GUIDE TO SETTING UP A LIMITED COMPANY
This guide has been developed by our experienced Senior Accountants team. We believe that this will help you to understand all that is required of you when forming your own limited company and also to provide you with some tips that you may benefit from.
Within setting-up a limited company there are some aspects that need to be considered:
- Legalities of registering a new business
- Regulatory and tax compliance
- Ongoing administrative requirements
- Day-to-day process of running the business to ensure a profit
THE MAIN BENEFITS
Running a day-to-day business can have lots of responsibilities on yourself however there are many benefits for this:
Higher take-home pay
As a director or a shareholder of your company, you would have control on how tax you want to save. For example taking a dividends from your company would be more cost effective than a salary as you would pay 7.5% tax on any dividends above £2,000 as opposed to paying 20% income tax and 12% Class 1 NIC.
A Company is separate from its owners and thus holds the status of separate legal entity. Because of this fact, owners of companies have their liabilities limited up to interest involved or amount guaranteed in such organisations. And if all the resources of a company are used up and there are still some lenders and creditors left to pay then owners are not liable pay it as it was the liability of the business not the owners.
In some businesses and industries, having a limited company can provide a more professional image.
If you are doing business with larger companies, you may find that they prefer to deal only with limited companies rather than sole traders or partnerships.
Once you register your company with Companies House, your company name is protected by law. No-one else can use the same name as you, or anything deemed to be too similar.
Ownership and succession
A limited company can issue various classes of shares. This means you can easily sell stakes in the company, or transfer ownership of shares.
Lower personal risk
You have a greater level of protection should things go wrong. Assuming all rules have been followed, as a director you will not be personally liable for any financial losses made by the company.
DEFINING A LIMITED COMPANY
There are two types of Limited Company:
- Public Limited Companies that are publicly traded on the stock market, referred to as PLCs.
- Private Limited Companies that are privately owned businesses, referred to as a Limited (LTD) Company.
The information in this guide will focus on the process of setting up a Private Limited Company.
There are some specific requirements that apply to a Limited Company:
- A Limited Company must be registered at Companies House. This is where all UK companies are registered. Its main purpose is to maintain the records of registered companies and to make this information available to the public.
- A Limited Company is owned by its shareholders and run by its directors. If you are opening your own Limited Company, you are both a director and shareholder, as well as its employee.
- A Limited Company is governed by its own articles of association. These are the internal rules by which the company will be managed. Every company must have articles by law and all members of the company must adhere to these rules.
- A Limited Company is a legal entity in its own right. In other words, it has its own legal rights and obligations. That means any profits and losses belong to the company; so the business itself can continue regardless of the death, resignation or bankruptcy of any shareholders or directors.
- A Limited Company offers limited liability. The company (as its own legal entity) is liable for its debts. The shareholders and directors are not personally liable. Their liability is limited to paying to the company what they have agreed to pay for their shares.
Once you register your Limited Company at Companies House, you take on a degree of responsibility. There are people to help however, so you should be careful to choose an accountancy partner who can help through each of the stages, from setting up your business to helping with the ongoing administration.
THE FORMATION PROCESS
Finding a name:
The first requirement is to decide of a name for your company. This name will be the first point of contact with your potential client therefore it will require some thought. Although if required you are permitted to change the name through Companies House.
Few other aspects that you will need to consider whilst coming up with a name are:
- A private company name has to end with either Ltd or Limited
- It cannot be ‘same as’ or ‘too like’ other company names
- Cannot contain certain words/expressions or be offensive – companies house have a list on this
- There should be not connecting with either the central or local government
Tip: whilst thinking of a company name, try and see if the domain name is available as well. This will save you a lot of time and money by researching them both together.
Incorporation & Set-Up:
We can get this done for you with a discounted rate of £48.00 inclusive of VAT. A simple process to register you company with Companies House and make it credible. Whilst registering your company all the below will be completed by us with the information you provide us.
- Articles of Association – terms and conditions of how your company should be run
- A Certificate of Incorporation – official confirmation for the formation of your company
- Share Certificates – demonstrates how shares are allocated and what they are worth
- People with Significant Control (PSC) – list of personal with most control of company
- Combined Register – List of all the directors and those involved with the running of the company.
This will then be submitted to Companies house for them to review. The process will take up to 1-2 working days.
Business Bank Account:
Once your company has been formed on Companies House, we will be able to assist you in opening a business bank account with either Lloyds or Barclays. A business account is not your personal account and therefore personal finances are to be kept separate. Maintain a clear and transparent record of every transaction within your business account to ensure accurate measures are taken when preparing the company accounts.
If you want to set-up a limited company and would like our assistance, call us on 01753 424 968 or email: firstname.lastname@example.org
RESPONSIBILITIES & DUTIES AS A DIRECTOR
According to the Companies Act 2006 every private limited company must have at least one director. One of the directors must be a natural person (as opposed to another company). As a director, you must act in a way that you think is most likely to promote the success of the company for the benefit of its shareholders.
Directors are personally responsible for ensuring that the company complies with company law. Some responsibilities include:
- The submission of the annual confirmation to Companies house
- The filing of the annual company accounts to both Companies house and HMRC
- Depending on the turnover of the business, quarterly VAT Return are required to be filed
- Arranging payments to be made on time (Corporation Tax, PAYE and VAT)
- Complying with employment law when dealing with your employees
- Reasonable care taken to ensure the health and safety of your employees
The above are required to be undertaken correctly to the required specification before the imposed deadlines to avoid any potential penalties.
When you set up your own Limited Company you will become both a director and a shareholder of the company. The difference between the two is that as a shareholder you own the company. Whereas the director you will be responsible for the day to day running of the company.
As stated in the Company Act 2006 the general duties owed by a director of a company to the company are:
- Duty to act within powers
- Duty to promote the success of the company
- Duty to exercise independent judgement
- Duty to exercise reasonable care, skill and diligence
- Duty to avoid conflicts of interest
- Duty not to accept benefits from third parties
- Duty to declare interest in proposed transaction or arrangement
Changes to the accounting reference date
Corporation tax returns
Change of registered office
STARTING TO TRADE
Once your Limited Company is registered under Companies House you will have access to the Certificate of Incorporation. This documentation is readily available from Companies House and will be required for different uses e.g.: when opening a business bank account or when applying for a loan.
Before you start trading there are a few factors that you will have to consider. Implementing these will help to meet your obligations and responsibilities as a director.
- Find an accountant
- Set up a business bank account
- Consider Business Insurance
- VAT Registration