In an earlier article, we had explained all about what a limited company is - from the different types of limited companies, to the pros and cons and key terms you need to know.
If you're ready to take the next step, continue reading on for a step-by-step guide on the company formation process. We've also included a few key considerations related to setting up a limited company, so that you're fully aware of the responsibilities you need to fulfil as a limited company director, as well as steps you can take to manage your company more efficiently.
Steps to setting up a limited company
Decide on the type of limited company to set up
There are two main types of limited companies:
- Private Limited Companies (LTDs): An LTD is a type of privately held small business entity. It limits owner liability to their shares, limits the maximum number of shareholders to 50 and doesn't trade or offer its company shares to the general public. All LTDs must appoint at least one director.
- Public Limited Companies (PLCs): A PLC has limited liability, and offers shares to the general public. PLCs are required to have at least two directors.
We will be focusing on LTDs in our article, as this is the business entity that the majority of self-employed individuals and small businesses opt for.
Select a business name
There are a few things you need to keep in mind when naming your business:
- Your company name must typically end in either 'Limited' or 'Ltd'.
- Your proposed name shouldn't infringe an existing trade mark. You'll need to check the UK Intellectual Property Office trade marks register.
- Ensure that your proposed name isn't the 'same as' an existing name. Do a check using the company name availability checker tool on Gov.uk.
- It shouldn't be offensive, nor contain sensitive words and expressions. For further information on sensitive words or names you should avoid, check out these resources on Gov.uk.
Set up your company
There are a few ways you can go about doing this:
- Register directly with Companies House: This can be done online or via post. The fees are £12 for online registrations, and £40 if your registration is done via post.
- Engage a third-party provider: You can also engage an accountant or company formation service. Beyond helping you process your application, a company formation agent can also provide accounting advice, help you fulfill your filing obligations and assist with other administrative matters.
Complete the company formation process
You'll need to complete and submit the documents listed below. If you're engaging an accountant or company formation agent, they will complete these documents on your behalf.
- Memorandum of Association: This document sets out the company's structure and aims. It states the company name, location of the registered office and business objectives.
- Articles of Association: The articles of association outlines how the business will be run, governed and owned. It lays out the responsibilities and powers of the directors, as well as the rights of shareholders.
- Form 10: This provides details of the company's registered office, along with the names and addresses of its directors.
- Form 12: This indicates that the company meets all the terms and conditions of the Companies Act.
Other key considerations for first time entrepreneurs
Now that you're familiar with the company formation process, here are a few other factors you need to consider if you're setting up a limited company for the first time:
Understand your responsibilities as a limited company director
Below, we'll provide a quick overview of the obligations you need to fulfill. We'll dive deeper into the details-including the various forms and returns you need to file, and important deadlines you need to know-in a separate article.
- Your company must be registered at Companies House
- Your company's annual accounts must be filed at Companies House
- A Confirmation Statement must be submitted annually, and this can be done online or via post. This is a filing requirement introduced in 2016 to replace the Annual Return (Form AR01).
- Submit an annual Corporation Tax to HMRC. Any outstanding tax must be paid up within nine months and one day of you company's accounting year end.
- Register for Self Assessment with HMRC, and submit your personal tax return each year.
- If you have employees and are running the company payroll, you need to report your employees' payments and deductions to HMRC on or before your employees' payday. You need to pay what you owe to HMRC by each month.
- If your VAT taxable turnover exceeds the VAT threshold, you'll need to register for VAT and completed your VAT returns online at the end of every financial quarter.
- Maintain proper company records
Stay updated on limited company tax and legal changes
Tax laws and legal requirements can be altered, added or removed from year to year, and it can be overwhelming to stay on top of these changes. We recommend signing up for our newsletter to keep abreast of the latest updates.
Understand the importance of choosing the right accountant
Running a limited company requires extensive administrative work - and here's where an accountant comes into the picture. It's important to take the time to choose an experienced and capable accountant, as he or she will be managing a critical aspect of your business - your finances.
Beyond keeping your business finances in proper order, your accountant can also advise you on important matters pertaining to your business, such as how you should set up your company's share capital or how you can make the most of each tax year. They'll take care of the day-to-day details too, like estimating your taxes or ensuring that you don't miss any HMRC deadlines.
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