Comprehensive Guide to Setting Up a Limited Company in the UK
If you’re considering setting up a limited company in the UK, it’s important to understand what it means.
Understanding Limited Companies
A limited company is a legal entity that stands separate from its directors and shareholders, enabling it to take on risks while providing protection to its stakeholders. However, running a limited company involves additional paperwork and responsibilities. There are two main types: public and private. Small businesses typically register as private limited companies. This guide focuses on setting up a private limited company.
Step 1: Deciding if a Limited Company is Right for Your Business
Before proceeding, assess whether a limited company is the right structure for your business. Despite being the most common business structure, sole traders are personally liable for business debts. On the other hand, a limited company may offer a more tax-efficient setup but requires more administrative work. Seek professional advice to make an informed decision.
Step 2: Choosing a Company Name
Your company’s name should be unique, as two limited companies cannot share the same name. Ensure the name isn’t offensive or using sensitive words or phrases that Companies House prohibits. Also, verify that the name is available as a domain for your business’s online presence. The company name will carry ‘ltd’ after it, and if you prefer not to use ‘limited’ in your name, you need to complete a registration by post.
Step 3: Appointing Directors
A limited company must have at least one director, responsible for various legal and financial duties. Directors must:
- Strive to make the company successful using their skills, experience, and judgement.
- Follow the company’s rules shown in its articles of association.
- Make decisions that benefit the company, not themselves.
- Inform other shareholders if they might benefit personally from a transaction the company makes.
- Maintain company records and report changes to Companies House and HM Revenue and Customs (HMRC).
- Ensure the company’s accounts are a true and fair representation of the business’s finances.
- File a company tax return and pay corporation tax.
- Register for Self Assessment and send a personal Self Assessment tax return every year, unless they run a non-profit organization and didn’t receive any pay or benefits.
Step 4: Determining Shareholders
At least one shareholder is required for a limited company, who can also be a director. The information about the shares and how they’ve been issued should be provided when you register your company. This includes the number of shares, their total value, and the names and addresses of your shareholders.
Step 5: Identifying a Person with Significant Control (PSC)
A PSC is a person who has more than 25% of shares, voting rights in the company, or the right to appoint or remove the majority of the board of directors. The PSC’s details must be provided to Companies House.
Step 6: Preparing a Memorandum and Articles of Association
The memorandum of association is a legal document signed by all initial shareholders to form the company. The articles of association are rules about running the company, agreed upon by the directors and shareholders. Both documents are crucial for setting up a limited company.
Step 7: Keeping Proper Records
Two types of records need to be maintained – about the company and financial/accounting records. This includes information about all money spent and received by the company, assets, debts, share transactions, and more. Failure to keep proper records can result in hefty fines.
Step 8: Incorporating a Limited Company
The final step is to register your company with Companies House, choosing an official address and SIC (Standard Industrial Classification) code representing your company’s primary business activity. Registering online costs £12 and usually takes up to 24 hours. Once registered, you’ll get a certificate of incorporation.
Advantages and Disadvantages of a Private Limited Company
Setting up a private limited company offers advantages such as a separate legal identity, professional appearance, and potentially a more tax-efficient business structure. However, it involves more administration tasks and costs compared to a sole trader setup.
Detailed Steps for Registering Your Limited Company Online
To register online, follow these steps:
- Go to the UK government website’s Companies House page.
- Complete the company details, including the company name, registered office address, director(s), shareholder(s), PSC(s), and your memorandum and articles of association.
- Pay the £12 fee via debit or credit card, or PayPal.
- Submit the form and wait for the confirmation email. You should receive it within 24 hours.
Responsibilities of a Company Director
As a director, you have a legal responsibility to ensure accounts are filed on time, inform Companies House of any changes, and act in the best interests of the company. Failing to meet these responsibilities can lead to penalties, disqualification, or even prosecution.
Final Considerations
Starting a limited company involves a lot of preparation and paperwork. However, with careful planning and the right guidance, the process becomes significantly easier. Always seek professional advice if you are unsure about any aspect of starting a limited company.
Published on June 24, 2023
