Setting up a limited company

Many founders decide to choose a limited company (Ltd) for their type of business model. This model is es­pe­cially suited to small busi­nesses since – as the name suggests – the liability that comes from the business activ­it­ies is limited. There are only a few re­quire­ments so it’s re­l­at­ively easy to set up. Your company could be re­gistered within the next 24 hours.

In the UK, there are between 1.3 and 2.5 million limited companies, meaning it’s one of the most common ways to run a business. There are different types of limited company, including public limited companies (PLCs) and companies limited by guarantee. When people refer to limited companies, they usually mean private companies limited by shares, otherwise known as Ltd companies.

A limited company is a business structure where members or share­hold­ers have their liability limited to the con­tri­bu­tions that have made or invested in the company. The company is legally separate from the people who run it, has separate finances from your personal ones, and can keep any profits it makes after taxes have been paid.

Creating your own limited company doesn’t have to be difficult if you know what to expect. Here are the steps you should follow to get your company up and running:

The first step is to register with Companies House, which is known as “in­cor­por­a­tion”. For this, you need a cor­res­pond­ing company name, an address, a director (or several), details of the company’s shares, and your SIC code, which reveals what your company does.

You need to come up with a unique business name. Even if it’s in any way similar to an existing name, it might need to be changed if someone complains. Since it’s a limited company, the name needs to end in either “Limited” or “Ltd”. “Cy­fyn­gedig” and “Cyf” are also valid if you’re re­gis­ter­ing your company in Wales.

If your desired name is already taken, you can’t get around this by adding punc­tu­ation to the name since it makes no dif­fer­ence e.g. “Smiths UK Ltd”, “Smith’s Ltd”, and “Smiths Ltd” all count as the same name. So, choosing the taken name is out of the question unless your company is part of the same group or you have written con­firm­a­tion from the other company that they are allowing you to register a variation of their business name.

Your business name doesn’t have to be the same as your re­gistered name if you don’t want it to be. Plus, business names aren’t allowed to include words such as “limited”, “limited liability part­ner­ship”, “Ltd”, etc. and also can’t contain any offensive words.

You need a location where all business cor­res­pond­ence can be sent e.g. post from Companies House. You can use your home address or a P.O. Box address if you prefer since the company address will be available for anyone to see on the online register. There are a few re­quire­ments when it comes to the address:

• It has to be a physical address in the UK
• It needs to be in the same country that you re­gistered your company in i.e. if your company is re­gistered in Wales, its re­gistered office address must also be in Wales

The director is in charge of running the company and making sure that accounts and reports are being taken care of. A director must be over 16 years of age and doesn’t ne­ces­sar­ily have to live in the UK, but they need a re­gistered office address in the UK. Hiring a secretary isn’t mandatory, but they can help lessen the boss’s workload so this could be something to consider.

If a company is “limited by shares”, it means that it is owned by share­hold­ers who have a say in what happens to the company. If changes are to be made, they need to be informed. If the company has normal shares this means that the directors get a vote on the company decisions as well as receiving dividend payments.

If a company is limited by shares, then there needs to be at least one share­hold­er, but there’s no maximum limit. If there is only one, then they will own all of the company. A share can be any amount, but share­hold­ers must realise they will have to pay the full amount of their shares if the company folds.

During re­gis­tra­tion, you’re required to provide in­form­a­tion about the shares (known as “statement of capital”). The number of shares and their value as well as the names and addresses of all the share­hold­ers, which are known as “members”.

A “memor­andum of as­so­ci­ation” is a legal statement signed by all share­hold­ers who have agreed to start the Ltd. Take into con­sid­er­a­tion that once your company has been re­gistered, you can’t update the memor­andum. Templates for this document and the “articles of as­so­ci­ation”, which consists of rules about running the company that the share­hold­ers have agreed on, can be found online.

If you’ve completed all the afore­men­tioned steps, you are now ready to register your company. You can do this online, but only if your company is limited by shares and if it uses standard articles of as­so­ci­ation (as opposed to ones you have written yourself). The re­gis­tra­tion fee is £12 and can be paid by debit or credit card, or using your PayPal account.

You can also register by post, which takes 8 to 10 days and costs £40. If you’re in a rush, you can pay £100 instead and be re­gistered on the same day. If your ap­plic­a­tion has been suc­cess­ful, you’ll receive a “cer­ti­fic­ate of in­cor­por­a­tion”, which confirms that your company legally exists and includes the company number and date that it was formed.

You have to register for cor­por­a­tion tax within 3 months of starting up the business, which includes selling, ad­vert­ising, renting a property, or employing someone. To register, you need your company’s unique taxpayer reference (UTR), which should have been sent to you by HM Revenue and Customs (HMRC) after suc­cess­ful re­gis­tra­tion with Companies House. For re­gis­ter­ing you require:

• Your company’s re­gis­tra­tion number
• The date you started to do business
• The date your annual accounts are made up to

HMRC will tell you the deadline for when you have to pay Cor­por­a­tion Tax, and before this date you will need to file a Company Tax Return even if your business doesn’t make any profit or have any cor­por­a­tion tax to pay.

To make sure you keep an overview when creating an Ltd, you should first compile a rough checklist of what needs to be done:

• Register with Companies House
• Choose a company name
• Select an address
• Choose the director and company secretary
• Sort out the share and share­hold­ers
• Prepare the memor­andum and articles of as­so­ci­ation
• Register your company
• Register for cor­por­a­tion tax

This totally depends on how you decide to set up your Limited Company. If you complete the re­gis­tra­tion yourself using Companies House (as explained above), you will pay £12 for the online re­gis­tra­tion fee or £40 to do it by post.

Another option is to use a form­a­tions agent, who will set up the company on your behalf. The costs vary greatly, since it depends which service you choose. Packages range from the agent simply e-mailing all your necessary documents to you, to even setting up bank accounts and doing every step for you.

An ac­count­ant could also form your Ltd. Many business owners opt for this since it’s the easiest option for them and it es­pe­cially makes sense if they are new to running a business. You’re looking at a fee of at least £70 for an all-inclusive tailored con­tract­or ac­count­ancy service.

There is an annual statutory fee of £13 for keeping the company on the register at Companies House.

The set up process is quite straight­for­ward: your company is usually re­gistered at Companies House within 24 hours of sub­mit­ting the ap­plic­a­tion. The company will then be given a year-end ac­count­ing date based on the month it was in­cor­por­ated. You can then change the company’s year end if you prefer a different date.

If you’ve hired an ac­count­ant to help you form your Ltd., you have to factor in the amount of time that they need, depending on how busy they are. Two weeks is probably realistic.

Please note the legal dis­claim­er relating to this article.