Site icon fastaccountant.co.uk

Guide to Setting Up a Limited Company

Wilfred

If you’re thinking about setting up a limited company, it’s important to understand the step-by-step process involved. Setting up a limited company can affect various aspects of your business, such as how you pay taxes and acquire funding. Before proceeding, you should check if setting up a limited company is the right choice for you, or if alternatives like being self-employed or starting a business partnership would be more suitable. Once you’ve made that decision, you’ll need to choose a name for your company, select directors and shareholders, and prepare important documents like a memorandum of association and articles of association. Additionally, there are certain records you’ll need to keep and the company will need to be registered with Companies House. This guide provides a detailed overview of the entire process, making it easier for you to navigate the steps involved in setting up a limited company.

Step 1: Check if setting up a limited company is right for you

Check what a private limited company is

Setting up a limited company is a big decision, and it’s important to understand what exactly a private limited company is before proceeding. A private limited company is a type of business structure that offers limited liability to its shareholders. This means that the personal assets of the shareholders are protected in the event that the company encounters financial difficulties. It also provides the company with a separate legal entity, allowing it to enter into contracts, own assets, and conduct business in its own name.

How you set up your business depends on what sort of work you do

The process of setting up a limited company is not a one-size-fits-all approach. How you set up your business will depend on the nature of the work you do. It’s important to understand the different options available to you, such as setting up as a self-employed (‘sole trader’), a business partnership, a social enterprise, an overseas company, or an unincorporated association. Each of these options has its own advantages and considerations, so it’s crucial to assess which structure aligns best with your business goals and requirements.

Consider your options

While setting up a limited company may be a popular choice for many entrepreneurs, it is not the only option available. You should consider whether setting up as a self-employed (‘sole trader’) or a business partnership may better suit your needs. For example, if you are a freelancer or have a small, low-risk business, registering as a sole trader may be a simpler and more suitable option. It’s important to carefully consider the nature of your business and the level of liability you are comfortable with before making a decision.

Get help deciding how to set up your business

If you’re unsure about which business structure is right for you, it’s a good idea to seek advice from professionals who specialize in business formation. They can help you understand the options available and guide you towards the structure that best suits your needs. There are also resources available online, such as government websites and business support organizations, that can provide valuable information and guidance to help you make an informed decision. Remember, getting professional advice can save you time and money in the long run and ensure that your business is set up correctly from the start.

Step 2: Choose a name

Check the rules for company names

Choosing the right name for your company is an important decision. It’s essential to understand and comply with the rules and regulations regarding company names. There are certain restrictions in place to ensure that company names are unique, not misleading, and do not infringe on any existing trademarks. For example, your company name must not be identical or too similar to another registered company’s name. It’s also worth noting that certain sensitive or offensive words may be restricted or require additional approval.

Check if the name you want is available

Once you have a few potential names in mind, it’s crucial to check if they are available for use. Companies House, the official registrar of companies in the UK, provides an online search tool where you can check the availability of company names. Conducting a thorough search will help you determine if any other businesses are already using the name you want, reducing the risk of Companies House refusing to set up your company under that name.

Check existing trade marks

In addition to checking the availability of company names, it’s also important to consider existing trade marks. A trade mark is a sign (such as a logo or a name) that distinguishes the goods or services of one company from another. Conducting a search on the Intellectual Property Office (IPO) website will help you identify any existing trade marks that may conflict with your chosen company name. It’s important to avoid infringing on someone else’s intellectual property rights to prevent legal complications down the line.

Step 3: Choose directors and a company secretary

You must appoint a director but you do not have to appoint a company secretary

As a limited company, you are required by law to appoint at least one director. A director is responsible for managing the company’s affairs, making strategic decisions, and ensuring compliance with legal and regulatory obligations. While it is mandatory to have a director, appointing a company secretary is optional. The role of a company secretary involves administrative and governance responsibilities, such as maintaining company records, filing annual returns, and liaising with Companies House.

 

Find out what directors are responsible for

Directors play a crucial role in the management and operation of a limited company. They have various responsibilities and duties, including:

Understanding the responsibilities of directors is essential to ensure that you choose individuals who are capable and willing to fulfil these obligations.

Check who can be a director or company secretary

When appointing directors and a company secretary, it’s important to be aware of the eligibility requirements. In general, any individual who is 16 years or older can be a director of a limited company. However, certain restrictions apply, such as being disqualified from acting as a director due to previous convictions or bankruptcy. It’s also important to note that a company director can also be a shareholder, but there are no restrictions preventing a director from being a company secretary as well. Taking the time to check the eligibility criteria will help ensure that you make informed decisions when appointing key individuals within your company.

Step 4: Decide who the shareholders or guarantors are

You need at least one shareholder or guarantor

Every limited company must have at least one shareholder or guarantor. The shareholder or guarantor has an ownership stake in the company, representing their financial interest and entitlement to the company’s profits. In many cases, the shareholder or guarantor can also be a director of the company, meaning they have both a financial and managerial role within the business.

Check if you’ll need to issue shares or set a ‘guaranteed amount’

When setting up a limited company, you’ll need to consider whether you’ll issue shares or set a ‘guaranteed amount’ for each shareholder or guarantor. Issuing shares means allocating a specific number of shares to each shareholder, which represents their ownership stake in the company. Alternatively, setting a ‘guaranteed amount’ means that the shareholders or guarantors contribute a predetermined sum of money to the company, entitling them to a share of the profits. It’s important to carefully consider which option is most appropriate for your business and seek professional advice if necessary.

Find out how dividends from shares are taxed and identify people with significant control (PSC) over your company

Dividends are a way for shareholders to receive a return on their investment in the company. It’s important to understand how dividends from shares are taxed to ensure compliance with tax laws. Additionally, as part of your responsibilities as a limited company, you’ll need to identify any individuals or entities with significant control (PSC) over your company. This includes anyone with more than 25% of the shares or voting rights in your company. Understanding who has significant control allows for transparency and compliance with reporting requirements.

Find out what counts as a PSC

A person with significant control (PSC) is someone who meets certain criteria set out by Companies House. In general, a PSC is an individual or legal entity that:

It’s important to fully understand the definition of a PSC and identify anyone who meets these criteria within your company. Keeping accurate records of your PSCs is essential for transparency and compliance.

Step 5: Prepare documents agreeing how to run your company

You need to prepare a ‘memorandum of association’ and ‘articles of association’

As part of setting up your limited company, you’ll need to prepare two important documents: a ‘memorandum of association’ and ‘articles of association’. A memorandum of association is a legal document that sets out the company’s name, registered address, and the names of the shareholders or guarantors. It also confirms their agreement to form a company. The articles of association, on the other hand, outline the rules and regulations for how the company will be run, including details on decision-making processes, share transfer, and appointment of directors. These documents are important as they provide a clear structure and framework for the company’s operations.

Find out how to create a memorandum and articles of association

Creating a memorandum of association and articles of association can be a complex task. It’s important to seek professional advice or use readily available templates and guidance to ensure that these documents accurately reflect your company’s structure and comply with the legal requirements. Companies House provides helpful resources and templates on their website, which can assist you in creating these important documents.

Step 6: Check what records you’ll need to keep

Check the company and accounting records you must keep

As a Limited company, you are legally required to keep certain records to ensure transparency, compliance, and accountability. These records include:

Keeping accurate and up-to-date records is essential for fulfilling your legal obligations, providing transparency, and facilitating efficient business operations. It’s important to familiarize yourself with the specific requirements and seek professional advice if necessary.

Step 7: Register your company

You’ll need to register an official address and choose a SIC code – this identifies what your company does

Once you have completed all the necessary preparations, it’s time to register your company. You will need to provide an official registered address for your company, which will be publicly available on the Companies House website. You should also choose a Standard Industrial Classification (SIC) code, which identifies the nature of your company’s activities. The SIC code helps classify and categorize companies.

Check the rules for company addresses

When registering your company, you must comply with certain rules and regulations regarding company addresses. The registered address must be a physical location in the UK and cannot be a PO box. It’s important to ensure that whoever occupies this address is aware of their responsibilities and obligations, such as forwarding official correspondence promptly and maintaining proper record-keeping.

Check what your SIC code is

Choosing the right SIC code is important as it accurately reflects your company’s primary activities. The SIC code you choose will determine how your company is classified and categorized by Companies House and other relevant authorities. It’s essential to review the list of SIC codes provided by Companies House and select the code that best aligns with your business activities.

Register your company with Companies House

To officially register your limited company, you need to complete the registration process with Companies House. This involves providing the necessary information, including details about the directors, shareholders or guarantors, registered address, SIC code, and company documents. The registration process can be completed online through the Companies House website, making it efficient and convenient. It’s important to ensure that the information you provide is accurate and up to date.

Most people can register for Corporation Tax at the same time as registering with Companies House

When registering your company with Companies House, you may also have the opportunity to register for Corporation Tax. Corporation Tax is the tax that limited companies are required to pay on their profits. Registering for Corporation Tax at the same time as the company registration can streamline the process and ensure that you meet all your tax obligations from the start.

If you cannot, register separately with HM Revenue and Customs (HMRC) after you’ve registered your company with Companies House

In some cases, you may not be able to register for Corporation Tax at the same time as registering your company with Companies House. If this is the case, you will need to register separately with HM Revenue and Customs (HMRC) after you have completed the company registration. It’s important to be aware of the deadlines and requirements for Corporation Tax registration to ensure compliance with tax laws.

Registering with HMRC for Corporation Tax is a crucial step to ensure that you meet your tax obligations as a limited company. Corporation Tax is payable on your company’s profits, and it’s important to keep accurate records and submit tax returns on time. Registering with HMRC will ensure that you receive the appropriate documentation and guidelines to fulfil your tax obligations.

In conclusion, setting up a limited company involves several important steps and considerations. From determining the most suitable business structure to registering your company with the relevant authorities, it’s crucial to follow the process thoroughly and seek professional advice when needed. By understanding the requirements and obligations, you can ensure that your limited company is set up correctly and positioned for success.

Exit mobile version