So, you’ve had a brilliant idea for a business that you can’t wait to get off the ground. The next thing you need to do is get your business registered.
There are different ways to structure your business depending on how you want to operate, such as through your own limited company. Registering a company (known as incorporation) is fairly straightforward, but before we walk you through the process, let’s answer some of the most frequently asked questions for new business owners.
Can I set up a limited company on my own?
Yes, you can set up a limited company as an individual. You don’t need to have any other directors or shareholders in order to register your business as a limited company.
So why would you run a limited company by yourself, rather than just setting up a sole trader? Well, choosing your business structure is ultimately about what works best for you and your needs.
The benefits of registering as a limited company instead of as a sole trader
Every business is a bit different, but common reasons for choosing to operate as a limited company include:
- Limited liability: The personal liability you have as the owner of a limited company is just that – limited. A company is a separate legal entity to its owners, so any liabilities (like debts) belong to the company, helping to keep your personal assets safe.
- Tax efficiency: Because limited companies are separate to their owners, the way they pay tax is different. Depending on the business’s profits, it can sometimes be more tax efficient to operate as a limited company.
How much does it cost to set up a limited company?
It depends on which method you choose to register your business.
- If you register a limited company online, you will typically pay a one-off fee of £12.
- Registering by post, on the other hand, means you’ll pay an increased fee of £40 and can expect a turnaround time of about 8-10 days, or pay £100 for same-day registration. You will need to pay these fees directly to Companies House via cheque.
Do I need an accountant to set up my limited company?
No, it isn’t compulsory to have an accountant set up your limited company for you, you’re allowed to do it yourself. If you do already work with an accountant though, then it might be worth asking if this is a service they offer. Some accountants offer it as part of their usual fees! For instance, if you’re a sole trader who already has an accountant, they might handle incorporation for you.
Most accountants do this sort of thing day-in, day-out, so for them it’ll be a faster process, and one they’re more experienced in. They’ll also be able to offer your more insight about choosing a legal structure, financial management and planning, and other pointers such as tax efficiency and getting ready for Corporation Tax.
How to set up a limited company
Now that you’ve got a bit more context, let’s take a closer look at the steps you’ll need to take to be officially up and running as a limited company.
The following advice is taken from information from the official government website—a great resource to tap into if you need to explore any of the following topics in more depth.
Decide if a limited company is your best option and research other avenues
As we covered in the FAQs above, registering as a limited company isn’t your only option. You might also consider setting up as a sole trader or a limited liability partnership (LLP), for example, depending on the nature of your business.
So, the very first thing you need to do is to figure out what legal structure is going to be best for you.
- The way you structure your business will impact how you pay tax, and potentially on how you access funding too.
Decide what you’d like your company to be called
This might be the fun part, but it still requires some careful consideration and thorough research. First and foremost, you need to make sure that there are no other businesses out there with the same name or trademarks. If somebody else has already bagged your idea, you’ll need to go back to the drawing board.
Think you’ve got a name that’s original enough to pass the legal test? Make sure you’re up to speed on the rules around choosing a company name.
There are different guidelines for sole traders and business partnerships, so it’s important to be clear on which regulations you should be adhering to.
Select any directors you want to help run the company
Directors are responsible for operating the company and ensuring it complies with the appropriate rules and regulations – like paying Corporation Tax correctly and on time. If you’re starting out as an individual with no other business partners, this part is simple, and you will be the sole director of the company.
However, if you do have a business partner or two who you’d like to appoint as director, now is the time to get this in order. It’s also worth having an internal agreement about who is director of what!
Issue shares and identify people with significant control (PSC)
Shareholders are the people (or organisations) which own a company. The proportion of shares that they own, and sometimes what type of share they own, can determine how much control they have over the company.
People with significant control (PSC) are those who legally own most of the shares with voting rights, giving them more control over the company.
Directors can also be shareholders (this is often the case in a sole director company), which gives directors some tax efficient options for paying themselves.
Get the necessary paperwork in order
You’ll need to prepare a set of documents which outline how you plan to run the business. These are known as a ‘memorandum of association’ and ‘articles of association’.
- A memorandum of association is signed by all the shareholders showing their agreement to form a limited company.
- The articles of association are an agreement or set of rules showing how those involved will run the company
Familiarise yourself with the records you’ll be required to keep
The rules around what accounting records you must keep as a limited company are slightly different to bookkeeping as a sole trader. That’s why it’s so important for you to make sure you’re clear on what your limited company is obliged to record, such as the details of:
- Company assets (like equipment or vehicles).
- Any stock that you still have at the end of the financial year.
- The company’s income, expenditure, and costs, as well as the details of what income you took from it personally.
- Liabilities such as staff expenses or loan repayments. This will also include your director’s loan account.
- What you’ll need to do and when, such as submitting a Company Tax Return.
It’s finally time to register your company!
The last step in the process is to register your limited company with Companies House. You can either do this yourself through Companies House, or ask an accountant or formations agent to do it for you.
Now that we’ve equipped you with all the knowledge you need to get started, all that’s left to do is for you to go and make your limited company official. Good luck!