According to the government’s website, there are seven steps you’ll need to go through before you can be registered as a limited company. Over the course of this blog, we’ll cover all of these steps – from appointing a company structure to registering your business with Companies House.
Not sure if you’re classed as a sole trader or limited company?
The biggest difference is that where a limited company has its ownership and liability split into equal shares, a sole trader has full liability and control for the business. Choosing to set yourself up as a limited company, has less personal monetary risk if anything were to happen to the business. If you’d like to set yourself up as a sole trader, you should check out our other blog here.
A step that isn’t specific to limited companies but is so important, is registering for VAT. You can register voluntarily or once your annual turnover hits £85,000. Read our blog about VAT and small businesses to find out more.
Step 1: Is setting up a limited company right for you?
There are a number of different types of business you can set yourself up as in the UK, with a limited company being just one of them.
To declare yourself as a limited company, you must either be ‘limited by shares’ or ‘limited by guarantee’.
To be ‘limited by shares’ means that as a business, you generally make a profit and that the company:
Is legally separate from the people that own it
Has separate finances from the owner’s private finances
Has shares and shareholders
Is entitled to keep any profit it makes after tax
To be ‘limited by guarantee’ means that generally, the business is not for profit and the company:
Is separate from the people that own it
Has separate finances from the owner’s private finances
Has guarantors and a ‘guaranteed amount’
Invests any profit back into the business
If this sounds like the business you’re trying to register, then follow on to the next step in the process. If not, you might be better off looking into becoming a sole trader, business partnership or one of the other registered business forms in the UK.
Step 2: Choose a company name
Choosing a company name is a huge step in starting a business. It defines who you are, what the business does and is the thing that will either stick in people’s heads or be something they might want to forget.
Also, in this day and age, finding an original name can be quite challenging.
When you’re setting up as a limited company, you need to choose a name that isn’t the same as another registered company. If your name is the same or too similar to another company’s name or trademark, you may have to change it if someone makes a complaint or files a lawsuit against your company. The name of your business must also end with ‘Limited’ or ‘Ltd’ to highlight you are a limited company.
To find out more information about naming your company and checking you haven’t got the same or a similar name as another registered company, read the gov.uk website.
Step 3: Choose directors for your company
Choosing directors is a vital part of setting up a registered business in the UK. Directors have a legal responsibility to make sure that the company runs properly and that the company’s accounts and reports are correct and up to date.
To be a director of a company, you must:
Be 16 or over and not disqualified from being a director
Have a UK registered office address, directors don’t have to live in the UK
Directors must also be happy for their name and personal information to be available from Companies House and also provide a ‘correspondence’ address so that if someone wants or needs to contact them, they can access that information from the Companies House register.
If the director’s ‘correspondence’ address is their home address, it can be removed from the register.
As the director of a registered company, you’re responsible for:
Following the company’s rules
Keeping company records and report changes
File the company’s accounts and tax return
Make other shareholders aware if you are to financially benefit from a company transaction
Pay corporation tax
Step 4: Decide who your shareholders or guarantors will be
If your company is ‘Limited by shares’, you’re going to need shareholders as part of the company. Shareholders have a certain set of rights and, as a director, you might rely on them to make decisions and agree on changes you may want to make to the company.
Most companies tend to have shares called ‘ordinary’ shares, whereby directors get one vote per share on company decisions and are paid dividends. To find out more about dividends and paying tax on them, check out this page from gov.uk.
As a limited company, you’ll need to have at least one shareholder. And if you’re the sole shareholder, you have 100% of the shares and the full decision-making power over company changes. A company can also have as many shareholders as they like.
When you register your company initially, you need to provide information on the number of shares the company has and the total value as well as the names and addresses of all the shareholders.
As well as information on the shares and shareholders, you also need to provide ‘prescribed particulars’. This is information about what rights each type of share gives the shareholders and must include:
What share of dividends they get
Whether they can redeem their shares for money
Whether they can vote on certain company decisions
How many votes they’re entitled to
In most companies, these are people with voting rights or that have 25% or more of the shares. These are called a Person of Significant Control (PSC) and are a required part of registering a business.
To find out more about who might be a person of significant control in your company, click here.
Step 5: Prepare a memorandum of association and articles of association
Sit tight, these aren’t quite as mind-blowingly confusing as they first sound.
A memorandum of association is a legal document signed by all initial legal shareholders or guarantors agreeing to create the company. If you register the company online, there is no need to write your own document as it will be generated automatically. However, if you register by post you can use this template.
You can’t make changes to this document once it’s been registered.
Articles of association are sets of written rules that dictate the running of the company, outlined by shareholders, directors and the company secretary (if you have one). You can either use ‘model articles’ and follow a template or write your own and send them to Companies House when you register your company.
Step 6: Check what records you need to keep
As a registered business, there are a number of records and files that legally, you must hold on to in case you’re asked to provide them by HMRC. These are generally records about the company itself or financial and accounting records.
You must keep a record of:
Directors, shareholders and company secretaries
Results of any shareholder votes and outcomes
Any loans the company has taken out and the specific date and person they will be paid back to in the future
‘Indemnities’ – promises the company has made for payments if anything is to go wrong where the company would be at fault
Transaction records if someone is to buy shares in the company
Loans or mortgages secured against the company’s assets
Any PSCs (you must also keep a record if you don’t have any PSC’s)
If these records aren’t kept at your registered business address, you’ll need to make Companies House aware of this.
There are also a number of accounting records to keep hold of:
All money spent and received by the company
Assets owned by the company
Debts the company owes or is owed
All stock the company owns at the end of each financial year
The stocktaking you used to work out the stock figure
All goods bought and sold and who they were bought from or sold to
All financial records you need to prepare and file an annual accounts and tax return
1. All money spent by the company
2. All money received by the company
3. Any other relevant financial documents
You must keep all financial records for at least six years from the end of the last financial year they are attributed to. You can be fined up to £3,000 by HMRC or disqualified as a director if you fail to follow these rules.
If you can’t find records or they have been damaged or stolen, you’ll need to do your best to recreate them, let your corporation tax office know immediately and include this information in the company tax return.
Step 7: Register your company
To register a limited company in the UK you must provide a registered office address so that any official documentation or communication can be sent there, for example from Companies House.
The address must be physically in the UK and in the same country your company is registered in. So for example, if your company is registered in Wales, the address must also be in Wales. This address will be publicly available on the online register and cannot be removed. You can use a PO box, but it still must have a physical address and postcode.
You must also choose a standard industrial classification of economic activities’ code (SIC) code for your company.
A SIC code provides Companies House with a code that identifies what the nature of your business is. For example, if you manufacture sugar, your SIC code would be 10810. To see the Companies House condensed list of codes, click here.
Now that you’ve followed all the steps above, you’re ready to register with Companies House and register for corporation tax.
You’ll need to provide three pieces of information about you and your shareholders or guarantors, these could be:
The town you were born in
Mother’s maiden name
Father’s first name
It costs just £12 to register your company and normally takes around 24 hours. If you decide you don’t want to use ‘Limited’ or ‘Ltd’ in your company name, you’ll need to register by post at a cost of around £40.
As well as registering your company, you can also register for PAYE so you can start hiring employees.
To start registering your limited company, click here.