Three simple steps to setting up a limited company
You may be just starting out in a new business or you have been a sole trader for a while. Either way, it is vital to weigh up the difference between sole trader and limited company, as which structure you choose could impact on everything from profit to paperwork.
Don’t rush into any decision and speak to an accountant if you are unsure, their expertise can be invaluable when it comes to the tax facts.
If your Accountant has identified that a Limited Company is for you thenyou have to choose which type you wish to form. Again ask your Accountant, the two main choices are:
- Private Limited Companies (LTDs)
- Public Limited Companies (PLCs)
Most freelancers, contractors, start-ups and small businesses will opt for a Private Limited Company, as PLCs must have a minimum share capital of £50,000, at least two shareholders, two directors and a qualified company secretary which is not necessary for a small business.
1. Picking your name
This bit is equally the most fun and most frustrating part of the whole process. Much like a web address, your company name has to be completely unique. You can differentiate in a few ways to guarantee a unique name – for example, a limited company name can use either “Limited” or “Ltd.” (i.e. “Squeeze Limited” or “Squeeze Ltd.”).
2. Forming a limited company
If step two was the fun and frustrating part, this one’s the tricky and bureaucratic part – or at least it’s seen to be. It’s actually really simple if you’re organised though. You just have to supply certain personal details to help Companies House identify you as a company director, and you’re good to go. Companies House will often have your limited company formed in a few hours.
3. Complete the incorporation process
Companies House is responsible for all limited company registration in the UK. Their website provides detailed information. The following documents must be completed and returned to Companies House in order to complete the incorporation process. Often, your chosen accountant will complete these on your behalf:
- Memorandum of Association – limited company name, location, business type
- Form 10 – director’s names, addresses and registered limited company address (this doesn’t have to be where you work from but will be where the legal correspondence from HMRC and Companies House is sent)
- Form 12 – states the limited company complies with the terms and conditions of the Companies Act
- Articles of Association – outlines director’s powers, shareholder rights etc. (this is often provided by the formations company that sets up the limited company).
And that’s how to become a limited company! What do you need to do next?
Well, there are a couple more bits of admin you should take care of and there are those annoying reporting and filing responsibilities you need to stay on top of.
Simple admin first, you’ll need a business bank account for your limited company.
You’ll also need some small business insurance to cover you and your business for any work you’re doing.
You may engage other people to manage some of these things day-to-day (for example, an accountant), but you’re still legally responsible for your company’s records, accounts, and performance. You may be fined, prosecuted, or disqualified if you don’t meet your responsibilities as a director.
Certain people are prohibited from acting as a director of a company, including persons under 16 years of age, bankrupts, and disqualified persons. While there is no mandatory qualification required to be a director, a director is required to perform the duties outlined above and must be capable of doing so.
Should you need any assistance setting up or administering your Limited Company then contact the team at Buxton’s today.