or brushing up on the basics, this glossary is here to help you feel more confident on your business journey.

A

Accounting period

A limited company’s accounting period relates to the period of time for which it prepares its financial statements and reports its financial performance and position via its annual accounts, which it submits to Companies House.

If a limited company is active for Corporation Tax purposes, it will also submit its accounts to HMRC, alongside a Company Tax Return – usually for the same period as its accounting period – to report its Corporation Tax obligations. This is required by HMRC no later than 12 months after the end of the accounting period, but any Corporation Tax liability must be paid within 9 months and one day after the end of the accounting period, so these are typically submitted together by the earlier deadline.

Accounting reference date (ARD)

An accounting reference date, abbreviated as ‘ARD’, is the last day of a company’s financial year. The financial year is the time covered by the annual accounts for Companies House and HMRC. 

A company’s first ARD will be the last day of the month in which its incorporation anniversary falls. The ARD will fall on the same date each subsequent year unless the company shortens or lengthens its financial year.

For example, if you form a limited company on 15 June 2025, your first ARD will be 30 June 2026. Each subsequent ARD will also fall on this date. After the first year, the company’s financial year will run from 1 July in one year to 30 June the following year – a period of exactly 12 months. 

Active company 

A company is ‘active’ according to Companies House as soon as it is incorporated and added to the public register. The company will retain this active status for as long as it remains in existence (i.e. until it is dissolved or goes into liquidation).

For HMRC, a company is generally active for Corporation Tax when it starts doing business (e.g. buying and selling goods or services), managing investments, or receiving any other form of income. 

B 

Board meeting 

A board meeting is a formal meeting of a company’s board of directors. Under the Companies Act 2006, a private company is not legally required to hold board meetings. However, they provide a valuable opportunity for directors to review the company’s progress, discuss strategy, and make important decisions about the business. All board meetings should be minuted, and records of those minutes should be kept for 10 years. 

Board resolution 

A board resolution is a written record of a formal decision or action made by a company’s board of directors. The directors may pass a board resolution at a board meeting (which is then recorded in the meeting minutes) or in writing by passing a written board resolution. 

Board of directors

The board of directors comprises all the individual directors who are formally appointed to manage a company. It is the governing body responsible for overseeing a company’s activities, finances, and strategy, with the aim of making the business a success.

• A guide to annual accounts
• Do I need to file a Company Tax Return?
• 5 legal obligations after setting up a limited company

In a sole director company, the board consists of just one director. In many companies, one or more of the directors are also members (shareholders). A company secretary may be appointed to support the board of directors, but this is optional in a private company.

 

C

Certificate of Good Standing

A certificate of good standing is an official document that a company can obtain from Companies House. It verifies that the company is in existence, is up to date with its filing requirements, has at least one director appointed, and is not in the process of being closed down.

Third parties often require a certificate of good standing when carrying out due diligence on a company (for example, a bank when setting up an account). 

Certificate of incorporation 

A certificate of incorporation is an official document that Companies House issues to a business when it registers as a company or limited liability partnership (LLP). It contains the following information: 

• Name and company registration number
• Date of incorporation
• Whether the company is limited by shares, limited by guarantee, an unlimited company, or an LLP
• Whether it’s a private or public limited company 
• Whether its registered office is in the jurisdiction of England and Wales, Wales only, Scotland, or Northern Ireland

The certificate serves as conclusive evidence that a company (or LLP) has been incorporated under the Companies Act 2006 (or LLP Act 2000) and complied with all statutory requirements for registration.

D

Designated member 

A designated member is a member of a limited liability partnership (LLP) with additional statutory administrative responsibilities under LLP legislation, such as:

• Registering the LLP for Self Assessment and VAT
• Filing confirmation statements, annual accounts, and partnership tax returns 
• Reporting changes to Companies House

An LLP must have at least two designated members at all times. 

Director’s loan

A director’s loan is money that a director takes from a company that is not a salary, dividend, expense repayment, or reimbursement of money they’ve already paid into or loaned to the company. It also refers to money that a director lends to their company. 

All such loans must be recorded in a director’s loan account in the company’s balance sheet as either an asset (if the director owes money to the company) or a liability (if the company owes money to the director). 

E 

EORI number

An EORI number is an ‘Economic Operators Registration and Identification’ number. It is a unique number that identifies a trader importing or exporting goods into or out of the EU. You may require an EORI number for your UK company if you move goods between:

• Great Britain (England, Scotland, and Wales) or the Isle of Man and any other country (including those in the EU)
• Great Britain and Northern Ireland
• Great Britain and the Channel Islands
• Northern Ireland and countries outside the EU

You’ll also need one to register for an export licence. You can apply for an EORI number online. 

Electronic Filing 

Electronic filing (e-filing) is the process of submitting documents and other information to Companies House and HMRC via specified online platforms or compatible software. 

F

Final dividend

A final dividend is a distribution of company profits at the end of a company’s financial year once the annual accounts have been finalised. 

Subject to the articles of association, final dividends are typically approved by shareholders at the annual general meeting (AGM) up to the amount recommended by the board of directors. 

Some companies may also declare interim dividends, which they can pay throughout the year.  

Financial year

Every company has its own financial year, which is the period of time covered by its annual accounts. A company’s financial year starts on the incorporation date and ends on the accounting reference date (ARD). It usually covers a period of 12 months. All subsequent financial years are 12 months long unless changed by the company. 

G

General meeting

A general meeting is a formal meeting of a company’s shareholders or guarantors (members), during which they will discuss, debate, and vote on important business matters.  

Unless required under the articles of association, general meetings are optional for private companies. However, if a company chooses to hold any such meeting, it must adhere to the rules in the Companies Act 2006. 

H

Holding company

A holding company is usually a non-trading company that holds majority shares in other companies (called ‘subsidiaries’). It may also hold other assets such as property or IP rights. Sometimes referred to as parent companies, holding companies are sometimes responsible for controlling the management of their subsidiaries. 

I

Incorporation date

This is the date on which a company becomes a legal entity upon registration (incorporation) at Companies House under the Companies Act 2006. A company’s incorporation date will appear on its certificate of incorporation and the Companies House register.

Initial officers

You may encounter this term during the company formation process. It refers to the directors and company secretaries appointed to a company upon its incorporation.

To form a private company, you must appoint at least one director. Appointing a company secretary is optional unless required under the articles of association.

Initial shareholders

The initial shareholders are the founding members of a company limited by shares, who agree to form and become members of the company at the time of incorporation. Also known as ‘subscribers’, the initial shareholders must each take at least one share in the company. 

J

Joint shareholder 

A joint shareholder is any person who jointly holds one or more shares with at least one other person. With the exception of subscriber shares (those issued to shareholders during the company formation process), it is possible for two or more people to co-own the same share(s).

Joint shareholdings are becoming increasingly common, particularly in flat management and Right to Manage companies.

Jurisdiction of incorporation

When forming a company in the UK, you must choose to incorporate in one of the following jurisdictions: England & Wales, Wales only, Scotland, or Northern Ireland. 

A company must maintain a registered office address in its jurisdiction of incorporation. This jurisdiction also dictates which of the UK’s three legal systems will apply to the company’s activities (i.e. English Law, Scots Law, or Northern Irish Law).

K

Know Your Customer (KYC)

Know Your Customer (KYC) is a legally required process that banks, financial firms, and other businesses must follow to verify the identity of their clients or customers as part of their due diligence checks. At 1st Formations, we are required to follow KYC guidelines to verify the ID and address of our customers and certain shareholders.

L

Late filing penalties 

Companies House and HMRC impose late filing penalties on limited companies that fail to deliver their annual accounts and tax returns or pay their taxes on time, in line with relevant deadlines. Increasing penalties apply depending on the degree of lateness and for repeated late filings or payments.

Lawful purpose statement 

A lawful purpose statement is a relatively new requirement introduced by the Economic Crime and Corporate Transparency Act (ECCTA) 2023.

During the company formation process, a company must confirm that it is being incorporated for a lawful purpose.

After incorporation, a company must confirm every year on the confirmation statement that its intended future activities will be lawful.

LLP member

An LLP member is an individual person or a corporate entity registered with Companies House as a member (partner) of a limited liability partnership (LLP).  An LLP requires a minimum of two members at all times. 

Members jointly run the business and share in the profits and costs of the partnership in accordance with the LLP Act 2000 and any formal LLP agreement between those members.  

M

Member

This term may refer to a shareholder of a company limited by shares, a guarantor of a company limited by guarantee, or a partner in a limited liability partnership (LLP). 

Model articles

By law, every UK company must adopt articles of association as a governing document. The articles are essentially written rules on how a company must be run. The ‘model’ articles are the standard default articles of association prescribed by the Companies Act 2006. 

Model articles are suitable for most new companies, but it is possible to amend this version or adopt bespoke articles based on a company’s specific needs. Companies can also change their articles at any time after incorporation.  

N

Nominal value 

The nominal value (par value or face value) is the monetary value of a company share. It is a fixed, arbitrary value (usually £1) that a company assigns to any new share it issues. 

Companies cannot sell shares for less than the nominal value. It is the minimum sum that a person pays or agrees to pay for a share. The nominal value also impacts the limit of a shareholder’s liability for company debts.  

Non-trading company 

A non-trading company is a company that does not carry out any trading activities (like selling products or services). However, unlike a dormant company, a non-trading company may still engage in certain financial transactions – for example, receiving investment income or dealing with business arrangements or liabilities that were in place before it stopped trading. 

O

Ordinary resolution 

An ordinary resolution is a formal, legally binding decision made by a company’s members. To pass (approve) an ordinary resolution, a simple majority (more than 50%) of members’ votes must be cast in favour of the proposed action. 

Ordinary resolutions are used for routine matters such as allotting new shares or appointing and removing directors. 

Traditionally, members vote on resolutions on a poll or show of hands at a general meeting, recording the decision in meeting minutes. However, many companies pass resolutions in writing (written resolutions) without the need for physical meetings. 

Ordinary shares 

This is the standard, default share class that most companies issue to their shareholders. An ordinary share generally carries voting rights (one vote per share on company decisions), dividend rights (the right to receive a pro-rata portion of profits as dividends), and capital rights (the right to receive a pro-rata distribution of surplus funds upon the winding up of the company). 

Officer

This is the collective term for directors and company secretaries. The officers are responsible for representing and managing a company and fulfilling all legal obligations.

With regard to statutory compliance and liability, the Companies Act 2006 and HMRC also consider company managers and any other person managing or purporting to manage a company’s affairs to be ‘officers’. 

In the case of a limited liability partnership (LLP), the officers are the LLP members.

P

PAYE

PAYE stands for Pay As You Earn. It is an HMRC system for collecting Income Tax, National Insurance contributions, and other deductions from an individual’s employment income.  

If you want to pay yourself a director’s salary or hire employees, you’ll need to register as an employer with HMRC and operate PAYE as part of your company’s payroll. 

Partly paid shares

Partly paid shares are shares that a company issues to shareholders for less than their full paid-up amount. Essentially, the shareholder only makes a partial payment to the company for the shares they take, with the agreement that the outstanding amount will be paid at a later date. 

Q

Quorum 

A quorum is the minimum number of voting members or directors required to officially hold and make formal decisions at a general meeting or board meeting. In a private limited company, the default quorum under the model articles is:

• Two directors for a board meeting, or one director in the case of a sole director company 
• Two qualifying members for a general meeting, or one qualifying member in the case of a single-member company 

A company may alter its articles of association to stipulate a higher quorum for board or general meetings, but it must never be less than the statutory default. 

R

Registered email address

Every UK company and incorporated partnership must provide an “appropriate” registered email address to Companies House – one that is valid and routinely accessed by a person acting on behalf of the company or partnership (e.g. a director, secretary, or LLP member).

Companies House uses registered email addresses to send important correspondence to companies, such as compliance updates, filing reminders, and late filing penalty notices. However, Companies House does not publish these address details publicly.  

Registered office address

Every company (or LLP) requires a registered office address. This is a company’s official, legal address, where it receives statutory mail from Companies House, HMRC, and other government bodies. It’s also where a company must store its statutory company registers and records. 

A company’s registered office address must be a physical address (not a PO Box) in the same UK jurisdiction where it is incorporated. For example, if you form a company in the jurisdiction of ‘England and Wales’, you must maintain a registered office address in England or Wales.

Companies House discloses this information on the public register. For this reason, many people use a non-residential address (rather than a home address) as a registered office. This is the best way to protect your privacy.

S

Self Assessment 

Self Assessment is a system that HMRC uses to collect personal tax from individuals who receive income that isn’t taxed through payroll or PAYE. 

After setting up a company, you may need to register for Self Assessment if you receive dividends from shares, expenses, taxable benefits, or a director’s loan. 

LLPs and their self-employed LLP members must also register for Self Assessment to report their overall and individual share of profits.

T

Tax

Limited companies are liable to pay Corporation Tax to HMRC on their taxable profits. The rate payable depends on how much profit a company makes in an accounting period:

• 19% ‘small profits rate’ – for companies with annual profits under £50,000 
• 25% ‘main rate’ – for companies with annual profits over £250,000

Companies with annual profits between £50,000 and £250,000 can claim Marginal Relief, which provides a gradual increase in the Corporation Tax rate between 19% and 25%.

Additionally, some companies may be required to charge and pay VAT to HMRC. A company must register for VAT if its taxable turnover exceeds £90,000 (the VAT threshold) in a 12-month period or expects to do so in the next 30 days. Companies with a turnover below the threshold can register for VAT voluntarily.

Directors and shareholders are also liable to pay personal tax on any income they receive from their companies (e.g. a director’s salary, dividends, expenses, and taxable benefits). 

Trading name 

Sometimes referred to as a business name, a trading name is one that a company may use in the course of doing business that is different from its official company name registered at Companies House. 

U

Unique Taxpayer Reference (UTR) 

A unique taxpayer reference, or ‘UTR’, is a 10-digit number that HMRC issues to limited companies and individuals who register for Self Assessment. 

After forming a company, HMRC will automatically generate and post a UTR to the company’s registered office address. The company will use this number to register for business taxes, file tax returns, and pay tax on profits.

Unlimited company

An unlimited company is a relatively rare type of private company in which each member is equally liable for the company’s debts if it becomes insolvent or is wound up. This type of company may or may not have a share capital. 

Unlimited companies may be suitable for those looking to facilitate perpetual succession without requiring limited liability protection for members.

V

VAT

VAT stands for Value-added Tax. It is a consumption tax that VAT-registered businesses must add to the sale price of any VAT-taxable goods or services they supply. 

VAT registration is mandatory for any business with taxable turnover above £90,000. Voluntary VAT registration is available to those with turnover below the threshold. This can benefit small companies that pay VAT on the supplies they buy from other businesses. 

Virtual office

A virtual office is a remote commercial service that provides businesses with a physical business address, mail forwarding, telephone answering, and other professional administrative services, without the expense of maintaining traditional office premises and hiring staff. It’s an affordable and flexible option for limited companies and businesses of all sizes. 

W

WebFiling 

WebFiling is an online service provided by Companies House. It enables companies (and LLPs) to file forms and other information with Companies House electronically. 

Written resolution 

A written resolution is an alternative way for directors and shareholders in a private company to propose, pass, and record the outcome of important decisions without the need to arrange board meetings or general meetings.

Subject to any restrictions or stipulations in the articles of association or a shareholders’ agreement, a company may use a written resolution for most decisions that require passing an ordinary, special, or board resolution. 

X

XML accounts

XML stands for ‘eXtensible Markup Language’. Companies can use software filing packages to electronically send accounts and other information to Companies House through the registrar’s XML gateway.

Y

Year end

A company’s ‘year end’ is the last day of its financial year. It is also known as the accounting reference date (ARD). A company must prepare and file annual accounts to Companies House within 9 months of its year end.  

Yearly filing 

Limited companies have yearly filing obligations to fulfil for Companies House and HMRC. These include an annual confirmation statement, annual accounts, and a Company Tax Return. 

Thanks for reading

We hope you’ve found this A to Z of company formation terms helpful. Please comment below if you have any questions or would like us to include other unfamiliar words or phrases. 

You can also explore the 1st Formations Blog for more useful advice and insights.