Setting up a limited company is one of the most effective and tax-efficient strategies for managing your income and growing your business. As the owner of a limited company, you gain the ability to define your brand, retain complete control over your operations, optimise your tax obligations, and access business opportunities that might be unavailable to sole traders.
This guide is for those who are interested in establishing a limited company and want to learn more about the process. If you are considering hiring a professional to do this for you, we provide a hassle-free limited company formation service.
Why register a limited company?
A limited company is a separate legal entity, distinct from your personal life and assets. This separation offers numerous benefits, including:
Limited liability
One of the primary advantages of a limited company is limited liability. This means that as a director, your personal assets are protected if the company incurs debt or financial losses. Your financial risk is restricted to the amount you’ve invested in the company, safeguarding your personal wealth.
Tax efficiency
Limited companies benefit from a more favourable tax regime compared to sole traders. Limited companies can take advantage of additional tax benefits, such as lower corporation tax rates, the ability to pay dividends (which are taxed at a lower rate than income), and the potential to claim more expenses against revenue.
Professional credibility
Operating as a limited company can enhance your professional image. Many clients and suppliers view limited companies as more stable and credible than sole traders, and some larger organisations may only work with registered businesses.
Name protection
When you register your company name, it becomes unique to your business, ensuring that no other company can use the same name. This protects your brand identity and can help prevent confusion in the marketplace.
Investment and growth potential
Limited companies are more likely to attract investment and financing opportunities. Business lenders and investors often prefer to work with limited companies, as they provide a clearer legal framework and greater assurance of business continuity. This makes it easier to secure funding for expansion, research and development, or other growth initiatives.
Need help?
We can advise on the best options for registering your company.
How to register a limited company
1. Choose your company type
The first decision in forming a limited company is choosing the right type of company structure. There are two main company types.
Private Limited Company (LTD)
This is the most common type of limited company, particularly for freelancers, contractors, start-ups, and small to medium-sized businesses. An LTD can be formed with just one shareholder and one director, and there’s no minimum share capital requirement. This flexibility makes it an ideal choice for most entrepreneurs.
Public Limited Company (PLC)
A PLC is more suited to larger businesses with ambitions to raise capital through public share offerings. PLCs are required to have a minimum share capital of £50,000, with at least two shareholders, two directors, and a qualified company secretary. Due to these stringent requirements, most small businesses opt for a private limited company.
Limited Liability Partnership (LLP)
These types of companies are better suited for professionals such as law firms and accountants where there might be multiple partners in the business. LLPs do not pay dividends, instead partners are taxed on their share of ownership profits. Much like self employed people, every partner must complete their own tax return, calculate Class 4 national insurance and pay what is owed to HMRC.
2. Pick your company name
Choosing a company name is both an exciting and crucial part of the process. Your company name must be unique and distinguishable from any other registered companies in the UK. Here are some considerations:
- Uniqueness: Your name cannot be identical or too similar to an existing company name. This ensures that your brand is distinct and avoids potential legal disputes. You can search Companies House to ensure your name is available. With over 1,000 new companies being registered daily, your preferred name may already be taken, so it is wise to have a few alternatives ready.
- Suffixes: A limited company name must end with either “Limited” or “Ltd.” For example, “ABC Limited” or “ABC Ltd.” Both are acceptable and provide some flexibility in naming your business.
- Creativity and branding: While ensuring your name is unique, also consider how it reflects your brand identity. A memorable and meaningful name can significantly impact your business’s marketability.
3. Form your limited company
This step involves the actual formation of your limited company. While it may seem bureaucratic, it’s relatively straightforward if you’re well-prepared. Here’s what you need to do.
Personal details
You’ll need to provide certain personal details to Companies House, including your full name, address, date of birth, and nationality. These details are used to verify your identity as a director of the company.
Business activity
You’ll need to specify what type of business your limited company will conduct by selecting a Standard Industrial Classification (SIC) code. The SIC code categorises your business activities and is essential for official records and tax purposes. The Condensed SIC code list is available on Gov.uk, maintained by Companies House.
Registered office address
This is the official address of your company where all legal correspondence will be sent. It can be your home address, your accountant’s office, or a virtual office. Consider the implications for privacy and use a professional service if necessary.
Service address
In addition to the Registered Office Address, you’ll need to provide a service address for each director. This address is where legal documents for the directors will be sent and can also be used to protect personal privacy.
Shareholders and share structure
Decide on the ownership of your company by determining the number of shares and their allocation among shareholders. The share structure defines ownership percentages and voting rights within the company. This is particularly important if there are multiple shareholders or if you plan to bring in investors.
Memorandum and Articles of Association
These are the foundational documents of your company. The Memorandum of Association records the names of the initial shareholders, while the Articles of Association set out the rules for running the company, including the powers of directors and the rights of shareholders. Standard templates are available, but you may wish to customise them to suit your specific business needs.
Once you’ve provided all the necessary information and documents, you can submit your application to Companies House. With Lera accountancy, this can be done online, and your company can often be formed within a few hours.
4. Complete the Incorporation Process
The final step in setting up your limited company is completing the incorporation process with Companies House. This involves submitting several key documents:
- Memorandum of Association: Confirms the company’s name, location, and type of business activity.
- Form 10: Includes the names and addresses of the company’s directors and its registered office address.
- Form 12: A declaration that your company complies with the terms and conditions of the Companies Act.
- Articles of Association: Details the internal rules governing the company, such as the roles of directors, shareholder rights, and how decisions will be made.
Your formation agent or accountant can handle these documents on your behalf. Once submitted, Companies House will process your application, and your limited company will be officially registered.
With your company now registered, you’ll need to handle some additional administrative tasks.
Open a Business Bank Account
A separate business bank account is essential for managing your company’s finances. It helps maintain clear records, simplifies tax calculations, and ensures your personal finances remain distinct from the business. Our guide on choosing a business bank account can help you find the right option.
Obtain Business Insurance
Depending on your industry, various types of insurance may be necessary, such as professional indemnity, public liability, or employer’s liability insurance. Insurance protects your business against potential risks and liabilities, safeguarding your financial stability.
FAQs
How much does it cost to set up a limited company?
Our limited company formation service is £120 if you decide to hire a professional to do this for you.
However, the overall cost of establishing your business will depend on various factors, including:
- Premises: Whether you’re working from home or renting office space, you’ll need to budget for a registered business address. A virtual office service can be a cost-effective solution if you don’t need physical premises.
- Equipment and Supplies: Depending on your business activities, you may need to invest in computers, software, tools, machinery, or other equipment. These are necessary expenses that will impact your startup budget.
- Professional Fees: Consider any ongoing fees for accountants, legal advisors, or memberships in professional organizations that are relevant to your industry.
- Insurance: The cost of business insurance varies based on the type and level of coverage you require. It’s an essential investment to protect your business from potential risks.
What are my responsibilities as a Company Director?
What are my responsibilities as a Company Director?
Company registration
Your company must be registered at Companies House, and you must ensure that all relevant details are accurate and up to date.
Annual accounts and confirmation statements
You are required to file annual accounts and a confirmation statement with Companies House each year. These documents provide a summary of your company’s financial performance and confirm that your company information is accurate.
PSC register
Maintain a record of anyone who has significant control over the company, known as the Persons of Significant Control (PSC) register. This includes individuals who hold more than 25% of shares or voting rights, or who can influence company decisions. An annual confirmation statement needs to be submitted to Companies house to update that register.
HMRC filings
You must file annual accounts and pay any Corporation Tax owed to HMRC within 9 months after your company's financial year ends.
Can I register a limited company by myself?
Yes, you can register a limited company yourself through Companies House; however, we strongly recommend that you hire a professional accountant who will guide you through the whole process and will give you invaluable insights about your business tax affairs after registration so you can start trading with full confidence.
Does a limited company need to be CIS registered?
Limited companies do not have to be registered for CIS except if they are subcontractors.If the Limited company operates in the construction industry, registering for CIS will ensure the tax handling process is simplified and effective.
Does a limited company have to be registered for VAT when setting up?
A limited company does not have to be VAT registered unless it meets the current turnover threshold. However many new start up limited companies chose to voluntarily register for VAT because of the high upfront costs which allows them to reclaim some of the expenditures through the VAT.
Is the company registration process different in England, Wales, Scotland, or Northern Ireland?
No, the company registration process is not different in England, Wales, Scotland, or Northern Ireland because they are all done through Companies House.
Autumn Budget 2024 summary for small companies and sole traders
