So, you have already decided that setting up a limited company is the best option for you and your business and although it seems more complicated than registering as a sole trader or a business partnership, this article will help guide you through the whole process.
Limited companies come in two types: those limited by shares or companies limited by guarantee. The main difference between the two is that companies limited by guarantee are generally not for profit; this article will therefore focus on companies limited by shares.
What exactly is a limited company? A limited company has shares and shareholders, is legally separate from the people who run it, is established to make a profit, has separate finances from your personal ones and any profits it generates can be kept after taxes have been paid.
To start with you need to decide on a name for your company but make sure it is not the same as a company that is already trading. You can check the Companies House register to make sure your name is unique. Companies names that are classed as the same don’t necessarily have to be exactly the same. They may have slight differences in punctuation or contain certain characters or even use a word or character that is similar in appearance or meaning to an existing name.
Additionally, you may need to change your company’s name at a later stage if it is similar to another company or trademark. The name you’ve chosen must end in either ‘Limited’ or ‘Ltd’. For any companies registered in Wales, you can include the Welsh translations which are ‘Cyfyngedig’ or ‘Cyf’.
Offensive names are not allowed, and your company’s name cannot suggest a connection to government or local authorities, unless you receive permission. You can trade with a business name which is different from your registered name but again if this name is similar to another company’s trademark you may have to change it.
You must then appoint at least one director and you can if you wish, select someone to be the company secretary. Directors hold legal responsibility for the running of the company, ensuring company accounts and reports are prepared correctly. Directors must not be disqualified from being a director and must be aged 16 years or over. The company secretary can be a director but not the company’s auditor or an undischarged bankrupt without permission from the court.
The next step is to decide who the shareholders or guarantors are. A company limited by shares must have a minimum of one shareholder, who can be a director. If you are the only shareholder, you will own the whole company but there is no limit to the maximum number of shareholders.
The majority of companies have ‘ordinary’ shares where each director gets one vote per share to make regarding company decisions and they receive dividend payments. You will need to work out the number of shares and their value when you register your company and list the names and addresses of every shareholder. You will also need to identify people with significant control over your company, an example would be someone who owns more than 25% of the shares of your company.
Then you need to prepare a legal statement signed by all initial shareholders or guarantors agreeing to form the company, this is known as a memorandum of association. Additionally, you will have to complete articles of association- written rules about running the company agreed by the directors, company secretary and the shareholders or guarantors.
You will have to check what company and accounting records you need to keep. Your company needs an official address and you need to select a Standard Industrial Classification of economic activities (SIC) code. Finally, you will have to register your company with Companies House and register for corporation tax.
Hopefully, having read this guide on forming a limited company you’ll agree that it is easier than you previously thought. If you would like to speak with one of our professional experts regarding forming a limited company, please click here.