What you need to know
As a team of business accountants, we spend all day helping business owners make the leap to becoming limited company owners.
In this blog we will run you through the key points you need to think about when setting up a limited company.
One thing we highly recommend you do before deciding to form a limited company, is read our blog on whether you *should* be a limited company.
Recap: What is a Limited Company
Before we dive into some specifics, let’s remind ourselves of what a limited company is.
It’s a separate legal entity. You may own it (as a shareholder), and/or be in charge of it (as a director), but the limited company is a separate legal ‘thing’.
This is great from a protection point of view, as in general if the company finds itself in problems, your own assets (such as your house) are not at risk.
TAX TIP: This ‘separate’ point is key to remember, as it’s important to know that the money the company receives is NOT your money, until you legally make it yours (usually via payroll or dividend).
6 Easy Steps To Set Up A Limited Company
With that said, let’s get into some decisions you need to make:
1. Choose your company name
Sounds simple right? This is often a sticking point for many would-be owners!
There are some restrictions on the name (such as using ‘British’, using ‘King’ or ‘Queen’, not being offensive etc). Some names are not allowed at all and some need permission.
Check your intended name is not already taken. You can do this by going to Companies House and typing your intended name in.
If your name is too similar, you can be asked to change it. You should also check a trademark doesn’t exist by typing your intended name here.
We’ve seen companies that have been asked to change their name due to the trademark.
You may also want to check that any website address is free. You can certainly trade under one name and have your company registered as something different. However, many owners like them to be similar.
One way to check the website ‘name’ is free is to search using a site like Names.co.uk
2. Decide where the registered office for the company will be
Your ‘registered office address’ is the address held at Companies House and is publicly available. For this reason, often people do not like to use their home address as the registered office. It’s actually quite normal to pay for the use of another address. Accountants regularly offer this service.
This address must be a physical place, and although you can use a PO Box, it must still list a physical address and postcode.
One key thing to understand is that your trading address can be (and often is) different from your registered office. For example, you wouldn’t want to list yourself on a Google business page with your registered office address, as this can cause issues with people trying to find you.
TIP: As accountants who offer a registered office address, we’ve lost count of the amount of deliveries, interview candidates or customers for client’s businesses that have turned up to our building over the years! This has always been where the client had mistakenly used their registered office on Google.
3. Who will own the company (the shareholders)
The decision as to who will own the company sounds simple enough, but can be a key point in aiding future tax savings.
Taking professional advice at this stage can help you consider the options, so that potential future tax and stamp duty problems can be avoided later. When moving around shareholdings later, you can run into these issues.
You will want to consider if using different share ‘classes’ is a good idea – these can allow you to pay different amount of dividends to different people, which are useful tools for saving tax. You may have heard the term ‘alphabet’ shares – this is in reference to different classes of shares named A, B, C etc.
4. Who will be legally responsible for the company – it’s directors.
You can be a director, or a shareholder, or both. Choosing who will be the company directors is important as they will be responsible for the running of the company.
There are legal responsibilities to being a director and potential financial penalties for not doing your job well. So if you’re considering who should be a company director, ensure all of your potential candidates are aware of these.
There are some practical tax planning benefits to being a director that are outside the scope of this blog.
For clarity, you need to be 16+ years old to be a director.
5. Actually ‘form’ (create) the company
You have a couple of options here. The main two are either to form directly with Companies House, or via a formation agent such as an accountant, or other (usually) online business.
It used to be common to buy an ‘off the shelf’ preformed company, but there really is no need to do this in the modern day.
The key difference between the two is that when forming a company with Companies House direct, you will get set up in a standard way, with standard ‘articles’ and ‘memorandum of association’ (which is totally fine), but you will not get some of the key legal bits of paperwork you are required to keep by law.
These are known as the company ‘registers’, which contain information about the directors and shareholders. These registers should be available if Companies House want to inspect them, but that are sometimes used in a lending situation to prove ownership and details.
When using a formation agent you will usually get these as part of the package.
The formation is normally very quick. Even when using an agent you can expect around 48 hour turnaround.
6. Get a bank account
This final point is a practical one, but because the company is a separate legal entity, you will want to have a bank account in it’s own name.
In order to open one, you will need the company formed. You receive a ‘Certificate of Incorporation’ when you form the company that will be needed, to prove the company exists.
During the bank process, they may ask for a ‘UTR’ or a tax reference. You normally receive this automatically a week or so after forming the limited company. Most banks will allow you to supply this later.
There we have it, the main points you need to consider when forming a limited company. If you need help doing this, we form companies every day so please get in touch. Good luck with your new company!