Easy Guide to Set Up a Limited Company
How to Set Up a Limited Company in the UK
A lot of people make the mistake of assuming that setting up a limited company for contractors is a time consuming and daunting task, but that is not always the case. At Go Limited, we know that setting up a limited company is simple and straightforward if you know what to do, which is why we've created this step-by-step guide.
Wanting to set up a limited company in the UK? Follow our step-by-step guide which takes you through the process.
Decide if Setting Up a Limited Company is Right for You
Before you take the plunge and transition from being a contractor or self-employed worker to setting up your own limited company, you need to decide if doing so aligns with your overall business goals. There are a number of benefits that come with setting up a limited company, such as protecting your personal assets and boosting your business' credibility, but setting up a limited company isn't without a little bit of additional work.
The Benefits of Setting Up a Limited Company
There are a number of advantages that come with setting up a limited company, which is why it's something that a lot of contractors and freelancers consider setting up at some stage of their career.
Limited Liability
When you set up a limited company and become a shareholder, you benefit from having your personal assets protected. If the company faces legal action or financial issues, you don't have to worry about your personal savings, property and assets being factored into things. With a limited company, your personal assets are not at risk.
Company Credibility
Though it's possible to be a credible contractor and build up a reputation for excellent work, there's a lot of trust that comes with being a limited company. Limited companies are seen as professional, credible and authoritative in the industry, which could be enough to convince clients, investors and suppliers into working with you. Limited companies are often seen as a 'safe' bet by others.
Tax Advantages
If you are wondering about sole trader vs limited company tax, then one of the biggest benefits of having a limited company comes in the form of more flexible tax options, compared to the tax options that contractors and freelancers have. For example, limited companies pay corporation tax on profits and can save money by distributing dividends.
Separate Legal Entity
When you set up a limited company, your business becomes a separate legal entity, separate from its owners and directors. This means that the company itself can enter contracts and take on debt, without you being personally affected if the company fails. The company will be responsible for liabilities and paying back debts, not any of the shareholders or directors, including yourself.
Added Responsibilities of a Limited Company
As the owner of a limited company, you'll need to file annual tax accounts and tax returns, and you'll have more administrative responsibilities. You'll need to decide if the advantages of setting up a limited company outweigh the responsibilities, and if it's worth it for the size of your business. Think about your expected revenue, how much your business is growing and what your goals are for the future.
Choose a Company Name
Once you've decided that setting up a limited company is right for you, you'll need to choose a business name. It's important that the name is unique and isn't too similar to an existing business, as this could cause confusion for customers and clients. There's also specific rules about what words you can and cannot use. Try to find a name that reflects the nature of your business, and make sure it doesn't infringe on any trademarks. You'll need to confirm that your chosen name meets all legal requirements before registering it.
How to Choose the Right Company Name
Choosing a company name isn't something you should rush into, as it's a business name that you're going to be using on a day-to-day basis. You don't want to choose a company name and then want to change it further down the line, as this can be time consuming and logistically stressful.
Unique and Memorable
The name you choose must be different from existing companies, and it should be distinguishable enough to be memorable. If your chosen name is too similar to another company's, there's a risk of the two of them being confused. The government has a handy tool allowing you to check the availability of company names.
Follow Company Naming Rules
There are certain words that you can't use when you're setting up a limited company, including anything offensive. You'll also need to end your business' name with 'Limited' or 'Ltd' to show that it's a limited company. You can't use any names that are too similar to an existing company.
Available Domain Names
We live in a digital world, so the chances are that you're planning on having a business website and online presence. To do this successfully, you need to check if your chosen company name is available as a domain name as well. For example, if your desired company name was 'GoLimited', you'd have to ensure that GoLimited.co.uk was available, like we did.
Choose a Director and a Company Secretary
You'll need to choose a director for your limited company, a person who's responsible for managing the business' affairs and ensuring it complies with its legal obligations. If you're a contractor setting up your own business, you'll automatically be a director, but you can add others.
To be appointed as a company director, the individual must be at least 16 years of age, not excluded under any of the Articles of Association and not be an auditor of the company. You also can't choose someone who has been disqualified from directing another company or has an undischarged bankruptcy. You'll also have the chance to appoint a company secretary, though this isn't mandatory, but it's usually a good idea for larger businesses and those who need a lot of administrative support.
Choose Shareholders and Guarantors
All limited companies need to have at least one shareholder, though you can choose to have more. Shareholders are the owners of the company and the amount they own is relevant to how many shares they hold. When it comes to the company's profits, shareholders have voting rights to determine how the company is run financially. You might also need to add a guarantor into the mix, but not all businesses do. Much like a rental or mortgage guarantor, a company guarantor is an individual who agrees to take responsibility for the company's debts if it fails to keep up with them.
Decide Who's Going to Be a Person with Significant Control (PSC)
A Person with Significant Control (PSC) is someone who has a lot of control over the company, and it generally means someone who holds more than 25% of the company's shares, more than 25% of the voting rights and has the ability to appoint or remove people from the board of directors. A PSC can also be someone who has a lot of sway over the company, whether that's financially or strategically. A PSC must be reported to Companies House when the limited company is registered.
Prepare Documents on How the Company Will be Run
A key responsibility of setting up a limited company is preparing documents that outline how your business will be managed and governed. This includes a Memorandum of Association, which is a legal statement signed by all shareholders agreeing to form the company. You'll also need to prepare an Articles of Association, setting out the rules and regulations regarding the management of the company, including the rights and responsibilities of directors and shareholders.
Know What Records You Need to Keep
When you set up a limited company for contractors, you'll become legally bound to keep certain financial and corporate records. This includes financial records, such as accounting records, profit and loss statements, and balance sheets. You'll need to use these when you're preparing accounts and tax returns each year. You'll also need to keep records of minutes of meetings, detailing any decisions made by the company's directors or shareholders. If you don't keep accurate and up-to-date records, you run the risk of not complying with the law.
Once you have followed all of the above steps, it's time to register your company with Companies House. You can do this online via the Companies House website or by post, and the process is relatively straightforward. The registration process will involve submitting details about the company name, registered office address, director details, shareholder details and your Articles of Association document. Once you have registered with Companies House, you'll be issued a certificate of incorporation and a company registration number (CRN), which officially marks your business as a legal limited company
At GoLimited, we know that setting up a limited company is a big step, but you don't need to let that put you off. Though setting up a limited company does involve carefully planning and a good understanding of the process, following the step-by-step guide above will see you through, from beginning to end.
