How To Set Up A Limited Company 

April 27, 2021

 This is an easy-to-understand, step-by-step guide, to opening a successful limited company. But before we dive in, let’s check the legality surrounding it. 

Can I Be A Limited Company? 

If your company is either limited by shares or limited by ‘guarantees’, it qualifies as a limited company. Limited by shares means you are a profit-fueled company with shares and shareholders and you can keep your profits after paying tax.If you are a non-profit company with guarantors, whose profits must be invested back into the company, you are ‘limited by guarantee’. In other words, a charity. 

Limited by Profit  

  • Legally separate from the people who run the business    
  • Separate business finances from yours    
  • Has shares and shareholders
  • Members keep any profits the business makes after paying tax 

Limited by Guarantee 

  • Legally separate from the people who run the business
  • Separate business finances from yours
  • Has guarantors and a guaranteed amount 
  • An agreed amount of money promised to the company by the guarantors if it cannot pay its debts
  • Members invest profits made by the business, back into the business

If these options pass to what you have in mind, you have passed the limited company legitimacy test.  

Now you have two options. You can either have a: 

Private limited company (LTDs) 

LTDs do not have any minimum requirements in terms of shareholders and capital. That is why most startups, small businesses, freelancers , and contractors choose to be privately limited.  

OR 

Public limited company (PLCs) 

PLCs are obligated to have the following: 

  • Not less than two shareholders 
  • A minimum share capital of £50,000 
  • Two directors 
  • A fitting company secretary 

 Once you’ve decided which structure works the best for you and your business, it’s now time for the step-by-step guide to setting up.  

Step 1: Name your company 

The secret to picking the best business name for you is research. Choosing a name sounds easy, but it can be tricky, considering the rules surrounding it. Your company name must be distinctive. It cannot be the same as another company or similar enough and only differentiated by punctuation or commonly used words in the UK. Should a company feel that you have chosen a similar name to theirs and they have registered their business name before you, you may be asked to change yours as a result of a filed complaint.And it goes without saying, try to avoid any offensive, sensitive words or expressions!  

You can check existing trademarks, to help in your name choice. 

Step 2: Appoint a Director 

You must choose at least one Director for your business. Although not mandatory, some businesses also appoint a Company Secretary to provide support in managing the Director’s responsibilities. 

A company Director’s core responsibilities include: 

  • Paying corporation tax on profits – The money the business accumulates from trading profits, investments, and selling assets for more than they costis liable forcorporation tax (otherwise known as chargeable gains). 
  • Informing Shareholders – if they might personally benefit from a transaction the company has made. 
  • Complying with the business’ written rules – including how the company should be run, agreed upon by the Shareholders or Guarantors, Directors, and the Company Secretary (article of association rules).  
  • Filing the company’s accounts and returns. 
  • Keeping the company records and reporting any changes.  

It’s worth bearing in mind, a Director must be above sixteen years old and have no record of disqualification as a CompanyDirector. On the other hand, a Company Secretary can be a Director but not the company’s Auditor. Should the secretary have been discharged on grounds of bankruptcy in their past, they should seek court permission to practice. 

Regardless of whether the business appoints a Secretary, is important to remember that the Company Director is always legally responsible for the company. 

Step 3: Shareholders, Guarantors, and Persons of Significant Control 

Shareholders– Members who hold shares in the company giving them a right to make certain important decisions on the business and receive dividends, as per their share agreements. Dividends are the taxed or untaxed payments you get from your shares in the company.

Guarantors- Members who control the company’s key decisions but do not take profit from the company. 

Person of Significant Control (PSC)– PSCs tend to own 25% of the shares of the company, more than 25% of voting rights , and the right to appoint or remove most of the Board of Directors.Since most LTDs have ‘ordinary shares’, directors get a single vote on company decisions per share and dividends. Being the only shareholder in the business gives you 100% ownership of the company. It is highly recommended to have at least one shareholder as the Director of the company.  

Step 4: Memorandum and article of association preparation

To register a company, you require both a Memorandum of Association (legal statement signed by all original shareholders or guarantors, agreeing to form the company) and Articles of Association (written rules about running the company agreed upon by the shareholders or guarantors, Directors , and the Company Secretary). 

Registering your company online automatically creates a Memorandum of Association as part of your registration process. If you register by post, you may have to use the Company House’s memorandum of association template. 

You can use the standard articles (model articles) to create an Articles of Association and send it by post, or write and upload a personalized one. 

Step 5: Accounting records to keep 

It is imperative that you keep up-to-date company financial accounting records, as well as any relevant information about the company. 

The relevant company information you must keep includes: 

  1. A list of Directors, shareholders, and Company Secretaries. 
  2. Results and resolutions from a decision-making vote. 
  3. Loans or mortgages secured against the company’s assets. 
  4. Transaction information should someone buy shares. 
  5. Debentures (promises for the company to repay loans at a specific date in the future). 
  6. Indemnities (a promise to pay, should something go wrong and the company is at fault). 

Whereas the accounting records you MUST keep are: 

  1. Company-owned assets. 
  2. Any debts the company is owed or owes. 
  3. Details of company money received and spent. 
  4. Stocks the company owns at the end of the financial year. 
  5. Goods bought and sold by the company. If it is not a retail business, specify to whom the goods were brought and sold.  

This vital information should be kept safely for up to 6 years from the company’s inception. 

Step 6: Company registration 

There are three ways of incorporating a company in the UK. 

  1. Via the Companies House web incorporation service 
  2. Sending in by post using the Companies House paper application 
  3. Online via approved company formation agents like Spondoo

Additional Key Factors 

When starting a new company, please also familiarise yourself with the rules governing addresses. For example, it must be a registered working physical address, where all communications from Companies House can be sent. However, if you do not want your address to be publicly available, you can use an agent who will provide you with an alias address to use. You may also ask the person who handles your corporation tax, to be the recipient.

Finally, Standard industrial classification of economic activities (SIC) codes give Companies House a description of your company’s type of business.  

 Congrats, you’ve set up a limited company! The key to having success with it is having trusted Accountants who can manage your finances, remind you of important tax dates  and ensure you always tax compliant.

Have a question about setting up a Limited Company? Contact us today!

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Information provided on the site is merely guidance that may change in line with UK law and regulations. Users must not consider this to be financial advice or their sole resource when making any financial decision. Spondoo is a trading name for Accounting SQL Limited, authorised & license accounting firm under the Institute of Financial Accountants.

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