15 Reasons Why Company Formations Get Rejected

Ryan Patrick

• 9 min read
15 Reasons Why Company Formations Get Rejected

Company formations can be rejected for various reasons, some simple mistakes that can be prevented by paying attention to detail.

But first, what is company formation? Company formation is registering a business into a Limited Company at Companies House, The UK Registrar of Companies.

Business owners can register a business directly with the registrar body or use a formation agency, which carries out the process on their behalf. If you're about to incorporate your business, a simple overlooked mistake can cause a rejection of your application. Read on to understand the 15 reasons why company formations get rejected and ways to avoid the setback.

Common Reasons Why Companies House Rejects Company Formations

Per the Companies House provisions, the body rejects about 10% of online incorporation applications, compared to over 50% of postal applications.

The WHY question may linger about more online applications being approved than postal applications. The main reason is that the online process has built-in checks that ensure all mandatory fields are completed. These built-in checks need to be improved for postal applications, which explains the higher number of rejections.

However, even with these checks in place, applicants still need to avoid mistakes by filling out the application forms correctly, leading to a rejection. So, your application can suffer a setback if you do it via post or online.

As you'll notice, the rejections aren't due to missing details but the provision of incorrect information. Learn the common reasons why a company formation may be rejected:

1. Issues with the Company Name

Most Private Limited Companies (PLC) must include the suffix Limited or Ltd, Cyfyngedig, or Cyf. The only exception to using these suffixes is if a company is:

  • A registered charity, or
  • Limited by guarantee, meaning it meets specific requirements

Only applications submitted to Companies House with the necessary suffix will be accepted. Here's a list of issues on the company name that can lead to rejection.

  • A company name that's 'similar' or the 'same as' another on the register
  • Failure to include the right suffix 'Limited' or 'Ltd' or 'Cyfyngedig' or 'Cyf' for companies incorporated in Welsh while and with a registered office address in Wales
  • Adding the Welsh company name while the registered office is located elsewhere
  • Applying for a name-ending exemption while the company doesn't qualify or meet the conditions
  • Use of 'restricted or sensitive' words and expressions in a company name without permission or supporting documentation from the relevant body
  • Use of offensive words or trying to register a naturally offensive name
  • Providing a company name that Companies House considers misleading
  • Use of prohibited special characters such as symbols, signs, or punctuation that are not permitted

Before registering a company name, read a guide on the rules and restrictions on GOV.UK to ensure you get it right. If your name contains restricted or sensitive words and expressions, get a non-objection letter from the authorising body.

2. The Registered Address Doesn't Match the Country

During company formation, you must provide the addresses below:

  • A registered office address where Companies House will deliver official mail
  • A service address (correspondence address) where shareholders, directors, secretaries, and Persons with Significant Control (PSC) will receive mail
  • A residential address for all directors and PSC

The application can only go through if all of these addresses' locations are in the same country. For instance, if you provide Glasgow as the town but select England as the country, Companies House will reject the application.

With a disparity between the company's registered address and the jurisdiction of incorporation, Companies House will not accept the application.

The company must be incorporated in the same jurisdiction if you provide a registered office in the UK. For instance, a company incorporated in Scotland must have a registered office address in Scotland.

3. A Residential Address for a Director or PSC Doesn't Appear As Such

When appointed, directors and PSCs must provide a residential address for correspondence. These addresses are only published on the public register if they double up as the registered office or service address.

A residential address must be the accurate place where the appointed parties live.

If the residential address provided is in a business centre or it stretches across several numbers, Companies House will not accept the application.

4. Using a PO Box as a Registered Office Address

A registered office address is where the company receives official documents; it must be a complete physical address.

Hence, applying for formation and using a PO Box address as a registered office will be denied.

Instead, a PO Box is where you want to receive official mail; you must provide the full underlying postal address details for the application to be accepted. The full information includes the building name or number, town or city, street name, and postal code.

5. An Unsuitable Company Director

The law has no specific provisions for who can be appointed as director.

However, if you appoint someone as a director who is not of legal age (16) or is from assuming the role, the application can't be accepted. Here are more situations that can lead to denial:

  • An undischarged bankrupt
  • Someone is disqualified from assuming the role of a company director

6. Using an Initial as a Company Director, PSC, Shareholder, or Secretary

Anyone appointed as company director must provide their full name and only initials if a director has supporting documents to prove it. For instance, providing a director as A. Armstrong isn't acceptable; the names must be complete.

7. Appointing Another Company as the Only director

Among the directors of a company, at least one must be a natural person, meaning you can't appoint a company as the only director.

If you must appoint a company or a corporate body as a director, there must be a natural person to list.

8. Incorrect Information

Several fields are open when naming and appointing people to your company, allowing you to type information. These fields include:

  • Nationality
  • Title
  • Occupation

However, the application will only be allowed if Companies House considers your information valid.

9. A Residential Address Doesn't Correspond with Your Country of Residence

Besides providing their residential address, each director and PSC must state their country of residence. But if there's a disparity between these two pieces, the Companies House can't approve the application. You can't live overseas, yet provide a UK address.

10. The Company You're Forming is a Shareholder of Itself

Companies can be shareholders in other companies but not with themselves. So, the application is unacceptable if you're forming a company and decide to add the same company as a shareholder.

11. Claiming Exemption to Suppress Personal Information

Under the Companies Act 2006 Section 243, directors can claim exemption from disclosing their home address. On the other hand, PSCs can claim exemption under section 790ZF from revealing all personal details.

A director or PSC can apply to preserve their details, like when they're at risk of violence from associating with the company. However, if anyone claims exemption wrongly or fails to submit supporting evidence, Companies House will likely refuse to incorporate the company.

12. Allocation of Decimal Shares

Limited Companies are limited by shares or guarantees. Companies limited by shares can only issue a minimum of 1 share, which creates a company's owners (shareholders).

Smaller companies issue 1 share, which can change when they wish to bring in a new business partner.

More allocation of company shares is needed to avoid the rejection of the formation by Companies House.

So, what is wrong with share allocation? Wrong share allocation is issuing decimal shares to ensure they're split equally. However, shares allocated to each shareholder must be whole and nothing else.

For instance, if a company's shares are 100 being divided by three, it's likely to divide them into 33.33 shares for each shareholder to ensure equality. Although the decimal allocation looks right, it's unacceptable to Companies House.

To ensure an equal share split in the company, give each shareholder the same amount.

13. Incorrect Bespoke Articles of Association

The articles of association are like rules that help run a company. Some business owners in the UK prefer to register their bespoke articles of association. As a result of the complexities of the document, mistakes are made, and the formation application is declined.

14. Incorrect Corporate Appointment Information

In the UK or overseas, it's possible to appoint another company as a director, but with one actual person in the role.

When applying for company formation overseas, you must provide the 'Law Governed' and 'Legal Form'; incorrect information can cause rejection. For clarity, here's a definition of both terms:

  • Law Governed is the Act regulating UK company activity, the Companies Act 2006.
  • Legal Form is the company structure, which could be a private company limited by shares.

15. Issues with Prescribed Particulars

The prescribed particulars outline the rights related to company shares, and you must provide this information during company formation. Any application submitted to Companies House will be rejected if the prescribed particulars of rights are partial or a reference must be made to another document to access information on shared rights. Here are some wordings that will result in a rejected application:

  • "Find the shared rights are detailed in the articles of association."
  • "Not applicable"
  • "Prescribed particulars as set out in the articles."
  • "Pari Passu" - Equal footing or payment rights

Adopting Model articles of association or ordinary shares, the Companies House will accept the statement if the shares have full rights in voting, distributions, or dividends.

How to Avoid Company's Formation Rejections

Regardless of how you apply for incorporation (online or via post), Companies House will use the same channel to inform you of a rejection.

It's up to you to rectify the error and resubmit the Form.

However, you can limit the chances of rejection by applying for incorporation online through a reputable formation company. So, how do you avoid a rejection by Companies House? Here are five ways to get your incorporation application accepted on the first try.

1. Ensure You Provide the Right Company Name

In the UK, you must follow the rules and regulations when choosing a company: using a name similar to an existing company or sensitive words and expressions.

To avoid company name issues, read the rules on naming a company under the Companies Act 2006. Once you know what to do and not do, use a name search tool to find out if your name is available.

To use sensitive words or expressions, you must get authorisation from the relevant body and present the letter during incorporation.

2. Use an Accurate Registered Office Address

The registered office address you provide for your company must be in the same jurisdiction or country. You can also use a home or business address as your registered office address, but you can't change it.

3. Confirm S243 Exemption

Disclosure of a director's information is restricted under the 243 exemption, but it depends on the type of business. When you apply for an exemption, you must prove that your life or the people you live with are at risk. According to the exemption rule, only these people are eligible:

  • A director, LLP member or PSC
  • A company or LLP on its director's behalf, LLP members and PSCs
  • Memorandum subscribers of a company that's not yet incorporated

The S243 box is under the director's section; you can only check it if you're eligible. All those who fit the above criteria include those who still need to be appointed to the positions.

4. Declare All Persons with Significant Control (PSC)

A PSC is a shareholder with over 25% shares, you must provide accurate information about it to avoid rejection. Their powers (PSC) must also be disclosed to the shareholders, and anyone who doesn't declare a shareholder who owns over 25% of a company is in breach. Besides disclosure of a shareholder as a PSC, here are more common mistakes:

  • If a PSC spouse is a principal shareholder, failure to disclose it can attract serious financial consequences.
  • Not revealing any voting rights in a company
  • Not disclosing if a PSC has the power to appoint or drop the majority of directors

5. Use a Formation Agency

Applying for incorporation might be complex for you. However, using the services of a formation company will lift the burden off your shoulders. They'll ask you for all the necessary information and then conduct the process on your behalf for a fee. If you need help with forming your company in the UK, kindly contact Incorpuk to help you with all of your company formation needs today.

Frequently Asked Questions

What is the general law for company formation in the UK?

The general law for company formation in the UK is that only people with a lawful purpose can set up a company once they have a memorandum of association.

What is company formation in the UK?

Company formation in the UK is incorporating and registering a limited company with Companies House to make it a legal entity. Depending on the Companies House workload, the process can take 3 to 6 hours once the online application is submitted.

Must all UK companies be registered?

All new businesses in the UK must register, but the process might vary depending on the type of business.

Conclusion

Sometimes, rejecting a company formation can be good, mainly if incorrect information is submitted. As a result, you get to fix issues post-formation, making it easier and better than fixing them before a company is formed.

Nonetheless, avoiding mistakes is better than getting an application accepted the first time.

Most rejected company formation applications result from minor errors or oversights that you can avoid by being more careful.

If the process feels too much, seek help from a formation company. Incorpuk helps business owners with all of their company formation needs. if you have tried to apply before and your application was rejected, Incorpuk can help you to amend and resubmit the application to Companies House. Kindly contact  Incorpuk here.