Setting up a limited company in the UK involves several steps, including choosing a company name, registering with Companies House, and creating a memorandum and articles of association.
On the face of it, this is a simple task but there’s more to it than first meets the eye.
So, that’s what we’re going to look at today – limited company facts and a step by step guide so you can set one up properly.
Table of contents:
- Choose a name
- Appoint a director (s) and shareholder (s)
- Prepare a memorandum and articles of association
- Incorporate your company
- Register for taxes
- Set up record keeping
6 steps for setting up a limited company
1. Choose a name
Choosing a name for your limited company is an important decision, as it will form the basis of your brand and be used on all official documents and communications. When choosing a name for your limited company, consider the following guidelines:
- Check availability: You will need to check that your desired company name is available and not already in use by another company. You can do this by checking the Companies House database or by using a company formation agent.
- Comply with naming rules: You will need to comply with the Companies House naming rules. These state that your company name must not be offensive, contain certain restricted words (such as "Royal" or "British"), or suggest a connection with the government or public authority.
- Consider your brand: Your company name should reflect your brand and the products or services that you offer. Consider choosing a name that is memorable, catchy, and easy to pronounce.
- Keep it simple: A simple and straightforward company name is easier to remember and will be less likely to cause confusion. Avoid using complex words or phrases that are difficult to spell or pronounce.
- Consider your target audience: Your company name should appeal to your target audience and be relevant to the products or services that you offer.
Ultimately, it’s important to choose a name that reflects your business and that you’ll be happy with in the long term.
2. Appoint a director(s) and shareholder(s)
As the owner of a limited company, you can appoint yourself as the director, or you can appoint other individuals to this role.
The number of directors you appoint will depend on the size and complexity of your company, but there must be at least one director who is a natural person.
- Assign shares to represent ownership of the company. Each share carries a specific number of votes that can be used to make decisions about the company's affairs;
- Sign agreements with each director to formalise their appointment and set out the terms and conditions of their role. This may include a director's service agreement and a shareholders' agreement;
- File the appointments at Companies House, along with any other changes to the company's structure or management.
It’s important to seek professional advice when appointing directors and shareholders, as there are a number of legal and financial obligations involved.
You should also consider the long-term goals and objectives of the company, and ensure that the appointments are aligned with these goals.
Identify people with significant control
You need to tell Companies House about people with significant control who they define as anyone with:
- More than 25% of shares in the company.
- More than 25% of voting rights in the company.
- The right to appoint or remove the majority of the board of directors.
3. Prepare a memorandum and articles of association
These are two important legal documents that are required by law when incorporating a limited company in the UK.
Memorandum of Association:
- The Memorandum of Association sets out the company's name and its purpose.
- It includes information about the company's registered office, the types of business activities it will carry out, and its objectives.
- The Memorandum of Association must be signed by the initial subscribers, who are the first shareholders of the company.
Articles of Association:
- The Articles of Association are the internal rules and regulations of the company.
- They set out the rights and duties of directors and shareholders, as well as the procedures for holding meetings, passing resolutions, and making decisions.
- The Articles of Association should be drafted to reflect the specific needs and requirements of the company and its shareholders.
To prepare a Memorandum of Association and Articles of Association, you can either:
- Write the documents yourself with templates and guidance from online sources, or
- Get help from a qualified professional (e.g. an accountant).
It's important to ensure that the Memorandum of Association and Articles of Association are accurate and compliant with the Companies Act 2006. Incorrect or incomplete documentation can result in delays and additional costs, so it is advisable to seek professional advice if you are unsure about the process.
4. Incorporate your company
A limited company in the UK is incorporated at Companies House, which is the government agency responsible for registering and regulating limited companies.
Companies House is located in Cardiff, but you can incorporate your limited company online or by post from anywhere in the UK.
The process of incorporating a limited company at Companies House involves submitting a number of legal documents, including:
- Memorandum of Association: This document sets out the company's name and its purpose.
- Articles of Association: This document sets out the company's internal rules and regulations, such as the rights and duties of directors and shareholders.
- Form IN01: This is the official application form for incorporating a limited company at Companies House. You will need to provide details about the company's directors and shareholders, as well as information about its proposed activities.
- Filing fee: You will need to pay a filing fee to Companies House, which is currently £12 to file online and £40 to file by post.
Once your application has been processed, Companies House will issue a certificate of incorporation. This officially confirms that your limited company has been formed and registered.
5. Register for taxes
To register your limited company for taxes in the UK, you will need to follow these steps:
- Register for Corporation Tax: You will need to register your limited company for Corporation Tax within three months of starting to trade, or within three months of incorporating if you haven't started trading yet. This can be done online through the HM Revenue and Customs (HMRC) website.
- Register for VAT: If your limited company's taxable turnover exceeds the VAT registration threshold, you will need to register for VAT. The VAT registration threshold is currently £85,000. You can register for VAT online through the HMRC website.
- Register for PAYE: If you have employees, you will need to register for Pay As You Earn (PAYE) and set up a payroll system to calculate and deduct the correct amount of tax and national insurance contributions from your employees' pay.
- Register for Self Assessment: If you are a director of the limited company, you may need to register for Self Assessment and pay Income Tax and National Insurance contributions on any income you receive from the company.
It’s important to register for the correct taxes in a timely manner to avoid penalties and interest. You should also keep accurate records of your business transactions and financial affairs, and seek professional advice if necessary.
6. Set up record keeping
When running a limited company in the UK, you are required to keep accurate records of your business transactions and financial affairs.
The following are the key records that you will need to keep:
- Accounting records: You’ll need to keep detailed records of your income and expenditure, as well as your company's assets and liabilities. This includes invoices, receipts, bank statements, and any other financial documents related to your business.
- Tax records: You’ll need to keep records of all your company's taxable transactions, such as sales and purchases, in order to accurately calculate your corporation tax and VAT obligations.
- Payroll records: If you have employees, you will need to keep accurate records of their pay and deductions, as well as their tax and national insurance contributions.
- Minutes of meetings: You’ll need to keep minutes of any meetings held by the company's directors or shareholders, in order to record important decisions and resolutions.
- Shareholder records: You’ll need to keep records of the company's shareholders, including their names, addresses, and shareholdings.
- Register of directors and secretaries: You’ll need to keep a register of the company's directors and secretaries, including their names, addresses, and dates of appointment.
- Statutory books: You’ll need to keep a range of statutory books, including the register of members, the register of charges, and the register of directors' interests.
It’s important to keep accurate and up-to-date records in order to comply with your legal obligations, as well as to enable you to manage your business effectively.
You should always seek professional advice if necessary.
As you can see, there’s a lot more to setting up your limited company than picking a name and telling companies house about it.
It’s not uncommon to hire in the help of a qualified accountant to do all this for you. There are several advantages, which are:
- Expertise: Accountants have the knowledge and expertise to help you navigate the process of setting up a limited company. They can advise you on the best structure for your business, as well as the various tax and legal implications.
- Time-saving: Setting up a limited company can be a time-consuming and complex process, and an accountant can help to streamline the process and save you time.
- Avoid mistakes: An accountant can help you avoid common mistakes that can be costly and time-consuming to correct, such as registering for the wrong taxes or failing to meet your filing deadlines.
- Ongoing support: An accountant can also provide ongoing support and advice to help you manage your limited company effectively. This includes help with preparing your accounts, tax returns, and other regulatory requirements.
Of course, it's important to consider the cost of using an accountant, as well as the level of support you’ll need. Whatever you do, you’ll always be able to refer back to this guide at any time if needs be.
Frequently asked questions
Nowadays, the registration and set up process is all done online at Companies House.
Provided you have everything required to hand it takes a few minutes to complete and about 24 hours to be officially registered.
As you’d expect, postal registrations take longer at about two weeks.
A limited company is a type of business structure that is commonly used in the UK for starting and running a business.
It is considered to be a separate legal entity from its owners. This means that it can enter into contracts, sue or be sued, and own assets in its own name.
The owners of a limited company are known as shareholders, who have limited liability for the company's debts, meaning that their personal assets are protected in case the company fails.
The key characteristics of a limited company include:
- Separate Legal Entity: A limited company is a separate legal entity from its owners, meaning that it has its own rights and responsibilities.
- Limited Liability: Shareholders of a limited company have limited liability for the company's debts, which means that they are only responsible for the amount of money they have invested in the company, not the company's entire debt.
- Ownership: A limited company is owned by its shareholders, who hold shares in the company. They have the right to vote on important decisions and share in the profits of the company.
- Taxation: Limited companies are subject to corporation tax on their profits and may also be required to pay income tax on salaries and dividends paid to shareholders.
- Record Keeping: Limited companies are required to keep accurate records and file annual financial statements with Companies House, the UK's official register of companies.
With these things in mind, a limited company does have clear advantages for starting a business in the UK.
However, it also comes with added responsibilities and regulations, making it important to carefully consider all the options before making a decision.
A company director is a person appointed to manage the day-to-day affairs of a limited company. As a director, you have a number of legal and financial responsibilities, including:
- Overseeing the company's operations: You’re responsible for overseeing the company's operations and making sure that it is run in accordance with its articles of association and the law.
- Making strategic decisions: You’re responsible for making important strategic decisions about the direction of the company and for setting its business objectives.
- Ensuring compliance with the law: You’re responsible for making sure that the company complies with all relevant laws and regulations, including company law, tax law, and employment law.
- Managing finances: You’re responsible for managing the company's finances, including preparing financial statements, ensuring that the company pays its debts on time, and ensuring that the company has adequate insurance cover.
- Representing the company: You’re responsible for representing the company to the outside world and for maintaining good relationships with suppliers, customers, and stakeholders.
- Filing annual returns: You’re responsible for filing annual returns with Companies House and ensuring that the company's accounts are up to date.
- Protecting the company's assets: You’re responsible for protecting the company's assets and for making sure that its finances are used for legitimate business purposes.
The cost of setting up a limited company in the UK varies depending on the services you use and the complexity of your business structure.
Here are some of the main costs you might incur:
- Company formation fee: This is the fee charged by a company formation agent or accountant to incorporate your company and register it with Companies House. This fee can range from £10 to £100 or more, depending on the level of service you require.
- Registered office fee: If you choose to have a registered office address other than your home address, you may need to pay a fee to rent a virtual office or a physical space. This fee can range from £50 to £500 or more per year, depending on the location and services offered.
- Legal costs: You may need to engage a solicitor or company formation agent to draft your memorandum and articles of association, or to provide advice on your legal responsibilities as a company director. Legal fees can range from a few hundred pounds to several thousand, depending on the complexity of your business and the level of service required.
- Accountancy fees: You may need to engage an accountant to help you prepare your accounts and tax returns, or to provide ongoing bookkeeping and tax advice. Accountancy fees can range from a few hundred pounds per year to several thousand, depending on the size and complexity of your business.
- Company registration fees: There is a fee of £12 to register a new company with Companies House, and a fee of £40 to file your first set of annual accounts.
Ultimately, the costs can range from a few hundred pounds to several thousand depending on what you’re doing.