Key considerations when you register a Limited Company

Chris Andreou

April 21, 2021

register for limited company guide

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Limited Company

Differences Between a Limited Company and a Sole Trader

As a freelancer, contractor, or small business, it is typical to start with the simple structure of operating as a Sole Trader.

While taxes and other administrative work may be relatively easy when you are a Sole Trader, as your volume of business goes up, there are more and more reasons to take on the task of becoming a Limited Company.

For instance:

  • A Limited Company protects your personal assets. If you are found liable in a lawsuit, only your business assets are at risk.
  • A Limited Company is usually more tax efficient than being a Sole Trader.
  • Once you have your name chosen as a Limited Company registered through Companies House, no one else can take your company name.

Luckily, running a Limited Company doesn't have to be exceedingly complex, though following a set plan will help to keep the complexity to a minimum.

Choose Your Type of Limited Company

The two main types of Limited Companies are Public and Private, also known as PLCs and LTDs. Public companies tend to be larger, with share capital of at least £50,000, as well as a variety of necessary roles including two directors, two or more shareholders, and a company secretary.

As your company grows, you can talk with a specialist accountant about whether other forms of Limited Company make more sense for your business as well, but it pays to choose the right business structure from the beginning, since re-forming a company costs time and money.

In many cases, for these reasons, your Limited Company will be a private one, where you are the sole director. This term can seem a little daunting, but if you understand your role completely, it is much easier to make sure you accomplish all you need to do in order to move your company forward.

Registering a Limited Company Guide

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Registering a Limited Company Guide

How Forma Can Help You Set up Your Company

Forma is a great example of an all-in-one solution that offers much more than just accounting services. For instance:

  • We work with both Sole Traders and Limited Companies, so we are ideal for the time when you are starting out and may want to launch your Limited Company in the near future.
  • Our combined, software-driven solutions help you spend as little time as possible on the admin work of sending invoices and processing payments and as much time as possible on your value-added business propositions.
  • We make the paperwork and forms easier and make sure you know exactly which documents you need.
  • We make sure there are no missing steps and help you navigate the process every step of the way.
  • If you don't have an official office space, we can help you get set up with a virtual office.
  • We will understand the kinds of business insurance that make sense for protecting you and your assets.

More importantly, joining Forma is joining a community of experts who can help you decide what the next growth opportunity for your business may be, through the use of a variety of valuable business guides and calculators.

Propsective company director looking at starting a limited company on his iPad

Understand Accounting Documentation: Invoicing and Expenses

The fundamental building blocks of solid accounting are those of invoices for work completed and expenses incurred in order to produce the work.

In a profitable company, the invoiced payments outweigh all the expenses and create a profit. Most people have accounting software for managing these items, keeping everything in one place so that you can quickly and painlessly generate needed reports and tax forms.

However, if you've never been very good about keeping track of these items, now is the time to start. Before you even initiate the process of becoming a Limited Company, set a system for organising and maintaining invoices and expenses such that you can access them easily, including:

  • Who are your clients? Maintain clear records for each customer.
  • How do you bill them? Retain electronic copies of every invoice you send.
  • What are the costs of doing business? Retain receipts or electronic purchase orders for all business-related expenses that can be deducted on your corporate tax return.

This is also the time to find a trusted accountant that specializes in contractor and small business income.

In many cases, waiting until after you've gone through the process, creating a Limited Company will mean you have to go through the admin work of creating your company alone, and getting started with an accountancy now gives you someone to call as soon as you have questions.

Select a Name and How to Incorporate

So you've done all the research and you are ready to become a Limited Company. What happens next?

  • Take a serious look at the Companies House name availability search to make sure you select a name that is unique.
  • With more companies than ever using online presence as a major driver of revenue, think carefully about how the name you've selected will perform online, and whether there is any benefit to a more straightforward name.
  • The ideal name will balance a clear value offer with a unique idea that stands out from other registered Limited Companies.

Once you've chosen the perfect name, work with your accounting organisation to supply all necessary details for starting a Limited Company. This process is fairly quick. You will need:

  • Memorandum of Association
  • Form 10
  • Form 12
  • Your Articles of Association

Your accounting representative will usually do the actual filing of this information. It is up to you to make sure you can access the information your accountant needs in order to move forward rapidly, so work on finding and organising that information, and your accountant will do the rest.

Pay special attention as the Articles of Association are formed; they will be the guidance you have for how to comport yourself as a Director of a company, and following the rules outlined in those documents is key to being a high-quality Director.

Registering a Limited Company Guide

What's Inside:

  • What is a Limited Company
  • 10 step process for setting up a Limited Company
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Registering a Limited Company Guide

What's Inside:

  • What is a Limited Company
  • 10 step process for setting up a Limited Company

Preparing Tax Returns and Tracking Expenses

While some aspects of tax returns as a Limited Company may be simple, only requiring you to proof and approve what your accountant has prepared, other aspects, such as dealing with VAT, may be more complex. Learn from your trusted accountancy whether VAT is necessary and how to incorporate it into your invoicing structure, and they will help you ensure that this tax income makes it to the right place.

An important note to remember as you choose an accountant is that your taxes grow more complex when you aren't consolidating your information so that it is all easily accessible. Forma offers you the opportunity to turn to the same experts each time to get advice and to have all of the relevant information stored at your fingertips in our system.

As your Limited Company gets going, you will find that there are expenses you may have never had as a Sole Trader. Some of the early, or pre-trading, expenses you'll incur include:

  • Business cards as well as official letterhead.
  • Computers, software subscriptions, and software licenses
  • Rental, if your company requires physical office space
  • Business Insurance
  • Accounting Costs

There are also a variety of ongoing expenses that will impact you as a business owner, but it is important to speak with your accountant about gray area expenses that may seem to benefit you personally and professionally, such as expenses incurred while working from your home residence.

Benefits of a Trusted Accountant and Burdens of Directorship

This may be the first time you've established a great relationship with an accountant, but the incorporation of your Limited Company is only the beginning of such a partnership.

Here are some of the ways that the right business solution will help you, even in just the first years:

  • They can help you with establishing a business bank account through a reputable bank that offers the kinds of services you will need to succeed. Not all bank accounts are created equal, and just because you are experienced with choosing personal banking options doesn't mean you know all the needs you will have for a corporate account.
  • When you go to file your first corporate tax return, they will help you sort through your (now well-organised) documentation to ensure that you reduce your tax burden substantially. Ultimately, the right corporate accountant is the one who helps you take home more of your income while charging you a reasonable fee, not someone who cannot show the results of their assistance.
  • As mentioned briefly above, expert accountants will notice opportunities for incentives and will inform you if the laws surrounding Limited Company taxes change over time. Having a trustworthy accountant is like having someone keeping track of the business tax law news for you.

All of the above services are available through Forma, but we provide a more comprehensive solution: we work with companies from incorporation through their accounting needs and also handle items like virtual offices and business insurance, all from one central company.

Once you are officially a Limited Company director, you'll have a few responsibilities that Sole Traders do not have; getting to know them now, before you ever start the company, is the best way to feel ready to move forward.

  • You will interact with Companies House, first by registering your company and then yearly through annual accounts and confirmation statements.
  • You will file your corporate tax return and your personal tax return through Her Majesty's Revenue and Customs (HMRC).
  • As far as responsibilities to the company, you have to see the company as an entity of its own, and you as director want to work in its best interest. This means, if there are other stakeholders in your company, that you inform them if any conflicts-of-interest exist, such as personal benefit you might receive from a choice you are making on behalf of the company.
  • In incorporating the company, you've also taken on the responsibility of following the rules, keeping excellent records, and reporting out any major changes in the business.

These are strict guidelines, but they can be performed by many individuals if you know what you are getting into from the start. If you are in bankruptcy, under 16 years old, or are in other ways disqualified, you'll not be able to create a Limited Company and serve as Director yourself.

Even after your Limited Company is set up, new challenges always arise in the exciting world of small business. Bring Forma along to always have a knowledgeable financial organisation to turn to with your many questions.

Get Free Advice from an Accountant

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set up a limited company guide
Featured Article

How to set up a Limited Company

Setting up a limited company is one of the best ways to optimize your tax, maximise your take-home pay and give your company that professional edge. In this comprehensive guide, we take you through everything you’ll need to get started

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5 advantages of a limited company

The advantages of operating as a limited company are well known. It can be a great way to maximise your take-home pay, improve your credibility with customers and limit your personal liability. Like most things in life, it's a case of what's best for your situation. While the positives outweigh the negatives for most people, there are a few things you should know before you make the jump to a limited company.

In this article, we'll outline the disadvantages of operating as a private limited company. Bear in mind that there are many advantages to a limited company and in many cases, these advantages will outweigh the disadvantages, so don't think of this as a report of doom and gloom.

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Registering a Limited Company Guide

  • What is a Limited Company
  • 10 step process for setting up a Limited Company
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How to set up a Limited Company

When you set up a limited company, you'll enjoy many advantages you don't get as a sole trader. Not only is it a tax-efficient way to run your business, it's also a great way to limit your personal liability and increase your credibility with customers. Additionally, it could open new avenues of work that wouldn't be open to you if you were operating as a sole trader, especially some contractor roles.

One of the disadvantages of running a limited company is that it involves a lot of paperwork, but with the help of this guide, we'll clear away the jargon and tell you exactly what you need.

If you're unsure about whether a limited company is right for you, check out our handy article comparing the differences between Limited companies and Sole Traders to see which business entity is right for you.

If you've got more important things to do than dealing with extra admin, you can always take advantage of one of our accountancy packages and we'll do all the forms and applications for you.

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5 disadvantages of a limited company

What are the advantages of a private limited company?

In the UK, the majority of self-employed people operate as sole traders. While there are many advantages to being a sole trader, you could take home more money and give your business a professional edge by setting up as a limited company.

In this article, we'll look at the advantages of operating as a private limited company to see how it could benefit you. If you're interested in seeing whether a limited company could be a good option for your business, check out our Business Structure guide. If you're already operating as a sole trader, making the jump to a limited company is more straight forward than you think.

Advantage 1 ‚- You pay less tax and National Insurance Contributions

Who can turn their nose up at the prospect of increased take-home pay? Well, that's the principle benefit of setting up a limited company and one of the main factors that drive people to switch from a sole trader.

As a director of a limited company, the way you pay tax is different from how you pay as a sole trader. As a sole trader, you'll pay 20% or more on everything you earn over the tax threshold. As a limited company, you typically pay yourself a small salary so you incur as little personal tax as possible. The majority of your income will come in the form of dividends that are taxed at a much smaller rate, meaning you're able to maximise your take-home pay.

As well as the tax benefits, paying the majority of your income through dividends means that you're able to pay less National Insurance Contributions (NICs) as these do not apply to dividend payments.

Example - Here's a quick comparison of the difference in take-home pay for a sole trader and a limited company.

  1. Sole Trader
    Revenue: £40,000
    Expenses: £1000
    Tax at 20%: £5,300
    Class 2 NIC: £158.60
    Class 4 NIC: £2,655
    Take-home pay: £30,886.40


  2. Limited Company
    Revenue: £40,000
    Expenses: £1000
    Corporation tax: £5741.04
    Dividend tax at 7.5%: 1,406.92
    Take-home pay: £ 31,852.04

As you can see, you save £965.64 as a limited company. What's not to like?

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When do I need a Limited Company?

There is no clear cut time as to when you should start working through your own limited company. With other routes available-such as operating as a sole trader, or working through an umbrella company-it is always worth weighing up what is best for you and your circumstances.

With that being said, if you plan to work as an independent contractor for the foreseeable future, opening your own limited company at the early stages can maximise your opportunities for reaping the benefits of having your own company straight away.

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What are the disadvantages of a Limited Company?

The drawbacks to setting up a limited company include:

  • There are additional filing and reporting requirements to adhere to.
  • Reduced privacy
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Sole Trader vs Limited Company

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What type of business structure is best for you?

If you're looking to the future with the hopes of beginning a journey running your own startup, chances are you're feeling some mixture of excitement, trepidation, and uncertainty when it comes to the finer details of your plan.

Starting your own business is an immensely fulfilling process and an excellent means to flex your creative muscles, but there's a lot of humdrum of business behind the process of turning a vision into a dream.

One of the most important (and one of the earliest) decisions in this process will centre around your business's formation. You'll have to select which type of business structure best suits your goals for the future.

While the choice may sound easy, you'll be well-served by giving the decision ample consideration. The business structure you select will have measurable implications on the way you make money and do business. It'll impact:

  • How much tax you pay
  • Your degree of personal liability should the business fail
  • How much administrative work is involved in the business (both before it comes to fruition and over the course of its life)
  • Your ability to finance and fund your efforts

If you make the wrong selection when it comes time to choose a business structure, you could be faced with a myriad of complications in the future.

Paying professionals for guidance and advice once things go wrong is costly and, for many, an embarrassing affair-performing research well in advance will ensure you're making the best choice for your company and that you can avoid losing out on money or pride later on.

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3 Ways to Register Your Company for Free

Registering a company is a one off cost of £12 and done through Companies House. However, there are a few different ways that you can get this fee waved with other business services that you need.

We'll walk you through how to register your company for free and the perks that you'll get with each.

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How do I register a limited company?

There are a couple of ways to go about registering a limited company:

  • Register directly through Companies House
  • Go through a third party: An accountant or company formation service can help you process your application, significantly lessening your admin burden. Beyond the application, a good third-party service can also provide accounting advice, help you fulfil your filing obligations and assist with other admin tasks.

We've included further details in our guide on setting up a limited company.

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What are the advantages of a Limited Company?

The advantages to setting up a limited company are:

  • Owners aren't fully liable
  • Tax savings
  • Using a limited company structure lends credibility to your business
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What are Personal service companies?

While there isn't a legal or formal definition of the term, personal service companies (PSC) refer to limited companies that are owned by a contractor, who is also the only shareholder and sole director. In some instances, the company may also be owned by a very small group of individuals.

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When do I need a Limited company as a contractor?

There is no clear cut time as to when you should start working through your own limited company. With other routes available-such as operating as a sole trader, or working through an umbrella company-it is always worth weighing up what is best for you and your circumstances.

With that being said, if you plan to work as an independent contractor for the foreseeable future, opening your own limited company at the early stages can maximise your opportunities for reaping the benefits of having your own company straight away.

Read Full GuideRead Full GuideCalculate Now

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Key considerations when you register a Limited Company

As a freelancer, contractor, or small business, it is typical to start with the simple structure of operating as a Sole Trader.

While taxes and other administrative work may be relatively easy when you are a Sole Trader, as your volume of business goes up, there are more and more reasons to take on the task of becoming a Limited Company.

For instance:

  • A Limited Company protects your personal assets. If you are found liable in a lawsuit, only your business assets are at risk.
  • A Limited Company is usually more tax efficient than being a Sole Trader.
  • Once you have your name chosen as a Limited Company registered through Companies House, no one else can take your company name.

Luckily, running a Limited Company doesn't have to be exceedingly complex, though following a set plan will help to keep the complexity to a minimum.

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Download Now:

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How do I set up a Limited Company?

To set up a limited company, you need to take the following steps:

  • Decide what kind of limited company you need
  • Choose a business name
  • Choose how to set up your limited company
  • Complete the company formation process
  • Open a business bank account
  • Inform your stakeholders
  • Get your VAT registration or transfer sorted out
  • Set up your payroll
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How do I register my business?

To register a business as a sole trader, you need to:

Once you've registered, you need to fulfil your responsibilities as a sole trader. These include:

  • Keeping records of your sales and expenses
  • Submitting a Self Assessment tax return each year
  • Paying income tax and National Insurance Contributions

To set up a limited company, you need to:

  • Decide what type of limited company you need
  • Choose a business name
  • Choose how to set up your limited company
  • Complete the company formation process
  • Open a business bank account
  • Inform your stakeholders
  • Get your VAT registration or transfer sorted out
  • Set up your payroll
  • Update your company details
  • Get your books sorted out

To set up a business partnership, you need to:

  • Choose a business name
  • Choose a ‚Äònominated partner'
  • Register with HMRC
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Registering a Limited Company Guide

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