4 steps – How to set up your own Limited Company
- May 2021
- 3 minutes
One of the smartest and most tax-efficient methods to get compensated for your job is to form a limited company.
You may establish your brand, control everything you do, manage your business in the most tax-efficient manner, and pitch for work that you wouldn’t be able to receive as a sole trader if you set up a limited company.
What is a limited company?
A limited company offers an extra layer of protection to working as a sole trader. If a limited company gets into trouble the directors are only liable by their shareholding. This is known as ‘limited liability’.
There are two types of individuals listed in a limited company – shareholders and directors. Shareholders are the owners of the limited company. Directors are the employees that oversee the day-to-day running of the business. It’s possible for an individual to be a shareholder and a director. This is particularly common in small limited companies. Limited companies are legally obliged to file company accounts. These are annual accounts and visible on public record at Companies House.
If you’re ready to learn how to set up a limited company, here’s what you need to know:
1. Choose which type of limited company to set up
Once you have decided to set up a limited company, you have to choose which type you wish to form. The two main choices are:
- Private Limited Companies (LTDs)
- Public Limited Companies (PLCs)
Most freelancers, contractors, start-ups, and small businesses will opt for a Private Limited Company, as PLCs must have a minimum share capital of £50,000, at least two shareholders, two directors, and a qualified company secretary.
There is no minimum share capital required for LTDs. You can set up LTD with a single share worth £1 if you wish.
2. Pick your company name
For most new limited companies, this is both the most enjoyable and the most difficult portion of the process. Your company name, like a web address, must be unique. To ensure a distinct name, you may differentiate in a few ways. For example, a limited business name can use either “Limited” or “Ltd.”
3. Forming a limited company
If step two was the exciting and frustrating portion, this is the difficult and bureaucratic portion – or so it appears. It’s actually rather straightforward if you’re well-organised.
You just have to supply certain personal details to help Companies House identify you as a company director. These include:
- Letting them know what type of business your limited company will carry out by submitting a SIC code (Standard Industrial Classification code) for your business.
You can select the most appropriate code from the Condensed SIC code list online at Gov.uk which is maintained by Companies House.
- Make a list of the addresses you want to use for your company. You must choose a Registered Office Address and a Service Address.
- Decide on the ownership of your company – how many shareholders do you want and how many shares will they have each (known as their shareholding)?
You’re ready to go once you’ve finished this. Your limited company can usually be formed in a matter of hours at Companies House.
4. Complete the incorporation process
Companies House is responsible for all limited company registration in the UK. They provide detailed information on how to go about the process.
In order to complete the incorporation process, the following documents must be completed and returned to Companies House. Often, your business formation agent or accountant will take care of these for you:
- Memorandum of Association – limited company name, location, business type
- Form 10 – director’s names, addresses and registered limited company address
- (this doesn’t have to be where you work from but will be where the legal correspondence from HMRC and Companies House is sent)
- Form 12 – states the limited company complies with the terms and conditions of the Companies Act
- Articles of Association – outlines director’s powers, shareholder rights etc. (this is often provided by the formations company that sets up the limited company).
Simple admin first, you’ll need a business bank account for your limited company. You’ll also need some small business insurance to cover you and your business for any work you’re doing.
At Taxqube, we have helped hundreds of business owners to start and manage their limited company journey. If you need any help, please feel free to contact us.