If you’ve been in business for some time, you may want to branch out and find your footing with your own limited company. Of course, as any business leader or company owner will tell you, setting up your own limited company is no easy feat, so below we’ve provided a brief guide on how to set up a limited company.
What is a limited company?
A limited company is a company that is treated in a similar way to an individual, in that the company is responsible for making money, losing money and settling debts. The law refers to a limited company as a ‘moral person’, providing it with its own identity to operate under. Even if you’re the one steering the ship and keeping it afloat, on paper, you must treat the limited company as a separate entity.
There are two main types of limited companies: Private Limited Companies (LTDs) and Public Limited Companies (PLCs). LTDs are the most popular choice for freelancers, contractors and start-up small businesses to operate under, compared to PLCs which require a minimum share capital of £50,000, as well as two shareholders, two directors and a qualified company secretary.
1) Choosing a name
The company name should be your first port of call. It must be unique to you and must refrain from using any sensitive words or phrases. No trademarks are allowed, and you should make sure the name is available to use and hasn’t been used by anyone else. You should also make sure that it is memorable and in keeping with your industry if you want to attract future custom.
2) Registered address
When setting up a company, you need to have a registered address that receives all company mail. It doesn’t have to be an actual building. You could simply use your residential address for simplicity’s sake, or you may want to use your accountant’s address. Bear in mind that if you’re setting up a company in England, then the company should be in England. If the company is in Wales, then the company should be in Wales and so on, and so forth.
3) Assign roles
Next, you will need to choose officials. For many limited companies, there will be at least one director (you) and a secretary (this is not always mandatory, but advisable). The company secretary will be responsible for taking on the accounting and financial aspect of your business, so you ideally need someone who is well versed in accountancy.
When it comes to registering company shareholders, you will need multiple details including their name, address, share class and how many shares they will own. Other relevant pieces of information include their town of birth, National Insurance Number and more personal questions like their mother’s maiden name.
5) PSC Register
When starting up a company, there will need to be an official record of ‘People of Significant Control’ – which refers to anybody who holds either 25% or more of the company’s shares or 25% or more of the voting rights. These records must be submitted to Companies House on an annual basis, which brings us to our next point…
6) Register with Companies House
Companies House is going to be a major factor in getting your Limited Company off the ground as it acts as a database for all company listings in the UK. Bear in mind that you will normally have to pay a small fee to register with Companies House.
Every sector will carry a different Standard Industry Classification and you will need to assign your company to the code it falls under. For example, the code for a business and software development company is 62012.
Memorandum of Association – Name, location and sector
Form 10 – Name of director, director’s address and registered company address
Form 12 – An agreement that the limited company will adhere to all terms and conditions set out by Companies House
Articles of Association – These outline the director’s powers, as well as the responsibilities of the shareholders. This last one can be a little tricky because it requires you to outline the scope and scale of the company moving forward. Before you send off this document, you should have it looked over by an expert tax advisor who can point out any red flags to you.
Share Types: You are also going to need to decide what kind of shares you are going to be using. This include:
Ordinary – The simplest form, giving each shareholder the right to vote in the company’s operations.
Deferred Ordinary – Does not pay a dividend until all other classes of shares receive a minimum dividend. And even in the face of winding up, the amount will only be increased after all other entitlements are met.
Non-voting Ordinary – The right to vote regarding ordinary shares will face restrictions, and there will be a specific criterion that needs to be passed before one can vote.
Redeemable – Give the company the option to sell them back in the future.
Preference – Receive a fixed amount of dividend each year, often expressed as a percentage of the nominal value.
Cumulative Preference – Should the dividend miss a payment, the shortfall will be rectified the next time the company has sufficient distributable reserves.
There are a few other pointers you should take into account when setting up your company. For example, you need to keep up to date with all the financial and legal requirements regarding company tax; make sure you understand what is expected of your company directors; and find out how to maintain statutory records. You will also need to register with HMRC as an employer. On the financial side, you must register for Corporation Tax.
These are the main starting points towards getting your limited company off the ground, giving it the chance to take shape and, more importantly, allowing you to decide what shape you want it to take.
To find out more about how to set up a limited company, speak to us.