Before you materialise your plan of initiating a business venture, it is imperative to consider which business vehicle will be immensely fruitful and rewarding for your long-term business goals, such as tax optimisation and liability protection. In this regard, understanding how to set up a limited company in the UK can be advantageous for starting and running a business.
A limited company is a distinct business entity or vehicle that exists separately from its owners and has legal and financial status. This separation depicts that the owners have limited liability protection for their personal assets.
Further, if the company suffers financial hardships, the owners’ liability will remain limited to the amount they invested in the business. Moreover, a limited company is governed by the directors employed by the owners who have no direct involvement in the operational or managerial tasks of the company.
It is relevant to learn the fundamentals of how to set up a limited company in the UK given its multiple benefits. Hence, continue reading this guide.
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How to set up a limited company in the UK: A step-by-step guide
The following are the essential steps involved in setting up a limited company in the UK:
Determine the most viable structure for your business:
The first and foremost step in knowing how to set up a limited company in the UK is determining which business structure would be more durable for your business plans in the long run. Similarly, choosing the appropriate entity plays a pivotal role in determining:
What will the company’s ownership structure be like;
What information will be disclosed;
How will the capital be raised;
How share transferability will occur;
Ease of compliance with regulations;
Moving ahead, under the umbrella of a limited company comes two entities: private and public limited company.
What is a private limited company?
When a small group of individuals, which includes the shareholders, founders, and investors, own a company structured to offer limited liability, a private limited company comes into being. Interestingly, these companies require less regulatory compliance, and their ownership or financial details are not subject to public disclosure.
Besides, regarding capital raising, a private limited company can issue shares ordinarily bought by its existing shareholders. Hence, a private limited company has limited access to raising capital.
What is a public limited company?
Opposed to a private limited company, a public limited company is owned by multiple investors that may also include the public, as the name suggests. The owners buy shares that are freely transferable.
Moreover, unlike a private limited company, these companies are subject to strict regulatory compliance and must make their ownership and financial details accessible to the public.
However, one key advantage a public limited company has over a private limited company is its greater access to capital, resulting in more opportunities for growth and expansion.
Select the company name attentively:
Choosing an appropriate and unique name is also significant when figuring out how to set up a limited company in the UK. Be mindful that this name will become your brand identity, promote your business objectives, and connect you to your targeted audience.
Hence, you should name your company after extensive online research to ensure:
Uniqueness:
It shouldn’t resemble the name of any existing company;
Business relevance:
The company’s name should appear consistent and compatible with business ambitions;
Long-term feasibility:
The name should be in sync with your business vision, i.e. even after the passage of several years, the name should still be aligned with your business missions.
Featuring Ltd in the name:
Most private limited companies in the UK must include “Limited” or “Ltd” at the end of their name.
No offensive name:
It is commonplace for a name to have different meanings and interpretations in different regions. Thus, if you intend to expand your business beyond your local region, you must be mindful of ensuring that the name doesn’t have any false implications so that it doesn’t affect the cultural norms of the respective region negatively.
Appoint the company’s director(s):
A limited company is owned by individuals who are mostly called its shareholders. Now, the shareholders have ample leeway in terms of running it themselves or delegating the task to others.
For greater clarity, a limited company’s shareholders can set up a limited company on their own and govern it themselves as directors. Alternatively, they can appoint directors to manage it for them. While there can be several directors in a limited company, it must have at least one director.
Usually, in small companies where the managerial tasks are not extensive, members appoint themselves as directors. Subsequently, they assume full responsibility for running their own companies. More importantly, private limited companies in the UK are legally required to have at least one director appointed at all times.
Furthermore, the directors are legally responsible for managing the company, and their appointment is registered with Companies House.
Beyond that, directors make collective decisions for the company, follow its rules and are primarily responsible for filing accounts and ensuring the payment of the company’s corporation tax.
To further ease the administrative tasks, a limited company can also appoint a secretary to assist the director in the seamless execution of matters.
The concept of shareholders is the cornerstone when determining how to set up a limited company in the UK since shareholders can define the road the business will take.
It is obligatory for a limited company to have at least one shareholder. Nevertheless, there can be multiple shareholders, depending on the size of the limited company. Moreover, a shareholder can be the company’s owner and can also assume the role of a director.
It signifies that the shares can be distributed among the directors (if they are also shareholders ). Also, shareholders vote on major company decisions at shareholder meetings, where one share equals one vote. Consequently, the shareholders with the majority of shares will have greater influence and authority.
Person of significant control (PSC):
More crucially, a shareholder holding over 25 per cent of the company shares is called a Person of Significant Control (PSC). Accordingly, he wields considerable influence in the company’s decision-making and management.
Register your limited company with Companies House:
After the appointment of directors, you can register your limited company online at Companies House. Notably, you must choose the correct SIC code to reflect the nature of your company’s economic activities. Furthermore, you can simultaneously register for corporation tax at the time of registration.
Alternatively, you can do the postal registration by sending a post to the Companies House after using the form IN01.
If you have applied for online registration, the company will usually be registered within 24 hours. By contrast, postal registrations can take as long as 10 days.
Finally, once registered, you will receive a certificate of incorporation verifying the legal existence of your company and its date of creation.
Evaluate the associated costs:
Perhaps the most significant consideration when understanding how to set up a limited company in the UK is its associated costs. Evaluating the costs will help you meticulously budget all the registration, compliance, and accounting charges.
The accompanying costs typically include:
- The registration fee for incorporating a limited company with Companies House includes registering the company name and other essential details.
- The cost of using a registered office if you decide to do so since the office address is registered with the Companies House.
- VAT registration fee if the company’s annual turnover surpasses the VAT threshold. It is worth highlighting here that although VAT registration is free, you must consider the accounting and compliance costs associated with VAT.
- The cost incurred if you have taken the services of a proficient accountant to help with accounting services when setting up a limited company.
Prepare the necessary company documents:
You can’t fully comprehend how to set up a limited company in the UK without a few mandatory documents. Creating these documents is essential for setting up and running your limited company. These documents include:
The Memorandum of Association:
It is an agreed-upon legal statement signed by all founding shareholders. It explicitly expresses or states their consensus to set up the company together.
The Articles of Association:
These are the governing rules for the limited company on which the company, shareholders, and directors have agreed.
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Maintain accurate financial records:
Maintaining proper records of shareholders, financial transactions, tax records, annual accounts, and statutory registers. Notably, retaining these records for at least 6 years is necessary.
Further, the company must also record all key details, including all the information of the Persons with Significant Control (PSCs). Therefore, keeping accurate financial records is crucial to ensure compliance with the relevant obligations of the regulatory bodies (like Companies House).
Conclusion:
Understanding how to set up a limited company in the UK and navigating its financial and legal obligations can be gruelling. A competent and skilled accountant can prove immensely helpful in this regard. That is what Accountingfirms core commitment is.
The registered accountants on our website are aplenty, all seasoned in resolving complex accounting responsibilities. You can conveniently search for an affordable accountant in the proximity to your locality, get an instant quote, and address all your concerns regarding setting up a limited company in the UK.
Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.