How to set up a limited company in four steps
When setting up a business operating as a sole trader often makes practical sense. It’s easy, keeps the legalities to a minimum and allows you to begin trading as quickly as possible. It does have limitations however, and as your business grows, setting up a limited company can be the next logical step.
Likewise, if you’re just starting out, limited company status might better meet your plans and your ambition rather than operating as a sole trader.
Setting up a limited company brings with it a range of benefits, but many business owners worry that the process may be complicated. However, the process is relatively straightforward.
There’s four steps to follow to set up a limited company:
Step 1: Choose the type of limited company you want to set up
There are two different types of limited company you can set up:
- Private Limited Companies (LTDs)
- Public Limited Companies (PLCs)
These two different structures are each suitable for different types and sizes of business. If you’re starting up, are a freelancer or other type of contractor then setting up a Private Limited Company (LTDs) will usually best meet your needs. Most small businesses who are making a transition from sole trader or partnership to limited company choose this option. An LTD only requires a single share of £1 in order to be set-up.
Public Limited Companies (PLCs) are for larger enterprises and usually represent an evolution in the development of a business. PLCs require a minimum share capital of £50,000. In terms of structure, a PLC must have at least two shareholders, two directors and a qualified company secretary.
Step 2: Choose your company name
Once you’ve decided which is the most appropriate form of limited company for you, it’s time to get creative. Every limited company, whether an LTD or PLC, must have a unique name. This can make the process of choosing a name frustrating if you discover your preferred option has already been taken. It’s easy to check whether or not your choice of name has already been taken by visiting the online name checker on the Companies House website.
Around 1,500 companies are registered every day so finding an acceptable name can sometimes be difficult. If you find a registered company is already using your preferred choice of name you can differentiate it by adding LTD or Limited, or by changing the spelling. Try to think creatively and don’t be disheartened if your first couple of choices are already taken.
Step 3: Forming a limited company
Now you’ve got an eye-catching and completely unique name it’s time to take care of the formalities required to form your company. This is perhaps the most challenging and time-consuming part of the whole process. By being organised it needn’t be stressful.
Firstly, you’ll need to decide how ownership of the company will be divided. How many shareholders will your company have, and how many shares they will each own?
Companies House also require a range of personal details that will help them to identify you as a company director:
- Submit the relevant Standard Industrial Classification (SIC) code for your company. This is a list of trades, activities and professions each with their own key code which is maintained by Companies House. You can find the relevant code for your company by consulting the list which is available to read online at the government website.
- Provide an address that will be used to register your company. Companies House will require a registered address, this is the ‘official’ address of the company. This is the address to which all official letters and legal documents will be sent. This must be a genuine address and it will be made publicly available through the Companies House website. For this reason, it’s not recommended that you opt for your home address unless you have to. It’s a legal requirement that this registered company address appears on branded stationery and company correspondence.
- A director service address needs to be provided for each appointed individual. This will be used to direct official mail that relates to their role within the company. As with registered addresses these will be available on the Companies House website but aren’t required to be featured on stationery or company correspondence.
- A residential address will also need to be provided for all company officers. This is not made publicly available but is given to credit reference agencies and specified public authorities upon request.
Once this information has been submitted, Companies House will begin the process of forming your company. This can often be completed in just a few hours.
Step 4: Completing the incorporation process
To complete the incorporation process, you will need to submit a number of documents to Companies House. If you have a company formation agent or an accountant, they will take care of this for you.
The documents that need to be submitted are:
- Memorandum of association – this will contain the company name, location and business type.
- Form 10 – this contains the name of the directors and the relevant addresses.
- Form 12 – this form confirms that the proposed limited company complies with all the terms and conditions of the Companies Act
- Articles of Association – this outlines the power of directors and shareholder rights.
When all four steps are submitted your limited company is formed and ready to trade. If you don’t have one already, you’ll need a suitable business bank account along with small business insurance to cover you and any work you are doing.
Going forward, you’ll need to stay on top of your reporting and filing responsibilities. You can find out more about the responsibilities of running a limited company on the government website.
Forming a limited company brings with it a range of benefits for a growing business. Taking some time to get the details right will ensure the whole process is straightforward and stress-free.
