How do I set up a Limited Company?
As a business owner it may be worthwhile setting up a limited company to trade from rather than being a sole trader. So how do I set up a Limited Company.
Is a limited company right for me?
A limited company has a separate legal identity from its directors and shareholders. A limited company can be beneficial, as opposed to being a sole trader, because in a limited company the owners are legally responsible for its debts but only to the extent of the money they invested, so the company is liable if things go wrong.
A limited company is either ‘limited by shares’ or ‘limited by guarantee’. Limited by shares companies are usually businesses that make a profit. Limited by guarantee companies are usually ‘not for profit’.
Choosing a company name
You must choose a name for your business if you’re setting up a private limited company.
Your name cannot be the same as another registered company’s name. If your name is too similar to another company’s name or trademark you may have to change it if someone makes a complaint.
Your name must usually end in either ‘Limited’ or ‘Ltd’. You can include the Welsh equivalents ‘Cyfyngedig’ and ‘Cyf’ instead if you registered the company in Wales.
You can trade using a different name to your registered name. This is known as a ‘business name’.
Business names must not:
- include ‘limited’, ‘Ltd’, ‘limited liability partnership, ‘LLP’, ‘public limited company’ or ‘plc’
- contain a ‘sensitive’ word or expression unless you get permission
If your business name is too similar to another company’s trademark you may have to change it if someone makes a complaint.
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Choosing a director and a company secretary
You must appoint a director but you do not have to appoint a company secretary. As a director of a limited company, you must:
- follow the company’s rules, shown in its articles of association
- keep company records and report changes
- file your accounts and your Company Tax Return
- tell other shareholders if you might personally benefit from a transaction the company makes
- pay Corporation Tax
You can hire other people to manage some of these things day-to-day (for example, an accountant) but you’re still legally responsible for your company’s records, accounts and performance. Your company must have at least one director. Directors are legally responsible for running the company and making sure company accounts and reports are properly prepared.
Choose who the shareholders or guarantors are
You need at least one shareholder or guarantor, who can be a director. Most limited companies are ‘limited by shares’. This means they’re owned by shareholders, who have certain rights. For example, directors may need shareholders to vote and agree changes to the company.
A company limited by shares must have at least one shareholder, who can be a director. If you’re the only shareholder, you’ll own 100% of the company. There’s no maximum number of shareholders. The price of an individual share can be any value. Shareholders will need to pay for their shares in full if the company has to shut down. You can choose a low share value (for example, £1) to limit the shareholders’ liability to a reasonable amount.
Guarantors promise an agreed amount of money to the company if it cannot pay its debts. This is the ‘guaranteed amount’. They must pay the company the full amount of their guarantee. This payment covers guarantors for situations such as the company being closed down. The guaranteed amount is not linked to how much the company is worth – you choose how much they pay.
You must also identify a PSC and tell HMRC who they are. This might be you, or someone associated with your company. A company can have one or more PSCs. A person with significant control (PSC) is someone who owns or controls your company. They’re sometimes called ‘beneficial owners’. You must record their details on your company’s PSC register, and you’ll need to include this information when you set up (incorporate) your company.
If you cannot identify your PSC, or do not have one, you need to tell HMRC.
Prepare documents agreeing how to run your company
You need to prepare a ‘memorandum of association’ and ‘articles of association’. When you register your company, you need:
- a ‘memorandum of association’ – a legal statement signed by all initial shareholders or guarantors agreeing to form the company. If you register your company online, you don’t need to write your own memorandum of association. It will be created automatically as part of your registration. You cannot update the memorandum once the company has been registered.
- Articles of association’ – written rules about running the company agreed by the shareholders or guarantors, directors and the company secretary. You can either use standard articles or write your own
Register your company
You’ll need to register an official address and choose a SIC code – this identifies what your company does. Most people can register for Corporation Tax at the same time as registering with Companies House.
If you cannot, register separately with HM Revenue and Customs (HMRC) after you’ve registered your company with Companies House.
Direct Peak are on hand to help our clients set up a limited company, get in contact with us today to discuss the next steps in your business and how we can help you register your company today!
Direct Peak provides a dedicated business tax accountant, who will prepare your annual accounts and tax returns. They will be on hand to answer any tax queries you have.
Your business tax accountant will ensure that the company is set up in the most tax-efficient way and that you are claiming for all the correct expenses to maximise your earnings.