10 Common Pitfalls in UK Company Formation

Forming a limited company in the UK is relatively straightforward thanks to online services and streamlined processes. But that simplicity can also mask important details, details that, if overlooked, can lead to costly or time-consuming problems down the road.

This guide explores the most common company formation pitfalls UK business owners face, and how you can avoid them from day one.

1. Choosing the Wrong Company Structure

One of the first and most important decisions is selecting the right legal business structure. Most UK startups opt for a private company limited by shares (Ltd), but it’s not the only option.

Pitfall: Choosing a structure that doesn’t align with your goals, tax needs, or long-term plans can result in financial inefficiencies or legal limitations.

Avoid it by:

• Understanding the differences between Ltd, LLP, PLC, and sole trader status.
• Speaking with an accountant or business advisor before registering.
• Reading our guide: Which Business Structure is Right for You?

2. Not Checking Name Availability Properly

Your business name must be unique and compliant with Companies House rules.

Pitfall: Choosing a name that’s already taken, too similar to another, or infringes on a trade mark can lead to rejection or legal challenges.

Avoid it by:

• Checking name availability using Companies House Name Availability Checker
• Running a trade mark search on the Intellectual Property Office site
• Avoiding sensitive words or misleading terms

3. Using a Personal Address as Your Registered Office

Your registered office address is published on the public record.

Pitfall: Using your home address may affect your privacy and look unprofessional.

Avoid it by:

• Using a virtual office or registered address service (many formation agents provide this)
• Ensuring the address is in the UK and accessible for official correspondence

4. Assigning Shares Incorrectly

Share distribution affects ownership, control, and dividend rights.

Pitfall: Getting the share structure wrong can lead to conflicts, tax issues, or difficulty attracting investors later.

Avoid it by:

• Deciding early on how many shares to issue and who gets them
• Using ordinary shares unless there’s a clear reason to create other classes
• Keeping clear shareholder records from day one

Learn more about shares and shareholders

5. Not Having a Shareholders’ Agreement

Companies with more than one shareholder should consider a formal agreement.

Pitfall: Disagreements between shareholders can stall decision-making or end in legal disputes.

Avoid it by:

• Drafting a shareholders’ agreement that outlines roles, responsibilities, dispute resolution, and exit plans
• Getting legal advice tailored to your business size and plans.