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.
What is a limited company?
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.
- What is a limited company?
- How to set up a limited company
- How much does it cost to create an Ltd?
- How long does it take to set up a Ltd.?
How to set up a limited company
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.
Choose a company name
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.
Once the business name has been decided, it makes sense to buy the corresponding domain as soon as possible so you can be found online and have a wider reach.
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.
Consider trademarking your business name to make sure no-one else can trade under the same name.
Select an address
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
Choose the director and company secretary
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.
Sort out the shares and shareholders
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”.
Prepare the memorandum and articles of association
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.
Register your company
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.
Register for corporation tax
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.
If your business turnover exceeds the VAT threshold (£85,000 as of April 2017), then your company must be registered for VAT within nine months of the company’s accounting year end.
Setting up a limited company: your checklist
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
How much does it cost to create an Ltd?
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.
How long does it take to set up a Ltd.?
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.
Even if you decide not to start trading straightaway, there are still some annual forms that you are obliged to file after your company’s first year. Companies House requires the confirmation –statement and the annual financial accounts.