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2023 was the year of new business, and 2024 looks to be even better! A record 900,000 new companies were launched last year, up 12% in 2022. This is according to reports from NatWest and Beauhurst’s New Startup Index. In what is a UK high, and great news for the ever-growing economy, this start-up boom brings the number of active companies operating in the UK to 5.31million.
Despite challenging economic conditions such as heightened inflation and increased operational costs, the biggest growing sectors include online retailers (82,000), the property letting space (49,000), and takeaways and street food stalls (21,000).
On top of this, the growth in female founded businesses has risen year on year too, with 164,000 incorporated in 2023, up 4% in 2022.
With small businesses continuing to be the lifeblood of our economy, and more and more people becoming self-employed, it’s so incredibly important to ensure your finances as a small business, contractor, freelancer or landlord are all in order.
Three fifths of employment is now through a registered small business and within the private sector it accounts for around half of the overall turnover.
With that in mind, setting up a limited company the right way is paramount to long and continued success.
Setting up a Ltd Company
Starting a limited company is a popular choice for entrepreneurs due to its distinct advantages, including limited liability, tax benefits, and a professional image. However, to form a limited company involves several steps and considerations.
The entire process can feel a little daunting, from initial planning to legal registration and ongoing compliance, especially if you’re brand new to working in this capacity. At Gorilla Accounting we’re experts in company formation and ongoing accounting support through our fixed-fee accounting packages.
We’ve pulled together a step-by-step guide to help you turn your business dreams into a fully-fledged limited company.
1. Make Sure you Understand the Limited Company Structure
Before diving into the setup process, it’s essential to understand what a limited company is. A limited company is a separate legal entity, and not connected to any shareholders or directors.
This separation provides limited liability protection, meaning shareholders’ personal assets are protected if the company faces financial difficulties.
There are two main types of limited companies:
- Private Limited Company (Ltd): Cannot offer shares to the public.
- Public Limited Company (PLC): Can offer shares to the public and has more stringent regulatory requirements.
Most small to medium-sized businesses choose the private limited company structure due to its simplicity and flexibility.
2. Is a Limited Company right for you?
While a limited company offers numerous benefits, it’s not suitable for every business and some opt to become a sole trader instead. Some things to consider include the following factors:
- Liability: If you want to protect your personal assets from business liabilities then setting up as a limited company is a good idea.
- Taxation: With the help of an expert accountant, there are potential tax efficiencies as a limited company compared to being a sole trader, especially if you plan to reinvest profits into the business.
- Investment: It is easier to raise capital as a limited company, as well as adding credibility to investors by having the company registered.
- Professionalism: Alongside investors, it also enhances credibility with customers and suppliers.
3. Decide on a Company Name
Selecting a unique and appropriate company name is a crucial step in ltd company setup. The name must:
- Be Unique: You can check that your idea is available by using the Companies House name availability tool. You don’t want to have something similar to other companies, especially if they are in the same sector as you. It can cause frustration on both parts, with customers and in search engines.
- Not Be Offensive: Avoid names that could be deemed offensive or misleading. The last thing you want is to put off potential customers by the name of your company.
- Include ‘Limited’: The name must end with ‘Limited’ or ‘Ltd’ unless it is a registered charity or exempted.
- Avoid Sensitive Words: Certain words require special permission, such as ‘Royal’ or ‘British’.
4. Prepare for Registration
Before registering your company, gather the necessary details and documents so the whole process can be easy and smooth. You’ll need to provide the following information:
Registered Office Address
This is the official company address for correspondence. It must be a physical address in the UK. If you do not have a fixed address for this, Gorilla Accounting offers a Registered Office Service for just £10+VAT per month, especially for limited companies.
Directors
You will need to provide the details for at least one director who is responsible for running the company. A company director must be over 16 years old and not disqualified.
Shareholders
You will also need to provide details of shareholders, or at least one. This can be the same person as the director but shareholders own the company. Some directors may run the company but not hold any shares.
Share Capital
If you have more than one shareholder, you will need to decide on the number and value of shares to be issued. This determines ownership and control.
Memorandum and Articles of Association
You will need to provide legal documents outlining the company’s structure and rules. Standard templates are available from Companies House.
People with Significant Control (PSC)
Identify individuals with significant control over the company, typically those with more than 25% of shares or voting rights.
5. Registering with Companies House
Once you have all the necessary information, you can register your limited company with Companies House. You can do this three ways:
- Online: This is the quickest and easiest method, costing £50, with registration usually completed within 24 hours.
- Post: This costs £71 and takes 8 to 10 days. You then send the completed IN01 form to Companies House.
- Third-Party Agent: You can use an accountant or company formation agent to handle the registration process.
Gorilla Accounting offers an expert full Company Formation service including Share Certificates, Statutory Books, and VAT Registration, all for just £160 inc VAT. Our Limited Company Incorporation Service includes:
- Registration of your company with Companies House
- Certificate of incorporation
- Share certificates
- VAT registration
- Memorandum and articles of association
- VAT flat rate scheme registration
From there you will get a company number as part of your company registration, allowing you to move on to the next steps.
6. Registering for Corporation Tax
Within three months of starting your business, you must register for Corporation Tax with HM Revenue & Customs (HMRC). This can be done online and an expert accountant can help you with this, which is incredibly important.
Failure to register on time may result in penalties. You’ll need your company’s Unique Taxpayer Reference (UTR), which is sent to your registered office address by HMRC.
7. Time to Set up a Business Bank Account
Opening a separate business bank account is crucial for maintaining clear financial records and ensuring compliance with legal requirements. Most UK banks offer business accounts tailored to different company sizes and needs.
Gorilla Accounting has partnered with Mettle, the FREE business bank account by NatWest.
A business bank account is a legal requirement for limited companies and makes accounting and bookkeeping much easier and more efficient. It is easier to calculate your taxes, track your business transactions and expenses and manage cash flow.
It also adds a level of credibility and professionalism to your business and it can enable access to credit and loans that might not otherwise be available.
8. Understanding Your Legal Responsibilities
Running a limited company comes with ongoing legal responsibilities, which is important to get right. With the help of a dedicated accountant, this can be much easier for you when running your business. These include:
- Annual Accounts: Prepare and file annual accounts with Companies House.
- Confirmation Statement: File a confirmation statement at least once a year to confirm company information.
- Corporation Tax Return: Submit a corporation tax return and pay any tax due within nine months and one day after your accounting period ends.
- PAYE Registration: If you have employees, register for PAYE and manage payroll taxes.
- VAT Registration: Register for VAT if your taxable turnover exceeds the threshold.
9. Keeping Accurate Records
Maintaining accurate and up-to-date records is crucial for compliance and financial management. Important things to keep on top of include:
- Financial Transactions: All income and expenses.
- Directors’ Meetings: Minutes and resolutions.
- Shareholder Information: Changes in shareholding.
- Employees: Salaries, benefits, and tax deductions.
Using accounting software can streamline this process and ensure accuracy.
When you appoint Gorilla Accounting, FreeAgent accounting software is included at no extra cost in all our great value fixed-fee accounting packages. It’s specifically designed for small businesses with up to 10 employees.
FreeAgent is cloud-based so you can access your accounts at any time on any device with an internet connection to get a comprehensive real-time overview of the financial position and health of your business.
It has inbuilt features designed to make life a lot easier and save you time, freeing up more of your time to focus on your day to day and growing your business.
Setting up a Ltd Company
Setting up a limited company can be easy once you know exactly what you’re doing. The benefits often outweigh the complexities. By following this guide, you can ensure a smooth and compliant company formation process. Remember, the key to success lies in thorough planning, accurate record-keeping, and staying informed about your legal obligations.
Starting a limited company is an exciting venture, and with the right approach, it can pave the way for significant growth and success. Whether you are an aspiring entrepreneur or an established business looking to expand, understanding the process of setting up a limited company is essential.
If you have any queries about our accounting services, you can speak to an accountant on 0330 024 0406 or request a callback via our website.
