Aside from the sole trader option, forming a limited company is the most popular business structure in the UK.
In fact,setting up a limited company is one of the smartest ways for you to get paid to work.
Your own limited company can give you the power to own everything in business,run your business efficiently define your brand, and be able to try things you could not do as a sole trader.
But how you can set up your own limited company? We’ve created this handy guide that outlines what you need to do.
This blogpost is divided into the following sections
- What is a Limited Company?
- Types of Limited Companies
- Things to keep in mind before registration
- Steps to setting up a Limited company
- How to register for a Limited company
- What happens after registration
What is a Limited Company?
The limited company is the type of business structure where a company is considered a legally distinct body.
And if you want to run your business as a limited company, your business will:
- Be able to keep any profits it makes after-tax
- Be able to own all the assets
- Be legally distinct from the people who run it
- Be able to keep finances separate from the owner’s personal finances
Types of Limited Companies
There are generally two popular types of limited companies you can choose from:
- The Private limited company (LTD)
- The Public limited company (PLC)
Usually,small business owners, contractors, startups, andfreelancers are better off setting up a private limited company because they do not have as many requirements as the public one.
If you want to set up aPublic limited company, you need to have about £50,000, two shareholders anddirectors,including a qualified company secretary.
Things to keep in mind before registration
If you want to set up a Private limited company, you required to get registered with the Companies House.
And this process is defined as incorporation and has some basic requirements, which are:
- A name for your company
- At least one director and shareholder
- A company registered office address
- Memorandum of association – The agreement of all ‘subscribers’ or initial shareholders for forming the company.
- Articles of association – This contains written rules about how the company will be run.
- A statement of capital – Details of the shares of the company and the rights attached to them.
After successful registration of your limited company, you’ll receive a certification of incorporation from the company’s house.
This certificate confirms the existence of the company and comprises its date of formation and a unique company number.
Also, visit our blog about Personal Service Company to know the perm PSC in detail.
Steps to Setting up a Limited Company
Step 1: Decide What Kind of Limited Company You Need
Step 2: Choose a Business Name and company address
Step 3: Choose Your Director, Shareholders & Share Structure
Step 4: Register at Companies House & Register for Corporation Tax
Selection of a Business Name
Before the registration of your new business as a limited company, you will need to decide on a name for it.
A new company cannot have the same name as an already registered company, or even one similartothe existing one.
You can perform a Google search on the business names you are considering and search the Companies House register for the list of companies with the same names.
Also,you can search for the Intellectual Property Office (IPO) in order to check if a name is registered as the UK trademark.
Again there’reseveral rules which restrict the types of a name you can select for your business that is as below.
- Your registered name cannot contain potentially misleading words like Royal, Chartered, Bank, Scottish, British, English, Commission or the words that imply professional qualifications that you do not hold.
- Whichever name you choosefor the company it must end in eitherLimited orLtd.
- You can use the different business name to the registered company name as long as it is not same as an existing trademark or contains the sensitive word.
The Registered office address
You need to have the registered office address as that is where all the official communications will be sent,such as letters from the HMRC and the Companies House.
You should ensure that your company address is:
- A physical address
- Exists in the same country where you’re registering your company
A PO Box can be used, but after the PO Box number, you need to write a physical address and postcode.
Your company registered office address will be a public record. If you don’t have a physical office, you can consider using a virtual registered office. This way, you will have a third party address on the public record. Many of our accountants provide this service.
A company cannot be formed if it does not have at least one director.
Directors hold legal responsibility for running a company and ensuring that a company accounts and reports are done properly.
The company director has to be older than 16 and should not be disqualified from becoming a director.
Plus you can also opt for another company as the director.
The addresses and names of the directors are publicly available at Companies House.
Shares & Shareholders
In a Limited company, there should be at least one shareholder of a company that is limited by shares.
This can also be the director, and there is not any limit on the number of shareholders.
The shareholder is basically the owner of the company, so they hold some rights like their vote is required by directors in case of making changes to the company.
The Statement of Capital
AStatement of Capital submitted at the time of company registration contains the details about the class of shares issued as the rights which vary with the different types.
Some differences are based on:
- Voting rights
- Type of dividend given
- Whether votingcan be doneon the company matters
- Whether the shares can be exchanged or ‘redeemed’ for money
Common types of shares are called “Ordinary shares”. These usually represent company ownership, entitled to dividends, vote on company matters in the company meetings and receive distributions on the winding up or dissolution.
Memorandum & Articles of Association
When your Limited company is registered, it requireshaving an “articles of association” and a “memorandum of association”.
It’s a legal statement initiated by shareholders made for forming the Limited company.
It has set wordings which can only be changed in certain conditions by following a set of rules. A generic version is available online.
On the other hand, articles of association are rules for running the company that is decided by shareholders and directors. Again, a generic version is available online.
Standard articles known as’model articles’ that are used by most limited companies, butalso own articles can be written if you are not registering your company online in the UK.Again, model articles of association are available online.
How to Register For Limited Company?
There are some methods you can use for registration of your Limitedcompany that areas below:
- Online registration on Companies House website
- With the help of an agent
However, bear in mind that different rules apply to you if your company is based outside the UK.
1. Online Registration
You can register your Limited company with Companies House online.
- It only takes 24 hours to register and costs £12 to submit your registration to Companies House online.
- You will need a company name and a UK address as the registered office.
- The trading activities of the Limited company, often referred to as the SIC Code. You can find an appropriate SIC Code from Companies House.
- The number and amount of each share
- Director’s personal details
- Business address, this can be same as the registered office address.
- Update Persons with significant control (PSC) register. A person of significant control is someone:
- that holds more than 25% of shares or voting rights,
- has the right to appoint or remove the majority of the board of directors or
- otherwise exercises significant influence or control
- You will need to submit the Memorandum of Association documents online including the names of your company officers, the directors and people with significant control over the Limited company.
- You will receive all correspondence from the Companies House, HMRC and official notices to the companyat this address.
- Your registered Company addresswill appear on all company documentation such as invoices.
- You can download the templates for these documents from the Companies House.
2. With the Help of Agent
You can find lots of company formation agents to choose from, or you can use your accountant or a solicitor to register your business.
These options cost a bit, but they are often quicker, and a professional will be able to help you through the information needed for limited company formation and registration.
You can look for agents using the Companies House Company Formation Agents directory which lists the web address and phone numbers of recognized company formation agents.
You can also do Google search for the agent online, including reviews from previous customers, before picking the one you will use.
The agent will handle all the paperwork and submit the documents to the Companies House, and it can take as little as three or four hours.
The agent will be able to offer other services, including the use of a registered office, scanning services for mail received and online portals for managing the administration of your business details.
What happens after registration?
Once your company is setup, you will receive
- A certificate of incorporation
- Share certificate for each shareholder
- authentication code from the Companies House.
- Unique Taxpayer Reference number (UTR) for corporation tax.
Next step for you is to:
- Setup a business bank account
- Check if your business requires VAT registration
- Setup a PAYE scheme with the HMRC, if you are looking to hire employees
- Setup a Pension scheme, if you have employees
- and start doing business!
How much does it cost to set up the limited company?
If you decide to go direct to Companies House, it will cost you just £12 to set up the limited company, but this will not include most of the paperwork you are legally required to have.
If you decide to use your accountant or online agents, prices will vary.
How do I know when my company is successfully formed or not?
Once your registration is complete, you’ll get a certificate of incorporation.
This will prove that your Limited company legally exists and will also have important information on it.
You can do a quick search on the Companies House Register
Can I use my home address as the registered office address?
Yes! It is perfectly acceptable to use your home address as the registered office address.
The word ‘office’ in the’registered office address’ is the legal term, and in practice, any address can be a registered office address.
Be aware that your registered office address will be available on the public database, along with names of the companyshareholders anddirectors.
If you’re planning to rent your home, then check your tenancy agreement because many landlords will not permit the use of a property for running a Limited Company or a business.
The Registered Office Address will be the main address for your company.
It’s also where you are supposed to keep your company documents and accounts so that they’re available for inspection by the HMRC and others.
The registered office address should be in the UK and cannot be a PO Box unless you have the full address, including the street address.
What is the SIC code?
The Standard Industrial Classification (SIC) codes are used for statistical purposes by the UK government.
There’re dozens of different codes covering the different industries from construction through to the computing.
When setting up a limited company in the UK, you justhave to pick a SIC code that fits your particular businessactivity and industry.
For example, SIC codehelp the government know how many construction businesses are being setup each year compared to the number of computer businesses.
The requirement for new limited companies to provide a SIC code was also introduced in June 2016. Previously companies only had to state their SIC code at the end of their 1st year.