How to set up a Limited Company

Chris Andreou

April 21, 2021

set up a limited company guide

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Limited Company

Why start 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.

Step by Step – How to set up a limited company 

In this section, we’ll get into the nitty-gritty of how to set up a limited company. For each step, we’ll highlight anything you’ll need to consider before taking action.

Step 1: Decide what kind of limited company you need

When setting up your limited company, you’ll have to decide what kind you’re going to form. There are two types to choose from. 

Public Limited Companies (PLCs)

PLCs have limited liability and offer shares to the general public. They require a minimum of two shareholders and a minimum share capital of £50,000

Private Limited Company (LTD): 

An LTD has 

  • Limited Liability
  • Limits the maximum number of shareholders to 50
    and 
  • Doesn't trade or offer its company shares to the general public

All private limited companies must appoint at least one director.

If you’re a freelancer or a contractor, you’re going to want to go with a private limited company. For that reason, we’ve made private limited companies the focus of the rest of this article.

Step 2: Choosing a business name

Once you’ve decided to set up a limited company, you’ll need to think of a good name for it. Thinking of a name is not just an admin task, it’s a chance for you to find a clever and memorable brand to showcase to your customers. You should spend a bit of time on this, so don’t just pick the first one you think of. Instead, have some fun with it and try to get together 20-30 different names. They don’t have to be completely different, you can play around with the word order or just change one word here and there. This is the way advertising companies approach naming briefs and it’s handy for taking raw ideas and refining them. 

If you still need help thinking of a name, check out this handy guide

You’ll need to bear the following in mind when thinking of a name for your company:

  • Your company name must typically end in either 'Limited' or 'Ltd'.

  • Your proposed name shouldn't infringe upon an existing trademark. You'll need to check the UK Intellectual Property Office trademarks 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.

Step 3: Choosing how to set up your limited company

Now that you’ve got the perfect name for your business, you’re ready to take the plunge and officially get your company set up. There are a couple of ways you can go about this. 

Register directly through Companies House – This normally costs £12 for online submissions or £40 through the mail. Going down this route requires you to do most of the admin yourself.

Go through a third party – An accountant or company formation service will help you process your application, significantly lessening the admin burden. Beyond the application itself, a good accountancy service/company formation service can also provide accounting advice, help you fulfil your filing obligations and assist with other admin.

When you sign up for one of our accountancy packages, we’ll set up your limited company for free.

Step 4: Completing the company formation process 

If you’re using a third party to set up a limited company, they’ll do most of what’s covered in this section for you. If you’re planning on setting up your company yourself, there are a few admin tasks you’ll need to complete. While it might sound a bit complicated, its actually a fairly straight forward process. This section will guide you through the ins and outs.

When you register, you’ll need to provide specific information about your business to Companies House. As such, it’s a good idea to get the following information ready to go before you start the process:

  • The SIC (Standard Industrial Classification code) appropriate for your kind of business. You can find the right SIC code from the Condensed SIC code list on the Gov.uk.

  • Three addresses for your company, including the registered office, business and director service addresses. It's important to note that two of these addresses will be available on the public domain so it’s not ideal to use your residential address. For a nominal fee, most accountants and company formation services will provide a registered business address for your company. This service is included in our accountancy packages.  

  • The share structure of your limited company. How many shareholders do you have and how many shares do they each have? This will likely be a straightforward question if you’re a contractor.

Once you’ve got all this information, you’ll be ready to complete the necessary documents (officially called the articles of incorporation). Here’s a quick outline of each one and what information is needed for each.

  • Memorandum of Association – This document sets out your company’s name, the location of the registered office and the kind of business you’re engaged in.
  • Articles of Association – This document sets out how your company will be governed and outlines the director’s responsibilities and the shareholder’s rights.
  • Form 10 – This document sets out the director’s names, their addresses and the company’s registered office
  • Form 12 – This document simply states that the limited company complies with the terms and conditions of the Companies Act

Once you’ve crossed all the t’s and dotted the i’s, you’re done. It typically takes 24 hours for Companies House to process your application so it should be ready to go the next working day. You’ll be sent a physical copy of your articles of incorporation through the post.

Registering a Limited Company Guide

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Registering a Limited Company Guide

Your responsibilities as director of a limited company

Once your company is up and running, you’ll be ready to reap the various benefits of operating as a limited company. However, you should be aware of the new responsibilities that come with being a company director. Here is a quick outline of the things to pop in your diary. For a more in-depth look at these responsibilities, have a look at our article on Company filing and deadlines.

  • 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. 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 within nine months and one day of your company's year-end accounting.
  • 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 each month.
  • If your VAT taxable turnover exceeds the VAT threshold, you'll need to register for VAT and complete your VAT returns online at the end of every financial quarter.
  • Maintain proper company records.

How an accountant can help you maintain your limited company

Getting an accountant to help you manage your responsibilities will save you a lot of time. As a business owner, your priority should be on your business and your customers. By delegating those annoying administration tasks to an accountant, it frees you up to keep your attention where it's most needed.

As well as dealing with the extensive administration that comes with running a limited company, an accountant will 

  • Keep your business finances in order
  • Advise you on important matters about your business
  • Ensure you don’t miss any important deadlines and estimate your tax so you don’t get any nasty surprises

Here at Go Forma, we offer several accountancy packages to suit various needs. Why not book a free consultation and find out how we can maximise your take-home pay and save you time.

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

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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.

Read Full GuideRead Full GuideCalculate Now

Download Now:

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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.

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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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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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