When entrepreneurs decide to start a business, many opt for the sole trader structure because of its simplicity and quick setup. However, as the business grows, it may transition to a limited company, which offers numerous benefits to both the business owners and the company itself.
Registering a limited company can be complex if you are a budding entrepreneur new to the UK legal requirements. A limited company setup has to comply with the Companies Act 2006 requirements from choosing a company name, and preparing a Memorandum of Association, to submitting registration forms to Companies House.
This guide is for business owners who want to start a limited company in the UK. We will explore the requirements and the steps for the limited company setup.
What is a limited company?
A limited company is a legal structure separate from the business owner and its directors. This means that the company is legally recognised by the law and government as a distinct entity from the business owners, directors, and shareholders.
A limited company offers limited liability to the owner and directors to shareholders. The limited liability protects their assets from creditors and legal implications. Once a business is incorporated, it can own assets that will be liable in case of debts and legal implications.
Why set up a limited company?
Limited liability and asset protection
A limited company setup offers limited liability to its business owners, directors, and shareholders. This means that their personal assets are not at risk of the company’s debts, legal implications, and liabilities of the company. Shareholders are only limited to the number of shares they have in the company.
A limited company is a separate legal entity from the business owners and its members, it can own assets which will be liable for its liabilities.
Tax benefits
Limited companies are subjected to corporate tax whose rates are lower than personal income. Corporate tax is paid on the profits of the company which may differ from company to company depending on the profit they make annually.
Limited companies can also explore many alternatives that can help them save more on taxes.
Professional image
Limited companies have an enhanced professional image. Many customers, suppliers, and investors trust a business legally recognised by the law and government due to its commitment to transparency. This boosts your company’s transparency in the long term.
Ease to raise funds
Limited companies can raise funds in various ways. It can sell some of its shares to investors to expand or apply for a business loan from a bank or a financial institution. With a Certificate of Incorporation, banks can easily lend limited companies a business loan rather than sole traders.
Limited companies can also raise funds through investors in exchange for equity. Many investors find it more convenient to fund limited companies since they offer limited liability and are distinct entities from their owners.
Brand protection
Once you register your limited company with Companies House, no other company can register with your business name. This helps prevent confusion and protect your brand from other businesses profiting from your hard-earned reputation.
How to set up a limited company
A limited company set up in the UK involves several steps which include:
Choosing a company name
Every business is legally required to have a name. The name has to be unique and distinctive, meaning it should not be similar to the names already registered by other companies in the UK. To check the availability of your proposed company name, you can check the Companies House name availability checker.
There are also other restrictions on company name set by Companies House which include:
· It should not be offensive
· Should not contain sensitive words or expressions without permission from authorised agencies
· Limited companies should end with ‘Ltd’ or ‘Limited’ for private companies and ‘Plc’ or ‘Public Limited’ for public companies while those incorporated in Wales should end with ‘Cyf’ or ‘Cyfyngedig’.
· Should not suggest involvement or a connection with the government, devolved government, or public authority.
You should also ensure the company name that you choose describes what your business does. This allows easy identification of the services or goods your company is selling.
Register your business address
A limited company set up legally needs a registered office address. According to the Companies Act 2006, every registered company requires an ‘appropriate address’. An appropriate address is an address that is:
· It should be physical and not a PO Box
· It should be physically located in the same jurisdiction as where the company is registered
· The address should be accessible for official correspondence and legal notices received by a representative on behalf of the company.
· The correspondence should be acknowledged upon delivery
This address will be available on the public record for accountability and transparency. A virtual address can be used as your company’s registered address to secure your residential address.
A virtual address can legally be used as a registered office address when registering a limited company. it can also be used by global entrepreneurs who want to register a company in the UK. Registered office address providers offer mail-handling services that sort the companies’ official correspondence and legal notices. You can either receive your mail via email after being scanned or it will be forwarded to your designated address.
Appoint at least one director
Every company must have a director. If you are incorporating a private limited company, you need at least one company director, and if a public limited company you need at least two directors. If you are forming a private limited company, the BusinAssist company formation agent is right for you. They help business owners incorporate a private limited company quickly and in simple steps.
Decide on the company shareholders
There is no legal set of number of shareholders a company can have but it must have at least one shareholder. If you have one shareholder, then they must have 100% of the shares. If you have more than one, ensure to include the percentage of their shares.
Business activities
In the UK, a limited company’s business activities are described by a Standard Industrial Classification (SIC) code. This is a five-digit code that describes the nature of your business, making it easy for the government and agencies to identify what your business is involved in.
Every business activity has its own SIC code. Additionally, you can use a maximum of four SIC codes when registering your company with Companies House.
Prepare necessary document
Prepare documents such as Memorandum of Association and Articles of Association. A MoA is a legal document that acts as a formal declaration by the founding members that they agree to form the limited company.
Articles of Association contain the company’s rules and regulations. It also includes the directors and shareholders of the company and the number of shares they hold. It also highlights the voting rights and the process of making decisions for the company.
It also states the frequency at which the meeting will be held and who will be in charge of calling it.
Registration with Companies House
You can register your company directly with Companies House online or by post. However, when you register by post it will take time to set up your limited company. It may take 8 to 10 days for the company to be registered.
Company formation agents ensure the information sent to Companies House is accurate. They also help business owners not go through the hassle of filling out the company formation paperwork, with their 2-minute online submission of your company details, they will ensure all the forms are accurately filled out and submitted to Companies House.
Once the company is legally formed, they will send you the Certificate of Incorporation, Memorandum of Association, and Articles of Association. They will also ensure that you are registered with corporate tax making it easier for you to begin incorporation without the worry of additional registration.
So seamless and time-consuming. BusinAssist company formation agent offers additional services apart from company formation as a virtual office with a registered office address. With a wide range of locations in the UK, business owners can choose where they want to register their company. Thier addresses are located in prestigious locations which will enhance your business’s image and credibility.
To sum up, a limited company setup offers many benefits to the company and business owners. Being a legal entity, a limited company can easily access funds, has tax advantages, offers limited liability to the business owner and directors, and also enhances the professional image of the business.
FAQs
Should I set up a Ltd company?
Whether to set up a limited company depends on your business goals and needs. However, setting up a limited company offers benefits from limited liability, tax benefits, professional image, ease of raising funds, and professional image.
How much to set up an Ltd company?
The price to set up a limited company differs depending on the method you use to register the company. To register directly with Companies House online will cost £50 while by post is £71.
Can I set up a ltd company to buy property?
A limited company is a separate legal entity from its company owners meaning it can buy property and own assets.
Can I set up a Ltd company myself?
You can set up a limited company by submitting company registration directly to Companies House online or by post.
How long to set up an Ltd company?
Setting up a limited company may take 24 hours to a few days depending on the method you choose to register the company. Incorporating online directly with Companies House will take 24 hours while 8 to 10 days by post.
Can an accountant set up a Ltd company?
An accountant can set up a limited company with Companies House on behalf of the business owner. However, it is not a legal requirement to have an accountant for company formation though they ensure proper registration with Companies House and taxes with HMRC.
Can I set up more than 1 Ltd company?
You can set up more than one limited company. it is easier to operate separate companies than many businesses under one single limited company.
How much tax if I set up a Ltd company?
The tax that your limited company will incur depends on your annual profits. Limited companies with annual profits of up to £50,000 are subjected to 19%, while those with annual profits of £50,000 – £250,000 and over £250,000 are subjected to 25%.
