Ultimate Guide to Forming a Limited Company
Setting up a limited company can be daunting for even the savviest of individuals, and rightly so, as it will be the company name you are trading under . You’ll obviously want to get all the information right to avoid future complications.
Fear not, though; having set up thousands of limited companies over the years, we at Gorilla Accounting thought it would be useful to put together the ultimate guide to setting up a limited company, utilising our vast experience on the subject. So, sit back, grab yourself a cuppa and relax, as we take you through everything you’d ever need to know about setting up your limited company.
What is a Limited Company?
Before we get into the details of setting up a limited company, it’s important to understand exactly what one is. In essence, a limited company is a type of business that is registered at Companies House and is completely separate from its owners, that can enter into contracts in its own name whilst being responsible for its own finances and liabilities. This structure means that the liability of each shareholder within the limited company is only limited to their individual investment, which is known as their limited liability.
A limited company can be owned by one or more shareholders and managed by one or more directors; the same person can be the director and owner.
As the limited company is an entirely separate entity from yourself, it will require a business account. The total monies held in the business account will belong entirely to the business and will only become yours once it has been paid into your personal account.
Benefits of Operating Through a Limited Company
There are numerous benefits to operating through a limited company, whether you are a sole trader or looking to start a business, here are just a few of the benefits you can expect to see once you set up your limited company:
- Easy to grow – if your business does expand, you’ll find it is very easy to issue shares and take on employees by using a limited company.
- Tax efficiency – rules surrounding company taxation mean that you are able to keep more of your income through a limited company set up.
- Limited liability – if your limited company runs into financial difficulties, you are only liable up to the amount you have invested in the company. It’s also worth noting that your personal belongings cannot be taken if your limited company does become insolvent.
- Expenses – utilising a limited company gives you the ability to claim a whole host of expenses which can be used for corporation tax, which ensures you take more of your money home. You can find out more about the expenses you can claim by checking out our guide to expenses.
Setting Up a Limited Company
Before you can set up a private limited company, you’ll need to register this with Companies House, this is known as ‘incorporation’. To do this, you’ll need the following:
- A company name
- An address for the company
- At least one director
- At least one shareholder and details of the company’s share structure
- Your Standard Industrial Classification of Economic Activities code (SIC) – this simply identifies what your company does.
Choosing a Company Name
The first step on your journey to creating a limited company is choosing a company name. This may sound simple, but ensuring you choose a company name that hasn’t already been taken by someone else, and that encapsulates your services perfectly can be a tall order. Take your time on this as your limited company name cannot be too similar to another company’s name or trademark, as someone may make a complaint.
It’s also worth noting that your limited company name must usually end with either ‘Ltd’ or ‘Limited’ and cannot be offensive in any way.
You can check if your company name is available by visiting the Companies House website.
It’s vital that you supply a valid address where official communications can be sent to your limited company. The address must be a physical address in the UK and must be in the same country that your company is registered in; for example, if your limited company was formed in Scotland, you must have a registered office address in Scotland. The address you provide could be your home address or the address of the person who will manage your Corporation Tax.
You are able to use a PO Box for your official communication, but you must still provide a physical address and postcode as part of the process.
In the case of setting up a private limited company, you must have at least one director. The role that the director of your limited company takes on is that of being legally responsible for the running of the company and ensuring that company accounts, finances and reports are properly prepared.
In order to be eligible to become a director for a limited company, you must be at least 16 years of age and not be disqualified from being a director.
If you become a director of your limited company, it’s worth knowing that your name will be publicly available on Companies House along with your correspondence address. If you choose to use your home address as your correspondence address, you can ask Companies House to remove it from the register following your limited company being set up.
If you are looking to start a limited company, you can appoint a secretary who will take on some of the director’s responsibilities. However, if you are setting up a private limited company, you do not need to appoint a secretary.
Shares and Shareholders
The vast majority of limited companies that are formed are ‘limited by shares’, which means they’re owned by shareholders, who have certain rights. With private limited companies, there is usually only one shareholder, who will also be the director of the company. If you are the only shareholder within a limited company, you will own 100% of the company.
If you were to have more than one shareholder within your limited company, the price of each individual share can be of any value that you determine. It’s advised that you choose a low share value (for example around £1) to limit the shareholders’ liability to a reasonable amount. If the limited company was to become insolvent, the shareholder will be required to pay for their shares in full.
When you register your limited company, you will need to provide information about the shares within the company; this is known as a ‘statement of capital’. Included in the statement of capital is the following:
- The number of shares of each type that the limited company has and their total value, which is known as the company’s share capital. For example, if a company issues 1000 shares at £1 each, the limited company has a share capital of £1000.
- The name and addresses of all shareholders. If you are the only shareholder, then you’ll only need to provide your name and address.
Memorandum and Articles of Association
During the process of applying to create your limited company, you will need to ensure a memorandum of association and articles of association are correctly filled out.
The memorandum of association is a legal statement which needs to be signed by all initial shareholders agreeing to form the company. If you are setting up the company individually, you’ll only need your own signature on this document. You are able to use a memorandum of association template; once your company has been registered, this cannot be updated.
The article of association is a document which is agreed by shareholders, directors and the company secretary regarding the written rules about running the company. Again, if you are the sole director and owner of the limited company, this only need be agreed by yourself.
You are allowed to use a standard article of association for ease, or you can write your own articles which your company will abide by. However, if you choose to write your own, you will not be able to register your company online.
Register Your Company
You’re almost done by this point; if you have filled in all of the information that has been mentioned above, you have everything you’ll need to start your very own limited company.
You can choose to register online, but only if the following apply to your limited company:
- it is limited by shares
- It uses the standard article of association or ‘model articles’, rather than an article of association written by yourself.
If your limited company does meet these criteria, you can apply for your limited company to be formed online. The cost of setting up your limited company comes in at £12 and can be paid by debit or credit card or via a PayPal account online. Once you have paid the fee, you can expect your limited company to be registered within 24 hours.
If your limited company is unable to be formed online, you will have to register your company by post using an IN01 form. Postal applications take between 8 and 10 days to process and are subject to a charge of £40 which should be paid by a cheque made out to ‘Companies House’.
If you are in a hurry and need your company to be registered the same day, you’ll need to get your application to Companies House by 3pm and pay a £100 fee. The envelope you use must be marked with ‘same day service’ in the top left-hand corner, too.
It’s also worth noting, that if you choose not to use ‘Limited’ in your company name, you must register your company by post.
Once you have officially registered your limited company, you’ll receive a ‘certificate of incorporation’, which confirms that the company legally exists and shows your unique company number and the date of formation.
Register for Corporation Tax
You’ll need to register for Corporation Tax within 3 months of starting to conduct business – this could include anything from buying, selling, advertising, renting a premises or employing someone.
In most cases, you will be able to register for Corporation Tax online. To do so, you’ll need to enter your company’s 10-digit Unique Taxpayer Reference. This will be posted to the company address you included in your application within 14 days of the company being registered with Companies House.
When registering for Corporation Tax, you will need to provide HM Revenue and Customs with the following information:
- Your company’s unique registration number
- The date you started to conduct business
Following this, HMRC will let you know what the deadline is for paying your Corporation Tax, and you will need to file a Company Tax Return, even if you make a loss or have no Corporation Tax to pay.
If you register for Corporation Tax late, you could be handed a penalty or fine.
How Gorilla Accounting Can Help You
If you are looking for someone to create your private limited company for you, then look no further than Gorilla Accounting. We offer a comprehensive Company Formation service, which includes Share Certificates, Statutory Books, VAT Registration and a Business Bank Account, all for just £50 + VAT. As expert contractor accountants, the team here at Gorilla Accounting will be on hand to help you through every step of the process to ensure you have a stress-free limited company set up. Once your limited company has been created, we are also on hand to provide you with any assistance you require, such as with taxation and outsourcing payroll.