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. A private limited company is not only 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 available to you if you were operating as a sole trader - especially some contractor roles.
However, one of the disadvantages of running a limited company is that it involves a lot of paperwork. Don't worry. With the help of this guide, we'll clear away the jargon and tell you exactly what you need to start a private limited company, register at Companies House, calculate and pay corporation tax, and gain significant control over your business.
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.
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 (or PLCs) and Private Limited Companies (or LTD). Both of these need to be registered with Companies House.
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
- Doesn't trade or offer its company shares to the general public
All private limited companies must appoint at least one company director (even though at least one director is needed, multiple company directors are also allowed).
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 before you can register it in Companies House.
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 for naming limited companies.
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 a limited company by 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 official address (or addresses) for your company, including your registered office address and business and company 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 or service 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? (You will typically need at least one shareholder) This will likely be a straightforward question if you’re a contractor or sole trader business owner.
You don't need a company secretary for a private limited company, although some companies use company secretaries to assume some of the responsibilities of the company director. You also do not need to set up a business bank account when setting up a limited company - although one is recommended as it can help you keep better financial and accounting records.
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. Your company legally exists now! 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.
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 corporation 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 corporation 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.