Forming a limited company in the UK has become significantly more expensive since Companies House increased their formation fees by over 300% – from £12 to £50.
This dramatic price hike has prompted many challenger banks and e-money institutions to offer attractive company formation deals, with Tide leading the charge.
But is Tide good for setting up a limited company, or could their seemingly generous offer create problems down the line?
The Tide Company Formation Deal: What’s on Offer?
Tide’s company formation package appears straightforward and cost-effective with it including:
- £15 company formation fee (versus the standard £50)
- An additional £50 credit if you spend £100 within 30 days of account opening
- Business bank account
- The option of a virtual office address provided, and a
- Three-month trial of accounting software.
On paper, this looks like an excellent deal for new entrepreneurs.
However, as with most “too good to be true” offers, the devil is in the details.
The Hidden Limitations of Tide’s Company Formation
Restricted Share Structure
One of the most significant limitations of Tide’s company formation service is the restricted share structure. Tide only allows companies to be formed with:
- A single shareholder
- One share worth £1.
This might seem adequate for a solo entrepreneur, but it creates several potential problems:
Limited Fundraising Flexibility: If you plan to raise investment in the future, having shares valued at £1 each limits your options. Most successful businesses raising funds use shares with nominal values of £0.01 or similar small amounts. This allows for much more flexibility when calculating investor percentages and dilution.
No Tax Planning Options: The single share class structure prevents you from implementing tax-efficient profit extraction strategies. Many businesses use different share classes (A shares, B shares, etc.) to distribute dividends at different ratios, providing significant tax advantages.
Multiple Founder Problems: If you’re starting a business with partners, Tide’s single shareholder restriction won’t work either. You’ll need to restructure later, which involves time, cost, and potential tax complications.
The All-in-One Trap
While Tide markets their service as convenient “one-stop shopping,” this creates what experts call the “all-in-one trap.”
You’re not just choosing a company formation service – you’re simultaneously making decisions about:
- Your business bank account
- Your registered office address
- Your accounting software
- Your shareholding structure.
Banking Limitations
We’ve spent a lot of time reviewing different business bank accounts and Tide’s banking services, while suitable for some businesses, have notable restrictions:
- Designed primarily for single-director operations
- Limited access for accountants and third parties
- May not suit businesses as they grow and become more complex.
Automatic Software Enrollment
Tide also automatically enrolls new companies for a three-month trial of their accounting software at £22.99 (+ VAT) per month.
While you can cancel, this creates an additional task for busy entrepreneurs and more importantly could tie you into their ecosystem from day one making more difficult for you to go elsewhere should you choose in the future.
When Tide’s Company Formation Works Well
To be fair, Tide’s company formation service isn’t universally problematic.
It works well for:
- Solo entrepreneurs with no plans for partners or complex structures
- Simple service businesses unlikely to require investment
- Lifestyle businesses without growth ambitions
- Contractors and freelancers upgrading from sole trader status.
If your business falls into these categories and you’re comfortable with Tide’s banking offering, their formation package could be perfect.
The Importance of Share Structure Planning
Understanding different types of shares is crucial for any business owner. Companies can issue various share classes, each with different rights regarding:
- Income rights (dividend entitlements)
- Capital rights (value on business sale)
- Control rights (voting power).
Different shareholders often value these rights differently.
Investors might prioritize capital growth, founders typically want control, and employees might focus on income potential.
Proper share structure planning allows you to accommodate these different priorities.
Future-Proofing Your Share Structure
When deciding how many shares your company should have, consider:
- Keeping the maths easy – Round numbers make ownership calculations simple
- Planning for future investment – More shares provide flexibility for small investor percentages
- Considering employee incentives – Share option schemes require adequate share numbers
- Tax planning – Different share classes can optimize profit extraction.
A typical startup might issue 1,000 or 10,000 shares rather than just 100, providing much more flexibility for future fundraising and employee incentive schemes.
The Cost of Changing Later
One of the biggest problems with Tide’s restrictive formation structure is the cost and complexity of making changes later.
Modifying share structures after your company is established can trigger:
- Tax liabilities for existing shareholders
- Administrative costs for legal documentation
- Time delays while paperwork is processed
- Investor concerns about poorly planned structures.
Professional advisors consistently recommend getting your share structure right from the start, as corrections become exponentially more expensive and complex as your business grows.
Alternative Approaches
If you’re attracted to Tide’s low formation costs but concerned about the limitations there are alternatives you can consider:
- DIY formation through Companies House directly, then choosing your preferred bank separately
- Professional formation services that offer more flexibility in share structures
- Accounting firm packages that include formation with proper structural planning
- Legal firm services for complex multi-founder situations.
As you run through that list from top to bottom the risk of getting it wrong reduces but there will be a price to pay for that.
The important thing is selecting a risk and cost balance you are comfortable with.
Is Tide Good for Setting Up a Limited Company?
Tide’s company formation offer works well for a specific subset of businesses – primarily solo entrepreneurs running simple operations with no or limited growth ambitions.
However, for most startups with any potential for complexity, investment, or growth, the structural limitations create more problems than the £35 saving solves.
The key questions to ask yourself are:
- Do you plan to take on business partners?
- Might you raise investment in the future?
- Do you want tax-efficient profit extraction options?
- Could you benefit from employee share schemes?
If you answered “yes” or “maybe” to any of these questions, Tide’s formation restrictions could prove more costly in the long run.
Making the Right Choice
While Tide’s company formation deal appears attractive, remember that you’re making multiple important business decisions bundled into one package.
So take a bit of time to consider:
- Whether Tide is the right bank for your long-term needs
- If their virtual office service suits your requirements
- Whether their accounting software meets your needs
- If their share structure limitations align with your plans
Sometimes paying extra for proper professional advice and flexible structures proves to be the best investment you’ll make in your business’s future.
The most successful entrepreneurs understand that company formation isn’t just about saving money upfront – it’s about creating the right foundation for long-term success.
Choose wisely, and your future self will thank you!
Before You Go …
To find out more about the different types of shares a limited company can have along with the considerations for each option and the potential implications.
What are the Different Types of Shares in a Limited Company?
Other top articles related to this topic:
- To Be a Limited Company or Not to Be – Advantages and Disadvantages of a Limited Company
- What Are The Different Types of Companies in the UK? An Overview
- Why Would a Limited Company Application Be Rejected?
- 5 Steps You Should Take After Setting Up a Limited Company
- Companies House Filing Requirements – What Does a Limited Company Need to File Every Year?
