Global e-commerce has had a disproportionately positive impact on the UK economy, as highlighted by an ongoing boom in foreigners forming companies.

Investment Monitor sat down with Graeme Donnelly, a founder and CEO with 23 years’ experience in the world of startups and SMEs.

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In 2014, Donnelly founded 1st Formations, the UK’s leading company formation agent with over 1 million companies formed, many of which were founded by foreign entrepreneurs, investors and businesses.

Q: Over the last five years, what have been the key trends among non-Brits setting up companies in the UK?

Donnelly: The UK has been, for decades, one of the world’s most attractive destinations in which to form a company. I’ve seen this firsthand over the last 23 years. While there’s always been great interest from foreigners in creating UK limited companies, global e-commerce has been an ongoing revolution and boom. I’m not sure many people in the UK appreciate just how much this industry has benefitted the UK economy.

What’s happened, in short, is that major global companies like Stripe (one of the leading payment service providers for merchants) decided that they’ll only deal with businesses around the world that have registered limited companies in Stripe-supported countries, such as the UK and US (and some forty others). For the UK and the US in particular, this has been a massive economic win and has acted as a magnet for foreign businesses since both these countries are among the most inexpensive and efficient places to form a company, globally speaking.

In other words, if you’re based in one of the (over 140) countries not supported by Stripe, and you want to do international e-commerce via Stripe, then there’s a very high chance that you’ll be forming a UK-limited company (or a US limited liability company). Many tens of thousands of people have already done exactly that, and Stripe is just one example of this phenomenon. Many others have made similar requirements for their customers, to the great benefit of the UK and US.

I don’t think people realise how much this boom is all around us, especially in London. There’s a whole new segment of UK banking that services non-Brits in e-commerce, drop shopping and much more. Household names like Revolut and Wise are primed for it. Supporting non-British companies doing business in, or through, the UK is a massive industry.

Q: From which countries have you seen the greatest growth in non-Brits forming a company?

Graeme Donnelly, CEO and founder of 1st Formations.

Donnelly: Before Brexit, we always felt that the reason why so many foreigners set up companies in the UK was because it was the cheapest and easiest way to create an EU vehicle. We thought that would all change after Brexit. But it’s not. In fact, the numbers have actually gone up, even from Europeans.

This is testimony to the UK’s ease of doing business. We really are very business-friendly, which is why, for just £12, you can form a limited company in six hours. Meanwhile, in Germany, it costs approximately €1800; in Italy, €2300; in Holland, €1500 to €2200 – and then on top of that, it takes months for all the paperwork to go through.

Leading economies like France, Netherlands and Italy, they’re in the Dark Ages compared to the UK when it comes to red tape. The UK’s Companies House is probably the best example of any government business registration process anywhere in the world. It’s phenomenal, and so easy to use, arguably too easy.

Q: When setting up a company, why are so many non-British founders and businesses going through company formation agents, as opposed to doing things on their own?

Donnelly: If you go directly through Companies House, all you get is the company and a Certificate of Incorporation. That’s it. If you go through a company formation agent like 1st Formations, you get a whole ecosystem of service and support such as (for starters) a fuller set of documents like share certificates, company registers, and apostille documents, all of which is very important for non-British investors, especially if they’ve got local (or non-local) partners.

More importantly, every limited company in the UK needs a registered office address based in the jurisdiction within the UK that the company is registered in, and Companies House does not provide these. As such, many non-Brits who don’t have a UK home or office are turning to company formation agents for a registered address. At 1st Formations, for example, we provide our London office location in Covent Garden, which clients then use on their websites, letterheads, and invoices, as well as appearing on the Companies House public register. This is a huge draw for non-Brits, especially if they’re small and medium-sized enterprises (SMEs). Image is important, as many customers in the UK are suspicious of small companies that they perceive as risky, especially if the business is registered to a residential address. It just doesn’t look professional.

When forming a company in the UK, you also need what’s called a Companies House’ correspondence address’, also known as a director’s service address. That can be your home address, anywhere in the world. But most people don’t want to put that on public record. As such, company formation agents can give all directors, shareholders, and people with significant control a correspondence address that protects their privacy.

Non-Brits also look to agents to help them organise their UK bank accounts so they can be paid (and pay people) in multiple currencies. They tend to seek help when registering a business for VAT or for registering their company for Pay As You Earn (or PAYE), the UK system used by employers to take Income Tax and National Insurance contributions before they pay wages. Assistance when registering with the Information Commissioner’s Office, which every limited company that stores data needs to do (in line with GDPR regulations), is another driver. Finally, some company formation agents provide company secretarial services to ensure that limited company filing requirements with Companies House are adhered to. All of this can be daunting and time-consuming, especially for SMEs, who tend to have limited resources. Company formation agents make the whole process smoother and quicker while crucially helping new companies remain compliant and legal.