Things You Need To Do To Set Up a Limited Company
Before you begin, the things you need to set up a limited company:
- a company name, which can be almost any name that has not previously been registered.
- a Director
- a shareholder (which could also be either the director or secretary or another company)
- a memorandum of association
- articles of association
You can incorporate a company by filling in form 10 (which lists the first directors and registered office) and form 12 (which is a declaration that needs to be witnessed by a commissioner for oaths, a notary public or a solicitor). You also submit your memorandum and articles of association (“standard” or generic versions can be obtained from legal stationers).
It is even easier to form a company online via the Companies House website, which is easier and cheaper than doing it on paper.
Alternatively, you can use one of the many company formation services out there. They will form a new company for you (the advantage of this is that the company will have no “history”).
You can buy an “off the shelf” company, which has already been registered and is dormant. You then rename the company, change the directors, company secretary and registered office.
You can also ask your accountant to do it on your behalf.
The registered office of a limited company is the official address whereby all statutory documents from Companies House will be sent. This address will be accessible to the general public.
If you work from home and do not wish to use your home address as your registered office, there are companies who provide “registered office services” whereby you use their address and they forward all mail to you.
Who can form a company?
Pretty much anyone over 16 can form a company. However, you cannot form a company if:
- you have been disqualified from being a director (while the ban is in place). Companies House holds a current register of disqualified directors.
- You are an undischarged bankrupt (except with the courts’ permission)
Naming Your Limited Company
Choosing the right name for your business or company is very important, particularly if you are hoping to build a brand.
Of course, with some businesses, the name doesn’t matter as much as others. If you are running a takeaway, brand is possibly less important to you than other things, such as location.
If you are forming a limited company for your business, there will be additional considerations.
Restrictions on naming your limited company
If you register a limited company, there are some restrictions on the name you can have. You cannot choose a name that has already been used. You may choose to register a variation on an existing company name. Companies can object to using a particular name if it is deemed to similar to an existing one, however, if there are no objections within twelve months, you may keep the name you have chosen.
You can use the Companies House Web Search facility to check the availability of names.
Companies House will not allow you to register an offensive name. Also, certain words, such as “school” have restrictions on them.
If branding is important to your business, you should try to choose a name that is short, snappy. If branding is less important, you might choose a descriptive name.
It being the age of the internet, you will probably want to register a domain with the same name as your company name. Indeed, if the URL of your company name is unavailable, you may wish to select a different name. Even if you have no intention of having a website, you will probably want to protect yourself from someone else registering that domain name
You can use a whois service to check the availability of domain names with various extensions (eg. .com, .co.uk, .org). If you want a .uk domain, you can also visit Nominet, the UK domain registrar.
Advantages of a Limited Company
The main attraction of forming a limited company is the “limited liability” of its owners, the shareholders, as it protects the personal assets of the owners. This “limited liability” is a major advantage of having a limited company. Should the company fail, the company is liable without limit for its own debts. Its shareholders’ liability is limited to the amount outstanding (if any) on their shares.
Limited companies can instill added confidence in suppliers and creditors. Many large organisations will only do business with limited companies.
It protects your company name. Once you have incorporated your company, no one else can form a limited company with the same name.
There are tax benefits to forming a company. As a director, the tax on dividend income is generally lower than the tax and NI you’d pay if you were employed on an equivalent salary.
Additional capital can be raised by selling shares in the company. Ownership of the company can be transferred by selling or transferring shares in the company; a change in the owners is not a change in the company itself. A company will continue after the death of it’s shareholders. A sole trade will die with proprietor.
Disadvantages of a Limited Company
The main disadvantage of a limited company is the increased regulation. Therefore, it’s more costly both in terms of time and money to trade as a limited company.
First up, you have to pay to form your limited company. If you do it yourself, it can be as low as £15. If you get someone to do it on your behalf, it can be much more.
You have to keep proper accounting records (but of course, you would be doing that as a sole trader!). With a limited company, you will have to provide a set of end of year accounts to Companies House.
Other people, including your competitors can see your accounts and other information that you are obligated to file at Companies House.
If you are over the audit threshold, you will also have to pay to have an audit.
If you are looking for finance, lenders may ask for personal guarantees, possibly with your house as collateral. If that’s the case, how limited is your liability, anyway?
It generates additional junk mail.
You will have to deal with corporation tax as well as your personal tax.